Small and medium-sized enterprises (SMEs) play a vital role in Kazakhstan's economic growth and diversification. However, their development is often constrained by limited access to resources, underdeveloped innovation ecosystems, and regulatory challenges. This paper proposes a comprehensive strategy to promote the innovative growth of SMEs in Kazakhstan, with a focus on technology scale-up, adoption, and capacity building. By analyzing global best practices and local conditions, the paper provides practical recommendations on how to create an enabling environment for SME innovation.
The article explores the reasons for the lack of innovation activity in Kazakhstan's enterprises. It identifies the main barriers to the effective promotion of innovation in this area and suggests specific ways to address them.
Kazakhstan's economy is heavily dependent on natural resources, particularly oil and gas. To achieve sustainable growth and diversify the economy, it is necessary to strengthen the innovation potential of SMEs. Not only do SMEs contribute significantly to job creation and GDP, but they also act as catalysts for technological progress and social change. In Kazakhstan, however, SMEs face challenges such as insufficient financing, inadequate infrastructure, and a lack of skilled labor [6].
The aim of this article is to develop a strategic framework for improving the innovation capacity of SMEs in Kazakhstan. The strategy will address critical barriers and outline practical steps.
SMEs account for around 25 % of Kazakhstan's GDP and employ a significant proportion of the workforce. Despite this contribution, their innovation potential remains largely untapped.
For Kazakhstan, which is rapidly integrating into the global economy, it is particularly important to enhance the competitiveness of domestic goods and innovations. These innovations face competition not only when entering global markets but also within domestic markets. The need for assessing the competitiveness of small and medium-sized enterprises arises from the formation of a new production structure and the development of the most effective forms of economic management in the field of innovation.
In modern conditions, innovative small and medium-sized enterprises not only form the central link of the post-industrial economy but also largely determine its key macroeconomic parameters. This sector is functionally diverse and encompasses a wide range of industries, including transport, communication, trade, finance, business and professional innovation, education, science, health, and culture.
Reasons for which innovation activities are not carried out in the enterprise (2023)
Table 1
Resource: Bureau of National statistics Agency for Strategic planning and reforms of the Republic of Kazakhstanhttps://stat.gov.kz/
Table 2
Resource: Bureau of National statistics Agency for Strategic planning and reforms of the Republic of Kazakhstan https://stat.gov.kz/
«The main reason innovation activity is held back is the limited internal financial resources of enterprises. A lack of funds to develop, test, and implement new technologies or products forces companies to abandon innovation projects. In 2023, 6,120 innovation activities will not be implemented due to a lack of financial resources» [1].
«Many businesses find it difficult to obtain loans, grants, or investment fromexternal organizations , which limits their ability to innovate. Banks and investors may view innovation projects as too risky, making it difficult to raise the necessary funds» [1].
In 2023, 1,730 projects will not be realized due to high innovation costs. Introducing new technologies or products requires significant investment, which many companies may not be able to afford. High research, equipment, or modernization costs can make such projects unprofitable [1].
The lack of competent personnel is one of the main challenges in implementing innovation. The successful execution of innovation projects requires qualified specialists with relevant knowledge and experience. In Kazakhstan, many enterprises face a shortage of personnel capable of developing and implementing innovative solutions.
Companies may not have sufficient information about available modern technologies, which limits their implementation. This is due to both a lack of access to the necessary data and a lack of awareness among management.
To innovate successfully, companies need a clear understanding of market needs and characteristics. A lack of information about potential customers and their needs can be a significant barrier to new product development. Innovative activities often require collaboration with other companies, research institutes, or universities. Finding suitable partners with the right expertise who are willing to participate in joint projects can be challenging.
The market may be dominated by large companies with considerable resources, making it difficult for new players to gain access. This stifles innovation, as SMEs struggle to compete with established companies. Enterprises may fear that developed innovative products will not find sufficient demand among consumers. Risks associated with market uncertainty make innovation projects less attractive. Some companies that have already implemented innovations may believe there is no need for further development in the short term. This could be due to the achievement of current goals or the fulfillment of existing demand [6].
In some cases, enterprises assess that the market is not ready for innovative products and there is a lack of consumer interest. This is especially true for traditional industries or regions with a low level of technological development.
After analyzing global best practices, we have selected a few that are suitable for the development of SME innovation in Kazakhstan. Several countries have successfully promoted SME innovation through targeted strategies:
a) The Mittelstand model is a unique feature of the German economy that focuses on small and medium-sized enterprises (SMEs). This approach is seen as one of the main reasons for the country's economic success. The Mittelstand is not just a category of companies but a business philosophy that encompasses management principles, cultural sensitivities, and strategic approaches. The Mittelstand model emphasizes the close links between SMEs, research institutes, and public institutions [3].
b) South Korea: Active government funding and support programs for technology start-ups stimulate SME innovation. The Creative Economy Initiative, launched in 2013, aims to create a start-up ecosystem where innovation and technology are central. The program seeks to diversify the economy by reducing dependence on large conglomerates (chaebols) such as Samsung and Hyundai. A national program to support start-up companies, offering grants, accelerators, mentoring, and access to international markets. The South Korean government allocates billions of dollars annually to fund SMEs and start-up businesses through grant programs. “The government is actively working with the private sector to create joint venture capital funds to support promising start-ups”. The South Korean model is an excellent example of how government intervention can create the conditions for increased innovation and economic diversification [4].
c) Singapore: an integrated ecosystem of tax incentives and innovation hubs has spurred SME growth. “New companies receive a 3-year tax holiday, with the first SGD 100,000 of profits fully exempt, and the rate for the next SGD 100,000 set at only 8.5 %”. Innovation Tax Incentives (PIC Scheme): Companies can receive a refund of up to 400 % on expenses related to research, employee training, digitalization, and automation. The introduction of these global best practices will contribute to the development of innovation activities for SMEs in Kazakhstan [5].
