Knowledge-Intensive Business Services in Russia: 2014–2015 Crisis Aftermath

Abstract

I n recent years, knowledge-intensive business services (KIBS) have become extremely important in the knowledge-based economy. KIBS concentrate a well-qualified workforce and create high levels of valueadded services, serve as a driver for the innovationbased development of many countries [Santos-Vijande et al., 2013]. However, the growth rates of this sector in Russia considerably fell after the 2008 crisis; some KIBS-industries could not even reach pre-crisis volumes of production and the share of this sector in GDP significantly declined [Berezin, Doroshenko, 2015]. The crisis trends in Russian economy at the end of 2014 and Keywords: service economy; knowledge-intensive business services; crisis; industrial analysis; knowledge-intensive business services producers; knowledge-intensive business services consumers. at the beginning of 2015 had a strong negative impact on KIBS. We show that the share of companies with decreasing revenues has dramatically grown in all industries. The demand side has also changed: the client base is now more unstable and customers more regularly fail to fulfill contract obligations. An industry analysis reveals significant divergences in the rates and trajectories for development of Russian KIBS industries. However, the sector heterogeneity might be also found in KIBS of other countries. The paper is based on both survey of 656 Russian KIBS producers and in-depth interviews with 24 leading KIBS experts.

Drivers for innovation in KIBS: evidence from Russia

“…decreased turnover (10% or more) doubled compared to 2014 (38% and 18% respectively) (Belousova & Chichkanov, 2016). Many small companies were closed or acquired by larger ones, while few new establishments entered the market.…”

“…In KIBS, skills and competences of core employees are highly important because their knowledge in the main production factor (Miles, 2005;Strambach, 2008) and most of business processes are those of a human nature. For instance, Belousova and Chichkanov (2016) showed that in Russian KIBS personnel costs 7 accounted for a half of total costs in almost all KIBS industries. According to Consoli, Elche and Rulani (2015), the share of highskilled employees in KIBS (except legal services) is higher than the shares of medium-skilled or low-skilled staff.…”

“…On the one hand, Doroshenko (2010) showed that under the pressure caused by economic turbulence those companies that were focused only on the development of standard services were motivated by cost reduction domain and did not intend to implement any innovations. On the other hand, when the economic situations became better, the demand for KIBS also increased, but mostly by inexperienced customers, who considered KIBS inputs as unnecessary luxury items (Doroshenko, 2011) that should be the first to be reduced in the case of economic downturn or decrease of profit (Belousova & Chichkanov, 2016). This may cause a 'turbid glass' effect, which means that the share of services considered by such customers as standard ones exceeds the share of services considered as standard by KIBS producers (Doroshenko, Miles & Vinogradov, 2013).…”

“…For example, Lingyun, Muhos and Kess (2011) reported that potential clients of Chinese KIBS often considered consulting services as just an advice that they are not ready to pay for. In Russia in 2014-2015 the number of clients decreased (Belousova & Chichkanov, 2016), so KIBS companies focused on innovation also need to spend more on advertising to attract potential customers. In addition, they need to compete with well-known international KIBS producers with highly recognizable brands.…”

The Impact of the Coronacrisis on KIBS Sector

“…These constituted about 16% of the total expenditures in Russian KIBS-ranging from less than 14% for web and digital services to 18% for marketing and related services. Smaller shares were allocated for equipment, advertising, and other items [Belousova, Chichkanov, 2016]. This is why accountants frequently target offices as the first item of fixed overhead costs to reduce when making savings.…”