XXII. MEZINÁRODNÍ KOLOKVIUM O REGIONÁLNÍCH
VĚDÁCH. SBORNÍK PŘÍSPĚVKŮ
22nd
INTERNATIONAL COLLOQUIUM ON REGIONAL
SCIENCES.CONFERENCE PROCEEDINGS
Place: Velké Bílovice (Czech Republic)
June 12-16, 2019
Publisher: Masarykova univerzita (Masaryk University Press), Brno
Edited by:
Viktorie KLÍMOVÁ
Vladimír ŽÍTEK
(Masarykova univerzita / Masaryk University, Czech Republic)
Vzor citace / Citation example:
AUTOR, A. Název článku. In Klímová, V., Žítek, V. (eds.) XXII. mezinárodní kolokvium o regionálních
vědách. Sborník příspěvků. Brno: Masarykova univerzita, 2019. s. 1–5. ISBN 978-80-210-9268-6.
DOI.
AUTHOR, A. Title of paper. In Klímová, V., Žítek, V. (eds.) 22nd
International Colloquium on Regional
Sciences. Conference Proceedings. Brno: Masaryk University Press, 2019. pp. 1–5. ISBN 978-80-
210-9268-6. DOI.
Publikace neprošla jazykovou úpravou. / Publication is not a subject of language check.
Za správnost obsahu a originalitu výzkumu zodpovídají autoři. / Authors are fully responsible for the content and
originality of the articles.
© 2019 Masarykova univerzita
ISBN 978-80-210-9268-6 (online : pdf)
 
 
 
XXII. mezinárodní kolokvium o regionálních vědách Sborník příspěvků Velké Bílovice 12.–14. 6. 2019
 
163
DOI: 10.5817/CZ.MUNI.P210-9268-2019-20
EFFECTS OF PUBLIC PROCUREMENT CONTRACT ON
FIRM PRODUCT AND SERVICE INNOVATION – CASE
STUDY OF CZECHIA, SLOVAKIA AND NORWAY
Motivační účinky veřejných zakázek na produkci inovovaných
výrobků a služeb - případová studie ČR, SR a Norska
SOLOMON GYAMFI
HENRY JUNIOR ANDERSON
VIKTOR PROKOP
Ústav ekonomických věd
Fakulta ekonomicko-správní
Univerzita Pardubice
Institute of Economic Sciences
Faculty of Economics and Administration
University of Pardubice
 Studentská 95, 532 10 Pardubice, Czech Republic
E-mail: solomon.gyamfi@upce.cz, henry.anderson@upce.cz, viktor.prokop@upce.cz
Abstract
The public sector economy accounts for a large size of the National market demand for goods and services. Many
scholars have tipped public procurement as an attractive measure to help boost innovation in firms for the state
to achieve its innovation goals. But there has been a worrying case mainly by actors within the public sector and
scholars to explore this policy instrument to support innovation. In light of the above, the research seeks to analyze
the effect of public procurement contracts on the firm’s product and service innovation. Using logistic Regression
model for the CIS 2014 data we analyze this effect in the case of the Czech Republic, Norway and Slovakia. Our
empirical results showed that, the use of this policy instrument is dependent mostly on the type of innovation. We
found that firms received contracts to execute projects from the public sector for service provision in all cases but
in the case of product innovation, only Czech Republic firms did receive a public contract. Nevertheless, innovation
was required when firms are contracted to provide services for the public sector only in the Czech Republic and
Slovakia regarding product innovation.
Key words
public sector, procurement, innovation, case study
Anotace
Veřejný sektor alokuje veřejné prostředky do produkce zboží a služeb. Mnoho ekonomů vnímá veřejné zakázky
jako efektivní způsob, jak motivovat firmy, aby inovovaly svoji produkci v rámci uspokojování poptávky veřejného
sektoru po určité produkci. Existují však negativní pohledy na motivační roli veřejných zakázek. Vzhledem k výše
uvedenému si tento příspěvek klade za cíl analyzovat vliv veřejných zakázek (coby motivačního prvku) na ochotu
firem inovovat své výrobky a služby. Pomocí modelu logistické regrese a dat CIS 2014 analyzujeme motivační
efekt veřejných zakázek ve třech vybraných regionech EU: Česká republika, Norsko a Slovensko. Empirické
výsledky ukázaly, že efektivita využití tohoto politického nástroje závisí především na typu inovací. Výsledky
potvrdily očekávání, že firmy, které získaly veřejnou zakázku, jsou nuceny inovovat, což platí především o firmách
z Česka a Slovenska.
