Every economic entity undertakes various complex activities that aim at achieving strategic goals. This complex plane of strategic activities certainly includes pro-innovative activity consisting in creating and implementing innovations that help to gain competitive advantage. Undoubtedly, enterprises need capital. Without capital they are not able to positively influence the economic growth of any country. The aim of this article is to present the relationship between capital and financing innovation projects in Poland.Capital, innovation, capital gap, financial engineering., Financial Economics, Research and Development/Tech Change/Emerging Technologies, O31,

Janasz, Krzysztof

English

Research Papers in Economics

Perspectives of Innovations, Economics & Business, Volume 4, Issue 1, 2010                                                                                                  
www.pieb.cz 
 
 
International Cross-Industry Journal  
26 
CAPITAL    AND    FINANCING    INNOVATION 
PROCESSES  IN  ENTERPRISES  IN  POLAND:  
SELECTED ASPECTS 
  KRZYSZTOF JANASZ, PH.D.  
 
The Faculty of Economics and Management 
University of Szczecin, Poland 
JEL Classifications: O31 
Key words: Capital, innovation, capital gap, financial engineering. 
Abstract: Every economic entity undertakes various complex activities that aim at achieving strategic goals. This complex 
plane of strategic activities certainly includes pro-innovative activity consisting in creating and implementing innovations that 
help to gain competitive advantage. Undoubtedly, enterprises need capital. Without capital they are not able to positively 
influence the economic growth of any country. The aim of this article is to present the relationship between capital and 
financing innovation projects in Poland. 
ISSN: 1804-0527 (online)  1804-0519 (print)  PP.26-28 
Experiences  of  highly  developed  countries  show  that 
innovation is the driving force of any economy, determining 
the  long-term  growth  potential.  There  is  a  positive 
interdependence between the intensity of investment in R&D 
and the level of economic development and competitiveness 
of  economy.  Countries  with  the  highest  indicators  of  the 
intensity  of  investment  in  R&D  are  the  world’s  leading 
economies
1.  The indicator  of the  intensity  of  investment in 
R&D is the relation between total investments in R&D and 
total value of GDP in a given country. 
The  development  of  the  innovative  enterprise  sector  is 
fundamental for the Polish economy in order for it to gain 
competitive  advantage  in  the  global  dimension.  Only 
innovative  enterprises  with  substantial  share  of  high 
technology, but also managed in a way that enables expansion 
to international markets, can be successful on the international 
scene. Unfortunately, Poland is very much behind as regards 
R&D  expenditure,  both  in  comparison  to  the  developed 
countries of the EU and to some developing countries (R&D 
constitutes only 0.57% of Poland’s GDP). 
Poland occupies the 29th position (out of 35 countries) in 
the European Innovation Scoreboard. Together with Romania, 
Bulgaria  and  Slovakia,  Poland  is  in  a  group  of  countries 
whose level of innovation in comparison to the EU average 
keeps getting worse. The only innovative region, occupying 
the  65th  position  as  regards  innovation,  is  Mazowieckie 
Province.  Meanwhile,  the  turnover  value  of  innovative 
enterprises in the EU is growing three times faster and the 
increase in employment exceeds twice the indicators recorded 
in non-innovative enterprises. 
Undoubtedly, Polish enterprises need capital. Without it, 
they cannot positively influence the economic growth of our 
country. Domestic financial resources generated as a result of 
transforming  domestic  savings  into  investments  are  still 
insufficient in comparison to the needs of the Polish economy. 
This situation is caused by a combination of negative factors 
(Janasz, 2009): 
-  low level of investment capital accumulated so far; 
                                                            
