Governments have introduced a range of schemes to help small firms, including tax credits for research investment, the development of "innovation centres," support for business angels and schemes to link SMEs with universities and industry.
The EU's innovation strategy – expected in September – is likely to address several of these issues, although there is much debate as to whether the plan will be a blueprint for business or a researchers' charter.
Business groups have stressed that protecting patents should be at the heart of the forthcoming innovation strategy (EurActiv 09/08/09), while there has been criticism that entrepreneurship may not be given sufficient emphasis in the final draft (EurActiv 07/05/10).
Even before the crisis, access to venture capital was a limiting factor in Europe's innovation ecosystem. In addition, SMEs have found it expensive to defend intellectual property and struggle to tap into EU research budgets.
While national budgets are under severe pressure across Europe, there have been efforts to preserve R&D funding which is designed to stimulate innovation. However, national policies vary widely across the EU – something Brussels' new plan may seek to streamline.
France plans to follow Germany's example
Innovation is seen as insufficient in France and SMEs need help to boost exports, an area where the French have fallen behind the Italians and the Germans. As a consequence, the need to increase investment in R&D – currently at 2.08% of GDP – is crucial in France even in times of crisis.
France plans to follow the German model to make SMEs more competitive. Hervé Novelli, secretary of state for trade and SMEs, has promoted patents from the national institute of intellectual property (INPI) and research tax credit as important tools to improve innovation for SMEs.
The Richelieu Committee, a French association for innovative SMEs, published a study in July 2010 presenting the main concerns of its members, who support the research tax credit and a Small Business Act for SMEs.
The research tax credit has become a symbol of the "good regulatory framework,"according to CGPME (SMEs’ general confederation). Nevertheless, there is a lack of information, which the confederation is working to address by creating local innovation committees.
French SMEs have capital problems due to their small size or the tax system, CGPME told EurActiv.fr. Last but not least, the confederation notes that there are too many entities working on innovation today – something which does not facilitate a clear vision for SMEs.
Germany wants tax credits for innovative companies
Georg Schütte, German state secretary at the German Federal Ministry of Education and Research, said he hopes the Europe 2020 plan will help plug the "innovation gap". In an interview with EurActiv, he stressed that closer ties between industry and academia will help commercialise research findings – something SMEs can hope to benefit from.
Bund der deutschen Industrie (BDI), the voice of German industry, wants to see tax credits for firms investing in research.
"Innovation is Germany's future: innovative products and services marketed at competitive prices are decisive in creating jobs, increasing prosperity and quality of life [...] The European Commission has urged member states to introduce fiscal support for R&D expenditure. The BDI is calling for a tax credit amounting to 10% of a company's total R&D expenditures," a spokesperson said.
Long-term investment in R&D has not been a priority for small firms recently, especially given the economic crisis. A study on innovation in the SME sector by 'The Fraunhofer-Institute for Production Systems and Design Technology IPK Berlin' concludes that SMEs are not fulfilling their innovation potential due to a lack of long-term management of innovation.
Only 30% of companies give their employees the time needed to develop new ideas, while less than 50% have a defined innovation process. Indeed, 60% have problems implementing innovations properly, the study found.
UK plans to create enterprise culture
An expert report prepared for the previous government in the UK called for the creation of "elite, business-focused" Technology and Innovation Centres (TICs). These centres are designed to do research but also engage SMEs by providing advice on funding, commercialisation and intellectual property.
The UK's new government is expected to continue with this policy, notwithstanding the need to control public spending. Business Secretary Vince Cable has emphasised the need to support entrepreneurship despite the need for budget cutbacks.
Cable's department for Business, Innovation and Skills has committed itself to backing free and open markets, as well as promoting "business and innovation through entrepreneurialism and individual engagement in the economy".
The new Conservative-Liberal Democrat coalition has also pledged to create "an enterprise culture where everyone with talent is inspired and able to turn ideas into successful businesses". Cutting red tape and offering incentives to start-ups are among the promises.
Ireland considers portfolio of business angel funds
A cabinet reshuffle earlier this year saw Ireland broaden the brief of its enterprise ministry to include innovation. This coincided with the publication of a detailed report by a government-appointed innovation task force.
EU Innovation Commissioner Maire Geoghegan-Quinn welcomed the document, saying her services were currently reviewing it and would provide feedback in due course. The task force included representatives from industry, academic and government.
"Our aim is that by 2020 Irelandwill have a significant number of large, world-leading, innovation-intensive companies, each having a global footprint, many of which are Irish headquartered and owned," said the group.
Ireland, which is currently dogged by a deep economic recession and banking crisis, points to its favourable demographics, education system and pro-business regulatory environment as reasons for optimism in the long term.
The report calls for a portfolio of business angel funds, a new seed capital scheme and a set of tax initiatives to incentivise start-up funding.
Reform of bankruptcy legislation to encourage entrepreneurship, improved intellectual property systems and more focus on product design are also proposed.
Czech SMEs aim to secure EU-funded innovative projects
Czech SMEs agree that innovative firms could get EU money for well-designed innovative projects. "Getting finances for good projects is not unrealistic," said Karel Havlíček from the Association of Small and Medium-Sized Enterprises and Crafts CZ.
However, Radim Kudla, business development manager at PHONEXIA, a technology company, complains that there is not enough support for emerging firms. "We would appreciate a wider range of subsidy programmes designed for start-ups and small innovative companies," he said.