Klíčová slova
veřejný sektor, veřejná zakázka, inovace, případová studie
JEL classification: P35, H57
XXII. mezinárodní kolokvium o regionálních vědách Sborník příspěvků Velké Bílovice 12.–14. 6. 2019
 
164
1. Introduction
Demand for innovation has been highlighted as a significant source in the quest to extract innovation from private
sector firms. Evolving in the early 1980s, public procurement as a tool hasn’t garnered much attention and
application in both international and National context until the early 2000s (Edler and Georghiou 2007). Much of
the support of this initiative was garnered from policy reports and expert analysis regarding how to resurrect the
failing private expenditure investment for innovation. This began in early 2004 when three governments sent a
position paper to the European Council with an ardent call to renew and reinvigorate innovation across the
European Union (French/German/UK Governments, 2004, p.7). Even after “Kok Report” recognized procurement
as a strategy of pioneering market for innovative product provision, the European Council furthered on to admonish
and propose to member states to makes job provision and growth prospects their central focus openly calling on
member states to focus on public procurement of innovative products in the Lisbon Strategy (European Council,
2005). This ushered in the wave of public procurement directly aimed at expediting innovation mostly in private
ventures and even public ventures as well.
Various literatures have endorsed the use of public procurement as a tool in the quest to supplement innovation
requests. Aschoff and Sofka (2008) researched on German firms and found heterogeneous effect of public
procurement on innovation. Georghiou et al. (2014) addressed the deficiencies of effective public procurement
and added that public procurement can also incentivize innovation by being responsive to innovation through the
purchase of recent but recognized innovations that are new to the organization. Uyarra (2010) expressed concern
that demand is very specific to local problems and issues may make procurement difficult to access to outsiders
effectively deterring potential innovators and reducing the impact of market creation and even the adoption and
spillover effects of the innovation. Research of Aschoff and Sofka (2008) pointed out the selective impact that
public procurement could potentially be giving the impression the initiatives to utilize public procurement as a
tool to spark private and public sector innovation efforts are usually tied to the economic status of a region and the
firm size. Having known mass of literature expressing evidence of public procurement contracts and even
differentiated impacts and barriers they face, we aim to assess the whether the provision of public procurement
contracts and inclusion of the occurrence of innovation as a precondition for the contract affects product and/or
service innovation. Our research will be conducted on the Czech Republic, Slovakia and Norway to capture
countries with different economic performance and even different innovation performance as well on the European
Innovation Scoreboard (2018).
The next section of the paper will discuss the literature on public procurement and innovation; the third section
will cover the data sources and the methods used, the next will report and discus results of the research, followed
by the conclusion and the list of literature.
2. Literature review
European member states have gradually and successfully ushered in public procurement in an effort to supplement
the then failing and falling business investment in research and development expenditure (Edler and Georghiou
2007). Attention had been given to the prospect of public procurement in literature but little had been done to
explore the influence of demand on innovation especially in the industrial revolution (Malerba 2007) Even though
the concept was earlier explored and given the green light by researchers in the early 1980s, the theory only came
into prominence in the late 2000s that it came into prominence (Mowery and Rosenborg, 1979; Rothwell and
Zegveld, 1981). However, having found that public demand spurs on innovative dynamics and spillovers when
oriented towards innovative products and solutions (Edler and Georghiou 2007), public procurement was
incorporated as an element of the European Commission’s Research Investment Action Plan to raise expenditure
to 3% Barcelona target following the work of an expert group (Georghiou et al. 2003).
