OECD Studies on SMEs and Entrepreneurship

2078-0990 (online)
2078-0982 (print)
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Small and medium-sized enterprises (SMEs) and entrepreneurs are fundamental to innovation, economic growth and job creation, and play a critical role in social cohesion. This series provides a means for assessing and improving the performance, design and implementation of SME and entrepreneurship policies, and for sharing policy experiences among OECD member countries and partner economies. They are based on a standard methodology, including a diagnostic questionnaire completed by national authorities, study missions and fieldwork, and are peer reviewed by the OECD Working Party on SMEs and Entrepreneurship.

SMEs, Entrepreneurship and Innovation

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20 May 2010
9789264080355 (PDF) ;9789264080317(print)

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Small firms are playing an ever-increasing role in innovation, driven by changes in technologies and markets. Some spin-offs and high growth firms are having remarkable success. However, the broad bulk of small firms are not capitalising on their advantages. This book explores how government policy can boost innovation by improving the environment for entrepreneurship and small firm development and increasing the innovative capacities of enterprises. Policy findings and recommendations are presented in three key areas: embedding firms in knowledge flows; developing entrepreneurship skills; and social entrepreneurship.  In addition, country notes present statistics and policy data on SMEs, entrepreneurship and innovation for 40 economies, including OECD countries, Brazil, China, Estonia, Indonesia, Israel, the Russian Federation, Slovenia and South Africa.

SMEs, Entrepreneurship and Innovation is part of the OECD Innovation Strategy, a comprehensive policy strategy to harness innovation for stronger and more sustainable growth and development, and to address the key global challenges of the 21st century. For more information about the OECD Innovation Strategy, see www.oecd.org/innovation/strategy.

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  • The Contributors
    This publication has been prepared under the leadership of Pier Carlo Padoan (Deputy Secretary- General and Chief Economist, OECD) and the management of Sergio Arzeni (Director, Centre for Entrepreneurship, SMEs and Local Development, OECD), with support from Jonathan Potter (Senior Economist at the Centre) and Mariarosa Lunati (Senior Economist at the Centre, currently responsible for Entrepreneurship Indicators and Business Statistics in the Statistics Directorate, OECD).
  • Foreword
    The combined forces of globalisation, technological progress and growing market demand have created a new type of innovation: one that is widespread across many agents and sectors and open. New firms, small and medium-sized enterprises (SMEs) and entrepreneurs are key players in this type of innovation. They are key precisely because they are now bringing new ideas to the market. That contribution to the economy is reflected in the rapid growth of some of these firms, the "gazelles" of the enterprise ecoystem. Governments are seeking ways to help them emerge and carry with them innovations that will go toward meeting our economic and social challenges. But for economic growth and adaptation, it is vital to have incremental innovation from the broader bulk of SMEs as well, and this is often lacking.
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  • Executive Summary
    Innovation is one of the most fundamental processes underpinning economic growth, the driver of growth in output per unit of labour and capital invested, and an important basis for developing solutions to economic and social challenges such as climate change, ageing societies and poverty.
  • Introduction
    The introduction examines what is new about innovation in the 21st century and the role played by SMEs and entrepreneurship. An important shift has occurred from the "managed" to the "entrepreneurial" economy, associated with a fall in the importance of economies of scale in production, management, finance and R&D. It is characterised by a series of trends encompassing the emergence of the knowledge economy, open innovation, global connections, non-technological innovation, the "Silicon Valley Business Model" and social entrepreneurship and social innovation. SMEs and new business ventures are important players in this new environment. They have a key role in processes of creative destruction, knowledge exploitation, breakthrough and incremental innovation, and interactive learning. Ensuring they reach their full potential requires a new innovation policy approach that facilitates entrepreneurship and SME innovation. Priorities include inserting new and small firms in knowledge transfer networks, strengthening entrepreneurship skills, and improving institutional environments for social entrepreneurship.
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  • Expand / Collapse Hide / Show all Abstracts An Overview by Country

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    • Introduction
      The following chapter presents key figures on the SME sector and the innovation performance of small and medium-sized firms in the 30 OECD member countries. When available, data are also presented for accession countries (Chile, Estonia, Israel, Russia and Slovenia) and enhanced engagement countries (Brazil, China, India, Indonesia and South Africa).
    • Australia
      AusIndustry is the Australian government’s principal business programme delivery division in its Department of Innovation, Industry, Science and Research. AusIndustry administers and delivers a range of over 30 business support programmes – involving innovation grants, tax and duty concessions, small business development, industry support and venture capital – worth AUD 2 billion to more than 12 000 businesses and about 85 000 individuals every year.
