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 major R&D policy instrument should be a general tax-credit facility to lower the labour costs of R&D personnel. Subsidies, including the tax-credit facility, reduce the costs of introducing new products into the market. It is important to analyze the process from the point of view of unpredictability. Aim of the research is to analyse mentioned above areas of innovation policy in context of Latvia