1  The countries include, among  others: Finland, Japan, the 
USA and Germany. 
-  low rate of savings in Poland; 
-  persistently low level of GDP per capita. 
Implementation  of  innovation  projects  enabling  the 
development of an enterprise and increase of its value requires 
obtaining  capital  for  financing  such  investments.  Inflow  of 
capital  to  an  enterprise  is  possible  in  a  situation  where 
potential investors are sure that capital investments in a given 
enterprise will bring the expected rate of return, accepting the 
risk connected with any economic activity. 
Financing innovation- and technology-oriented enterprises 
is one of the most serious problems faced by their owners. 
Lack  of  capital  for  implementing  innovation  projects  can 
cause their outflow to other economies, both through direct 
migration  of  entrepreneurs  and  taking  over  of  projects  by 
foreign  enterprises.  Capital  is  the  basis  for  development of 
innovative enterprises. 
Joseph  Schumpeter,  considered  a  pioneer  of  economic 
analysis  of  innovation,  made  the  analysis  of  allocating 
financial resources for innovation processes one of the main 
points  of  his  studies  on  innovation.  As  O’Sullivan  (2006) 
writes,  contemporary  economists  dealing  with  this  problem 
have, in large measure, neglected the relation between funds 
and innovation. The early works of Schumpeter (1964, 1996) 
concerning  microeconomics  of  innovation  often  referred  to 
the  process  of  using  credits  for  financing  innovation. 
However, in the later period (1975) he diminished the role of 
creating  credits  in  facilitating  the  innovation  process  and 
economic development. Instead, he emphasised the source of 
self-financing innovative investment by large and dominant 
enterprises. 
In  his  works,  Schumpeter  presented  also  three 
characteristics of the innovation process, which are material 
for allocating funds. First, innovation depends on investment. 
It requires quite substantial expenditure. Second, innovation is 
a chance both for new and older enterprises. Third, innovation 
is implemented mainly by “new” people in the enterprise, who 
have not played leading roles in business before (1996, 1964). 
Contemporary economists have developed a few ways of 
thinking about innovation economy on the level of economy, 
i.e. about the relationship between innovative activities and 
economic development. One approach derives directly from Perspectives of Innovations, Economics & Business, Volume 4, Issue 1, 2010                                                                                                  
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the work of Schumpeter and concerns the techno-economic 
perspective.  The  other  approach  -  the  national  system  of 
innovative structure - has been developed for the last 25 years 
in  order  to  explain  the  comparative  historical  models  in 
economic  development  (Nelson,  1993).  Both  approaches 
engage in the process of presenting the evolution of economy 
in economic development analyses. However, they differ in 
the  amount  of  attention  devoted  to  allocating  financial 
resources  for  innovation.  Literature  related  to  the  national 
innovation system rarely discusses the activity through which 
work and capital are devoted to innovation. 
Perez (2002) follows Schumpeter in her work, putting in 
the centre of her theory technological revolution, defined as 
clusters  of  radical  innovation  creating  exceptional  and 
successful  activities  modernising  the  whole  production 
structure. However, her concept puts much more emphasis on 
the diffusion of innovation than the works of Schumpeter. The 
analysis  of  the  interaction  between  the  financial  and 
production  systems  conducted  by  Perez  is  also  more 
comprehensive than Schumpeter’s. He focused mainly on the 
role  of  the  financial  system  in  financing  initial  phases  of 
innovation,  whereas  Perez  characterises  ways  in  which  the 
financial  system  can  be  engaged,  providing  resources  for 
innovation throughout the technological cycle.  
One of the main problems of implementing innovation in 
Poland  is  the  presence  of  a  capital  gap,  characterised  by 
insufficient  access  to  capital  for  innovation-oriented 
enterprises. Innovation capital can become the key to national 
economic  development.  It  can  be  defined  as  financial 
resources accessible to economic entities that engage in and 
want to engage in development and innovation activities. The 
definition  of  innovation  capital  can  also  include  benefits 
resulting  from  implementing  various  innovation  activities. 
Innovation capital can be divided into public sector capital, 
private sector capital and venture capital. 
Innovation capital can be generally defined as a collection 
of institutional and behavioural conditions characteristic for 
an  entity,  society,  enterprise,  market,  etc.,  whose  specific 
association  (model,  models)  would  determine  innovative 
activity. 
What should be emphasised is that despite the fact that the 
process of globalisation eliminated many barriers and enabled 
