SMES, Entrepreneurship and Innovation OECD 2010 23 Chapter 1 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. 1. INTRODUCTION SMES, ENTREPRENEURSHIP AND INNOVATION 24 OECD 2010 The creation of new business ventures and innovation in existing small
and medium-sized enterprises (SMES) are critical parts of today's innovation process, and should take a central place in government strategies to promote innovation.
Despite their importance however, SME and entrepreneurship support is embedded not yet fully in innovation policy, and the requirements for effective policies in this area are still not well enough understood.
New firms and innovating SMES are seen best as agents of change in the economy, introducing new products and services and more efficient ways of working.
They underpin the adaptation of our economies and societies to new challenges and drive economic development.
Not all new and small firms are equal in innovation, of course. On one hand, there is a small group of highly innovative and high-growth-potential firms with important individual impacts on jobs and productivity.
But their numbers from the Entrepreneurship Indicators Project should not be exaggerated. They make up only a small minority of all SMES.
OECD figures for eleven OECD countries suggest for example that high-growth enterprises account for between only 2 and 8 per cent of all enterprises with 10 or more employees,
while gazelles account for less than 1 per cent of such enterprises. 1 They nonetheless generate large impacts.
Anyadike-Danes et al. 2009) calculate, for example, that the six per cent of UK businesses with the highest growth rates generated half of the new jobs created by existing businesses between 2002 and 2008.
Innovation is a source of the growth of these types of firms (Mason et al. 2009). 2 The Global Entrepreneurship Monitor survey in 53 countries suggests that only 6. 5%of new entrepreneurs are highexpectation entrepreneurs,
who expected to create 20 or more jobs in five years time. Almost 90%of all expected new jobs were foreseen by less than one-quarter of nascent and new entrepreneurs (Autio, 2007.
Many empirical studies have shown the aggregate relationships between entrepreneurship and SME activity and economic growth and job creation.
and business start-up rates are associated with more rapid economic growth (Audretsch and Thurik, 2001; Audretsch and Keilbach, 2005;
as new and small firms take up labour released by downsizing elsewhere in the economy and increase national and local competitiveness (Neumark et al.,
while in 1. INTRODUCTION SMES, ENTREPRENEURSHIP AND INNOVATION OECD 2010 25 2007 two-thirds of the entire pool of new jobs were created by firms aged between one and five years
This job creation function of entrepreneurship and SME development is of great relevance to the recovery from the global financial
and economic crisis since it is clear that policies enabling innovation in new and small businesses will have benefits not just for improving products
and services and increasing efficiency but also for meeting the job creation challenge of high unemployment. In the short to medium term there is a real opportunity for governments to use policies for entrepreneurship
and SME innovation to meet productivity and job creation objectives at the same time. There is growing, if still insufficient
recognition that entrepreneurship and small firm development promotes innovation and in so doing meets fundamental economic and social objectives.
and Entrepreneurship, aimed at policy makers and their advisors with direct responsibility for entrepreneurship and SME policy or working in other policy domains such as education,
innovation and social policy who could better realise their goals by adopting strategies that are more aware of and sensitive to the needs and opportunities of SMES and entrepreneurship.
This chapter sets the context. It focuses on two key questions and draws out the policy implications of each:
which relies much more strongly than in the past on entrepreneurship and SMES, but institutions and policies have yet to fully adapt to this new reality.
developing entrepreneurial human capital and bringing about social entrepreneurship and social innovation. The chapter starts by examining how global trends towards the knowledge economy, open innovation,
global connections and non-technological innovation and the emergence of national and regional economic models and new types of social innovation have increased the importance of SMES and entrepreneurship to innovation.
It then discusses how SMES and entrepreneurship contribute to innovation by driving processes of creative destruction,
commercialising research, making break through and incremental innovations, participating in interactive learning processes and working in different modes of innovation.