Table 3
A strategic framework for boosting innovation capacity (2023)
|
Improving access to finance |
Encouraging collaboration |
Improving the legal and regulatory environment |
Human capital creation |
Use of digital technologies |
|
Establish public-private partnership funds to provide grants and low-interest loans to SMEs involved in innovation projects. |
Promote partnerships between SMEs, universities and research institutes through innovation centers and joint projects. |
Simplify business registration and licensing procedures to reduce administrative burdens. |
Launch training initiatives in areas such as digital transformation, innovation management and entrepreneurship |
Provide funding for SMEs to implement digital tools and platforms. |
|
Develop incentives to attract domestic and international venture capital investment. |
Establish centers to help SMEs acquire and adopt advanced technologies. |
Adopt policies that encourage innovation: Develop policies that encourage investment in R&D and patent registration. |
Promote education in science, technology, engineering, and mathematics (STEM) to build a workforce fit for the future. |
Develop an online platform to connect SMEs with resources, partners, and opportunities. |
Monitoring and Assessment A credible monitoring and evaluation system should be established to track the progress of the strategy. This system should:
— Use key performance indicators (KPIs) such as the number of patents filed by SMEs, R&D expenditure, and employment rates.
— Conduct annual reviews to assess results and refine the strategy.
— Publish regular progress reports to ensure transparency and stakeholder.
Within the framework of the Program for Industrial and Innovative Development of Kazakhstan, the development of innovative small and medium-sized enterprises (SMEs) in the most promising sectors of the economy is of particular importance. These sectors, such as the oil refining and agro-industrial complexes, make significant contributions to the state budget and have substantial growth prospects.
The innovative development of both mineral resources and the agro-industrial complex represents a new phase in the growth of processing industries. This includes the production of radically new products for consumers and changes in the technological production chain, which can be realized through small innovative enterprises. As a result, innovation within these enterprises can encompass both products and applied new technologies, including technological processes or procedures.
Thus, most enterprises in the innovation sector are small and medium-sized enterprises. In the context of the active development of the innovation sector, new economic, managerial, and technological challenges related to innovation activities at the national level are emerging. These include issues concerning the functioning of individual organizations within the innovation sphere. Consequently, innovation activities in small businesses have become a key subject of research for many scientists, and the competitiveness of Kazakhstan’s innovative small businesses remains a relevant issue in today’s environment [9].
Supporting small innovative enterprises is a priority within Kazakhstan's modern scientific, technical, and economic policy, where public-private partnerships (PPP) play an important role. One of the key tasks of PPPs is the development of innovative projects.
Developing the innovation potential of small and medium-sized enterprises (SMEs) in Kazakhstan is a key factor for diversifying the economy, reducing dependence on natural resources, and increasing the country's competitiveness. Having analyses the barriers that hinder innovation activity and studied successful international models, it is possible to identify the main directions that will help to overcome the existing problems.
The implementation of a comprehensive strategy, including the creation of a favorable environment for innovation, access to finance, the development of skills and infrastructure, and the introduction of modern technologies, can ensure the sustainable growth and transformation of SMEs [9].
The experience of countries such as Germany, South Korea and Singapore shows that government support, cooperation with the private sector and a focus on priority sectors are necessary conditions for stimulating innovation. Kazakhstan can adapt these practices, considering national specificities, and create a long-term platform for sustainable economic growth.
In this way, SMEs, with their flexibility and adaptability, can become the main drivers of innovative change, ensuring the country's transition to a new, more sustainable economic model.
References:
- Bureau of National Statistics Agency for Strategic Planning and Reforms of the Republic of Kazakhstan. (2023). Statistical Data on Innovation Activities in Kazakhstan. Retrieved from https://stat.gov.kz/ .
- European Commission. (2020). «Innovation and SMEs: Challenges and Solutions». European Commission Report on Innovation Policy. Retrieved from https://ec.europa.eu/info/research-and-innovation_en .
- Germany Trade & Invest (GTAI ) . (2021). «The Mittelstand: Key to Germany's Economic Success». GTAI Report on German SMEs. Retrieved from https://www.gtai.de .
- Government of the Republic of Korea. (2020). «Creative Economy Initiative: Fostering Innovation through Start-ups». South Korean Ministry of Trade, Industry and Energy (MOTIE). Retrieved from https://www.motie.go.kr.
- Singapore Economic Development Board. (2021). «SME Development and Innovation in Singapore». Economic Incentives and Innovation Hubs in Singapore. Retrieved from https://www.singaporeedb.gov.sg .
- Kazakhstan’s Ministry of National Economy. (2022). «The Program for Industrial and Innovative Development of Kazakhstan: A Strategic Framework». Ministry of National Economy of the Republic of Kazakhstan. Retrieved from https://economy.gov.kz .
- World Bank. (2021). «Innovation in Developing Economies: Challenges for SMEs». World Bank Report on SME Innovation. Retrieved from https://www.worldbank.org .
- OECD (Organisation for Economic Co-operation and Development). (2020). «SMEs and Innovation: Best Practices in Technology Adoption». OECD Report on SMEs. Retrieved from https://www.oecd.org .
- United Nations Conference on Trade and Development (UNCTAD). (2022). «Innovation and Technology for SMEs in Emerging Markets». UNCTAD Report on Technology Transfer. Retrieved from https://unctad.org .
- Kazakhstan Development Bank. (2023). «Financing Innovation: Opportunities for SMEs». Development Bank Report on Funding Innovations. Retrieved from https://kdb.kz .
