Synopsis: Entrepreneurship:

Innovative Performance of SMES in an Emerging-Economy Manufacturing Cluster Theresia Gunawan1, Jojo Jacob2 and Geert Duysters3 August 2013 The authors, 2013 1 Maastricht School of management

and organizations in and for emerging economies and developing countries with the objective to substantially contribute to the development of these societies. www. msm. nl The views expressed in this publication are those of the author (s). Publication does not imply endorsement by the School or its sponsors,

Innovative Performance of SMES in an Emerging-Economy Manufacturing Cluster Theresia Gunawana, Jojo Jacobb, and Geert Duystersc amaastricht School of management,

when firms confront a high degree of competition, as SMES in emerging economies do. Next to network ties, entrepreneurial orientation (EO) is another significant resource for achieving competitive advantage in general (Covin & Miles, 1999;

Covin & Slevin, 1991; Lumpkin & Dess, 1996; Wiklund & Shepherd, 2005), and doing so in particular through innovation (Avlonitis & Salavou, 2007;

Like a firm s network, EO too is particularly salient for market success in the highly competitive and turbulent environments in emerging economies (Covin and Slevin (1989.

and to proactively uncover new opportunities (Covin & Miles, 1999). A firm with a high EO is

and make risky investments. In a departure from extant research (Kreiser 2011; Lee, et al. 2001;

and anticipate changes in their environments is an eminent trait of entrepreneurial firms. Linkage within its own geographic areas (ICTS) constitutes an important social resource that generates a high level of trust

In spite of these risks, a firm that nurtures its ties through the necessary investments in relationship building and knowledge sharing might stand to benefit more from its linkages than a firm that makes little investments in its ECTS.

as well as of entrepreneurship, on innovative performance have been conducted in developed countries, particularly in the context of high-tech industries (Stam & Elfring, 2008),

our study is carried out in the context of a low-tech manufacturing cluster in an emerging-economy the footwear industry cluster in Cibaduyut, Indonesia.

They benefit from the economies of agglomeration and joint action, giving them collective efficiency and therefore a competitive advantage over firms that are located not co within a cluster (Schmitz, 1995).

in terms of both innovation and profit, compared to similar firms that are not part of a cluster (Caniels & Romijn, 2005;

Studies in the context of emerging economies are far fewer, but they too suggest that clusters enhance the competitive advantage of SMES (Caniels & Romijn, 2003;

and ECT development should be treated as an investment that enhances innovation. While research on clusters have focused traditionally on ICTS,

Access to resources both internal and external to the cluster gives a firm the 8 opportunity to combine

defined as the extent to which top managers are inclined to take business-related risks and seek opportunity in anticipation of future demand (Covin & Slevin,

) Proactiveness refers to the active search for new opportunities, identifying them, assessing their potentials, and devising strategies to exploiting these potentials (Lumpkin & Dess, 1996).

and products or services an ability on which hinges the long term success of a firm (Christensen, 1997).

Risk taking is a complementary EO characteristic that reflects the commitment to high-risk investment or the willingness to invest resources into unpredictable opportunities,

after they have been identified by proactive-oriented firms. Studies affirm that a successful entrepreneur makes calculated risks for potentially rewarding future benefits (Low & Abrahanson, 1997.

Given that network ties represent a critical resource for SMES, particularly in emerging economies, it is important to understand the interplay between EO and a firm s network ties.

& González, 2012) and the social capital its network creates (Stam & Elfring, 2008) exerts a contingent effect on the link between EO and performance.

and risk taking on a firm s network ties (ICTS and ECTS) in the specific context of an emerging-economy,

and ECTS because firms with high levels of proactiveness find opportunities, anticipate future developments, and identify new trends and available niches faster than their competitors (Lumpkin & Dess, 1996).

Such firms accordingly seek out network ties more actively for accessing resources that are geared towards meeting the expected challenges and opportunities.

and leverage its visibility in the cluster such that it forms new partnerships in response to changes in external environments faster than firms lacking such abilities.

When ICTS and ECTS are supported by an adequate degree of risk taking though investment of time, money,

The interplay between risk taking on the one hand and ICTS and ECTS on the other can contribute to innovation, right from the discovery of an opportunity or the conception of an idea to its planning and implementation.

As is typical in emerging economies there only exists limited information about footwear producers in this cluster;

making them more open to new ideas, resources, and opportunities. We also included the education level of owner/manager to control 14 for differences in the ability to absorb

which means they have a greater ability to adapt to changing environments, they may be constrained by limited access to facilities and financial resources.

the variance inflation factor was below three, and the tolerance values were close to 1 (Barrow, 2009).

We empirically tested our conjectures on a sample of 120 SMES in a creative-industry manufacturing cluster in an emerging economy, Indonesia.

prepared to meet future challenges and exploit future opportunities, and therefore may engage actively in search of new ideas outside of their cluster, though ECTS.

Thus a key message of our study is that SMES in emerging economies should actively develop inter-organizational networks that go beyond the confines of the region in

but also provides new opportunities for future research. First, the data we used, although original and derived from field research, is cross-sectional.

Collecting longitudinal data in the emerging economy context is given particularly challenging the lack of governmental level initiatives to this end.

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Procedia Economics and Finance 16 (2014) 512 520 2212-5671 2014 The Authors. Published by Elsevier B. V. This is an open access article under the CC BY-NC-ND license (http://creativecommons. org/licenses/by-nc-nd/3. 0/).Selection

and/or peer review under responsibility of Scientific Committe of IECS 2014 doi: 10.1016/S2212-5671 (14) 00832-6 Sciencedirect Available online at www. sciencedirect. com 21st International Economic Conference 2014, IECS 2014,16-17 may

2014, Sibiu, Romania Entrepreneurship and SMES Innovation in Romania Nelu Eugen Popescu a,*alucian Blaga University of Sibiu, Faculty of Economic sciences, 17 Dumbravii Avenue, Sibiu

550324, Romania Abstract The aim of this article is to present some theoretical connections between entrepreneurship,

innovation and small and medium medium-sized enterprises highlighting the role of these business for the economic recovery.

It will provide a brief overview of the CNIPMMR study pointing out data about Romanian SMES innovation activities and use of information technology in such enterprises.

Some recommendations for public policies are presented at the end of the paper. 2014 The Authors. Published by Elsevier B. V. Selection

Entrepreneurship, Innovation, SMES (Small and medium enterprises) 1. Introduction Entrepreneurship is a term that does not have accepted an general definition,

and innovation is the specific instrument of entrepreneurship. He defined entrepreneurship as an act of innovation that involves endowing existing resources with new wealth-producing capacity (Drucker,

1985) Innovation is associated usually with doing something new or different (Garcia & Calantone, 2002). ) The concept of innovation is defined as the implementation of a new or significantly improved product or process, a new marketing method,

and/or peer review under responsibility of Scientific Committe of IECS 2014 Nelu Eugen Popescu/Procedia Economics

in spite of the fact that these small and medium firms represent the vast majority of enterprises in most developed

and developing country economies. Both entrepreneurship and innovation are 2 broad concepts without a unanimously accepted definition

and are regarded as overlapping concepts (Stam, 2008). The connections between these 2 concepts dates back to the first Schumpeterian theory about entrepreneurship were the entrepreneur was seen as the personification of the innovation (Hagedoorn, 1996),

and through innovation and creative destruction the economy evolved. The connections between entrepreneurship, innovation and small firms has been studied over time by various scholars and some even defined entrepreneurship as follows innovation by newly formed independent firms (Kirchhoff,

1994) The recent economic downturn is regarded as one of the worst since the 1930s crisis and its effects are still evident all over the globe

and parts of the world still struggle to recover. After a period of few years marked by economic incertitude at EU level

economic indicators show a slight increase and the past year (2013) could represent a turning point for the EU economies

if the positive upwards trends will manage to continue. The EU Commission and Romanian government have adopted

and implemented measures to avoid an economic collapse, but economic and competitiveness growth is improving slowly.

the contribution of SMES to job creation and value added constitute a large share of both EU and Romanian economy.

As stated in the European commission annual report on SMES 2012-2013 at European level over 99%of all enterprises are SMES

around 20 million SMES, most of them are micro-enterprises, and in 2012 employed over 86 million people providing for 66,5%of jobs from the total employment and contribute more than half of the total added value created by businesses.

and job creation by SMES issues generated an interest in the study of entrepreneurship (Wennekers & Thurik, 1999).

Usually the attention and actions of policymakers and the business environment focused on large companies and overlook the importance of SMES especially in connection to innovation.

and Thurik suggest that an increase in the entrepreneurial activity is followed generally by a recovery of the economy

Most entrepreneurial initiatives start as SMES rather than big companies and entrepreneurial small firms are considered to be the backbone of the economic system,

Early theories regarded the small enterprises as being outside of the domain of innovative activity and technological change (Acs & Audretsch,

2010) but more recent studies showed that small entrepreneurial enterprises were as important as the large companies for innovation and for technological change.

In the actual economic environment due to globalization and ICT evolution products are outdated more quickly nowadays in comparison with some years ago

and compiled by CNIPMMR (Consiliul National al Întreprinderilor Private Mici si Mijlocii din România National Council of Small and Medium Sized Private Enterprises),

For the survey it was used an optimum allocation stratified sampling method. 514 Nelu Eugen Popescu/Procedia Economics

Own adaptation based on CNIPMMR data (2011-2013) 3. 2 Innovation investments In terms of share of investments allocated to innovation from the total enterprises investments almost half of SMES (44,93

%)have not directed funds to innovation (see table 1). The lack of funds assigned to innovation investments combined with the fact that considerable part of the SMES are involved not in innovation activities may present a serious problem for a healthy evolution

of these enterprises. Table 1: SMES by share of investments allocated to innovation SMES 44.93%25.84%16.77%6. 85%4. 21%1. 19%0. 22%Share of investments Allocated to innovation 0

%1-5%6-10%11-20%21-50%51-75%>75%Source: CNIPMMR, White Charter of Romanian SMES 11th Edition, Sigma Publishing house, 2013 A bit more than a quarter of enterprises (25,84%)have allocated 1 to 5%to innovation

and only 16.77%of the 37.65 37.21 19.51 16.45 7. 6 4. 75 35.72 31.76 11.6 16.26 11.83 9. 27 35.53 32.01 15.07

HR training 2010 2011 2012 Nelu Eugen Popescu/Procedia Economics and Finance 16 (2014) 512 520 515 enterprises allocated between 6 and 10%to innovation.

Very few companies allocated over 51%(1 19%)and under 0. 5 percentage of companies allocated over 75%to innovation.

Investments in innovation may lead to competitive advantage so the lack of funds or insufficient funds allocated to innovation is a real problem.

