Globalisation poses great challenges for the future of the European countries. New sources of growth are needed as the global competition weakens the profitability of the existing industries. High-level research and education, good infrastructure, and public research and development (R&D) support are identified as promoting mechanisms. Domestic market would support business of SME’s significantly. General innovation policy (e.g., tax reliefs for R&D) may provide good starting points for many fields but their growth is often hindered by factors that are specific to one or a few industries. It is essential to analyze variables of a theoretical Brouwer’s mathematical model for analysing the sales of new products. A higher R&D intensity results in higher sales of new products. R&D subsidies reduce the fixed costs of introduction. A major R&D policy instrument should be a general tax-credit facility to lower the labour costs of R&D personnel. One of purposes of the innovation policy must be to reduce the R&D costs of companies, in particular those of SMEs. Subsidies, including the tax-credit facility, reduce the costs of introducing new products into the market. Aim of the research is to analyse mentioned above areas of innovation policy in context of Latvia.