SMEs & access to R&D funding

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Europe is falling further and further behind the United States in R&D investment. This is mainly due to decreasing R&D investment by European SMEs. Helping SMEs access EU research funding has been a persistent challenge, with critics blaming bureacracy for the low involvement of small firms.

Small and Medium size Enterprises (SMEs) are the economic backbone of Europe. They employ nearly two-thirds of the EU's private sector workforce and are responsible for the creation of one in every two new jobs. Nearly half of the two million European industrial SMEs are market innovators, which makes SMEs crucial to Europe's innovation and technological breakthroughs. 

Statistics show that the contribution of the business sector to the funding of R&D has decreased since 2000, contributing to the growing research investment gap between the EU and the US. After modest growth in the late 1990s, the share of the business enterprise sector in the funding of total R&D has decreased by 0.6 % per year between 2000 and 2003. However, large companies' R&D investment is comparable to their American counterparts. The lack of SME R&D investments is thus the 'problem'. 

Direct funding

Direct EU R&D funding is mainly thematic and linked to specific objectives designed and implemented by different directorate generals of the Commission (e.g. environment, research, education).

The SME participation rate in EU funded projects is decreasing - mainly due to financial reasons:

  • the high administrative costs due to complicated administrative requirements for project proposals and 
  • the long periods between the proposal, start of projects and first payments. 

process of simplification of FP7 is currently underway aiming to remedy these SME concerns.

European Union

  • The Sixth Framework Programme for Research and Technological Development (2002-2006):  In the Sixth Framework Programme SMEs can participate in the seven thematic areas of research through "Networks of Excellence" and "Integrated Projects". The FP6 also contains specific schemes for SMEs in the form of horizontal research activities: co-operative research and collective research.   
  • LIFE - Environment (2000-2006):  The aim of this programme is to contribute to the development of innovative, integrated technologies and methods by cofinancing demonstration projects. The participation of SMEs is encouraged.
  • Intelligent Energy for Europe (2003-2006):  Intelligent Energy for Europe provides financial support for actions in the field of energy efficiency and renewable energy sources. 
  • Marco Polo programme (2003-2010):  This programme aims to reduce the road congestion and to improve the environmental performance of the freight transport system. It supports actions in freight transport, logistics and other relevant markets.
  • Future Seventh Framework Programme for Research and Technological Development (2007-2013):  The EU's next framework programme (FP7) is set to start in 2007 to follow the FP6.

Others

  • EUREKA – A Network for market oriented R&D:  EUREKA is a pan-European network for market-oriented, industrial R&D. It supports businesses, research centres and universities who carry out projects to develop innovative products, processes and services. It offers project partners rapid access to national public and private funding schemes.

Financial instruments

Financial instruments do not provide direct funding to SMEs. They intend to increase the volume of credit available for SMEs and to encourage banks to lend more to SMEs.

European Union

The Commission wishes to set up a new financial instrument in the form of a loan guarantee scheme. This would leverage private sector funding under the form of bank loans for technological research projects and infrastructures.

  • European Investment Fund:  The European Investment Fund (EIF) is the EU's specialised financial institution for SMEs and the main source of venture capital and micro-credit guarantees in the EU. It does not lend money to SMEs directly but provides finance through private banks. It also offers technical assistance and advisory financial services. 
  • Innovation 2010 initiative:  Under the Innovation 2010 Initiative, the European Investment Bank (EIB ) co-finances public or private-sector research programmes, corporate investment in R&D, research infrastructure, centres of excellence and measures enabling SMEs to obtain access to research programmes. In addition, EIB proposes global loans to SMEs, through financial intermediaries, contributing to the increase in volume of funding available for SMEs and the reduction of interest rates. 
  • Future Competitiveness and Innovation Programme (2007-2013):  The Commission proposal for a Competitiveness and Innovation Programme (CIP), includes around one billion euro for EIF financial instruments and new instruments such as risk capital for innovative and high growth SMEs or securitisation of bank loan portfolios for smaller and regional banks. 