    • Austria
      In Austria, a number of linked policies work in unison to foster entrepreneurship and SME innovation. Among these are schemes to encourage high-tech research in small firms, technology transfer, cooperative research and innovation, patenting, and first-time innovation.
    • Belgium
      Belgian policy to promote innovative entrepreneurship or innovation activities is largely designed and delivered at the regional level, aside from elements captured in the national Lisbon Reform Programme. Federal responsibility in these matters is restricted to fiscal incentives and actions to improve the business environment. This includes actions for administrative simplification as well as a tax measure to support the hiring of R&D personnel in young innovative companies.
    • Canada
      The main national policy in Canada that addresses the innovation activities of SMEs is the National Research Council of Canada Industrial Research Assistance Program (NRC-IRAP). Described as the government of Canada’s premier innovation and technology assistance programme, NRC-IRAP provides support to SMEs for the development of new technologies and their successful commercialisation in a global context.
    • Czech Republic
      Entrepreneurship and enterprise innovation policy in the Czech Republic is institutionally anchored within the Ministry of Industry and Trade. The major public policy targeted at stimulating innovationbased growth of Czech firms is implemented through the European Regional Development Fund-co-financed Operational Programme Enterprise and Innovation 2007-2013 (OPEI).
    • Denmark
      With the Danish Globalisation Strategy, the Danish government has created a comprehensive framework that sets out to strengthen Danish competitiveness. The Strategy, which became operative in 2006, contains 350 specific initiatives that introduce reforms in key areas such as education and training, innovation, research and entrepreneurship. For 2010 the funds allocated to initiatives in the Strategy exceeds DKK 8.5 billion. Among other things, the Strategy aims at making substantial improvements in the framework conditions for growth and innovation in new and existing enterprises. The Regional Centres of Growth and Programme for User-driven Innovation are two of the Strategy’s initiatives.
    • Finland
      In Finland, support for innovative entrepreneurship and the innovation activities of SMEs is based on a systemic policy approach. The Finnish Funding Agency for Technology and Innovation (Tekes) provides well-established programmes aimed to encourage SME participation in co-operative research, development and innovation projects.
    • France
      During the 1980s the Agence Nationale de Valorisation de la Recherche, ANVAR, created in 1974 to promote the exploitation of public research results, was progressively reoriented to the mission of supporting SMEs by means of tools such as loans for innovative projects, contacts with research societies, recruitment of researchers and PhD students and counselling in intellectual property. In the nineties ANVAR opened regional delegations, which started to play a central role in the state/region multi-level governance of innovation policy.
    • Germany
      With the so-called High-Tech Strategy for Germany, from August 2006 onwards the German government started bundling a great variety of measures in the field of innovation and technology policy, and further improved the overall policy environment to foster high-tech entrepreneurship and SME development. To do so the government joined together with the KfW banking group and the industrial corporations BASF, Deutsche Telekom and Siemens to initiate the High-Tech Gründerfonds.
    • Greece
      The National Strategic Reference Framework 2007-2013, co-funded by the European Regional Development Fund, is geared towards transforming Greece into a highly competitive and open economy. The Operational Programme "Competitiveness and Entrepreneurship" (OPCE) and five Regional Operational Programmes are the main tools for improving competitiveness and entrepreneurship and fostering innovation. The total of EUR 732 million, part of which goes to innovative start-ups, are allocated to two priorities of the OPCE (Priority 1: Creation and development of innovation supported by research and technological development, and Priority 3: Improvement of the entrepreneurial environment) as well as to threads of the five regional operational programmes related to entrepreneurship and digital convergence.
    • Hungary
      In Hungary, the total expenditure on research and development was HUF 245.7 billion in 2007; this exceeded the previous year’s figure by 3.3% at current prices. The main sources of aid provided by national sources are the Hungarian Scientific Research Fund Programmes (OTKA) and the Research and Technology Innovation Fund (KTIA). In 2008 the amounts paid from the KTIA Fund increased to HUF 18.3 billion from HUF 13.3 billion in 2007, with SMEs getting priority in the distribution of funding.
    • Iceland
      The Icelandic Technological Institute (IceTec), operating under the Ministries of Industry and Commerce, is charged with the role of transferring technologies and expertise to business and industry. IceTec possesses a budget of ISK 242 million (USD 2.6 million), of which the majority comes from the government via institutional and competitive funding channels. IceTec has a role in assisting companies in innovation, productivity and R&D as well as providing information and advice to entrepreneurs and SMEs. IceTec operates a series of business incubators that can house up to nine companies, usually chosen from the biotech sector. Within an incubator, these companies are exposed to innovative business ideas and concepts.