In contemporary times, practical evidence has endorsed the essence of public procurement as a policy strategy for
the firm and regional innovation. The use of this tool in support of innovation have been backed by the
recommendations of a number of inquiries, reports and policy documents, both at EU (Lember, Kalvet, Kattel,
Penna and Suurna 2007) and National level (Stern, Hellman, Rijnders-Nagle, Terrell, Astrom 2011) Aschoff and
Sofka (2008) researched on 1,100 innovative firms in Germany to assess the degree to which innovation sources
including public procurement stimulates innovation. They found that public procurement and knowledge spillovers
from Universities were both equally significant propellers of innovation. They also found that public procurement
effect on innovation was more effective in small firms in regions under economic turmoil as in delivery and
technology services. In spite of the pre-established connection of public support and innovation, Uyara and
Flanagan (2009) argues that procurements that are undertaken with the sole objective of spurring innovation is
likely to fail due to the fact that most efforts aimed at utilizing public procurement to generate innovation have not
been an intentional or deliberately induced effort to accelerate the course of innovation but rather a by-product of
XXII. mezinárodní kolokvium o regionálních vědách Sborník příspěvků Velké Bílovice 12.–14. 6. 2019
 
165
an innocent public procurement effort. He went further to imply public procurement as being of a multi-objective
stature with the sole objective of ensuring the quality of government services and the use of product and services
in the interest of the citizenry.
However, not all public procurement efforts can even be genuinely termed as innovative. According to Aschoff
and Sofka (2008), it can only be termed as innovative when the public entity announces its intention to accelerate
innovation policy instrument with public procurement as a policy tool such as the use of public technology
procurement. In this regard, public procurement becomes effective in stimulating the generation and diffusion of
technologies if the functional requirements of the product are only defined by the government leaving the design
and achievement prescriptions. Furthermore, the creation of framework conditions, establishing organisational
frameworks and developing capabilities, identifying, specifying and signalling needs, and incentivising innovative
solutions are efforts needed to shape up public procurements in contributing to firm innovation (Georghiou, Edler,
Uyarra and Yeow 2014). They also revealed that barriers encountered by firms were deficiencies revealed by
policies but improperly addressed as a result of lack of coverage, lack of ownership by purchasers, failure to
address the whole cycle of acquisition and to address risk aversion as well.
Having found that the impact of public procurement differs on country and firm basis as well, the evidence of
public procurement innovative proponents in EU countries (Lember, Kalvet, Kattel, Penna and Suurna 2007) in
spite of the barriers ( Uyarra, Edler, Garcia- Estevez, Georghiou and Yeow 2014; Eadie, Perera and Heaney 2007)
we are of the belief that public procurement proper structures have been set up in the European Union to
accommodate the innovation drive of public procurement and significant factor in driving innovation. However,
very little research had been done in the Czech Republic and Slovakia especially. These two countries are
especially growing economies when compared with countries in the common market like Norway and Germany,
economically (Eurostat 2016). Hence, we’ll focus our research on the Czech Republic, Slovakia and Norway
effectively considering countries at different stages of economic growth in line with findings of Aschoff and Sofka
(2008) whilst focusing on product and process innovation to enable us to identify the differentiated impacts of the
public procurement efforts on which particular innovation type in different countries with widely different
economic performance. Therefore, based on the literature above, we create the hypothesis that,
H1a: Procurement contracts for domestic public sector organizations significantly affect product innovation
H1b: Procurement contracts for domestic public sector organizations significantly affect service innovation.
H2a: Innovation as a non – requirement of public procurements contracts does not spur product innovation
H2b: Innovation as a non – requirement of public procurements contracts does not spur service innovation.
H3a: Innovation as a requirement of public procurements contracts spurs p innovation.
H3b: Innovation as a requirement of public procurements contracts spurs service innovation.
3. Data and Methodology
The data used for the empirical analysis was sourced from the Harmonized European Union Community
Innovation Survey (CIS) 2012-2014 which specifically require respondent firms to indicate within the time-space
of the survey if they engaged in any procurement contracts for the domestic public sector. The survey questionnaire
further asks firms to specify whether such procurement contracts demand innovation as part of the contract
execution which is seen as a form of support for innovation by the public sector. In order to empirically ascertain
government support for innovation through procurement contracts or otherwise, we have selected these variables
as shown in the table below.