The change can be resumed as a shift from the Managed economy to the Entrepreneurial Economy (Thurik, 2009;
In the latter, entrepreneurship is one of the foundations of innovation. 1. INTRODUCTION SMES, ENTREPRENEURSHIP AND INNOVATION 26 OECD 2010 New and small firms have become critical innovation players because of their ability to recognise
and exploit the commercial opportunities emerging from technological, competitive and market changes. Furthermore, economies of scale in research and development are no longer the barriers they once were to small firm participation in innovation.
Rather, innovation today tends to be carried out in collaborations among universities, research organisations, customer supplier and competitor firms and consumers, with costs and roles shared,
while the massive shift from manufacturing to services is bringing with it new types of non-technological innovation that render economies of scale in R&d far less significant.
In presenting the shift from the managed to the entrepreneurial economy, Thurik (2009) distinguishes between three major historical phases of innovation and contrasts the importance of SMES and entrepreneurship in each. 1. The Schumpeter Mark I regime.
Schumpeter's initial view was developed in the first decades of the 20th century. Schumpeter in this period saw the entrepreneur as playing a major role in challenging incumbent firms by introducing new inventions rendering current technologies and products obsolete
exploiting high price elasticities of demand (Schumpeter, 1942). Innovation from the 1940s to the 1970s fits this model:
In this new environment, established and large firms were seen to outperform new and smaller firms in innovation because of a close link between infirm R&d spending and innovation. 3. The Entrepreneurial Economy.
From the late 1970s to today the structures and operations of advanced economies have again been changing.
and entrepreneurship in today's economy is reduced the importance of economies of scale and scope in production,
Changing markets, increased competition and new technologies have reduced product life times, demanding more rapid creation of products and their more rapid destruction.
Thus a major force in the emergence of the entrepreneurial economy has been a reduction in the product standardisation that was the force of large firms in the middle of the 20th century.
ENTREPRENEURSHIP AND INNOVATION OECD 2010 27 reducing the transaction costs associated with managing different parts of the production process,
i e. the capacity of firms and economies to specialise, able to produce output for niche markets,
Nevertheless, what has emerged is an environment in which entrepreneurship and SMES have moved up the agenda.
A number of further associated trends have changed the way that innovation is carried out in the 21st century,
the knowledge economy; open innovation; global connections; non-technological innovation; the Silicon valley Business model, and social innovation and social entrepreneurship.
These are discussed in turn. The knowledge economy One of the features of the transition from the 20th to the 21st century has been the emergence of the knowledge economy,
which has significant implications for the importance of new and small firms in innovation and how they innovate.
One of the reasons for its arrival has been the out-sourcing of standardised production from high-to low-labourcost countries
and hence a shift in the specialisation of advanced-economy firms towards more knowledge-based activities that are tied more closely to local knowledge resources and capabilities.
the knowledge economy is not just an advanced world phenomenon. Emerging economies as well are engaging more with science
and technology and ideasbased production as firms around the world all seek to achieve product differentiation and greater productive efficiency.
In this new environment, it is the creativity and adaptability in applying knowledge provided by SMES
and entrepreneurship that have made them essential drivers of innovation, growth and employment creation. The major feature of the knowledge economy is increased the importance of knowledge as a factor of production.
As Romer (1986) points out, there is something particular about knowledge as a factor: It is non-rival, cheap to share,
pervasive and generates an aggregate learning curve effect that increases the productivity of new knowledge investments.
This is what is seen now generally by economists to be the major factor behind the bulk of economic growth, the growth that is not due to additions to capital and labour stocks.
Some of the ideas driving economic growth may be the result of scientific breakthroughs in large firms and universities,
but the capacity of entrepreneurs to commercialise this type of invention through spin-off enterprises and knowledge transfers is critical.