    • Ireland
      Creating a leading innovative economy has been identified as a key priority of the Irish government. EUR 8.2 billion has been allocated in the National Development Plan to the Strategy for Science, Technology and Innovation (SSTI) 2006-2013. SSTI interlinks all policy areas for supporting and sustaining innovation. The strategy takes a holistic approach and combines education in science and engineering; social and economic development; policy in agriculture, health, environment, marine and natural resources; foreign direct investment; increasing output; tech transfer; and the development of a fourth level in the higher education sector into an integrated framework, in order to develop a world-class research and development capacity in Ireland.
    • Italy
      Promoting the design of large innovative industrial projects is one of the most important recent changes in Italian industrial and innovation policies. This new approach has two main thrusts: general support for all firms in the form of automatic incentives (a tax credit), and the Industria 2015 project designed in 2006-08.
    • Japan
      The Small Business Innovation Research (SBIR) programme was first introduced in 1999 and is implemented by seven government ministries, with the budget set annually by the Cabinet. Budget allocations awarded under the programme have gradually increased from JPY 26.1 billion in 2003 to JPY 37.1 billion in 2007.
    • Korea
      Founded in 1996, the Small and Medium Business Administration (SMBA) operates numerous schemes that are all targeted at assisting SMEs in the areas of entrepreneurship, human resources, financing, marketing and innovation.
    • Luxembourg
      The National Credit and Investment Society (SNCI) is a state-owned bank that specialises in financing medium- and long-term projects undertaken by Luxembourg-based companies. With resources standing at EUR 580 million in 2005, the Society provides financing through equipment loans, medium- and longterm loans, innovation loans, financing of foreign investments, equity loans and participating interests in small companies. The SNCI usually co-finances projects at an average rate of 25% of costs for fixed assets of industrial projects or up to 75% of costs incurred by first-time young craftsmen, traders, hoteliers and restaurant owners.
    • Mexico
      In 2003 Mexico started operating AVANCE, a programme aimed at identifying and exploiting business opportunities based on scientific and/or technological developments. This initiative supports the stages of the innovation process of firms and assists in the commercialisation of innovations, mainly from SMEs. The programme has three main delivery modes: the Nuevos Negocios (previously known as Ultima milla, or Last Mile), which provides resources to support the late stages of the innovation process; the Entrepreneurs Fund, which is managed in conjunction with NAFIN (Mexico’s state development bank), and offers complementary resources in the form of risk capital; and the Guarantee Fund, which endorses firms so they can obtain commercial bank loans.
    • The Netherlands
      A major programme considered very successful in the Netherlands is the so-called Innovation Voucher scheme. SMEs are provided with a voucher, which they can "cash in" with a technology or innovation provider of their choice. The scheme is intended to reduce the cultural barriers that SMEs and researchers/ engineers in public research centres experience when undertaking a project.
    • New Zealand
      TechNZ is a business investment programme designed to support companies and people undertaking research and development in projects that result in new products, processes and services. It is administered by the Foundation for Research, Science and Technology (FRST). Following an evaluation of the programme in 2008, TechNZ is now administered via two simplified and targeted grant schemes: the Targeted Research and Development Funding Grant and the Capability Funding Grant.
    • Norway
      The Commercialisation of R&D (FORNY) programme has been developed by the Research Council of Norway to commercialise research-based business ideas with market potential. In 2009, it had a budget of NOK 135 million (EUR 15.5 million) and offered four kinds of funding: for infrastructure activities; for commercialisation projects; for verification of technology; and for research scholarships enabling researchers to focus on commercialisation projects. In addition, FORNY has offered bonuses for successful completion of commercialisation projects. The funding can cover a maximum of 50% of costs related to the various activities.
    • Poland
      The Innovative Economy Operational Programme 2007-2013 is the main vehicle in Poland for pursuing the objectives of the Lisbon Strategy. It provides the practical framework for allocating and distributing EUR 8.25 billion of EU structural funds over the seven-year period, some 95% of which is earmarked for Lisbon objectives. The programme is managed by the Ministry for Regional Development; co-financing from the Polish government brings the total to EUR 9.71 billion, amounting to nearly 0.5% of GDP per annum. It is hoped that another EUR 2.42 billion will be raised from other sources.
    • Portugal
      Improved access to financing for entrepreneurs and SMEs is a priority implemented through the INOFIN programme, which in turn incorporates three programmes. FINICIA, launched in the second half of 2006, provides a network of regional platforms that brings together the demand and supply of venture capital, seeks to encourage innovation and entrepreneurship, and contributes to facilitating technology transfer.