Tab. 1: Selected variables for the research
Variables Abbrev. Description
Dependent Variables inpdgd
inpdsv
Introduced onto the market a new or significantly improved good
Introduced onto the market a new or significantly improved service
Independent Variables pubdom
pbinn
pbnoct
pbinct
rmac
rmar
marnat
marloc
Procurement contracts for domestic public sector organisations
Undertook innovation activities (enterprise with procurement contract)
Innovation not required as part of the contract
Innovation required as part of the contract
Engagement in acquisition of machinery for innovation
Engagement in market introduction of innovation
National market (other regions of country)
Local/regional market (within country)
Source: CIS 2014
XXII. mezinárodní kolokvium o regionálních vědách Sborník příspěvků Velké Bílovice 12.–14. 6. 2019
 
166
A logistic regression analysis was used for the empirical analysis because the CIS data provides dichotomous
variables which make the analysis feasible and fit by, the use of binary logistic regression (source). The logistic
model used for the model computation is given by the formula:
Inpdgd/ Inpdsv = β0 + β1(pubdom)x + β2(pbinn)x + β3(pbnoct)x + β4(pbinct)x + β5(rmac-)x + β6(rmar)x +
β7(marnat)x + β8(marloc)x + εx (1)
where the model is used to ascertain the influence or effect of firms dealing with procurement contracts from the
domestic public sector organizations on the firm’s product and service innovations.
Three European countries, the Czech Republic, Slovakia and Norway were selected for the empirical analysis. All
the three countries are respondents to the CIS and are ranked as moderate innovators in the case of Czech Republic
and Slovakia and Norway, a strong innovator per the European Innovation Scoreboard 2018 rankings. With the
differences in innovation rankings and economic prowess determined by their public expenditure, we have the
motivation to find out how these countries economically support firms for their innovation through public
procurement contracts.
4. Result and discussion
The empirical model included all firms in the selected countries with the sample size amounted to 13033 large and
small and medium-size firms engaged in all kinds of business activities in the selected countries The sample size
included 5098, 5045 and 2790 firms for the Czech Republic, Norway and Slovakia respectively. The empirical
analysis rather shows a mixed result and difference between firm product and service innovation. This could be
attributed to the nature of public expenditure which is inclined to service provision than product provision.
Generally, the correlation between the dependent variables and specifically procurement contract independent
variables were weak signalling rather the non-usage or rather the less effective use of this support system to boost
innovation in the selected countries by the public sector.
As it can be seen in table 2 below, the empirical analysis showed a negative significant effect of public sector
procurement contracts on firm product innovation in the Czech Republic and Norway. This confirms H1a in both
countries except Slovakia. This shows that the public sector does not engage in firm product innovation support
due to barriers as found by Georghiou et al (2014) and Uyarra et al, (2014). They outlined some dificiencies UK
firms experience in their procurement dealings with the public sector organisations which they noted as a key
barrier, lack of expertise in some countries. The finding is consistent with Aschhoff & Sofka (2009) who found
that public procurement had a significant effect on innovation success but rather through general administrative
procurement (services) but not in security procurement which demands more product specification.
Tab. 2: Firm's product innovation
Independent
variables
Czech Rep.
β (p-value)
Norway
β (p-value)
Slovakia
β (p-value)
pbinn 0.370 (0.645) 0.096 (0.848) -1.294(0.304)
pubdom -0.387 (0.001)*** -0.219 (0.025)* -0.201(0.403)
pbnoct 0.798 (0.276) -0.058 (0.901) 0.344 (0.729)
pbinct -0.214 (0.763) 0.582 (0.206) 2.838 (0.010)**
rmac 1.874 (0.001)*** 1.620(0.001)*** 2.808 (0.001) ***
rmar 2.175 (0.001) *** 1.707 (0.001)*** 2.494 (0.001) ***
marnat 0.736 (0.001) *** 0.691 (0.001)*** 0.360 (0.139)
marloc -0.382 (0.001)*** -0.627 (0.001)*** 0.221 (0.264)
McFadden R² 0.322 0.287 0.390
Cronbach's α 0.608 0.667 0.565
No. of Obs. 5198 5045 2790
Note: significance* p <. 05, ** p <. 01, *** p <. 001
More so, innovation as a non – requirement for public procurement contracts had no impact on product innovation
thereby rejecting H2a for all countries. However, innovation orientation of public sector procurement was found
significant on product innovation only in Slovakia. This effectively accepts H3a and rejects it for the other
countries.