SMES by share from the turnover generated by new products/services SMES 46.39 21.47 16.83 9. 33 4. 37 1. 46 0. 16 Share from the turnover

generated by new products/services 0%1-5%6-10%11-20%21-50%51-75%>75%Source:

CNIPMMR, White Charter of Romanian SMES 11th Edition, Sigma Publishing house, 2013 Taking into consideration the share from the company turnover generated by new products/services

or renewed products/services introduced to market in the last year, almost half of the Romanian SMES (46,39%)did generated not any revenue from new products/services (see table 2). 21,47%of the enterprises generated 1-5%form their turnover figures by new products and services,

16,83%from SMES generated 6 to 10 per cent but a very small amount of companies (1,

47%)generated from new products/services between 51 and 75%of their sales figure and under 1 per cent accomplished more than 75%of their sales by new products/services.

The figures also show that over 54%of the SMES in Romania undertook some kind of activities to bring new products

and services to the market or to renew their products and services, which is an encouraging fact the more than half of the Romanian SMES work to improve their products

and services. 3. 3 Main approaches to innovation for Romanian SMES 40.52%of all innovation activities in Romanian SMES are carried out through internal (individually) R&d processes.

and enterprises followed by integral absorption (poaching) of innovation developed by others (21.95%).%Only few enterprises (7. 48%)think that cooperation with others is a viable approach to undertake R&d activities.

see figure 2). Figure 2: SMES approaches to innovation Source: CNIPMMR, White Charter of Romanian SMES 11th Edition, Sigma Publishing house, 2013 According to FPP report there is a direct correlation between innovation in enterprises

and their economic 40.52 30.05 21.95 7. 48 Internal (individual) R&d activities Adaptation and inoculation of novelty (innovation) developed by other organizations Using novelty (innovation) developed by other organizations

Cooperation with other organization for R&d activities 516 Nelu Eugen Popescu/Procedia Economics and Finance 16 (2014) 512 520 performances, especially during the last years of economic downturn.

FPP, 2013). 3. 4 Main barriers for R&d activities in SMES A number of obstacles may limit entrepreneurship, the creation and development of innovative start-ups and SMES,

so it interferes with economic growth. Knowing and understating the obstacles to innovation for SMES is important both to entrepreneurs/owners/managers but also to the government.

in order to contribute to economic growth. Figure 3: Barriers for R&d activities in Romanian SMES Source: CNIPMMR, White Charter of Romanian SMES 11th Edition, Sigma Publishing house, 2013 In regard to the barriers to innovation entrepreneurs from SMES mentioned the high cost implied by R&d activities (56.32

%the incertitude associated with the market demand for new and innovative products. Least mentioned was the lack of adequate human resources (8. 49%)(see figure 3). 3. 5 Use of IT in SMES.

connected to the demand for inovative products Difficult acces to relevant market information Lack of medium and long term economic forecasting Lack of pubic financing for R&d activities and/or difficult criteria to acces

Economics and Finance 16 (2014) 512 520 517 Figure 4: IT use in Romanian SMES Source:

and Intranet in SMES The analysis of the purpose why SMES use Internet & Intranet point out that in more than 75%of the companies'information technology is used for a better communication with customers

and suppliers see figure 5). A significant percentage of SMES use the Internet for gathering information about the business environment in

45,71%use it for promoting their products and services and 39,50%for better communication inside their enterprises. 0. 39 0. 5 4. 33 15.56 27.5 76 80.83 81.94

Others Intranet Selling/shopping online None of the above Own website E-mail Internet Computers 518 Nelu Eugen Popescu/Procedia Economics and Finance 16 (2014) 512

processes in the Romanian SMES vision are data security (48,44%),fast access to the enterprise data form anywhere and at anytime (38.21%)and regulatory compliance (35.84%.

CNIPMMR, White Charter of Romanian SMES 11th Edition, Sigma Publishing house, 2013 75.89 67.17 50.59 45.71 39.5 3. 04 To communicate with customers

and suppliers To obtain information about the business enviroment For on-line transcation/payments To promote products/services To facilitate communication in the entreprise Other 48.44 38.21 35.84 29.49 25.46 18.84 9. 58

Monthly subscription fee for usage Better performance through internal business Detailed reports of departments activities Nelu Eugen Popescu/Procedia Economics and Finance 16 (2014

at firm level IT may provide a faster communication, a more efficient resource management and customer management.

2004). 4. Conclusions The economic downturn affected the SMES in the whole world and through globalization the negative effects reached countries from all corners of the globe the

and implicitly the Romanian economy was marked by the crisis. In the last period signs for economic recovery start to appear at European level

%Two other indicators that underline the fact that Romanian SMES do not take advantage of the innovation process are the share of investments allocated to innovation

and the share of turnover generated by new products and services. A large number of enterprises did allocated not funds for investments in innovation (44.93%.

%Taking into consideration the share from the company turnover generated by new products/services introduced to market in the last year,

almost half of the Romanian SMES (46,39%)did generated not any revenue from these products/services.

The main obstacles in the way of innovation at SMES level were: the cost of R&d activities, lack of funds (or insufficient funds) and incertitude about the evolution of demand for new and innovative goods. Most SMES use computers, Internet and the e-mail in their business activities

and some of them even developed own websites (27.50%.%Only in 15.50%of SMES there are no IT structures.

Usually enterprises use the IT application for communicating with customers and suppliers, to obtain information and for on-line transaction and payments.

Under these circumstances in which the SMES sector is a potential key factor for future economic growth

and new start-ups being more adaptable to the changing business environment the government efforts should sustain the creation and development of new innovative enterprises.

and easy access for all enterprise to research results and creation of new technology driven SMES.

Efforts should focus on entrepreneurship and small to medium enterprises innovation and competitiveness growth in order to attain a sustainable and healthy economic recovery in the long run.

Entrepreneurs usually embrace innovation an this may have positive impact on a countries economy by generating new jobs, creation of wealth and improving quality of life.

As Wennekers and Thurik stated possibilities for economic growth, job creation and innovation can come from SMES (Wennekers & Thurik,

1999) so ensuring a proper economic environment in which SMES can develop and entrepreneurial initiatives could thrive is a condition for a national economic recovery.

Project ID 133255 (2014), cofinanced by the European Social Fund within the Sectorial Operational Program Human resources Development 2007 2013.520 Nelu Eugen Popescu/Procedia Economics

. B. 2010) Knowledge Spillover Entrepreneurship, In Acs, Z. J. and Audretsch, D. B. 2010), Handbook of Entrepreneurship Research An Interdisciplinary Survey and Introduction 2nd Edition.

Audretsch, D. B. and Thurik R. 2001)" Linking Entrepreneurship to Growth",OECD Science Technology and Industry Working papers, No. 2001/02, OECD Publishing. doi:

and Medium Enterprises, IZA Discussion Paper No. 3962 Drucker, P. F. 1985) Innovation and Entrepreneurship;

European commission, DG Enterprise and Industry. FPP (2013) Barta P.,Modreanu I.,Spirea N.,Piti M.,Raportul Funda iei Post Privatizare privind sectorul IMM din România, Post

Marchese, M. & J. Potter (2010), Entrepreneurship, SMES and Local Development in Andalusia, Spain, LEED Working Paper Series, LEED programme, OECD. Entrepreneurship, SMES

ENTREPRENEURSHIP, SMES AND LOCAL DEVELOPMENT IN ANDALUSIA, SPAIN A review by the Local Economic and Employment Development (LEED) of the Organisation for Economic Co-operation and Development (OECD) FINAL REPORT

November 2010 (This version of the report has not been formatted professionally) ACKNOWLEDGEMENTS This case study on=Entrepreneurship

In addition to existing material about the Andalusia economy, this report draws on a week-long study visit that took place in Seville and Malaga from 12 to 16 april 2010.

and provided invaluable insights on the Andalusia entrepreneurship and SME development system: the Andalusia Technology Park (PTA) of Malaga;

the General Secretariat for=Innovation‘of the regional Ministry of Economy, Innovation and Science (MEIS;

the Entrepreneurship Agency (ANDALUCIA EMPRENDE; the Andalusia Entrepreneur Confederation (CEA; the Andalusia Innovation and Development Agency (IDEA;

the Investment Promotion Agency (EXTENDA; the Andalusia Institute of technology (IAT; the Andalusia Technological Corporation (CTA; the JEREMIE Funds programme;

The review team was informed initially about the main features of Andalusia‘s economy and entrepreneurship support system by a diagnostic report prepared by Prof.

Vicente Granados-Cabezas of the University of Malaga. CONTRIBUTORS TO THE CHAPTERS Introduction, by Jay Mitra.

Human capital and the labour market, by Karen Chapple and Sergio Montero-Muñoz. Chapter III: The contribution of research organisations, by David Wolfe.

Entrepreneurship and start-ups, by Ricardo Pinto. Chapter V: SME development, by Andrew Cumbers. Conclusions, by Marco Marchese and Jay Mitra.

Dr Jonathan Potter, senior economist, OECD LEED Programme, jonathan. potter@oecd. org Mr. Marco Marchese, policy analyst, OECD LEED Programme

6 Human capital and the labour market...6 Contribution of research organisations...7 Entrepreneurship...9 SME development...

10 RETA...12 Policy recommendations...13 INTRODUCTION...15 CHAPTER I: ECONOMIC AND INSTITUTIONAL OVERVIEW OF ANDALUSIA...

HUMAN CAPITAL AND THE LABOUR MARKET...32 Introduction...32 Policy issues...32 Assessment of the region...

ENTREPRENEURSHIP AND START-UPS...83 Introduction...83 Policy issues...83 Assessment of the region...86 Policy recommendations...

127 Human capital and labour market...128 Contribution of research organisations...128 Entrepreneurship and start-ups...130 SME development...

131 RETA...132 Policy recommendations...135 EXECUTIVE SUMMARY The OECD Local Economic and Employment Development Programme (LEED) has undertaken a review on entrepreneurship, SMES and local development in Andalusia,

Spain, working in collaboration with RETA (Red de Espacios Tecnológicos de Andalucía Andalusia Technology Network). The present document summarises the key results of the review,

The overall review objective was to analyse the capacity of Andalusia to support entrepreneurship and SME development and how such capacity is affected by regional and local policies.

ii) analyse the set of policies implemented by regional and local organisations to support entrepreneurship and SME development;

In addition, the review has examined the role of RETA in supporting entrepreneurship and SME development, and how its impact can be enhanced.

i) the impact of human capital and the labour market on entrepreneurship and SME development; ii) the contribution of research organisations to entrepreneurship and SME development;

iii) direct policies for entrepreneurship and start-ups; iv) direct policies for SME development. The key findings for each theme are summarised below, together with the main observations on the role of RETA in entrepreneurship and SME development.

