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Creating a competitive SME-friendly eco-system

The basic elements for creating an SME-friendly eco-system that nurtures innovation and delivers growth are free and unhindered access to knowledge and better connection between universities and entrepreneurs and their needs. This is the insight provided by the panel discussion entitled ‘Ideal Competitive SME friendly Eco-system’ that took place during the EuroSME2013 conference in Dublin on 11-12 June.

‘The framework for SMEs should be one of ideas and strategies. SMEs need to figure out what the strengths and weaknesses are of their environment, how they can be applied to their framework and the industry they belong to. It’s a process of figuring out what type of innovation each SME needs to embark on and have specific goals attached to it,’ argued Ms Keary Crawford, keynote speaker at the conference and co-founder of The Growth Strategy Company, an advisory firm which equips companies for sustainable growth in the new normal business environment.

Developing a successful eco-system for SMEs

The panellists enlightened the audience on the ingredients that make an eco-system beneficial for SMEs, how to facilitate SMEs to innovate and to identify the role of governments in promoting such eco-systems. According to Mr Cian Hughes, executive consultant at the Irish Technology Leadership Group, there are three basic elements that render an eco-system successful: access to capital, access to a large market and access to education and talent.

Access to knowledge and good cooperation between universities and the market were highlighted as the cornerstone of effective SME eco-systems by the majority of the panellists. In fact, the role of universities is said to depend on the interface with SMEs, in the sense that if this relationship is not developed, universities might then become irrelevant.

SMEs and universities stand to gain from the Canadian best practice example. According to Dr Tony Bailetti, Director of Carleton University's Technology Innovation Management programme, Europeans should embody students in the business world early on. He proposed that Europeans ‘should encourage students to create companies, while they are already at university.’ In the US, professors and students work on business projects while in school. ‘When I want to identify eco-systems with good entrepreneurship, I immediately look at the role of universities. When there’s a boundary between the universities and the community, entrepreneurship is very low,’ he argued.

This relationship was also underlined by Dr Viera Spanikova of the research and consulting company Ecorys Nederland BV, who claimed that entrepreneurial attitude and skills should be cultivated at the very beginning: ‘Starting at the university is too late,’ she stated. However, there is a gap that needs to be bridged between universities and SMEs, and it concerns timing. ‘By nature, it takes a lot of time for universities to utilise ideas, whereas SMEs are uneasy about time constraints and require fast production of goods or delivery of service,’ said Hee Chang (Leo) Park, senior manager of the technology valuation modelling team at Korea Technology Finance Corporation.

Achieving sustainable growth

Besides the required elements for effective eco-systems, panellists also emphasised a number of key initiatives that SMEs should adopt in order to reach sustainable growth. The first concerns the proper research of the potential markets where SMEs will push their products. As Mr Hughes underlined, ‘there might be great entrepreneurial ideas, but once developed the SME might realise that either there is no market to sell them, or that someone has developed them beforehand. Therefore, SMEs should look at the market first and see if their products are products that the market would really buy.’

The second relates to the ability of SMEs to convert their technologies into real products. The conversion process might be very difficult if there is a concept to be developed, yet there exist no manufacturing processes, which obstruct many SMEs from reaching the point of market introduction. ‘It’s extremely important for SME entrepreneurs to run policies that support a process that leads from the inception of concepts to a scalable production,’ notes Ms Mette Praest Knudsen, professor of Marketing and Management at the University of Southern Denmark.

The third refers to the process of globalising a firm’s capacities and operations. Globalisation of activities in this field concerns addressing a need that appears in a variety of geographies, regardless of their peculiarities. According to Dr Bailetti, there are two key elements for successful globalisation of production: ‘First, SMEs have to generate cash from customers very quickly. Second, they have to know how to scale their production where there’s diversity.’ He also stressed that since technology is a global phenomenon, it makes no sense to keep it local.

Overcoming obstacles to growth

SMEs need to overcome many hurdles. The panellists paid much attention to the concept of diversity among SMEs: they are not a homogeneous group, but rather have different requirements. These inequalities need addressing, and this is where policy-makers come in. ‘Some SMEs are very innovative, whereas others have difficulties in the innovation front, and the government’s policy needs to address these challenges,’ underscores Professor Knudsen. For example, and as Dr Spanikova argued, research by Ecorys has proven that SMEs in high-tech manufacturing are performing better than the EU average. This notion of knowledge intensity is an important ingredient when trying to enhance the average performance. ‘The government should fully understand the features and characteristics of each industry and cope with technology altogether,’ added Mr Park.

Another challenge is to restore the resource channels of SMEs and their access to knowledge. ‘SMEs are bounded by resources and access to knowledge and borrowing from partners is key for them. For example, we found in our studies that SMEs do not realise that there is a potential in borrowing knowledge from universities. They see the process as too complicated and this can be tackled by better access to knowledge and training,’ claimed Professor Knudsen.

The session also identified three ways in which governments could promote a climate that would facilitate SMEs to grow by applying innovation.

One suggestion came from Mr Hughes, who stressed the need for more women to enter the business world. He cited Fortune 1000 (a list of the 1000 largest American companies by revenues as ranked by the business magazine Fortune), which shows that only 4.2% of CEOs are women. This, he said, needs to change. ‘Women have a phenomenal contribution to make to technology, industry and business, and this needs to be fixed and I think that governments can help with that,’ he concluded.

The second proposal for governments concerned regulation. ‘Policy-makers should pursue sensible regulations that are not burdensome for SMEs. They should always enable them to look at growth and innovation,’ claimed Ms Crawford. Mr Hughes concurred, and appealed to governments ‘to get rid of the laws that make no sense, to reduce red tape and to make it easier for business’.

The final call for governments was on education – or, as it was described, the ‘building block’ of society. Mr Hughes invited governments ‘to invest in education and particularly in math, science, computer science, business and sales’.