Indeed, one of the reasons that new start-ups and small firms have become more important today is that innovation in the knowledge economy is coming from creativity and the unexpected,
ENTREPRENEURSHIP AND INNOVATION 28 OECD 2010 Open and distributed innovation Innovation today involves going beyond exclusive reliance on internal ideas from within any one business for development (closed innovation) to innovation that leverages internal
and opened up innovation to new enterprises and SMES that participate in knowledge transfer networks with universities, large firms and other players.
and transport and communications have improved. Cross-national trade and investment have increased therefore, escalating competition and specialisation.
This puts a premium on innovation. At the same time, innovation itself is globalising (Archibugi and Iammarino, 1997.
This has important consequences for innovation in new and small firms. Above all, globalisation has increased the importance of cross-border collaboration in innovation both in obtaining inputs for innovation (ideas, finance, skills,
technologies) from abroad and in exploiting its outputs (products and services, patents, licenses, etc.)in foreign markets.
ENTREPRENEURSHIP AND INNOVATION OECD 2010 29 make a major difference, such as changes in product design or packaging, product placement, product promotion or pricing.
For example, it may involve SMES in tracking competitors'actions through electronic monitoring of news and information services or the introduction of total quality management techniques on the work floor.
non-technological innovation is equally important to services and manufacturing (European commission, 2007). This is very significant
because the services sector has seen a dramatic rise in its share of economic value added in recent years (rising for example from 55%to 70%of Japanese
The new European union Services Directive is part of a move to redress the balance in Europe by removing legal and administrative barriers to the full tradability of services within the European Single Market.
ENTREPRENEURSHIP AND INNOVATION 30 OECD 2010 Many non-technological innovations are small, everyday innovations. But whether they are small or more radical combinations of existing technologies,
The Silicon valley Business model There have been changes in the entrepreneurship environment in some very dynamic national
and local innovation environments that have made it easier for new start-ups to gather the resources required to become viable businesses
logistics, product service and ancillary corporate services. Cohen (2010) calls this the Silicon valley business model, for where it first developed into a significant economic force.
The Silicon valley environment has not been replicated in its intensity, but many of its important features have been taken up to a significant degree in the most innovative national and local environments of the 21st century.
Venture capital firms can now provide capital quickly to the most promising ventures whether or not they are in a large firm context.
Their initial contributions can release further funding downstream if important milestones are met. Venture capitalists can also
if needed, help round up teams of engineers and other key staff from other firms. Engineers and other key staff may shift as groups,
and servicing can similarly be resolved in the market in highly entrepreneurial environments. Whilst this favours the SME, large corporations are adapting to become important players within this type of business model rather than treating it solely as a threat.
Many are involved in buying the firms with the most promising technologies and markets in their areas,
hence providing an exit to the original innovators and venture capital investors. They may also be involved even more closely for example in venture investing
provision of complementary assets and technologies, and even the provision of key people, including the would-be innovating entrepreneur.
significantly increasing the prospects of major innovation in small firms. 1. INTRODUCTION SMES, ENTREPRENEURSHIP AND INNOVATION OECD 2010 31 Social entrepreneurship and social innovation So far,
the discussion has been oriented implicitly around the creation of economic value added. But a further ramification of a broader notion of innovation is need the to consider its social contribution.
Social entrepreneurship is defined by its paramount logic of providing entrepreneurial business solutions to social challenges.
but can occur either through or independent of business ventures. Social entrepreneurship and social innovation are of fundamental importance today
because welfare states are changing. New social needs are emerging as people live longer, healthcare possibilities improve,
But state budgets are not keeping pace with the growing needs and expectations, particularly with the consequences of the global financial and economic crisis,
which has opened up a gap for the entrepreneurial supply of social goods and services. This too can be seen as part of the above-mentioned shift from the managed to the entrepreneurial economy.
The managed economy was a mass production society based on stable employment in large firms and a central role of unions and employers in regulating the economy and society in partnership with government.
The social contract included regulation of labour markets and a strong welfare state. The reduced power of large firms and unions,
and arguably the reduced capacity of government to raise taxes in an era of mobile capital,
Social entrepreneurs and social enterprises such as nonprofit organisations have stepped into this breach (OECD, 2003; Noya and Clarence, 2007.