    • Slovak Republic
      A joint initiative of the European Union and the government of the Slovak Republic, the National Agency for Development of SMEs was founded in 1993 to improve the competitiveness of Slovak SMEs in the EU Common Market. In 1997 the agency became a professional association of legal entities, including the Ministry of Economy of the Slovak Republic, the Slovak Association of Entrepreneurs and the Slovak Association of Crafts.
    • Spain
      The Inno-Empresa programme 2007-13 replaced the previous SME Consolidation and Competitiveness Plan 2000-06 and was included in 2006 as part of both the Spanish National Reform programme and the Entrepreneurship Programme. Inno-Empresa is budgeted with EUR 75 million per year; the main sources of financing are the Spanish Ministry of Industry, Tourism and Trade (EUR 500 million), the Autonomous Communities (EUR 125 million) and the European Regional Development Fund (EUR 110 million).
    • Sweden
      National policy addressing innovative entrepreneurship and/or innovation activities of SMEs is based on mix of direct support programmes, run by different governmental agencies. The three most important agencies are: Tillväxtverket, which includes ALMI – Sweden’s SME and Entrepreneurship Agency; VINNOVA (Swedish Governmental Agency for Innovation Systems); and Innovationsbron (InnovationBridge).
    • Switzerland
      The CTI (Swiss Federal Innovation Promotion Agency) is the most important innovation promotion government agency in Switzerland. Among its main tasks is the promotion of entrepreneurship in the Swiss economy. The most important entrepreneurship programmes are the CTI Start-up programme and Venturelab. The overall budget for the entrepreneurship promotion programme of the CTI amounts to about CHF 11 million in 2008; CHF 3.7 million of this amount is used for funding Venturelab and about CHF 7.3 million for the Start-up programme.
    • Turkey
      The Young Entrepreneur Development Programme was designed to help increase awareness of entrepreneurship, stimulate start-up of new technology-based firms among university students and graduates, and create new jobs. It has been run together with universities since 1998. During a 66-hour course, students are assisted with developing their business ideas and business plans.
    • United Kingdom
      The United Kingdom is the only country that has documented, twice, the scale of public funding for SMEs. The first, in 2002, showed that, including the provision of tax relief, total public funding was approximately GBP 8 billion. Of this, GBP 2.3 million was the result of small firms paying the lower 20% rate of corporation tax. A later estimate by the National Audit Office provided a lower figure by excluding the taxation component, but found that all expenditure on training had been omitted from the initial estimate.
    • United States
      The Small Business Innovation Research (SBIR) programme is a double-gated innovation programme providing competition-based awards to small private sector companies of about USD 100 000+ for proof of principle, and later awards of about USD 750 000 to develop prototypes. Created in 1982 through the Small Business Innovation Development Act, the SBIR programme offers about USD 2.5 billion a year in awards.
    • Brazil
      Brazilian innovation policy is based on two pillars, namely the Industrial, Technological and External Trade Policy (PITCE) and a range of sectoral funds to support strategic R&D. Regarding the Private Sector and more particularly SMEs, two concrete mechanisms have been created: the Innovation Law (Act 10973/ 2004), and the Goodwill Law (Act 11196/2005). These mechanisms provide financial as well as technical and managerial support to innovative enterprises. They focus on different lines of action, including: strategic partnership between universities or technological institutes and enterprises; technology-based entrepreneurship; incubators and technological parks; hiring of academic researchers by the private sector.
    • Chile
      As a part of the government strategy to promote economic growth, a National Innovation for Competitiveness Council (CNIC) was established in 2005. This was further strengthened in 2006, when a new pro-innovation law was passed, whereby mining companies are charged a royalty which is intended to feed an Innovation and Competitiveness Fund.
    • China
      The Torch Programme was established in 1988 by the Chinese central government and is administered by the Ministry of Science and Technology. One of the main activities of The Torch Programme is to certify high-tech projects, products or companies and provide them with financial and policy support. By the end of 2005, 13 222 industrial projects had been certified and supported by the programme. In 2005, government at all levels only accounted for 1.2% of the project funding, bank loans accounted for 22%, and enterprises’ own capital accounted for the majority of project funding, i.e. 74.5%.
    • Estonia
      It is only since 2004, and the influx of funding via the European Union’s Structural Fund programmes, that a set of co-ordinated policy measures favouring innovation and entrepreneurship has been launched in Estonia. Innovative, growth-oriented companies can now receive higher support grants/loans from Enterprise Estonia, export marketing support, and/or guarantees for export-oriented companies from KredEx (the Credit and Export Guarantee Fund founded in 2001 to improve the financing of enterprises in Estonia).
