Innovation is always risky. New technologies may not perform, or may take longer to develop than first anticipated. Customers may react negatively to new products or services and innovation may provoke a strong competitive response from competitors. Will uncertainty linked to the post-Brexit settlement increase or depress firms’ appetite for taking these innovation risks?
It could go either way. Market turbulence may create new opportunities as rivals close or retrench, increasing the returns from innovation. Entrepreneurial companies may seek to capitalise on these new opportunities. For more conservative firms, the uncertain post-Brexit situation might seem a poor time to be taking additional innovation risks.
Some time ago – before Brexit was on the mainsteam political agenda – we examined how uncertainty in the business environment influenced firms’ willingness to undertake green or environmental innovation. Our research focussed on the innovation decisions of around 500 UK firms in the important food and drink manufacturing sector. So what did we find? And, what are the implications for innovation in the post-Brexit world?
Our key finding was that where firms perceive the business environment to be more uncertain they are actually more likely to innovate. This positive result is clear even when we allow for a range of firm characteristics and firms’ views of the riskiness of specific innovations. So what do we mean by the ‘business environment’? Well, in our analysis this includes a basket of indicators many of which reflect aspects of likely post-Brexit discussions: tax policy, regulation, exchange rates, energy and fuel prices, population changes.
Our study relates to a single industry, albeit an important one, but bodes well for the future. Innovation in new products and services can drive export growth and help firms establish a global trading footprint. Process or business model innovation can improve productivity and efficiency. Both will be critical if the UK is to prosper in a post-Brexit world and our evidence suggests that UK firms are likely to respond positively to the Brexit uncertainty.
Please note that the views expressed in this blog belong to the individual blogger and do not represent the official view of the Enterprise Research Centre, its Funders or Advisory Group.