They generate new goods and services such as environmental protection and services to the individual. At the same time many address problems of unemployment and the social problems of poor neighbourhoods.
Furthermore, whilst many of the goods and services offered through social enterprise and social innovation seek to fill gaps in purely public provision by welfare states,
social entrepreneurship is also now usefully entering fields where there is some public or private sector provision,
But there are also some differences in opportunities and constraints. Social enterprises may have greater problems accessing capital markets, for example,
since they are understood not well by traditional banks. They may also need special support for human capital development,
Taken together, the trends outlined above the shift from the managed to the entrepreneurial economy, the growth of the knowledge economy
open innovation, increased global connections, non-technological innovation, the Silicon valley business model, and social innovation and entrepreneurship represent an important change in the environment in
which innovation takes place. What has emerged is an economy in which SMES and entrepreneurship are now critical players in a broader, more distributed innovation process.
The next section looks more closely at the role that SMES and entrepreneurship now play in innovation,
before we examine the implications for policy. 1. INTRODUCTION SMES, ENTREPRENEURSHIP AND INNOVATION 32 OECD 2010 What is the role of SMES and entrepreneurship in innovation?
The major function of SMES and entrepreneurship in innovation is the introduction of advances in products, processes, organisational methods and marketing techniques into the economy.
This occurs at two basic levels: making breakthrough innovations that push forward the technological frontier; and adopting incremental innovations that bring the economy closer to its technological frontier.
The ideas for these innovations may be developed internally by the SME or start-up, or they may be accessed from external sources.
Another function of SMES and entrepreneurship in innovation is to provide ideas and inputs to ideas generation that are exploited by large firms, universities/research organisations and other small firms.
There are nonetheless several ways of thinking about these contributions, revealing different aspects of the innovation process.
It is useful to start by considering how a number of seminal authors have seen the connection between entrepreneurship and innovation (see also Ahmad and Seymour
It is entrepreneurs who bring about change in an economy by providing new combinations: new or improved goods, methods of production, markets, sources of supply of inputs, organisation of an industry,
They disrupt markets, leading to long-run evolutionary growth in the economy. l The entrepreneur as an opportunity identifier.
Kirzner (1973,1997) stressed the role of entrepreneurs as discoverers and early exploiters of previously-unnoticed profit opportunities.
They gain temporary monopolies until the attention that they draw to the opportunity leads to competitor entry,
which eliminates the profit. Innovation occurs as entrepreneurs discover new opportunities. But as opposed to Schumpeter's view of the entrepreneur as a disruptor of markets and instigator of evolutionary economic development
this is a static view: the entrepreneur facilitates matching of supply and demand and the achievement of equilibrium following shocks. l The entrepreneur as a risk taker.
Here the entrepreneur is seen as facilitating economic adjustment by predicting where new profit opportunities will open up
processes and business models to fit at the risk of failure. The entrepreneur innovates by experimenting. l The entrepreneur as a resource shifter.
although Drucker's main focus is more on firm strategy and competitiveness than aggregate economic growth. l The entrepreneur as a breakthrough innovator.
Like Schumpeter, Baumol (2002) adopts a dynamic framework examining the relationship between entrepreneurship, innovation and economic growth.
ENTREPRENEURSHIP AND INNOVATION OECD 2010 33 ties to existing technologies. Large firms are seen to undertake more incremental innovation, based on systematic research in their existing development channels.
All of these authors identify essential roles for entrepreneurship in innovation: in both static and dynamic frameworks;
discovering opportunities, taking risks, shifting resources and creating breakthrough innovations and these roles moreover are not mutually exclusive.
