Innovation, Entrepreneurship and Management Essay

Innovation, Entrepreneurship and Management - Essay Example Implication of Current Global Financial Crisis on Innovation of Firms Since innovation relies on resource allocation in terms of research and development, it is likely to be affected by current global financial crisis (Nakagawa,pg.258). A closer scrutiny of various European firms has revealed a significant change in innovation investment amidst the economic crisis. A survey conducted in 2009, revealed significant shifts in innovation investments across various firms in Europe where innovation investment and expenditure in firms declined from 40.2 percent to 10.6 percent (Filippetti and Archibugi,pg.2). The reduction in innovation investment and expenditures was attributed to direct effects of global financial crisis and recession. The economic crisis and recession reduces the short-term willingness of firms to engage to invest in innovation due to adverse macroeconomic environment that firms operate within (Archibugi, Filippetti and Frenz,pg.2). The mode of financing channels for Eur opean enterprises has been through bank loans and stock and bond market. In fact, most European banks have reviewed and tightened their money supply regulation due to global financial crisis (Fasnacht,pg.73). ... Most firms rely on profits and extra revenues for their research and development initiatives. Since the global economic meltdown is directly related to earnings of companies, any slight reduction in companies’ profits can affect their innovation approaches and incentives (Savona, Kirton and Oldani,pg.140). All business sectors and companies in Europe have felt the effect of the ongoing financial crisis in varying degrees thus leading to deterioration of their revenues and profitability. The reduction in financial results of European companies is linked to reduction in consumerism, export cut back or reduction and shifting demand in domestic consumers. Cash flow and increased profitability and revenues are crucial for the survival of companies in relation to engagement in innovative activities. Robust and increased cash inflow in terms of profitability and increased revenues provides the safest protection of companies to engage in innovation. Research and development initiative s in European firms have hence been affected by the ongoing global recession due to the fact that their commitments to innovation have been pegged on success in revenue and profit growth. On the other hand, the ongoing financial crisis and economic turmoil has not affected the commitment of other European companies to innovation. This is particularly evident in high performing businesses that continue to invest in innovation amidst the economic turmoil (Heinrich and Betts,pg.34). Although other firms and businesses have panicked and reduced investment on research and development, some high performing firms have remained calm and are continuing to invest in innovation even though there has been pressure for such companies to reduce capital expenses (Shahzad, Ullah and Azam,pg.6). The