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2013.06.03.I author: European Association of Development Agencies -

SMEs in the RIS3 policy mix: A new approach is needed

One often hears that today it's SMEs that create jobs and growth. Christian Saublens of EURADA would like to point out that this is a "myth". Indeed, only very few of them are sustaining wealth as statistics show that up to 75 % of start-ups die before reaching 5 years of existence and that most of these start-ups hosted in European incubators only create 6 to 7 jobs.

This means that RIS3 penholders and public service providers have to review their assessment regarding which type of SMEs to target when defining their RIS3 policy mix (call them gazelles or hidden champions).

 

I would like to make a strong plea for better segmentation of the SME regional communities and for offering them a package comprising financial and non-financial services. Hereafter a few ideas to better prepare the next RIS3 policy mix.

 

The most common weaknesses identified as far as SMEs' competitiveness is concerned:

  • The weaknesses in equity and lack of access to external financing sources;
  • The hesitancy / errors in strategic choices of companies resulting in the absence of quality upscaling as well as geographical and technological diversification or low-cost oriented innovation ;
  • Lack of investment in R & D + I in key enabling technologies and e-business;
  • The size of SMEs (few areas are able to benchmarking with the business fabric of German regions, i.e. German Mittelstand enterprises)
  • Difficulty in recruiting and adjusting their human resources;
  • Finding the first client;
  • Inadequate provision of public support services.

 

Thus, all entrepreneurship strategies must seek to address the six challenges below:

a)      understanding business needs and anticipating market failures in order to respond to the problem raised by the most appropriate instrument;

b)      providing a good product mix combining financial and advisory services;

c)       being developed as supply chains geared to help a majority of businesses become global competitors;

d)      evolving toward provision of strong value-added services including in the form of public-private partnerships;

e)      harnessing intangible regional resources, i.e. the regional social and human capital and image

f)       taking into account the geographical ambitions of enterprises: local, regional, national, EU internal market, worldwide, …

 

This requires the establishment of an survey system and an in-depth analysis of strategies and behaviour more elaborate than those generally in use most regions. These observations must be made at a very precise level of market niches They must also be able to provide information on the absorption capacity of new methods of collaboration between enterprises. Let's call this regional intelligence.

 

In addition to the six steps recommended by DG Regio in its RIS3 Guide, penholders of a RIS3 strategy should keep in mind that the implementation of support services should be planned taking into account parameters such as:

  • identification of different options (grants, loans, advice, ...)
  • analysis of the likely impact of the options (budget, type of beneficiaries, number of beneficiaries, intermediaries, ...)
  • preconditions and conditions (qualification, type and size of the beneficiaries ...)
  • barriers (amounts, consistent with expectations, ...)
  • design programs and evaluation criteria
  • mechanisms for implementation
  • evaluation.

 

For entrepreneurs, it is important to understand that all forms of finance do not have the same aims.

Similarly, the motivations and criteria of different funding parties will vary according both to the type of product presented and the level of risk linked to it. Therefore, business plan quality and content, as well as its presentation to potential investors need to be adjusted to their respective specific requirements. This explains the Anglo-Saxon expression “all money is not the same”.

Appropriate ways of addressing potential investors’ expectations is something would-be investees can prepare for by attending an investment readiness programme or by passing through an incubator, hoping that some of them will one day become SME growth accelerators.

 

Each SME category can be subdivided in technology or non-technology driven innovative enterprises. These forms of innovation can comprise the following concepts:

  • breakthrough technology innovation
  • product or service innovation
  • process innovation
  • innovation by integration of a service into a product
  • design or marketing innovation
  • organisational or managerial innovation
  • system or networking innovation
  • life style innovation
  • public service innovation.

 

Each of these forms of innovation can have a different impact on the regional economy according to its incidence on the market. So, we can distinguish:

  1. market transformation innovators which are creating jobs,
  2. continuation innovators which enable "yesterday" products to be replaced. Those innovations are creating few jobs, but they allow the enterprises creating them to temporarily maintain competitive advantages,
  3. efficiency innovators. Those innovators can certainly reduce the number of jobs because they rationalise the processes, but they allow jobs to be saved insofar as, by lack of innovation, the enterprise or production units would in term be destined to disappear.

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