Human capital and the labour market The Andalusia labour market is affected by structural weaknesses High levels of unemployment,

large numbers of temporary workers and low productivity undermine the performance of Andalusia‘s labour market. Although the overreliance of the region on the construction industry and the subsequent housing bubble has contributed clearly to these problems,

even the sectors that employ highly educated workers are affected by structural problems. Regional human capital needs to be upgraded

the quality of human capital has improved not proportionally. The region has experienced actually a reduction in post-compulsory school and university attendance,

Human capital needs to be upgraded so as to compete with the rest of Spain and the EU. The quality of universities needs to be enhanced The university system 10 public universities with a total of approximately 230 000 students depends on the Regional Ministry of Economy,

Innovation and Science, and this has created greater pressure for industry-university collaboration. In general terms, however, Spanish universities do not rank well in international quality rankings.

seeks to adapt vocational training to the new economy and new demand of jobs and occupations.

a separation between ministries concerned with entrepreneurship, education, and employment; and the lack of a workforce strategy tied to business cluster strategies.

The OTRIS are responsible for channelling external research demands to the appropriate research groups within their own institutions

Andalusia needs to recognise the role of less R&d intensive forms of industry-university cooperation R&d-related activities do not play a major role in most of the firms considered as=innovative‘within the Andalusian economy.

The Atlantis Programme is geared toward identifying newly formed enterprises from across Spain and attracting them to establish themselves in Andalusia.

which wants to reinforce the collaboration of universities with the local surrounding environment firms, technology parks, technology centres, foundations,

and a multidisciplinary focus, promoting research excellence in the areas of aeronautics, biotechnologies, communications, energy and environment, transport, and tourism.

and investment (national and foreign. Entrepreneurship Entrepreneurial culture is improving in the region There is a low but growing level of entrepreneurial culture in the region.

The density of enterprises is approaching the national level and the population of the region has a fairly high level of interest in entrepreneurial activity.

Although young people have seen traditionally the public sector as the natural route to the labour market, the sharp economic downturn in Andalusia may stimulate a greater willingness to embrace self employment and other forms of entrepreneurship.

This is clearly something to build on in the region via a greater focus on developing a culture of entrepreneurship at all levels of the education system:

primary, secondary, vocational and tertiary. Immigration is an entrepreneurial resource that should be exploited better The growing levels of diversity,

its institutions and its enterprises benefit from financial and nonfinancial subsidies directly emanating from the EU,

the region must initiate the transition to a more market-oriented enterprise policy combined with a more sustainable system of support for regional and enterprise development.

but it is also an opportunity: it would necessitate more efficient use of resources in the time available,

The current extensive entrepreneurship support framework results in institutional overlaps An extensive network of institutions, policies, programmes and projects exists that supports entrepreneurship in the region.

potential crowding out of the private sector (delivery of activities which would normally be provided by the private sector, price distortion due to free delivery of services, etc.

The consequence of this level of public subsidy is that much of the regional economy is cushioned to some degree from general competition.

SME development The Andalusian business structure lacks medium-sized firms The Andalusia economy is dominated by SMES with over 99%of firms having less than 500 employees.

either self-employed or employing less than 10 people accounting for over 95%of enterprises. While the region experienced a high rate of new business start-ups and a significant increase in jobs during the period of economic growth from the mid 1990s up until the present economic downturn the continued lack of mediumsized firms

between 50 and 500 employees demonstrates an underlying structural problem in growing local enterprises to a level that can contribute more significantly to employment creation and regional growth.

Business internationalisation is at an incipient stage but on the rise It is estimated that only 1. 4%of Andalusian firms are involved in export markets,

Despite this small base, exports increased as a proportion of the total activity in the regional economy over the decade 1995-2005, rising from 20.8%to 24.9%of GDP.

the Malaga Technology Park for example, has 530 enterprises employing more than 10 000 people. The focus upon particular sectors and clusters is appropriate

and infrastructure for high tech SMES with a sophisticated approach to support services that address the different needs of firms at different stages of maturity.

The most dynamic firms are in this sense the ones that are able to capitalise on both the local support environment

whereby SMES are able to=piggyback‘on the backs of larger customers into international markets.

RETA RETA has played an important twofold role RETA has played an important twofold role in the Andalusian system of support to entrepreneurship and SME development Firstly,

and the policy support to entrepreneurship and SME development provided by all the actors of the Andalusian innovation system,

and offer adequate services to firms that have shown an innovative potential. The needs of traditional firms will be targeted by other organisations,

and this will avoid some of the institutional overlaps that have characterised the entrepreneurship and SME support system in the past.

Policy recommendations The analysis of the international review panel has led to the formulation of the following key policy recommendations to strengthen the entrepreneurship and SME development system of Andalusia.

Box 1. Main policy recommendations Human capital and labour market Link training programmes more effectively with sectors in order to improve firm productivity and innovation

Refocus entrepreneurship education along the models of the best business schools, trying to attract immigrants and to exploit the advantage of Andalusia s geographical location.

Entrepreneurship and start-ups Further develop entrepreneurial culture in the region, including by targeting the new unemployed through self employment programmes.

Setup a business incubation monitoring and evaluation system that assesses the performance of Andalusia incubators against EU current benchmarks.

whereby small firms internationalise their activities by piggybacking on the backs of large customers. RETA Continue to coordinate policy actors in the Andalusian SME

and entrepreneurship support system and ensure coherence in policy design and delivery. Ensure that best-practice policy principles are applied in local technology parks,

INTRODUCTION Regional economic development is regarded increasingly as critical to the growth of national economies in a globally connected environment.

Spatial variations within countries suggest that not all geographical parts of a country achieve similar levels of employment, skills development, business formation, economic growth and infrastructure development.

This is as true of Spain as it is of other economies round the world. Structural, spatial and temporal variations occur across regions because of differences in the human capital base, the industrial structure, relevant research and development capabilities, business formation,

and the capacity of institutions to generate facilitative conditions for a productive and entrepreneurial economy.

and investment flows) in Spain post-1959 and the Stabilisation Plan ending two decades of autarchy and its concomitant political and economic limitations.

and relatively backward economy was the outflow of human capital to Spanish growth poles, especially to the north and Northeast regions and to Madrid.

Relatively low levels of investment in the region accompanied this exodus of 1. 6 million people over 30 years between 1955 and 1985.

Since that period, partly because of the impact of the volatility of the Spanish economy and of the global economic crisis which hit Spain disproportionately,

the regional economy of Andalusia has faltered badly with sharp drops in both gross domestic product (GDP) and employment.

Andalusia‘s European economic identity mirrored that of Spain just before the economic crisis as the nation began an impressive catch up race with its more prosperous European counterparts.

Only the construction and services sector showed growth rates but they were far too low to obviate for the drop in other sectors.

which enjoyed relative protection together with the services sector. Against a backdrop of high financial leverage and low private deposits coupled with relatively low levels of exposure to the dynamics of competition in other sectors it is difficult to see anything beyond a highly vulnerable and fragile economic environment for these firms.

The rapid growth in the real estate component of Gross Capital Formation during 2000 to 2005 reinforces this notion of fragility as the collapse of those economies dependent on property price inflation has been the worst among others across Europe.

The reliance on the temporary growth areas of construction and tourism also point to a major problem in the labour market.

and structural changes necessitating new forms of economic activity, there is a greater push for new types of skills, businesses and governance.

It is against this background of the Andalusian economy that a review on Entrepreneurship, SMES and Local Development has been carried by the OECD Local Economic and Employment Development (LEED) Programme in partnership with the Andalusian Technology Network (Red de Espacios Tecnologicos de Andalucía RETA).

Scope and approach of the review The review focuses attention on entrepreneurship, SMES and local development.

In examining these components of the regional economy and the extent to which entrepreneurship and SMES contribute to innovation,

the review aims to investigate the capacity of the region to support new firm formation, the sustainable growth of existing firms,

and foster this capacity in an innovation-friendly environment. To help achieve this aim, the main objectives of the review are to identify and explain:

The challenges faced by new and small firms in terms of emergence and growth in a knowledge-based global economy with specific reference to human capital;

The three critical input factors in a region that impact on and influence new firm creation and innovative growth of SMES are human capital, R&d and institutional capability.

Four of the input factors together with their effect on SME development and entrepreneurship constitute individual chapters for this report

and how they blend together to make an effective contribution to the Andalusia economy. Figure 1. A Schemata for Reviewing the Andalusia Economy Human Capital

and the Labour market It is recognised now well that the set of technical, cognitive, facilitative and operational skills competencies and knowledge,

often referred to as=human capital‘play a key role in the formation of a labour market and more generally in the development of an economy.

This fact has acquired a particular poignancy in recent times in our so-called knowledge economy where=brain power

The higher the level of human capital the greater is the return for both the firm (in terms of productivity) and the individual (in terms of higher wages.

This simple equation is prevalent in most of the literature on the subject of human capital.

and educational attainment acquires a premium in relation to the economy. Its importance has gained momentum with the advent of the knowledge economy.

The overall premium to higher education has increased sharply as the main drivers of these economies, the knowledge-based industries, demand higher levels of skills in the workforce with

which to manage technological change productively. It is argued also that higher levels of human capital help to generate new,

high impact firms and it is this group of firms that create new jobs and make a direct contribution to economic development (Acs,

2008) Human Capital and the Labour market Research and development Institutions: Framework and Governance Start-ups/New Firm Formation Existing Firms Innovation, Entrepreneurship and Economic Development Networks Input Factors for Framework Conditions Key Drivers of Innovation

and Economic Development Outcomes More recently it has been noted that human capital also plays a key role in promoting

or affecting new firm formation and the innovative growth of firms in a region. The formation of human capital in this context is a function of both formal skills development

and experiential forms of learning by doing. The propensity of firms to be innovative through technological development is inevitably dependent on the skills levels of its employees and its owner-managers.

A combination of the two forces (education and experience) might be more appropriate for encouraging adaptiveness to entrepreneurship.

such as social capital and networks vital to both the creation and growth of firms in regions dominated by a high concentration of firms.

As more closely discussed in the thematic chapter on human capital, there are four labour market-related factors most critical to entrepreneurship in all its forms:(

1) higher education;(2) extensive work experience;(3) interaction with a variety of actors in the regional innovation system;

which brings all stakeholders of knowledge creation and commercialisation together at all points in the process of making new goods

and services and generating economic growth. Universities now engage in industrial innovation through a variety of channels

2002) is another way of generating talent in the local economy. Attracting talent to a local economy is enabled by making an environment and the quality of local life conducive to entrepreneurial economic activity.