    • India
      The Science and Technology Policy of 2003 was a landmark initiative in that it ended India’s historic emphasis on highly protective strategy for domestic technology development. Instead, a bolder approach to international co-operation to meet national developmental imperatives has emerged as the norm for public policy. The development of a robust legal framework conducive to the establishment of a highquality technology environment reflects the strength of the role of government and rule of law in India’s innovation and entrepreneurship.
    • Indonesia
      Access to financing is a problem faced by entrepreneurs of micro, small, and medium-sized enterprises (MSMEs) in Indonesia. The national policy to address this problem is to provide direct financial support to entrepreneurs and start-up SMEs. Two developments are worth noting: state-owned enterprises’ (SOEs) obligation to support SMEs, and a revolving fund programme (Iptekda) for empowering new entrepreneurs and start-up SMEs.
    • Israel
      The main Israeli programme promoting innovative entrepreneurship is the Incubator programme, set up in 1991. The programme, managed by the Centre of Incubators for Technological Initiative, currently includes 26 such incubators, 22 of which have been privatised. The annual budget for 2008 was about USD 45 million. Overall, since the first companies graduated from the system in 1993, 61% secured follow-on funding and 40% are active to this day. Since the programme started, the private sector has invested over USD 2.5 billion in incubator graduates.
    • Russian Federation
      Since mid-1990s the Russian government has taken initiatives to stimulate innovative activities of SMEs and innovative entrepreneurship. Presently, Russia does not yet have a comprehensive policy on innovative entrepreneurship and SME development, but nevertheless several policy initiatives are being realised, among which: commercialisation support, venture financing, and infrastructure development. As concerns support to commercialisation, the bulk of government funds is distributed through two organisations: the Foundation for the Assistance to Small Innovation Enterprises; and the Russian Corporation of Nanotechnologies (RUSNANO).
    • Slovenia
      The Ministry of Higher Education, Science and Technology (MHEST) and the Ministry of the Economy (ME) have been supporting R&D and innovation activities in SMEs through co-financing R&D projects, innovative research investments, research infrastructure, participation in international research networks, and innovation vouchers. In 2009, the measure to co-finance R&D projects was redesigned in terms of its focus, conditions for application and budget. Its goal is to stimulate the investment of micro and small enterprises in R&D, new technologies, products and processes. The wider aim is to increase the technological level, value added and competitiveness of SMEs. The R&D activity can be carried out within the enterprise, or in co-operation with other enterprises and/or public R&D institutions.
    • South Africa
      The promotion and support of micro, small and medium enterprises (MSMEs) is an important policy issue in South Africa. The Department of Trade and Industry (DTI) has various strategies and programmes aimed at MSME growth and development, as well as R&D and innovation. The OECD Review of Innovation Policy in South Africa (2007) has, however, identified a gap in the current innovation policy in terms of comprehensive and operational support to MSMEs.
    • ANNEX 2.A1. Notes on the Country Data
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  • Knowledge Flows
    Knowledge affects the market entry, market success and innovation potential of a firm. The contribution of knowledge to entrepreneurship is best understood through a systemic approach to innovation, which differs from the linear approach by taking innovation as a process that does not occur solely within corporate boundaries, but instead requires a web of relationships among firms, research organisations and governments. Knowledge flows are the quintessence of an innovation system, strengthening the performance of local SMEs and underpinning the overall efficiency and vitality of the system. A vast empirical literature shows that knowledge spillovers decay with distance and therefore lie behind the process of localised industrial agglomeration in knowledge- and technology-intensive sectors. However, in a time of globalisation, local innovation systems should not be insulated from global sources of knowledge. Cross-border alliances, FDI embedding and attraction of overseas skilled workers are three of the main channels through which global knowledge flows can revitalise local innovation systems.
  • Entrepreneurship Skills
    This chapter describes the role of entrepreneurship skills in driving successful new venture creation and putting innovative initiatives into action in SMEs. Also discussed are the roles of tertiary and school education, vocational training and the use of knowledge-intensive service activities and small business support in the provision of entrepreneurship skills. Policy recommendations are provided.
  • Social Entrepreneurship and Social Innovation
    The chapter outlines social entrepreneurship and social innovation before going on to provide concrete examples. While it may be argued that these fields require better exploration and articulation, that does not mean that their role should be underestimated. They have already proved to be effective tools to meet social challenges and needs and contribute to sustainable development. Policy makers and investors are looking with growing interest at these areas, and have an important role to play in the provision of tailored support to aid their development.
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