Others

  • IntesaNova:  IntesaNova is a financing facility targeted at RDI investments undertaken primarily by SMEs. Set up by Banca Intesa, an Italian bank, in partnership with technical universities of excellence and trade associations, IntesaNova aims to foster technological innovation and R&D investments in SMEs. IntesaNova also involves a consulting, appraisal and auditing service provided by universities.

According to EURAB, the European Research Advisory Board, an independent advisory committee created by the Commission to provide advice on the design and implementation of EU research policy, the current R&D spending gap between Europe and the United States can be attributed in large part to differences in R&D spending by SMEs. Higher R&D spending by European SMEs could therefore play a key role in helping to achieve the Barcelona 3% target.  

UEAPME, the European Crafts and SMEs employers association, agrees with EURAB that higher SME spending on research could play a key role in achieving the Barcelona target of increasing research investment to 3% of the GDP. "Without higher SME spending on R&D both the Lisbon strategy and the Barcelona 3% target will never be achieved, as at present their low spending is the major reason for the overall R&D gap with USA and Japan," UEAPME sates.

UEAMPE also underlines that the current "Commission proposal [for FP7] fails to highlight this situation and should take more targeted actions towards SMEs to solve this situation". It would like to see "special attention given to stimulate small-scale SME projects" in the thematic research priorities of the FP7. Within budgets allocated to SMEs, "priority should be given to SME-specific programmes like Craft and Collective Research". 

To increase SME participation in the EU programmes, UEAPME urgently calls for less bureaucracy regarding management, administration and control of European funded projects. It has made a series of concrete proposals to remedy this. 

Eurochambres, the association of European Chambers of Commerce and Industry, calls for "a continuous effort at all levels of the Commission to implement simplification procedures for R&D funding". Thus, it welcomes the proposed initiative by the Commission on the simplification in the FP7. "Because of their limited resources, high administrative burdens are particularly difficult for SMEs to overcome", said Eurochamber's Secretary General Arnaldo Abruzzini. "The European economy depends on SMEs, and it depends on effective research and innovation. We have not successfully joined these two together in the past. We must do so now," he added. 

Eurochambers also urges an extension of the budget line for Cooperative Research Action For Technology (CRAFT), offering a serious opportunity for SMEs to take part in European Research. Eurochambers would also like to see increase in funding collaborations between SMEs and research centres and recommends that the funding process be dramatically simplified and shortened.

UNICE, the  European industry and employers federation, recommends reinforcing instruments dedicated to SME’s and simplifying the excess bureaucracy, which, it says, "hurts SMEs the most". UNICE calls on decision-makers to modernise state aid rules for all companies investing in R&D stimulation, increase budget for R&D, improve protection of intellectual property and adopt a cost-effective community patent, generate industry-driven technology platforms and in general improve industry's access to the the community framework programmes. 

"The more R&D is driven by business the more likely will it turn into marketable results that will enhance the well-being of society. Supporting company investment in R&D therefore has economic benefits which stretch far beyond the mere company that undertakes the research activity", highlights a UNICE manifesto. 

  • Following a consultation on the second draft on state aid reform, the Commission adopted a new framework for state aid to R&D and Innovation on 22 November 2006. 
  • The Commission adopted, in June 2006, a communication on  Financing growth - the European way , building on existing initiatives and focusing on how to help the providers of SME finance, such as banks and venture capital funds, benefit more from the union's efforts to break down national barriers.
  • A Commission Communication 'Implementing the Community Lisbon Programme - Modern SME Policy for Growth and Employment' was adopted in November 2005. It includes actions to strengthen the innovation and research capacity of SMEs and increasing the existing financial support to SMEs.
  • According to a recent Eurobarometer on SME access to finance (October 2005), 14% of managers indicate that their company is most in need of easy access to means of financing, in third place after social and fiscal regulations and better qualified people available on the market.
  • risk capital conference was organised under the UK Presidency in October 2005 to share good practice on ways to improve access to finance for SMEs.
  • A conference on Financing European Innovation took place in September 2005. The conference addressed, among other issues, the challenges for innovation and research in Europe (legal environment, administrative barriers, networks and partnerships, strengthening researchers and innovators in Europe, SMEs).

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