The emphasis a region puts on any one of the two approaches is to some extent dependent on their capacity to pursue each approach

depending on local institutional capacity, the value of human capital, the structure of the local industry, national immigration policy, local framework conditions,

Entrepreneurship and SME development Entrepreneurship covers a huge territory of theory and practice concerned with opportunity identification and realisation, innovation in the form of new products and services,

as well as new forms of organisation to realise opportunities, new firm formation to help organise innovation,

and value creation for the economy and for society. Entrepreneurship is evident in both small and mediumsized enterprises (SMES

as well as large ones, in the formal and informal economy; in legal and illegal activities, in innovative and traditional firms;

in high and low-risk ventures, and in pretty much all sectors and sub-sectors of the economy (OECD, 2001).

This spectrum of involvement can lead to both productive and unproductive or even destructive entrepreneurship (Baumol, 2006.

Entrepreneurship is local in the sense that new firms are formed in specific locations. It is national and global in that new firms make new products and services in these markets and often source technologies and other resources from across a country and sometimes globally.

The ability of regions to create new firms in their territories is an attractive option for sustainable economic development

because it uses local resources and talent to make it happen, thereby energising local economic activity. Increasingly even economically less prosperous regions such as Andalusia are being exhorted to court entrepreneurship as part of an effective economic development strategy.

According to the revised Lisbon Strategy this is possible through a focus on making a place attractive for living

and working, facilitating or increasing knowledge flows in the region through human capital development, R&d, innovation and new business creation,

and generating policies that enable better forms of sustainable job creation. Methodology This report provides advice from an international perspective on how to strengthen SME and entrepreneurship policies in Andalusia.

It identifies the major considerations for policy development in this field, assesses the current performance of Andalusia,

and advances recommendations to improve policies and programmes in the region. Each chapter also describes'learning model'programmes from other countries with the aim of helping to illustrate how other places have addressed similar challenges.

i) human capital and labour market issues affecting entrepreneurship and SME development; ii) the contribution of research organisations to entrepreneurship and SME development;

iii) policies for entrepreneurship and start ups; and iv) policies for SME development. The governance aspect is embedded in each of the four thematic chapters.

The report is based on observations, discussions and recommendations collected through an OECD peer review process which took place in April 2010,

Granados, University of Malaga) to provide an initial analysis of the key facts about the Andalusia economic system and the entrepreneurship and SME policy context.

During the study visit, the expert team interviewed regional policy makers and other relevant actors in the entrepreneurship and SME development system

and obtained their views on issues to entrepreneurship and SME development. A wide range of issues were discussed with stakeholders,

providing a variety of perspectives on the region and its policies. Draft report A draft report was prepared,

and additional literature and material about the Andalusia economy. The draft report was submitted for comments and approval to the local partner, the Andalusia Technology Network (RETA.

i) human capital and the labour market; ii) contribution of research organisations; iii) entrepreneurship and new start ups;

iv) SME development. Each thematic chapter contains a description of general policy issues; an assessment of the current situation in Andalusia;

A final chapter summarises main conclusions and policy messages on entrepreneurship promotion and SME development for the region of Andalusia.

References Acs Z.,2008, Foundations Of high Impact Entrepreneurship, Jena Economics Research Papers, n. 2008-60.

Baumol W.,Entrepreneurship: Productive, Unproductive, and Destructive, Journal of Political economy, n. 98, pp. 893-921.

Florida R.,2002, The Rise of the Creative Class, Basic books, New york. OECD, 2001, Fostering Entrepreneurship, OECD, Paris. CHAPTER I:

Tertiary education as%of labour force (2008) 29.8 24.9 High-tech manufacturing as a%of employment (2008) 4. 8 2 Knowledge-intensive services as%of employment (2008) 28 9 26.9 Active

%This might be an indicator that that Andalusia has undertaken not yet fully its transition to a knowledge-based economy.

Labour utilisation and labour productivity The recent economic crisis has struck Spain severely, and Andalusia has been no exception.

which had been one of the main sectors driving the economy in the booming period, has also been one of those hit hardest by the recession, shedding in Andalusia a far higher number of jobs than at the national level. 1 On the other hand,

Today, Andalusia‘s economy has approximately 510 000 firms, corresponding to 15.9%of the national total against a population that is 17.8%of the total.

Micro firms (less than 10 employees) dominate the economy, representing over 90%of the total. This is typical of Figure 3. Andalusia's foreign trade and trade balance (1990-2008)( € 000s) Imports Exports Trade balance Source:

ESECA, 2009 peripheral economies which generally find it difficult to penetrate international markets. Indeed only 1. 4%of regional firms are engaged in foreign trade,

%as against 9%at the national level. 1970s agriculture was still playing an important role in the Andalusian economy,

Nowadays Andalusia‘s industry structure resembles much more closely that of any modern economy though the very low contribution of manufacturing (11%)and the disproportionate impact of services (71%)on regional GVA flag an imbalance that can undermine the competitiveness of the region due to lower capital investments

and lower internationalisation that are both typical of economies overly reliant on services. Figure 4. Andalusia's GVA trends by sector, 2001-2009 Construction Services Industry Source:

Banco bilbao vizcaya Argentaria (BBVA), 2009. Key sectors Since the 1980s the regional government of Andalusia has bolstered the development of sectors considered strategic for the future development of the region.

Originally, the emphasis was on traditional low added-value sectors such as marble quarrying, leather, and agro-food industries,

and consulting services. EADS-CASA and Airbus are the main actors in the cluster. The sector employs nearly 9 000 people

IT & communications Nearly 1 400 companies comprise this sector, with a turnover of EUR 4. 6 million and a workforce of 34 000 people in 2007 prior to the crisis. Telecommunications is the biggest subsector,

Food industry The food industry has traditionally been one of the linchpins of the Andalusia economy.

Whilst innovation goes beyond R&d investment, poor progress in this field jeopardises the future development of the region.

In particular, private investments in R&d are still too low and marginal (0. 38%of regional GDP,

In addition, the sectors that have driven the Andalusian economy over the last decades mainly construction and tourism are known not for being R&d-intensive

involving between 15%-25%of the surveyed enterprises. Between 5%-15%of the firms contracted R&d projects, use university facilities or exchanged staff,

the most relevant for the scope of this study being the Ministry of Economy, Innovation and Science (MEIS).

This is the result of the recent merger between the Ministry of Economy and the Ministry of Innovation, Science and Enterprise (MISE.

This decision signals the decision of the regional government to better coordinate its economic policies as well as the importance given to business innovation and entrepreneurship as the main drivers of local development.

and more specifically of the Department of Science and Innovation, fall some of the main regional organisations committed to the promotion of economic development, among which the regional development agency IDEA, the trade promotion agency EXTENDA, the entrepreneurship agency ANDALUCIA

which was given by the regional government an important function of coordination and governance of the entrepreneurship and innovation system.

attraction of domestic and international investments; support of business innovation and enterprise development; protection of regional intellectual property through advice on IPRS;

improvement of productive land and infrastructure; assistance to large firms undergoing industrial restructuring; enhancement of high-growth companies through direct aid and an enabling framework.

and services), which enclose several subsectors. ANDALUCIA EMPRENDE: The mission of this foundation is to fuel the entrepreneurial culture of the region.

Business services include training, business plan assessment, incubation, and sourcing funding. The Foundation keeps quite a targeted approach,

unfolding entrepreneurship programmes aimed at specific social groups (e g. women, youth, university graduates, disadvantaged people, etc.),

and the social economy sector. EMPRENDE also maintains a network of 37 Corporate Development Support Centres (CADES) providing a decentralised BDS support across the region.

ii) providing traditional small companies in industrial estates and peripheral/rural areas with similar technology development opportunities of those provided within technology parks.

and business innovation centres These three different institutions are important players in the entrepreneurship and innovation system of Andalusia.

Technology parks also host business incubators, which only accept firms that are innovative, environmental friendly,

Despite their name, they provide a wide range of business development services that go beyond mere technology development.

They provide partly subsidised and partly fee-based services, which include business consulting, training, and business incubation.

Finally, in the current decade, the 2000 EU Lisbon Agenda has ushered Andalusia to the whole new theme of entrepreneurship and innovation,

The four most relevant to entrepreneurship and SME development are listed those below which with the exception of PIMA (2005-2010), cover the period of EU structural funds 2007-2013.

%iv) environment, rural development, water sources and land risk prevention: 12.4%;%v) food and fisheries:

8. 9%,viii) business development and enterprise innovation: 6. 3%.Based on these figures, the regional government directly devotes EUR 3. 5 billion to entrepreneurship and SME development over six years, with other complementary areas such as=knowledge

society‘and=human capital‘that also benefit local firms. The Innovation and Modernisation Plan for Andalusia (PIMA:

and thereby reduce the welfare gap with the most competitive economies. It establishes the framework for the region‘s research

Interestingly, PAIDI sets out the role and functions of the key actors of the Andalusia entrepreneurship and innovation system,

The long-term objectives of this plan are the modernisation and competitiveness of the regional economy.

However, the emphasis is here on entrepreneurship, including reduced barriers to business creation (administrative burdens, start-up finance, etc.),

Reig E.,(2010), The Competitiveness of the Spanish Regions, in J. R. Cuadraro (ed.),Regional Policy, Economic growth and Convergence, Springer, Heidelberg.

HUMAN CAPITAL AND THE LABOUR MARKET Introduction Human capital development and labour market dynamics play a key role in a knowledge-based global economy.

This chapter describes the state-of-the-art in academic research on human capital, with a particular focus on the labour market characteristics of successful regional innovation systems.

and entrepreneurship training specifically, in Andalusia. Though the system is hampered by many redundancies in training programmes,

and opportunities the region confronts, the chapter concludes with recommendations illustrated by three international learning models.

Policy issues A rich literature debates the role of human capital formation and labour market dynamics in fostering entrepreneurship and innovation.

We first examine debates about human capital generally then turning to the debates about labour market preparation for entrepreneurship.

A final section describes the Spanish context. Role of human capital in the knowledge economy:

Debates in the literature Higher levels of human capital create returns not only in terms of worker productivity but also of higher wages (Becker, 1965.

With the advent of the knowledge economy, the overall premium to higher education has increased sharply (Carnoy, 1994.