However, Havlíček pointed out that Czech SMEs generally lack money for innovation investment as a result of the economic crisis. "The primary aim was to save a sinking boat, not to paint its chimney," he said, explaining that Czech banks had grown risk averse in the current economic climate.
Petr Chládek, regional innovation strategy manager at the South Moravian Innovation Centre (JIC), said it can be difficult for SMEs to link up with universities and research institutes. He complains that companies usually aren't able to "adequately formulate their demand" when negotiating with universities, which are "not flexible enough".
Slovakia, a moderate innovator
According to 2006 figures, only a quarter of Slovak companies are active in the field of innovation. The majority (56%) of these innovative companies have more than 250 employees. Only 19.2% of micro-enterprises (with up to 50 employees) and 34.4% of medium enterprises (with up to 250 employees) innovate.
The 2009 European Innovation Scoreboard (EIS) identifies Slovakia as a moderate innovator with innovation performance below the EU-27 average. However, in previous versions of the EIS it belonged to a group of catch-up countries whose innovation performance was well below the EU-27 average.
According to 2009 Inno Policy Trendchart, the major weaknesses of Slovakia’s innovation performance are public and business R&D expenditure, SMEs innovating in-house, European Patent Office patents, and employment in knowledge-intensive exports and knowledge-intensive services exports.
According to government data, Slovakia is now spending around 1.2% of its GDP on R&D and innovation. Slovakia was among those EU countries which expressed concern that the 3% target for investment in R&D in the ‘Europe 2020’ strategy is unattainable.
The basic problem is the innovation infrastructure deficit and venture capital funding. Slovakia faces a lack of synergy between the five major elements that contribute to innovative potential of a region: universities, companies, the media, government initiatives and NGOs. University spin-offs are therefore invisible; the platform for seed and early-stage financing is missing.
Most innovative ideas are published but not realised. Business angels are very rare and disorganised. Venture capital funds operating in Slovakia usually act more like auditors and do not provide know-how and contacts.
To address some of these problems, a new project was launched at the beginning of June – Boosting the Innovation of Small and Medium-sized Enterprises (BISMES), which is coordinated by the National Agency for Development of SMEs (NADSME), a member of Enterprise Europe Network, and funded from the Competitiveness and Innovation Framework Programme (CIP).
The aim of the project is to raise SMEs' awareness about innovation, strengthen regional cooperation between different service providers, provide necessary information about innovations and their financing, etc.
Bulgaria's booming innovative practices
The share of Bulgarian companies which declared innovation activity increased to 71% in 2009 compared to 43% in 2008. These statistics are part of the most up-to-date and thorough survey of the innovation activity of Bulgarian business available, which was published at the beginning of 2010.
The survey, entitled 'Innovation.bg 2010: The Innovation Policy of Bulgaria - Opportunities for the Next Decade' was conducted by the Applied Research and Communications Fund (ARC FUND), part of Enterprise Europe Network - Bulgaria.
Process innovation accounts for nearly 19% of the innovative activity of Bulgarian businesses. The proportion of companies that launched new and improved services was 26% last year. Much of the technology introduced by Bulgarian SMEs is borrowed from foreign partners.
The results of patent and licensing activity by Bulgarian enterprises show that there are practically no process and product innovations of international significance in Bulgaria.
The ARC FUND report stated that measures undertaken by the Bulgarian government to support innovation as a major factor in overcoming the crisis and maintaining sustainable economic growth were inadequate.
One of the problems identified by the survey was that EU funds intended for the development of innovation, science and technology are among the least used, even against a background of overall sluggish take-up of European funds.
Angel Milev, programme director of the ARC FUND and coordinator of the Enterprise Europe Network - Bulgaria, said Bulgaria needs an updated innovation policy, integrated into its economic strategy, if it is to hit the R&D spending target.
Polish firms looking to bring ideas to market
In Poland, high-tech firms say there is no shortage of ideas but innovative companies run into trouble when it comes to turning knowledge into products.
Tadeusz Golonka of BDP Polandsaid the innovation is about "idea, implementation and infusion – the three 'I's". "We have no problem with the first one – ideas. We are intelligent, shrewd and with a solid educational background. Polish students, over the past 10 years, have succeeded in many international computer science and mathematics," he said.
However, the second "I" – implementation – is a different story. While EU funds and the development of technology parks can help more an idea to the product stage, Poland lacks management experience in the innovation sector.
"There are no differences in the modern technologies used by young innovators in the USA, Brazil, China, or Japan compared with Poland. The problem area is management. Even with a robust education system and MBA courses - the manager of the typical innovative company is still an engineer, with a lack of management skills and training. This problem is so significant that many companies have chosen to cooperate with consultants in the company management and project management sectors. It is exceptionally important for a business to move from the initial idea to the end product whilst keeping quality, being on time, and within budget and specification," Golonka says.
The last “i” – infusion – refers to the way the product enters the market. For managers with an engineering background, marketing and selling does not always come naturally. Again, external consultants are often necessary.
"Market success is the beginning of a new set of problems: to safely protect the company’s ideas, products and rights. In that sense, a stronger intellectual property (IP) system will be very much welcomed by Polish entrepreneurs, who sometimes shy away from seeking protection due to the excessive red tape and high costs associated with filing a patent," explains Golonka.
He says completing the internal market is also essential to the ultimate success of innovative Polish firms keen to expand beyond their borders.
