Competing in the Single Market - SMEs and ... - Erhvervsstyrelsen

SMEs and InnovationSMEs as Drivers of Innovation and Competitiveness in the B4Some of the challenges and opportunities arising with the knowledge-based economy (see Box 1) arebest handled by big already established firms which enjoy economies of scale and scope. At the sametime, however, the real opportunity, and challenge, in the era now arising lies in the fact that manyof the transactions and processes that used to require a central location and great scale now can becarried out in the periphery, on small scale, if firms and other actors can engage in networks withpartners. The new way is to combine the flexibility of small scale with economies of scale and scopeat the level of networks, thereby entering new markets, and managing vital information and skills invarious services complementing manufacturing capacity.SMEs thus provide an important and unique breeding ground for innovation and, in turn, fornational competitiveness. Given the right framework conditions, SMEs have the potential to serveas incubators to new ideas, exercising their ability to act quickly and flexibly more easily than big,established firms.In many of the transition economies, SMEs can and should play a key role in moderating theircountries’ current economic dependence on a handful of large multinational companies. As pointedout by the OECD,[t]he SME sector can provide a large share of the fl exibility increasingly required in OECD economies.Dynamic rates of business turnover facilitate the fundamental restructuring required to shift resourcestowards growing areas and away from declining areas, and to adjust the structure of production tomeet market needs. At firm level, many smaller enterprises are inherently more fl exible than largerfirms, as they are less likely to be ‘locked in’ to existing plant, technologies or organisational structures.(OECD (2002a), pp.11-12).One of the principal challenges for the former socialist countries will therefore be to enable thedevelopment of a critical mass of dynamic, innovative, and internationally active and competitiveSMEs which can gradually moderate these countries’ economic dependence on large foreign-ownedcorporations. This must be accomplished at a time when, with the upcoming accession to the EUin May, competition is getting tougher and technical and quality standards are becoming morestringent.Currently, there are a number of “monuments” from the previous era that still remain, challenging thefurther growth and development of SMEs, and particularly of innovative SMEs, in these countries,including:• A long experience with, and deep expertise of more theoretical and technically-focused R&D,overpowering the need to develop more entrepreneurial attitudes and commercially-orientedsolutions• A strong, traditional, higher-education structure which is difficult to adapt to the needs of amarket-focused economy• A low level of collaboration between universities and research institutions and the private sector• A relatively young and risk averse capital market, not able to provide seed or risk capital to thoseentrepreneurs and SMEs who seek funds in order to initiate or grow their business46