Knowledge-intensive industries are now the key drivers of international competitiveness, and the growth of these industries has altered fundamentally the labour market (Aoyama & Castells, 2002).

and symbol communication (Castells, 1996). Technological change is biased skill, in that it privileges occupations relying on technical expertise,

resulting in rising demand for college-educated workers relative to their supply (Katz & Murphy, 2002).

wages are bid up for those workers who possess high levels of human capital while, due to falling demand,

One path to competing in the global knowledge economy is through using local universities to develop a high-skilled workforce to serve local firms

Role of human capital in entrepreneurship and innovation Although research has confirmed long the importance of human capital to business productivity,

less is known about the role of human capital in fostering entrepreneurship. From the few studies that exist,

it is clear that successful entrepreneurship stems from a relatively broad conception of human capital as not just education and training,

Not surprisingly, then, investment by firms in their employees‘human capital has been shown to encourage innovation and entrepreneurship (Sevilier, 2006.

Human capital that combines education and experience gives employees the adaptiveness so key to entrepreneurship (Wright, Hmieleski, Siegel and Ensley, 2007.

the more likely the new ventures will be initiated and expanded. Team experience is particularly important to the long-term performance of high-tech start-ups (Madsen, Neergaard and Ulhøi, 2003;

and across diverse institutional environments, are more likely to innovate, particularly via informal relationships: contacts that occur in different kinds of events are the breeding ground for future interchanges (Ramos-Vielba, Fernández-Esquinas,

A recent example of this is innovation in California‘s clean energy economy, in which the most innovative firms interact more with nonprofits, local governments, other local businesses, local trade associations,

To wrap up, the four labour market-related factors most critical to entrepreneurship appear to be: 1) higher education;

that seeks to make Europe the most competitive knowledge-based economy in the world by 2010.

innovation and the knowledge economy, on the one hand, and the environment and risk prevention on the other.

The Spanish labour market differs somewhat from that of most European countries. Immigration to Spain from Latin american and EU15 countries has increased rapidly in the last decade.

For instance, the regional government of Madrid produced a business plan supportive of immigrants called New Madrileños,

) Assessment of the region Local labour market conditions The Andalusian labour market contains several structural weaknesses that distinguish it from the rest of the Spanish economy, namely:

Andalusia presents an example of=badly used human capital‘:‘as the educational attainment of resident workers has increased,

this is not employed appropriately enough to contribute significantly to economic growth (Cuadrado-Roura, 2010). At present, Andalusia is experiencing an unemployment rate above 26.5%(as compared to 18%in Spain as a whole.

During the recent economic crisis, Andalusian universities have seen enrolment increase by over two percent. In addition, the changing demographic structure in the region has affected labour market dynamics.

and the dominance of the construction and tourism sectors in the regional economy, it is not surprising that Andalusia has in recent decades switched from a region from

The popularity of Andalusian universities, coupled with the attraction of immigrant entrepreneurs, may constitute key opportunities for RETA and the region.

The local landscape of education and training related to entrepreneurship and SMES The educational system in Andalusia is currently experiencing a restructuring that will affect not only the future of education and human capital in the region but also the entire Andalusian system of innovation.

There are three Regional Ministries involved in human capital development in Andalusia: The Ministry of Education;

and the Ministry of Economy, Innovation and Science. In the mid 1980s, after education policies were transferred to Andalusia,

The 2003 Plan for the Second Modernization of Andalusia revealed the regional government‘s focus on promoting scientific research, technology transfer and entrepreneurship culture as engines of growth and economic development.

In 2004, the Ministry of Innovation, Science and Enterprise assumed responsibility for universities, university research and technology transfer in Andalusia. 2 For the first time,

and economic development tools and facilitate a shift towards an economy based on knowledge. 3 On March 22,

2010, the Regional Ministry of Economy merged with the Ministry of Innovation, Science and Enterprise. 4 The newly created Ministry of Economy,

entrepreneurship education (partly), and integration of immigrant workers. Figure 8. Regional Agencies involved in human capital development Source:

Personal elaboration based on the competencies of the three regional ministries as listed in www. juntadeandalucia. es as of July 2010.

which is now dependent on the Regional Ministry of Economy, Innovation and Science. This has created greater pressure for industryuniversity collaboration.

the Bologna process and the new plans of the regional government to increase the specialization of universities is expected to bring more competition for student recruiting

seeks to adapt vocational training to the new economy and new demand of jobs and occupations.

For the 2009-10 course, the number of students at technical and vocational schools in Spain increased 9. 3%compared to 3. 2%of Baccalaureate students. 7 Opportunities in the landscape This overview of the landscape of education

and training in Andalusia suggests several opportunities to build upon. First, the reorganization of the system into three ministries presents an opportunity particularly for high-tech innovation.

However, the risk in this restructuring is that it does not address the innovation needs of traditional sectors.

available at http://www. educacion. es/horizontales/prensa/discursos/2010/02/comparecencia-discurso. html Changes in the university system present another opportunity.

RETA and other regional stakeholders might work to encourage potential entrepreneurs among them to stay in the region,

Finally, the region might support the local residents who are increasingly choosing vocational over university training to obtain skills that will improve entrepreneurship.

The II Andalusia Plan for Vocational training will address several gaps in the system that can help link vocational training better to innovation and entrepreneurship for instance

Entrepreneurship education The EU generally lags in entrepreneurship education, and Andalusia is no exception (Twaalfhoven and Wilson, 2004).

Different public and private actors in Andalusia from across the regional innovation system promote entrepreneurship education in the region (see Annex 1)

. While the university offerings focus mostly on connecting high-tech workers and start-ups to entrepreneurship skills,

what some main regional actors do in the field of entrepreneurship education and training. Public universities Universities support entrepreneurship in four ways:(

1) providing workshops on starting a business for free or at very low rates;(2) at seven of the ten universities, supporting the Bancaja Young Entrepreneur Chairs,

with special seminars, networking with entrepreneurs, and training opportunities;(3) offering entrepreneurship fairs to connect different stakeholders;

and (4) conducting research on promoting entrepreneurship in higher education (Laurent, Periáñez, and Petit de Gabriel, 2010).

Each university has created also specific initiatives and courses to promote entrepreneurship. For instance, the Economics department at the University of Malaga (UMA) started offering a course on entrepreneurship in 2009.

This is an elective course that all university students can take, although only 200 students took and most of them came from the Economics department.

This figure is compared small to the approximately 33 000 UMA students. UMA recognizes the poor participation rates in these courses

Andalusia has lacked high quality education in business and entrepreneurship and even more so at the graduate level.

Economics and business administration departments in public universities are disconnected often from the local business community and, in response,

Most of them offer courses on entrepreneurship and business leadership, but not official degree programmes. 8 Technology Transfer Offices (OTRIS) Andalusia Technology Transfer Offices (OTRIS) have seen their responsibilities

Biotechnology and health sciences, Environment, Renewable Energies and Agriculture, Cultural and Creative Industries. ANDALUCIA EMPRENDE ANDALUCIA EMPRENDE has a network of 1 000 people to assist, advance, mentor,

It is the main provider of entrepreneurship training in the region. The main target is the entrepreneur,

ANDALUCIA EMPRENDE has more than 200 business incubators (Centros de Apoyo al Desarrollo Empresarial, or CADE) around the Andalusia region, including rural areas.

They also have a very extensive catalogue of entrepreneurship education. For youth, their training programs promote entrepreneurship culture in primary schools

high schools, baccalaureate programs, and vocational training schools, teaching students how to create and manage cooperative firms.

For the highest level of vocational training students, ANDALUCIA EMPRENDE offers a business plan competition in which the winners spend three days training in the business incubators.

In collaboration with EXTENDA, they offer four training programs: a course on how to internationalize a company for new entrepreneurs;

internships with companies abroad in strategic sectors for the Andalusia economy (aeronautics, biotechnology, ICT, culture industries, renewable energies;

which promotes entrepreneurship in vocational training schools and secondary schools. Their training is based on improving the skills of employed people (in collaboration with the Ministry of Education)

and 2) a university program promoting entrepreneurship, held at all public universities in Andalusia. They also host gatherings called Let s Speak about Enterprise in different educational institutions in Andalusia, with 99 000 people taking part in 2007 and 2008.8.

For instance, in 1999, the San Telmo Institute with the support of MIT created the CREARA program to promote entrepreneurship and the creation of innovative companies in the region.

Corporación Tecnológica de Andalucía (CTA) CTA is a private foundation, basically a business association of the largest technological companies based in Andalusia (Abengoa, Endesa, Airbus, Iberdrola,

) but with the collaboration of the Regional Ministry of Economy, Innovation and Science. CTA recently began a new program to support the doctoral education of researchers within their member companies.

Opportunities in entrepreneurship education Andalusia has a significant infrastructure for entrepreneurship training in place, providing a foundation upon

Many of the region‘s public universities are engaged already in entrepreneurship education, from special workshops to support for MBA PROGRAMS to internship programs at the technology parks.

Another key strength that the region might develop more is FUNDACION EMPRENDE's extensive entrepreneurship training programmes,

only a few regional stakeholders describe the many different organizational disconnects in the region as issues as well.

Yet, such disconnects may hinder communication, foster more redundancy, and prevent training programs from adopting appropriate curricula

a separation between ministries concerned with entrepreneurship, education, and employment; and the lack of a workforce strategy tied to=cluster‘strategies.

entrepreneurship training in Andalusia takes place in multiple venues. But most commonly emphasized by stakeholders in the Andalusian regional innovation system is the training available at the universities.

Focusing nearly exclusively on university R&d and technology transfer, regional actors seem to have missed the more modest but important contribution of vocational training and education.

For instance, despite the fact that Renewable Energies is one of the main clusters defined by the Ministry of Economy,

Bolstering the production chain of the cluster via training strategies will allow the expansion of the local market for these services

Limited coordination amongst the Ministry of Economy, Innovation and Science and the Ministry of Employment Second,

and the Ministry of Economy merging with Innovation and Science in 2010. The Ministry of Employment remains separate.

consolidating efforts for efficiency purposes (National Centre on Education and the Economy, 2007. Limited synergies between cluster strategies and workforce strategies Finally, in part because of this agency balkanization, the region‘s cluster strategy lacks strong connections to its workforce strategy.

There are certainly training efforts in the region that are coordinated with sectors, for instance The english and entrepreneurship education available at technology centres like the Andalusian Stone Technology Centre.

But for the most part, the agencies that offer different types of entrepreneurship training do not target the region‘s 25 clusters,

so had to receive some training in entrepreneurship from RETA. Yet given the breadth of agent involvement in the Andalusian economy,

as well as the rotation of agents between clients, it was not possible to give in-depth sectoral assistance.

Thus, they worked with many different types of industries, each with different entrepreneurship opportunities and constraints.