faster  absorption  of  new  technologies,  without  access  to 
capital the explosion of innovation in Poland is impossible. 
The  concept  of  financing  innovation  projects  makes  it 
justifiable  to  adopt  the  so-called  financial  engineering,  i.e. 
funds coming from other sources. 
Financial  engineering  should  be  divided  as  regards  the 
source  of  funds  that  will  be  allocated  for  supporting  and 
financing  innovation  projects.  The  division  could  be 
constructed in the following way: 
a.  Funds from private investors, i.e. private capital; 
b.  Funds  from  the  state  budget  and  European  funds,  i.e. 
public capital; 
c.  Funds  from  both  private  and  public  capital,  i.e. 
public/private capital (mixed capital). 
There is a combination of two processes in an enterprise 
(Duliniec, 2007): investing capital in the enterprise by owners 
and creditors; investing capital in the activity of the enterprise 
by the enterprise itself. 
Financial decisions taken by the board of an enterprise, 
regarding obtaining sources of financing, i.e. ensuring capital 
for the enterprise in a suitable amount, type and time, have to 
be closely linked with investment decisions, that is spending 
the acquired capital in a way that will ensure profitability of 
the investment at least covering the cost of the capital. 
Every enterprise needs capital. Financial decisions play a 
leading  and  integral  part  in  the  management  process.  All 
undertakings of an enterprise that provide it with capital and 
help form the structure of financing sources in specific market 
conditions  constitute  the  process  of  financing.  The  main 
phases of creating financial strategy are of great importance 
and include (Skowronek-Mielczarek, 2003): 
-  detailed identification of capital needs of an enterprise in 
various phases of its existence; 
-  detailed analysis of an enterprise’s financial resources; it is 
necessary to evaluate if a given enterprise can satisfy its 
needs from own capital or requires external capital; 
-  detailed  analysis  of  potential  sources  of  financing 
enterprises,  offered  by  the  market  and  the  nearest 
environment; 
-  determining  the  most  rational,  in  given  conditions, 
structure of sources of financing, taking into consideration 
the  costs  of  obtaining  all  sources  involved  as  well  as 
connected risk; 
-  evaluation of chosen sources as regards the profitability of 
the enterprise and ensuring intensive development, i.e. the 
adopted development strategy. 
It  is  not  possible  to  determine  the  best  and  universal 
method of financing innovative activity in an enterprise. It is 
even  more  difficult  if  the  capital  that  a  given  enterprise  is 
trying to acquire is intended for financing innovation. So far, a 
definite model of supporting this kind of activity has not been 
developed. 
There are many types of financing. They are classified in 
various ways according to different criteria. Reference books 
present many  classifications of  factors  which  can  influence 
the choice of the structure of financing innovation processes 
in an enterprise. They include: 
-  availability of specific sources of capital - not all sources 
of  financing  are  available  to  certain  enterprises  (formal 
and legal requirements); 
-  profitability  obtained  by  the  enterprise  -  accumulative 
capacity of a given unit depends on its level; 
-  cost of obtaining capital; 
-  choice of taxation system for conducted economic activity; 
-  financial risk. 
Innovation  activity  is  always  connected  with  substantial 
expenditure, long return period and specific risk. That is why 
none of the mentioned financial strategies in its pure form is Perspectives of Innovations, Economics & Business, Volume 4, Issue 1, 2010                                                                                                  
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International Cross-Industry Journal  
28 
appropriate  for  an  enterprise  introducing  innovation.  If  we 
consider  internal  sources  of  financing,  including  funds 
appropriated from profit for current activity and development, 
amortization,  funds  obtained  from  selling  fixed  assets  and 
current  assets,  reserves  created  for  the  payment  of  future 
liabilities, it is obvious that because of the specific life cycle 
of an innovative product, financing such undertakings from 
internal sources, particularly in small companies, is not able to 
cover  financial  needs.  Undoubtedly,  there  is  a  need  for 
external capital, particularly private capital. 
TABLE 1. SOURCES FOR FINANCING INNOVATIVE 
UNDERTAKINGS 
Criterion  Type of sources  Examples 
Type of 
ownership 
-  public 
-  private 
-  state budget, European 
funds 
-  credits, PE/VC, loans, 
stock exchange 
Source  -  domestic 
-  foreign 
-  domestic investors 
-  direct foreign investments 
Method of 
financing 
-  direct 
-  indirect 
-  amortization, profit, credit 
-  technological parks, 
incubators of 
entrepreneurship 
Sources of 
financing 
-  own capital 
-  external capital 
-  other capital 
-  owner shares, business 
angels 
-  financial market 
-  venture capital 
Source: own study 
 