But in which settings is entrepreneurship to be found? There are many competing views and some degree of confusion in this area.
l Entrepreneurs are those persons (business owners) who seek to generate value, through the creation or expansion of economic activity,
processes or markets. l Entrepreneurial activity is the enterprising human action in pursuit of the generation of value, through the creation or expansion of economic activity,
processes or markets. l Entrepreneurship is associated the phenomenon with entrepreneurial activity. The definition of entrepreneurship is therefore not synonymous with either SMES or business start-up,
but reflects instead the human action behind innovation. Entrepreneurial activity may occur in start-up enterprises SMES, large firms or public sector organisations.
What is important is that people are enterprising in the creation of value through innovation. Our emphasis in this book is on two parts of the spectrum, namely the new start-up venture
(which is generally but not always of small size) and the small and medium-sized enterprise.
Our focus in both cases is on entrepreneurship and innovation i e. the generation of value from the identification and exploitation of new products, processes and markets.
We are concerned not then with new firm and SME operation and management per se but with innovation-oriented entrepreneurship within new firms and SMES.
It is oriented this innovation activity that promotes economic growth and solves social problems. In order to understand more fully how start-up enterprises
and SMES contribute to innovation and identify the public policy implications, it is useful to consider the following (overlapping) aspects of the modern innovation process in more detail:
creative destruction; knowledge spillovers and entrepreneurship; large and small firm roles in breakthrough and incremental innovation;
distributed and open innovation; and the Science-Technology-Innovation (STI) and Doing-Using-Interacting (DUI) modes of innovation.
Creative destruction Venture creation and SME growth renew economies by forcing the contraction, exit or upgrading of incumbent competitors.
ENTREPRENEURSHIP AND INNOVATION 34 OECD 2010 SMES that grow clearly have some productivity advantage that enables them to compete (either from greater productive efficiency or from the greater value of output for given inputs that results from product differentiation).
thus increasing the average productivity of the economy and driving economic growth. There is also an indirect impact,
and enterprise churning (measured for example by net entry: entry minus exits)( Bartelsman et al. 2009). ) The creative destruction process is particularly important in recession and recovery,
At the same time productivity may be enhanced as new firms bring better products and services and better technologies into the economy.
Knowledge spillovers New venture creation and knowledge exchanges between knowledge-generating organisations and SMES also enable the commercialisation of knowledge that would
which many economists understand economic growth. Investments in new knowledge are seen to spill over in part to other agents,
increasing their returns to innovation and driving further investment and growth. Knowledge built up in universities,
large firms and research organisations does not spill over automatically, however. It may remain unexploited. The new start-up enterprise is one of the significant players in commercialising knowledge.
This largely occurs as individuals leave universities research organisations and large corporations to start enterprises based on knowledge they developed there in the form of spin-off companies,
but also as external entrepreneurs commercialise ideas from these sources. Both public policy makers and firms and research organisations themselves have become increasingly interested to support such commercialisation, seeing spin-offs as one of the key ways to exploit untapped knowledge,
the University of British columbia has a venture fund, the University of Guelph has raised money for commercialisation by listing its intellectual property portfolio on the stock market,
and a range of entrepreneurship boot camps, mentoring programmes, entrepreneurship resource centres and entrepreneurship courses for researchers have been introduced (Mcnaughton, 2008).
and represent only a small proportion of new enterprise starts. Callan (2001) reports that academic spinoffs accounted for no more than 2%of new firm creation across eight OECD countries,
ENTREPRENEURSHIP AND INNOVATION OECD 2010 35 offs high-growth firms on average, while they also tend to grow slowly (Lindholm-Dahlstrand,
and the University of Waterloo in Canada are key drivers of entrepreneurship in their areas through spin-offs (84 spin-offs in Madison;
Considering entrepreneurship as all venture start-ups, Audretsch et al. 2006) and Acs et al. 2004,2005, 2009) suggest that commercialisation of knowledge by new start-ups explains part of the link between entrepreneurship
and economic growth through their role in promoting knowledge spillovers. The relationship may involve not just the role of new start-ups in exploiting knowledge themselves but also the role of new enterprises and SMES as participants in knowledge exchange networks within innovation systems, stimulating knowledge transfers from universities and other
sources to a broader group of firms. There is cross-country empirical evidence from 20 OECD countries of a link,
with entrepreneurship acting to convert knowledge into growth by exploiting spillover originating in a country's R&d stock (Acs et al.,
2004). ) Breakthrough and incremental innovation There is lively debate over the relative roles and importance of SMES and large firms in innovation.