RETA focused mostly on basic IT services, teaching its firms how to use electronic signatures and anti-virus software rather than,

Opportunities for RETA Despite the challenges the redundancy in overall education and training system, the lack of university savvy about technology and entrepreneurship,

and the many disconnects in the system there are opportunities for RETA to assume a new role in the region.

including the commitment of regional stakeholders to improving the innovation system, the enthusiasm of foreign students for the region,

it has the opportunity to help coordinate training programs across agencies, universities and schools and advocate for more sophisticated training programs.

There is an opportunity to coordinate more university activity regionally and link it better to regional needs.

which will link training better to the new economy, also presents an opportunity for RETA to provide input

and help coordinate training along the entire production chain. In particular, opening the regional centers of excellence gives RETA an opportunity to help link such training better with the regional innovation system.

With several agencies offering different forms of entrepreneurship training in the region, there is a real need for an intermediary to assist with strategic planning that links the training better with the region‘s other flagship programs,

such as the innovation hubs. Even just documenting the programs, identifying overlaps, and mapping out synergies would help the region use its training resources more effectively.

As the literature on entrepreneurship and human capital indicates RETA is suited particularly well for this role because of the breadth of its networks,

The university system is committed to support labour policy, technology, and entrepreneurship. While most effort of the regional government to promote entrepreneurship

and talent seem to be focused in improving sending Andalusian students to top universities abroad (as in the Talentia program),

there is also a remarkable opportunity to retain the large number of foreign students that are attracted to Andalusian universities every year.

by helping them obtain legal residency and connecting them to entrepreneurship resources (for instance in the technology parks).

but also by fostering low-tech innovation. 10 Policy recommendations In the area of human capital and the labour market,

Thus far, RETA has struggled to find a niche in training, offering small-scale entrepreneurship and IT training programs typically in collaboration with other agencies.

but should help coordinate the regional conversation about human capital development related to entrepreneurship. In particular it can play a pivotal role by helping to link vocational training to the many other efforts.

already the leader in regional entrepreneurship training, to promote innovation and IT training in low-tech SMES.

RETA could help build this link by conducting a strategic planning process for the region‘s entrepreneurship training system.

Fostering entrepreneurship alone does not guarantee that Andalusia can capture the benefits for its distressed labour market.

During economic crisis it is particularly important to stimulate business to create more jobs. RETA might help the regional government identify examples of programs from other countries (such as the East Bay Green Corridor Partnership described below) that link incentives to job creation,

Refocus entrepreneurship training Refocus entrepreneurship training along the models of the best business schools, with a particular focus on attracting immigrant exchange students (though retaining immigrant entrepreneurs remains out of the region‘s purview.

Linking workforce and economic development in the regional green economy The East Bay Green Corridor Partnership in the San francisco bay Area provides an example of linking workforce and economic development,

and also illustrates the potential of regional coordination around one emerging sector in this case, the clean energy economy.

such as regional economic growth and competitiveness, can be contradictory. Job training seeks to help economically or educationally disadvantaged people access employment opportunities,

in part to create jobs in a stagnant economy. In the U s.,cities and states have found several creative ways to include workforce development in economic development programmes.

and clusters in the regional economy, and thus able to facilitate economic development. In late 2007, the mayors of Oakland, Berkeley, Richmond,

and promote the green economy in the region. The so-called East Bay Green Corridor Partnership (EBGCP) has expanded

One major impetus was the USD 500 million investment by British petroleum in biofuels research by a consortium including UC-Berkeley, LBL,

Figure 9. East Bay Green Corridor Partnership Policies The inclusion of funding for energy efficiency in the federal stimulus package has created a new opportunity for coordination

This in essence creates a new market for energy efficiency services an approach which the regional government is already fostering. 11 The Partnership also helps to coordinate the many different green workforce development initiatives,

The new market demand for energy efficiency will foster job creation in different ways. First, initial energy audits

local stakeholders argue that the Partnership has created a friendlier business climate for green businesses and streamlined the many energy efficiency programs.

it provides an example of how to stimulate the economy during a downturn by creating a new market;

it targets green economy businesses, also a strength for Andalusia; it links workforce 11 This 52 million Euro program includes integral energy efficiency retrofit of existing residential units, incorporation of new energy efficiency criteria for already planned rehabilitation of historic centres,

RETA might find a niche as a convener of the various stakeholders in each sector.

www. ebgreencorridor. org Entrepreneurship training in Gothenburg, Sweden As described above, the Andalusian public universities offer a few entrepreneurship training programs,

and have plans for entrepreneurship chairs, but in general the offerings are undersubscribed. Given the region‘s interest in entrepreneurship,

as well as the concentration of foreign students and immigrant entrepreneurs, there may be potential to expand the offerings at the university level.

as it invested in technology-based entrepreneurship at the University of Gothenburg and the nearby Chalmers University of Technology (Jacob, Lundqvist, and Hellmark 2003.

Sweden‘s emphasis on new technology-based firms is based on the understanding that they contribute to economic growth not just by producing own products

The Gothenburg model of entrepreneurship training is based an action entrepreneurship education program, i e.,, the project-based learning model (Rasmussen & Sørheim, 2006.

Programs at both the Chalmers School and the School of economics and Commercial law at the University of Gothenburg are highly selective. 12 A small class of students engage in the entrepreneurship process,

and venture capital attraction, to actual firm setup. Local business entrepreneurs serve on the start-up firm‘s board of directors.

The universities offer office 12 More recently, Chalmers University of Technology and the University of Gothenburg have joined forces to teach entrepreneurship at the higher education level in the region, with the support of the Swedish government

creating the Institute for Innovation and Entrepreneurship (IIE)( http://www. hgu. gu. se/item. aspx?

at present they are trying to integrate their entrepreneurship schools under the project G4e (Gothenburg for Entrepreneurship.

The Gothenburg model provides a useful model for a region that has struggled to launch entrepreneurship programs at the universities.

RETA might play a role in targeting entrepreneurship training resources, specifically a new learning-by-doing program as has been so successful in Gothenburg, at one of the biggest universities.

Second, initiating the effort would require significant regional and national investment, likely diverting funding from other university-based innovation programs.

For further information Chalmers School of Entrepreneurship, http://www. entrepreneur. chalmers. se/cse/School of economics and Commercial law at Gothenburg University, http://www. hgu. gu. se

Although entrepreneurship programs have offered training in e-commerce for many years, experience with global markets has shown that many websites are not appropriate to attract consumers in foreign markets.

However, only a few localization training programs exist, leading to a human capital deficit in this area. Certificate programs in the U s.,Ireland, Germany, the U k,

and intercultural communication. Although no systematic evaluation of localization programs exists localization, and global ecommerce more generally, seems like a natural fit for Andalusia, given three factors:

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THE CONTRIBUTION OF RESEARCH ORGANISATIONS Introduction Universities and public and private research organizations play a crucial role in regional economies that rely upon growth-oriented entrepreneurship and business innovation.

The funding, infrastructure and commercialization activities of research organizations within these economies are increasingly important as they make the transition to a knowledge-intensive form of production.

The current policy context of the region is summarized with respect to the role of research organizations in the regional economy.

It documents the policy context for the regional economy and the role played by both the Andalusia university system and RETA within that context.

The third generation of innovation approaches focuses on the role of shared knowledge and learning processes and the importance of building relationships and social capital between key actors and institutions.

and help overcome the existing obstacles to innovation in the Andalusian economy, it must do so on the basis of a more effective way to augment knowledge flows between research organizations and firms in the regional economy.

The preceding discussion suggests that the task of transferring knowledge from universities to industries is more complex,

frequently treat knowledge itself as a universally available commodity, virtually as a free public good,

which contributes both to the stock of tacit knowledge in the local economy, as well as to the=thickness‘of the local labour market (Gertler and Vinodrai, 2005).

Both the diversity of knowledge bases that firms draw upon and the different modes by which they innovate reinforce the point that the=knowledgebased economy‘consists of many=pools‘of knowledge accessible to different knowledge=communities‘within the broader economy (Lundvall, 2006.

It pays particular attention to the current state of the technology transfer process between the universities and enterprises in the regional economy, especially in terms of the concentration of the industrial structure of the region in small and medium-sized enterprises.

The key objective of the Lisbon Agenda was to bring Europe up to the same standard as the most competitive knowledge-based economies in the world by 2010

and the changing international terms of competition that have led to a growing concern with the overall innovativeness and competitiveness of the European economy.

unlocking the business potential of small and medium-sized enterprises; improving employability through flexicurity; and the better management of energy resources (Koschatzky and Stahlecker, 2010,9 10.

There is greater emphasis in this period on earmarking resources towards expenditure categories that correspond to the objectives of the Lisbon Agenda, such as research, technological development and innovation, support to firms‘investments and information society objectives

i) the promotion of the knowledge economy; ii) entrepreneurial development and innovation. Total expenditures on these two objectives are authorized at EUR 2. 38 billion over the life of the program.

actively contributing to the creation of an environment of innovation capable of reducing the gap with the most competitive economies (Junta de Andalucía, 2006).

The PIMA notes that there has been a significant investment in the system over the past ten years

and developing a first class research enterprise. These goals are to be operational through the financing of joint university-business R+D

In March, 2010 the Ministry of Enterprise, Innovation and Science was merged with the Ministry of Economy,

which supports the participation of research centres and enterprises in EU R&d funding programs, as well as a number of other intermediary associations (Gomez, 2007;

however, given the predominance of SME‘s in low-technology sectors in the industrial structure of the regional economy.

and innovation policy geared to favouring economic growth first and thus to give priority to the pro industry approach.

aeronautics, space, biotechnology and bioengineering, agro-industrial and food, health, tourism, production technologies, nanotechnology and advanced materials and information and communication technologies. government,

The nine public research universities also develop their own strategies to meet regional demands, especially the needs of the SMES through their association with other research organizations such as the Higher National Research Council (CSIC

The OTRIS are responsible for channelling external research demands to the appropriate research groups within their own institutions,

The Atlantis Programme, managed by the IDEA Agency is geared toward identifying newly formed enterprises from across Spain

The Campus Programme, also managed by IDEA supports the spinoff of EBTS from Andalusia universities by providing them with loans of up to EUR 100 000 through the public venture capital fund Invercaria.

One consequence of this cultural attitude is that the universities have been reluctant to direct research efforts in strategic directions related to areas of industrial strength in the regional economy,

they have an agreement with the Malaga-based Andalusia Technology Park (PTA) that the firms can move to the incubator in the Park.

but this is a particular challenge with the SMES that predominate in the Andalusia economy. They assess the needs of companies

The relationship is based on the extensive knowledge that RETA has of firms on the ground in different parts of the Andalusia economy

With respect to the question of how the university views the=demand pull‘approach to technology transfer,

the representatives did not seem to place a great deal of emphasis on coordinating technology consulting services for private firms.

as well as providing support services to facilitate work experience for its students in enterprises and the Foundation.