The Table 1 below presents the characteristics of possible 
sources for financing innovative undertakings. 
The  study  conducted  by  The  Polish  Central  Statistical 
Office  shows  that  in  all  regions  the  fundamental  factor 
limiting innovative activity of enterprises in the SME sector 
was the economic factor. 37% of small and 31% of medium 
innovation-oriented firms expressed an opinion that they do 
not undertake innovation activities because of lack of funds, 
whereas 36% of small and 32% of medium entities point to 
high costs of innovation (Wojnicka and Klimczak, 2008). The 
second among the factors that impede the innovation process 
are  market  factors,  particularly  unstable  demand  and 
dominating the market by leading markets. 
The problem of micro-, meso- and macroeconomic factors 
that  determine  decisions  regarding  innovation  is  very 
complex. Results of many empirical studies indicate a big role 
of capital, including private capital, in financing innovation 
and  causing  fluctuations  in  innovation  activity.  This  also 
points  to  possibilities  (methods)  of  appropriating  savings 
accumulated by the society for innovation expenditure. The 
important role of innovation capital in creating a long-term, 
sustainable economic development of individual enterprises is 
indisputable, which is connected with, as pointed out above, 
the issue of institutional conditioning of innovation processes 
and  the  regulatory  role  of  the  state.  Developed  market 
economies use their savings thanks to the existence of a well-
developed money and credit market (capital market) and non-
bank financial institutions (Janasz, 2009). 
Still, the basic source of financing innovative activity of 
Polish enterprises are own funds, which in 2006 constituted 
80%,  i.e.  PLN  13.2  billion  of  expenditure  of  industrial 
enterprises and over 90%, i.e. PLN 6.6 billion of expenditure 
of  enterprises  from  the  services  sector
1.  The  share  of  own 
capital in financing this type of activity is growing and its 
level depends on the size of an enterprise - with the highest 
level in case of large entities. However, this indicator is not an 
evidence  that  Polish  enterprises  have  high  level  of  own 
capital,  but  rather  confirms  the  thesis  on  insufficient 
accessibility of private capital. The success of innovation is 
conditional upon creating an appropriate model of financing 
innovation  and  the  emergence  of  a  specific  arrangement 
between  individual  entities  (state  administration,  economic 
regions, enterprises, international connections). It is necessary 
to introduce changes in legislation and institutions in order to 
give  entrepreneurs  possibility  to  use  specialised  financial 
support  instruments  and  enable  public/private  co-operation. 
These  linkages  are  to  be  mostly  informal,  network,  not 
hierarchic,  and  arise  from  co-operation  rather  than 
competition. 
References 
Duliniec,  A.,  2007.  Finansowanie  przedsiębiorstwa,  PWE, 
Warszawa. 
Janasz,  K.,  2009.  “Kapitał  a  decyzje  innowacyjne  w 
przedsiębiorstwie”, in: Przegląd Organizacji, Vol. 10, pp. 34-37. 
Nelson,  R.,  1993.  National  innovation  systems:  A  Comparative 
analysis, Oxford University Press, Oxford. 
O’Sullivan,  M.,  2006.  “Finance  and  Innovation”,  in:  The  Oxford 
Handbook of Innovation, Fagerberg, J., Mowery, D. C., Nelson, 
R. R. (Eds.), Oxford University Press, Oxford, pp. 240-265. 
Perez, C., 2002. Technological revolutions and financial capital: The 
dynamics  of  bubbles  and  golden  ages,  Edward  Elgar, 
Cheltenham, UK and Northampton, Mass., 2002. 
Schumpeter, J., 1975. Capitalism, socialism and democracy, Harper 
Torchbooks, New York. 
Schumpeter, J., 1964. Business Cycles: A theoretical, historical and 
statistical analysis of the capitalist process, McGraw-Hill, New 
York. 
Schumpeter,  J.,  1996.  The  theory  of  economic  development, 
Transaction Publishers, New Brunswich. 
Skowronek-Mielczarek, A., 2003. Małe i średnie przedsiębiorstwa, 
Źródła finansowania, C.H. Beck, Warszawa. 
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MSP  w  Polsce  i  regionach”,  in:  A.  Żołnierski  (ed.), 
Innowacyjność,  Stan  innowacyjności,  projekty  badawcze, 
metody wspierania, Polska Agencja Rozwoju Przedsiębiorczości, 
Warszawa, p. 58. 
                                                            
1 See: Nauka i technika w 2006 roku, GUS, Warszawa, 2007, 
Tab. 2.20-2.21. 

Business Cycles: A theoretical, historical and statistical analysis of the capitalist process, McGraw-Hill,

Capitalism, socialism and democracy, Harper Torchbooks,

Finance and Innovation”, in: The Oxford Handbook of Innovation, Fagerberg,

Finansowanie przedsiębiorstwa,

Kapitał a decyzje innowacyjne w przedsiębiorstwie”, in:

Małe i średnie przedsiębiorstwa,

National innovation systems: A Comparative analysis,

Nauka i technika w

Procesy innowacyjne w sektorze MSP w Polsce i regionach”,

Technological revolutions and financial capital: The dynamics of bubbles and golden ages,

The theory of economic development, Transaction Publishers,

Capital and financing innovation processes in enterprises in Poland: selected aspects

Capital and financing innovation processes in enterprises in Poland: selected aspects

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