ENTREPRENEURSHIP AND INNOVATION 36 OECD 2010 There is certainly evidence that small firms and new ventures are active in breakthrough innovation in sectors such as biotechnology and information and communication technologies.
Baumol himself provides a convincing account of the smallfirm origins of many breakthrough innovations. The empirical evidence is not entirely clearcut, however.
i e. driven by social capital networks or networks stemming from location in clusters. It is particularly important for new and small firms that they draw on networks
Within any innovation system, a close articulation is needed 1. INTRODUCTION SMES, ENTREPRENEURSHIP AND INNOVATION OECD 2010 37 between
Modes of innovation A key distinction needs to be made between the role of SMES and entrepreneurship in the Science,
and by closer interaction with users of products and services outside the organisation. The result is localised innovation with usability in addressing problems faced by the firm.
and economies combine them to varying degrees, the distinction serves to highlight the need for a holistic innovation approach that recognises the importance of both kinds of processes and differences in the types of barriers that affect SMES and start-ups under each.
Whereas typical problems for STI-based innovation are under-investment in scientific research, lack of connections between science and industry and poor access to finance for knowledge-based start-ups,
and human capital to absorb knowledge. 1. INTRODUCTION SMES, ENTREPRENEURSHIP AND INNOVATION 38 OECD 2010 Policy implications As is clear from the above discussion,
SMES and entrepreneurship are fundamental to the modern innovation process. Yet their place is established not fully in today's innovation policies.
This state of affairs arises as a consequence of the shift from the managed to the entrepreneurial economy
and the lag involved in adapting policies to the new needs. As Thurik pertinently points out (2009,
innovation policy in the entrepreneurial economy must expand to include new types of actions for entrepreneurship and SMES.
this is still too often understood as being about investment in science and R&d policies, leaving aside the crucial issues of diffusion and exploitation of research
and excluding large parts of the non-technology economy. It is typified by the European union Barcelona Summit headline goal of achieving an increase in the proportion of European GDP invested in research and development from 1. 9%in 2002 to 3. 0%in 2010.
Large-scale research subsidies to national champions, other large firms and basic-research silos in national universities and research organisations are not the most effective way to generate innovation in an environment where knowledge
l Entrepreneurship cultures. With entrepreneurship at a premium, it is important for policy to engender conducive cultures and attitudes where possible.
For example, education systems, the media and business support organisations can help foster entrepreneurial motivations (Potter et al.
l SME and entrepreneurship framework conditions. There should not be unnecessary obstacles to SMES and entrepreneurship in the institutions of the economy such as taxation, social security, bankruptcy legislation, competition policy,
product market regulation, labour market regulation, finance markets and intellectual property protection. OECD research shows for example how unbalanced taxes on company profits
and losses and high average tax rates on SMES relative to large firms can diminish SME and entrepreneurship activity (OECD, 2009).
l Firm dynamics. Since the entry and growth of SMES drives productivity improvements by replacing less productive contracting and exiting firms,
policy should promote entry and exit and competition in the market. Furthermore, the process of creative destruction is pronounced most in periods of economic crisis and recovery,
as the global economy is 1. INTRODUCTION SMES, ENTREPRENEURSHIP AND INNOVATION OECD 2010 39 experiencing today.
As the incumbent firm stock is contracted, room is created for innovative firms to enter and grow when demand picks back up.
It is critically important that incumbents are protected not over at such a time since this would block the potential for new business models
and technologies to emerge in the new and small firm sector. This illustrates a timely opportunity for well-designed policies to achieve two objectives at the same time:
the creation of jobs in SMES in response to an aggregate demand stimulus or targeted employment
and investment subsidies and the improvement of productivity by helping new and small firms to carry innovations into the economy. l Access to finance.
