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2013. 09. 10.I author: European Association of Development Agencies -

Public Support Services for SMEs

Thinking about the policy debate regarding public support services to innovative enterprises, EURADA's Christian Saublens increasingly realizes that policies are based on myths and on an asymmetry of information between the public sector or its intermediaries and the private sector. Here are a few of those myths.

Myth 1: “Jobs and knowledge are created by SMEs”. Actually, precious few of them do. Indeed, more than 75% of start-ups fail to survive more than five years and only 52% of EU businesses declare innovative activities. Hence the importance of properly segmenting the regional SME population and working on the basis of strategic business portfolios (gazelles, hidden champions and phoenixes) identified for provision of high value-added services. This requires public authorities and intermediary bodies to:

  1. better spot export-driven or innovation-oriented EGCs (Entrepreneurial Growth Companies);
  2. set up a support management intranet and a no-wrong-door system to better coordinate the competences and interventions of business support organisations;
  3. tailor not only the tools to the different types of businesses that coexist in a region but also the administrative process of application assessment;
  4. provide a mix of financial and non-financial products for every objective of the financial service range;
  5. improve the skills of intermediary body personnel slated to deliver the regional strategy;
  6. encourage partnerships among key stakeholders to expedite the knowledge or technology transfer process between knowledge holders and local businesses.

Myth 2: All enterprises are the same. Actually, the enterprise concept is not a monolithic one. Therefore, support service schemes need to be adapted to a wide typology of enterprises but also to the innovation capability, willingness and readiness of their management teams.

Myth 3: “Access to venture capital faces a chronic market failure”. Actually, when investors perceive risk levels to be too high, they withdraw from the market. Therefore, instead of trying to fund venture capital themselves, public authorities should develop risk reduction tools including investment readiness and proof-of-concept, and leverage public procurement to achieve innovative market solvency or support the first client search. Hence the importance of a policy mix that combines financial support with advice, access to specialist infrastructure as well as a network of professional facilitators.

Myth 4: “Innovation stems from R&D efforts”. Actually, most businesses innovative and find sources of inspiration in their relations with their clients and suppliers rather than in contacts with scientists and academics. Hence the need to implement a range of public services that support innovation in services, design, business model, marketing, matching of complementary skills and the take-up of knowledge developed outside SMEs. Moreover, Europe suffers from a comparative lack of private investment into R&D and from difficulty transforming the outcomes of research programmes into products/services/solutions that are accepted by the market.

Myth 5: Evaluation is essentially an instrument to measure transactions such as the accounting use of budgets and the number of beneficiaries. In fact, it should be an instrument to measure the transformation of the socio-economic fabric and to manage the implementation of the strategy. Therefore, the impact of the strategy must be measured through parameters such as the diversification of the productive base, the introduction into the market of new products / services / solutions by regional companies, the modernization of the production process, job creation, including jobs for the local population, the creation of start-ups, increased cooperation agreements involving SMEs, the growth of export turnover …

Myth 6: “The public sector constantly needs to socialise private sector losses”. Actually, it should rather support and cushion change, i.e. the regional entrepreneurial discovery process. To do so, there is a need to deploy regional intelligence instruments. Public managers all too often recycle old recipes instead of looking for what makes their region unique. In many cases, they fail to realise that the administrative costs of a measure exceed its expected benefits. Hence the need to look at business services as a whole as a value chain.

Myth 7: Intermediary organisations have to check the eligibility of the files submitted for obtaining of grants. In fact, they should check the capability of enterprises to manage the process which allows an efficient use of the scheme. Intermediary organisations should propose coaching services to make sure that the scheme is properly used. How many enterprises took a grant more because it was available rather than because it fitted with one of their strategic needs. DG Regio of the EU administration started only recently to recognize that combining financial and non-financial supports in one single package contributes to a greater impact of the support service schemes!

Myth 8: Public policies can support fast growing enterprises. In fact, if an enterprise can wait for public support to take their decision, the time to market will be over!

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