In the years 2020-2022 during the Covid-19 pandemic, only 48% of Icelandic companies introduced new or improved products, new or improved business processes or worked on other innovative projects. This was a significant decrease from the previous reference period of 2018-2020 when 74% of businesses were considered innovative. The restrictive nature of the pandemic on business conditions caused companies to halt their growth initiatives and focus on fundamental revenue streams to ensure continued operations. Similar results were evident in other countries, for example in Denmark, Norway and Sweden where 46%, 50% and 57% of businesses engaged in innovative activities, respectively.
Innovation activities slowed down in all main sectors of the economy. The share of innovative enterprises decreased the most in manufacture of food products and beverages or by 35 percentage points, from 76% to 41%. In addition, there was around 30 percentage points drop in transportation and storage, information and communication and wholesale trade. Most industries experienced over 20 percentage point decrease in innovation activities from 2018-2020 to 2020-2022.
When considering innovation only in terms of introducing new or improved products and services the results turn out to be similar. In total, 29% of companies engaged in product- or service-related innovation during 2020-2022 compared with 46% in 2018-2020. Thereof, only 23% of businesses introduced new goods compared with 38% previously while the share of businesses only introducing new services were 20% of all companies compared with 39% in 2018-2020. In terms of product- and service-related innovation the most decrease between periods was in financial and insurance activities, manufacture of food products and beverages and information and communication.
Despite product and services development comprising a significant share in enterprises’ overall innovation activities, generally companies were more likely to introduce new or improved processes within their operations rather than bringing new products and services to market. Examples of such processes were new or improved production methods, logistics and distribution, marketing and organisational practices. In total, 42% of all firms introduced new processes in 2020-2022 which was still well below the 68% share that occurred in 2018-2020. However, this was markedly more than the number of businesses that marketed new products and services (29%) as mentioned earlier.
Lastly, large corporations were generally more likely to engage in innovation activities than small and medium-sized corporations. The effects of Covid-19 were also less impactful on them as the proportion of enterprises that were innovative and employed over 250 people declined by only 22 percentage points compared with 30 percentage points for those with 50-249 employees and 25 percentage points for small businesses with 10-49 employees. This was primarily due to large companies being more active in marketing and development of new or improved goods and services than their small and medium-sized counterparts during the years 2020 to 2022.