There are 240 research groups that use facilities and 80 external companies that use their services.

one for technology commercialization, one to support research projects and the application process and one for entrepreneurship in the University of Seville.

This highlights a critical issue in the university‘s relations with the SMES that characterize the regional economy.

This suggests that there exists a critical opportunity for RETA to use its intermediary position between the small coterie of firms that have been identified as innovative

and characteristics of the companies in the part of the regional economy where the universities are located.

The authors also suggest that it is important to recognize that R&d related activities do not play a major role in most of the firms that are designated as=innovative‘within the regional economy.

1) integrating the various elements of the Andalusian R+D+I system and serving as a coordinating mechanism between the small firms that comprise the backbone of the regional economy and the other organizations

The challenge that RETA faces is that only a very small portion (less than 5 per cent) of the second tier innovative firms that it services are in a position to engage with the universities in collaborative R&d undertakings

and provide complementary services that meet the needs of the tier of innovative SMES it is mandated to serve.

but it could make use of RETA‘s contacts with the group of innovative firms in the region as the basis for finding job placements for university students in the small and medium-sized enterprises that RETA services.

It could improve the quality of human capital working in the firms by providing them with technically trained university students;

and it could use the students as a conduit for feeding problems and concerns of small and medium-sized enterprises back into the teaching activities of the university faculty.

There is also some evidence from the North american experience that coop students can create a demand-pull mechanism to pull technical knowledge out of universities to provide assistance to firms (Bramwell and Wolfe, 2008.

Two ways to achieve this are to expand the presence of incubators in the technology parks as a way of providing more space for university spin-offs and entrepreneurial start-up firms,

Early success in one or two cases will create a demand for emulating the approach in other firms and universities across the region.

its mission is to provide technical assistance and advice to a wide range of enterprises across Canada.

IRAP provides SMES with four main services, including technological advice, financial assistance for R&d activities, networking and partnerships.

Its services are delivered by a network of about 260 Industrial Technology Advisors (ITAS), who are housed in universities, community colleges and other technology transfer organizations across the country.

Rationale for the Intervention A general feature of the Canadian economy, especially in the high technology sectors, is the predominance of small and medium-sized enterprises,

the relative contribution of small and medium-sized enterprises to business expenditures on R&d in Canada is significantly higher.

As a consequence, government programs targeted at promoting entrepreneurship and innovation among Canadian SMES takes on greater significance than it does in many other OECD countries.

supporting small-and medium-sized enterprises in communities across the country. The program has been in existence for almost 60 years

The Industrial Research Assistance program provides financial support to qualified small and medium-sized enterprises to help them develop technologies for competitive advantage.

A more recent study by Niosi (2008), comparing the effectiveness of IRAP with venture capital funding,

found that the receipt of IRAP funding was correlated more often with an increase in the rate of the firm‘s growth than the receipt of venture capital funding.

but in recent years demand for the services provided by IRAP‘s national network of ITAS

At Sybase, an enterprise software company that spun-off from the original WATCOM Corporation, with over 250 employees in its Waterloo campus alone,

A number of key benefits of the co-op program were identified in research conducted on the role of the University of Waterloo in the regional economy.

and they get an opportunity to evaluate their performance in the workplace before hiring them.

and supported by the Enterprise Co-op Program, which enables students to start their own venture in lieu of doing a co-op placement with an established firm,

and focuses on creating a local network of contacts and mentors to support it (Bramwell and Wolfe, 2008).

Relevance to Andalusia The key lesson to be drawn from this experience is that the patient investment of resources in a program such as this can pay incredible dividends to the local economy over a long period of time.

It has proved invaluable in both creating extremely tight linkages between the university and the dense network of technology-based firms in the local economy,

Innovation centres and technology incubators became more common, as did support for entrepreneurs and start-up companies.

and entrepreneurship to grow their future tenant base; strategically planned mixed-use campus expansion is emerging as a key trend that includes space for academic and industrial use

which is designed to create an innovative environment for frequent exchanges between academic researchers and industry counterparts;

Rationale for the Intervention A second report, prepared by the Institute for the Future, suggests that the model of selfcontained research parks that has prevailed for the past fifty years is currently under challenge from a series of shifts in the global economy,

Innovation and the Internationalization of the Local economies: Andalusia, Spain. Diagnostic Report Prepared for the OECD-LEED Study Mission to Andalusia.

Regional Ministry for Enterprise, Science and Innovation. Koschatzky, Knut, and Thomas Stahlecker. 2010. A New Challenge for Regional Policy-making in Europe?

In Microfoundations of Economic growth: A Schumpeterian Perspective, eds Gunnar Eliasson and et al. Ann arbor: University of michigan Press.

Landabaso, Mikel, Antoni Kuklinski, and Carlos Roman, eds. 2007. Europe-Reflections on Social Capital, Innovation and Regional Development.

Nowy Sacz: Wyzsza Szkola Biznesu National-Louis University. Laurent, Julia, Inmaculada Perianez Forte, and Eulalia W. Petit de Gabriel. 2010.

General Secretariat for Universities, Research and Technology, Regional Ministry for Innovation, Science and Enterprise, Junta de Andalusia.

The Paradox of Cluster Development in an Open Economy, eds David A. Wolfe and Matthew Lucas. Montreal and Kingston:

ENTREPRENEURSHIP AND START-UPS Introduction This chapter focuses on two interrelated issues: entrepreneurship and start-ups. It starts with a general policy analysis of the importance of entrepreneurship at national and regional levels.

The next section focuses directly on the current situation in the Andalusia region, concentrating on the stiff challenges that it is currently facing,

as well as the opportunities that can be utilised more effectively. The third section highlights a series of policy recommendations.

The chapter concludes with a set of international=learning models‘which are designed to illustrate what is being done in other regions to face up to the entrepreneurship and start-up challenges

as a means of reinforcing the preceding policy recommendations. Policy issues Developing a culture of entrepreneurship, including start-ups,

continues to be the focus of policy debate. This section concentrates on the reasons why a culture of entrepreneurship combined with the development of new enterprises are important.

The section goes on to address the importance of EU structural funds in stimulating entrepreneurial development in lagging regions experiencing economic decline.

Entrepreneurship policy It is acknowledged widely that entrepreneurship plays a key role in relation to economic development and that entrepreneurs are key agents of change in market economies.

what constitutes entrepreneurship is pinned not easily-down: it is evident in both small and medium-sized enterprises (SMES), as well as large ones;

in the formal and informal economy; in legal and illegal activities; in innovative and traditional firms;

in high and low-risk ventures; and in pretty much all sectors and sub-sectors of the economy (OECD, 2001, p. 35.

If Governments were increasingly emphasising the importance of the development of a=culture of entrepreneurship,

‘the challenges presented by the current economic and financial crises are likely to reinforce this trend.

The European commission‘s (EC) main policy document, the Entrepreneurship in Europe Green Book (2003) associates entrepreneurship with certain types of behaviour,

such as a willingness to engage in risk-taking, desire to achieve independence, and self-fulfilment of the entrepreneur.

At the level of local, regional, national and supernational economies, the EC highlights the importance of entrepreneurship in terms of its contribution to job creation and growth

the EC has committed itself to stimulating entrepreneurship across all EU nations and regions: entrepreneurship is considered to be a major driver of innovation, competitiveness and growth.

Consequently, entrepreneurship is promoted and supported by the EC via a plethora of strategies, policies, programmes and funding regimes, not the least

of which are the structural and cohesion funds, which focus on improving the entrepreneurial environment for start-ups and SMES.

Because a broad policy agenda can be addressed through an emphasis on entrepreneurship, national, regional and local policy-makers increasingly recognise that the task of stimulating a culture of entrepreneurship is driven a politically one.

At the same time, there is general acknowledgment that there are no ready-made models for this. Each nation region and city must experiment

in order to identify the right formula to reap the benefits of stimulating a culture of entrepreneurship in their locality.

However, the key elements are likely to include its particular historical, cultural, social, economic and political heritage (OECD, 2009.

EU Strategies affecting entrepreneurship and regions The EU meeting in Lisbon (2000) to respond to the challenges of globalisation and technologic revolution,

set itself the ambitious goal of making the EU the most competitive and dynamic knowledge-based economy in the world, capable of sustainable growth with more and better jobs and greater social cohesion by the year 2010.

Structural reforms were launched in the fields of employment, innovation, economy, social cohesion, and environment. However, by 2005 it was apparent that the goal was overly ambitious.

The goals required investment in research, education, transportation, renewable energies, and employability. The renewed Lisbon Strategy was based on a set of 10 interventions:

5. Increase and improve investment in R&d; 6. Facilitate innovation, the uptake of ICT and the sustainable use of resources;

9. Improve the adaptability of workers and enterprises, and the flexibility of labour markets; 10. Invest more in human capital through better education and skills.

The recent global crisis has however called for another major rethink of the Lisbon Strategy. The result was Europe 2020,

a 10-year strategy designed to revive the European economy through smart, sustainable and inclusive growth, with greater coordination of national and European policy.

%Invest 3%of GDP in R&d by improving the conditions for R&d investment by private sector;

which in turn, requires greater levels of entrepreneurship, improved business environments, and development of a strong and sustainable economic base.

The PIMA focus on innovation includes an entrepreneurship and start-up element: For Andalusia, encouragement of an entrepreneurial culture, spirit and activity is a basic strategy for its business development(..

an entrepreneurial spirit is the main driving force behind innovation, competitiveness and economic growth. There is a relationship between the entrepreneurial spirit and economic results in terms of growth, consolidation of the business framework, innovation, job creation, technological changes and increase in productivity.

and spirit as to support business-minded people who have decided already to start up a new enterprise (Andalusia Region, 2006, p. 57).

Knowledge economy (4. 6%of total expenditure: promote research, technological development, innovation and the information society.

and support firms in Andalusia committed to the growth and globalisation of the regional economy.

Environment, natural surroundings, water resources and risk prevention (29.7%of total expenditure. Priority 4: Transport and energy (31%of total expenditure.

including entrepreneurship and start-ups. At this point it is important to note that Andalusia is expected to lose its Objective 1 status in the next EU funding round;

therefore, represent a unique window of opportunity to get the regional economy in shape for the future.

Assessment of the region This section examines the nature of entrepreneurship in the Andalusia region,

as well as other factors such as the density of enterprises. This is followed by a brief analysis of the key institutions responsible for stimulating entrepreneurship and start-ups.

It terminates with an analysis of the key challenges and opportunities facing the region. Entrepreneurial profile There are a number of aspects of the Andalusian economy that are relevant from the viewpoint of entrepreneurship and start-ups.