XXII. mezinárodní kolokvium o regionálních vědách Sborník příspěvků Velké Bílovice 12.–14. 6. 2019
 
167
On the other hand, regarding firm service innovation, the empirical model showed a positive significant effect of
public sector procurement on the firm’s service innovation in all countries. This confirms H1b in all countries.
Contracts received by firms in the Czech Republic with innovation required as part of the contract had a significant
effect on service innovation. This confirms that H3b was accepted in the Czech Republic and rejected for both
countries. Innovation not instated as a factor for public procurement contracts was, however found to be
insignificant for all countries concerned effectively rejecting H2b. For firms which engaged in innovative activities
and sold goods and services within the local and national markets in the Czech Republic, the requirement for
innovation rather had a negative effect on the firms’ service innovations.
We infer that this negative effect may be coherent in the barriers mentioned above and also, the lack of incentive
for public sector buyers to take a risk in procuring services from the firms with incremental innovation
characteristics. The long term nature as well as the risk of criticism from government auditors may account for the
non-requirement of innovation as a part of the innovative public sector procurement process.
Tab. 3: Firm's service innovation
Independent
Variables
Czech Rep.
β (p-value)
Norway
β (p-value)
Slovakia
β (p-value)
pbinn 1.908 (0.005) *** 0.998 (0.025)** 0.665 (0.520)
pubdom 0.629 (0.001)*** 0.200 (0.038)** 0.610 (0.012)**
pbnoct -1.025 (0.103) -0.153 (0.711) -0.363 (0.664)
pbinct -1.170 (0.052)* -0.438 (0.280) 0.131 (0.881)
rmac 1.552 (0.001)*** 1.214 (0.001)*** 2.644 (0.001)***
rmar 1.192 (0.001)*** 1.224(0.001)*** 1.373 (0.001)***
marnat 0.249 (0.043)** 0.537(0.001)*** 0.457 (0.156)
marloc 0.270 (0.014)** 0.330 (0.010)** 0.010 (0.965)
McFadden R² 0.203 0.193 0.317
Cronbach's α 0.608 0.667 0.565
No. of Obs. 5198 5045 2790
Note: significance* p <. 05, ** p <. 01, *** p <. 001
5. Conclusion
The research seeks to analyse the public sector innovation support through procurement contracts. In sum, the
research sought to find out the effect of procurement contracts from the public sector on firm product and service
innovation. There are challenges associated with public procurement to trigger innovation. This is because, both
the demand and supply sides of innovation measures has certain inefficiencies and difficulties such as lack of
understanding to assess the market opportunities by the innovative public procurement process. There is also a
disincentive for the public sector to demand innovation in procurement contracts due to fear and risk associated
with the product or services because the risk of the new product usage are apparent so public sector buyers would
rather prefer already innovative product in the market to deliberately spurring innovation in firms. With these
identified problems, we used the demand side public procurement support system to analyse the case of the Czech
Republic, Norway, and Slovakia. Using the CIS 2014 data, we have identified that despite the strong campaigns
and propagation for the adoption of innovative procurement processes to spur innovation, the public sector in the
selected countries is not badging to the call.
The findings of the research have shown that even when the public sector of the selected countries contract firms
to execute projects and programmes, there is no inclusion of strict requirement, demanding for the firms to
undertake innovation. But we must hasten to add that this is the case for product innovation for two of the selected
countries (the Czech Republic and Norway) which confirms H1a in two of the three countries except Slovakia.
This shows that, the public sector does not engage in firm product innovation support due to some barriers in the
procurement process. And for service innovation, only the Czech Republic included innovation in the procurement
contract. Conversely, even when there is such requirement in place, its effect on the firm product and service
innovation was negative as shown by the result. Thus, innovation as a non-requirement for public procurement
contracts had no impact on product innovation thereby rejecting H2a for all countries. However, innovation
orientation of public sector procurement was found to be significant on product innovation only in Slovakia. This
effectively accepts H3a and rejects it for the other countries.. In the Czech Republic, public procurement contract
with innovation required as part of the contract had a significant effect on service innovation. This confirms that
H3b was accepted in Czech Republic but rejected for the other two countries. Innovation not included as a factor
XXII. mezinárodní kolokvium o regionálních vědách Sborník příspěvků Velké Bílovice 12.–14. 6. 2019
 
168
for public procurement contracts was, however found to be insignificant for all countries concerned effectively
rejecting H2b.