Research clearly identifies a finance gap in many locations for new and small firms involved in the early stages of innovation, especially in the market for highrisk capital.
Policy responses such as grants, loans, loan guarantees, mezzanine finance, seed capital, venture capital, business angel finance and investor readiness programmes need to be explored (OECD,
One of the contributions of new firms and SMES to the economy is breakthrough innovation.
which could contribute more to the economy if they begin to innovate incrementally and strengthen their non-technological innovation.
They require a different type of innovation support to high-growth-potential enterprises focused more on increasing their capacity to absorb knowledge from outside the firm.
One of the key drivers of SME innovation and innovative entrepreneurship is knowledge exchange between and among explorers and exploiters, particularly for the exploitation of new, science-based knowledge.
Examples of relevant policy approaches include creation of science parks and business incubators, encouraging mobility of staff between universities and industry,
and hence make incremental improvements in its products, processes, 1. INTRODUCTION SMES, ENTREPRENEURSHIP AND INNOVATION 40 OECD 2010 organisational methods and marketing approaches.
l Entrepreneurship skills. Another often overlooked factor affecting the propensity for successful business start-up is the degree to
which motivated people possess adequate entrepreneurship skills. This includes small business management skills (such as business planning and accounting), strategic skills (such as decision-making and opportunity recognition),
and entrepreneurial traits (such as leadership and creativity). It implies the need for a change in curriculums, pedagogies,
l Social entrepreneurship and social innovation. Entrepreneurship is not only about profitmaking. Social entrepreneurship and social innovation are important features of a broader vision of innovation
and are expanding at a rapid pace. Institutional arrangements, however, are often not well adapted to the needs and modus operandi of these organisations and approaches.
National legal, financial and fiscal frameworks for social enterprises therefore need to be reviewed and adjusted and accompanied by capacity building, skills development and network creation for social entrepreneurs.
This is not a comprehensive account of all areas of policy intervention for SMES, entrepreneurship and innovation
but rather a form of priority list for policy in adapting to new forms of innovation.
and entrepreneurship, recognising both the potential of SMES and entrepreneurship in innovation and the barriers that policy needs to overcome (see Annex A). The next chapters will examine the major issues in more detail.
Evidence is presented on what can be measured in this new area. Three themes are explored then which are of major importance but merit more attention than traditionally received:
and facilitating social entrepreneurship and social innovation. Chapter 2 provides data on SME innovation performance
and constraints across 40 economies and examines the major and new policies that have been introduced. Among the issues identified, it underlines the relevance of three major policy areas highlighted in this introduction,
competitors, customers, research organisations and others. It also shows that the quality of local environments for knowledge generation
and transfer counts and that they are particularly favourable in innovation clusters. Policy can reinforce this.
ENTREPRENEURSHIP AND INNOVATION OECD 2010 41 example through embedding of foreign direct investment, attraction of highly-skilled labour from overseas and building cross-national SME alliances.
while entrepreneurship skills are needed to start successful firms, they are understood not well or supported. They may be imparted through school education, universities and vocational training colleges.
small enterprises tend to do less than large firms and there is a particular SME skills gap among older and routine workers.
Finally, Chapter 5 examines social innovation and social entrepreneurship. While there is a growing interest in the area
and gives some telling examples of social entrepreneurship and social innovation that offer inspiration for wider adoption.
Notes 1. High-growth enterprises, as measured by employment, are enterprises with average annualised growth in employees greater than 20%a year over a three year period and with ten or more employees at the beginning of the observation period.
Gazelles as measured by employment, are enterprises which have been employers for a period of up to five years,
with average annualised growth in employees greater than 20%a year over a three-year period and with ten or more employees at the beginning of the period. 2. See also NESTA (2009). 3. The OECD/Eurostat Entrepreneurship
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