The Impact of Competition on the Economic Behavior and Performance of Manufacturing SMEs in Russia

Abstract

The chapter deals with the impact of competition on economic behavior and performance of Russian manufacturing small and medium-sized enterprises (SMEs). It is based on the data of an empirical survey of 1500 manufacturing SMEs (2014). The impact of perceived competition from domestic competitors, as well as from foreign companies on SMEs on their investment and innovation activity, is studied. Also, the main exogenous factors related to the competitiveness and growth ability of manufacturing SMEs are investigated. A strong positive effect of the competition for manufacturing SMEs’ performance is found, when there are both domestic and foreign manufacturers main competitors of Russian manufacturing SMEs. In this case, competition encourages investment, innovation, and the growth of production efficiency, while administrative barriers prevent the development of companies but do not restrain the growth of the competition. On the contrary, competition with solely domestic manufacturers encourages the presence of manufacturing SMEs with low efficiency, not concerned about the modernization of production and innovations. In the latter case, a mechanism of competitive selection of most efficient market participants does not work.