These worrying phenomena require pragmatic solutions and more attention if the public sector needs to encourage
firm innovativeness. The overarching difficulties may be that the public sector is relying heavily on the supply
side of the innovation measures, that is, overusing the finance and support instruments. We therefore urge, as a
policy requirement, the selected countries to explore the deliberate linkage of both sides of the innovation policy
measures or switching the attention to the demand side and joining the linkages. Exploring the intermediation of
third parties in public procurement processes could be used as an alternative measure.
Literature
[1] ASCHHOFF, B., SOFKA, W., (2009). Innovation on demand—Can public procurement drive market success
of innovations?. Research policy, vol. 38, no. 8, pp.1235-1247. DOI 10.1016/j.respol.2009.06.011.
[2] EADIE, R., PERERA, S., HEANEY, G., CARLISLE, J., (2007). Drivers and barriers to public sector eprocurement
within Northern Ireland’s construction industry. Journal of Information Technology in
Construction, vol. 12, pp. 103-120. ISSN 1874-4753.
[3] EUROPEAN COUNCIL, (2005). Brussels European Council 22/23 March 2005, Presidency Conclusions.
Brussels, 23 May 2005, Available from: http://ue.eu.int/ueDocs/cms Data/docs/pressdata/en/ec/84335.pdf
[4] FRENCH, GERMAN, UK GOVERNMENTS, (2004). Towards and innovative Europe. A Paper by the
French, German and UK Governments, Available from: http://www.hmtreasury.gov.uk/media/C0B/BF/towards_innov_europe
200204.pdf
[5] GEORGHIOU, L., EDLER, J., UYARRA, E., YEOW, J., (2014). Policy instruments for public procurement
of innovation: Choice, design and assessment. Technological Forecasting and Social Change, vol. 86, pp.1-
12. DOI 10.1016/j.techfore.2013.09.018.
[6] LEMBER, V., KALVET, T., KATTEL, R., PENNA, C., SUURNA, M., (2007). Public procurement for
innovation in Baltic metropolises. Tallinn: Tallinn University of Technology.
[7] MALERBA, F., (2007). Innovation and the evolution of industries. In Innovation, Industrial Dynamics and
Structural Transformation (pp. 7-27). Berlin, Heidelberg: Springer. DOI 10.1007/978-3-540-49465-2_2.
[8] MOWERY, D., ROSENBERG, N., (1979). The influence of market demand upon innovation: a critical review
of some recent empirical studies. Research policy, vol. 8, no. 2, pp. 102-153. DOI 10.1016/0048-
7333(79)90019-2.
[9] ROTHWELL, R., & ZEGVELD, W. (1981). Government regulations and innovation—industrial Innovation
and Public Policy (pp. 116-147). In: Industrial Innovation and Public Policy. London: Frances Pinter.
[10]STERN, P., HELLMAN, J., RIJNDERS-NAGLE, M., TERRELL, M., ASTROM, T., (2011). How public
procurement can stimulate innovative services. Stockholm: Nordic Innovation Centre Report.
[11]UYARRA, E. (2010). Opportunities for innovation through local government procurement. Report No.
PLG/51. London: NESTA.
[12]UYARRA, E., FLANAGAN, K., (2010). Understanding the innovation impacts of public
procurement. European Planning Studies, vol. 18, no. 1, pp. 123-143. DOI 10.1080/09654310903343567.
[13]UYARRA, E., EDLER, J., GARCIA-ESTEVEZ, J., GEORGHIOU, L., YEOW, J., (2014). Barriers to
innovation through public procurement:A supplier perspective. Technovation, vol. 34, no. 10, pp. 631-645.
DOI 10.1016/j.technovation.2014.04.003.
This work was supported by grant provided by the scientific research project of the Czech Sciences Foundation
Grant No: 17-11795S.