Firstly Andalusia has traditionally been underdeveloped an region of Spain, although in recent decades there has been a remarkable catch up effect,

driven primarily by the performance of the construction and tourism sectors. Secondly, by 2008, Spanish GDP per capita exceeded that of the EU average (103)

The above synopsis indicates that the rapid economic growth and other gains experienced in recent decades,

Turning to the business demographics of the region, the figure below shows that the number of enterprises has risen year-on-year

However, the global recession has caught up with the region, resulting in a decline to 510 072 enterprises in 2008, a process

In 2008 Andalusia had 15.2 percent of all national enterprises, a reduction of 2. 4 percent on the previous year.

Number of enterprises in Andalusia, 1999-2008 376,646384, 086 398,302417, 006441,623 464,179 486,674 511,728 522,815510, 072 360,000 380,000 400,000 420,000 440,000 460,000

a large number of the new enterprises created in the region were connected with the construction sector,

During 2001-2008, industry and commerce have experienced declines in importance in Andalusia compared with construction (slight increase) and other services (major increase.

34.21 148,021 28.31 145,845 28.59-1. 47 Other services 193,235 48.51 275,508 52.70 275,676 54.05 0. 06 Total 398,302 100.00

The number of new enterprises (birth rate) stated declining in 2006/7, a process which accelerated dramatically in Spain(-27.46 percent) in 2007/8;

Estadisticas de Sociedades Mercantiles, INE Andalusia‘s entrepreneurship level was assessed by the Global Entrepreneurship Monitor (GEM) in 2006.

The GEM highlights some of the most pertinent entrepreneurship features of the region: Highest scoring aspects:

and commercial/services infrastructure. Lowest scoring aspects: absence of entrepreneurship in universities and in primary and secondary education, technology transfer,

and the role of the universities. Key obstacles for start-ups: social and cultural issues, lack of financial support,

A key issue addressed in the GEM is the entrepreneurship potential or, more specifically, whether the adult population plans to establish a firm in the next 3 years.

and the number of enterprises and employment has gone also up. At the same time, the analysis illustrates that the region has been hit severely by the crisis,

Start-ups, stock of enterprises and unemployment, notably youth unemployment, are being impacted severely. Moreover, the region has limited a relatively entrepreneurial where people enter public sector employment as their preference.

but this is likely to be hampered, to some extent, by the relatively low levels of human capital in the region.

The analysis suggests that there is an urgent need to further diversify the regional economy; given the education levels

and other limitations, there is a need for broader support to entrepreneurship and job creation. Institutions and policies for entrepreneurship Prior to assessing the challenges

and opportunities facing Andalusia, it is helpful to recall the main actors in the entrepreneurship support framework in the region.

Ministry of Economy, Innovation and Science The regional Ministry of Innovation, Science and Enterprise merged in 2010 with the Regional Ministry of Economy,

to result in the Ministry of Economy, Innovation and Science (MEIS). The MEIS is a powerful institution with a commensurate annual budget of some EUR 3 billion.

Its activities determine the contours of the entrepreneurial and start-up landscape in Andalusia. The Secretary general for Innovation is the main policymaker for numerous issues subsumed within the innovation banner.

The new Ministry is, in itself, a response to the massive economic challenges facing the Andalusia region as regional politicians sought to integrate the key economic levers in one institution.

does seek to promote entrepreneurship and start-ups in its development model. This political commitment springs from awareness that a culture of entrepreneurship is the driving force for innovation

competitiveness and economic growth in all regions, including Andalusia. The region has deployed numerous public instruments and resources to boost the competitiveness and innovative capacity of enterprises.

This has resulted in the creation of one of the largest networks supporting economic development through innovation in Europe,

underpinned by very substantial EU and national subsidies. Given this dense and extensive network of institutions, the regional government recognises that a central challenge is to:

Attraction of the best technology-based firms to the regional business incubators. Multiplication of Renewable Resources:

Train and counsel 5 000 SMES to add innovation to products and services; Commit resources,

and entrepreneurship centre as a cross-industry catalyst to accelerate the innovation rate and the creation of high-tech start-ups in the region.

The main institution responsible for the implementation of the approach with regard to entrepreneurship is the ANDALUCIA EMPRENDE Foundation,

and consolidating enterprises and promoting entrepreneurship throughout the region. It has two main goals: Promote a culture of entrepreneurial activity through awareness-raising,

a focus on young people and women, and on sectors such as cultural and creative industries. Create and consolidate enterprises and employment through advice and support to firms, business training,

and accommodation at the pre-incubation and incubation stages. More specific objectives are to: improve the image of entrepreneurs;

facilitate access by enterprises to public funds; improve the qualifications and professional development of young Andalusians at different educational levels and strengthen work placement in companies;

cooperate with other institutions at local, provincial, regional and national level in the design and implementation of entrepreneurship-related projects.

providing services to entrepreneurs in the creation and management of companies, including information, training, technical advice, access to finance and business accommodation in buildings and offices.

Generate investment: through the above companies, EUR 168 million were engendered. Provide incubator accommodation: for 500 firms.

Provide services: to nearly 12 400 entrepreneurs that applied for start-ups funds. Support the creation of business plans:

approximately 2 500 of such them were supported. Deliver basic business management: 4 435 hours of training delivered.

This chapter does not assess the impact that can be directly or indirectly attributed to EMPRENDE,

Curiously, for a region which has an extensive range of policies and tools to support entrepreneurship,

Entrepreneurship support: two main issues Two main points are worth reiterating to conclude this section:

Firstly, Andalusia does recognise the importance of entrepreneurship and start-ups. However, there is a strong emphasis on research and development and innovation (R+D+I),

which amounts to a technological biased view of entrepreneurship. The problems connected with current recession,

and youth unemployment, suggest a need for a wider focus on entrepreneurship, including education, vocational educational training, self employment, assistance to all forms of start-ups,

Secondly, there is a clear divide between policy-making (the responsibility of the new Ministry of Economy

While the main actor with regard to the implementation of entrepreneurship programmes is certainly ANDALUCIA EMPRENDE, there are some overlaps with other institutions,

this being a common feature of the regional support framework for entrepreneurship and SME development.

The significant levels of resources currently available appear to have spawned a multiplicity of institutions and networks to support enterprise development.

and opportunities facing Andalusia with regard to entrepreneurship and start-ups. The analysis conducted so far has dwelled on already implicitly the main strengths and weaknesses,

so the focus is here especially on future challenges and opportunities. Strengths and Weaknesses One of the region‘s most significant strengths is the level of EU, national and regional funds.

The institutional environment in the region is incredibly dense: an extensive network of institutions, policies, programmes and projects now exists,

potential crowding out of the private sector (delivery of activities which would normally be provided by the private sector, price distortion due to free delivery of services, etc.

In this context, the regional government should periodically assess the extent to which its entrepreneurship support activities are achieving the desired policy objectives;

The sheer levels of unemployment require the region to support all forms of entrepreneurship and start-ups in all sectors of activity (not simply those closely connected with R&d&i) and by all social groups,

if it is to utilise the growing pool of idle human capital in the medium to long term.

the level of local human capital, whether or not in employment, needs to be upgraded. Despite the recent catch up effect driven by higher levels of business activity (e g. construction and tourism sectors) and GDP per capita (now 80%of the EU average),

Human capital needs upgrading so as to compete with the rest of Spain, the EU and further afield,

which focussed primarily on investment in infrastructure. The focus of the current programme is on soft measures such as capacity and institution building, leading to greater innovation and competitiveness.

These objectives are much harder to absorb funds than infrastructure investment. However, the necessity to put to good use the large flows of funding has contributed to sprawling and potentially overlapping institutions, programmes and projects.

The consequence of this level of public subsidy is that much of the regional economy including entrepreneurs and enterprises being supported,

are protected to some degree from general competition. Fourthly, although the local economy may be cushioned by EU and national subsidies,

it has certainly not been spared from the economic crisis. The construction and real estate sectors have been affected severely,

and so as has agriculture and, to a lesser extent, tourism. The consequence is high levels of youth unemployment, a slow down in the number of migrants, emigration by EU ex-pats, etc.

A connected issue is the levels of demand for goods and services. The regional economy in not strongly export-oriented

companies refrain from placing orders, and the general public is nervous about possible layoffs and responds by increasing savings at the expense of consumption.

In this context, demand for local products and services is affected. In addition, the level of Spain‘s public indebtedness has resulted already in austerity packages that have an impact on aggregate demand.

Finally, with the eastward enlargement of the EU, the region is likely to lose its Objective 1 status and, in consequence,

EU structural funds will decline markedly beyond 2014. Given the extent to which the region benefits from financial and nonfinancial subsidies directly emanating from the EU,

it should initiate as soon as possible a process of transitioning to a more market-oriented and sustainable entrepreneurship and SME development policy.

It is extremely unlikely that the current extensive and dense institutional network of enterprise support will continue in the new emerging financial environment.

Opportunities Firstly there is a low but growing level of entrepreneurial culture in the region. Based on the 2006 Global Entrepreneurship Monitor (GEM) data, the density of enterprises was approaching the national level.

The same report also suggested that the population of the region has a fairly high level of interest in entrepreneurial activity.

the sharp economic downturn in Andalusia may stimulate a greater willingness to embrace self employment and other forms of entrepreneurship.

This is clearly something to build on in the region via a greater focus on developing a culture of entrepreneurship at all levels of the education system:

but it is also an opportunity. It would necessitate more efficient use of resources by minimising institutional overlaps

This presents the region and its enterprises with new opportunities. The commissioning of a detailed study and transition plan to assess the current situation

Develop the local entrepreneurial culture The Andalusia government does recognise the need to promote entrepreneurship as the basis for the development of the economic model being pursued by the region.

This recognition comes from a conviction that entrepreneurial spirit can be a driver for innovation, competitiveness and economic growth.

the Andalusia Innovation and Modernisation Plan (PIMA) and the Research, Development and Innovation Plan of Andalusia (PAIDI) include a set of actions designed to encourage entrepreneurship in universities.

and yet there is a need to develop a stronger culture of entrepreneurship in a region

This should not be restricted to a technologically-oriented view of innovation and entrepreneurship. The high and rising levels of general and youth unemployment necessitate the harnessing of all ideas, talents, sectors, etc. for the future of the region.

Moreover, the focus on entrepreneurship should not be restricted to future labour market entrants. The region could promote the establishment of dedicated (re) training programmes for existing business people (in employment

and/or recently made unemployed), focusing on new business models and approaches, combining elements of local skills and strengths,

All such training must be demand-rather than supply-driven. Turning to the institutions in Andalusia, a Working group is in the process of being established by the new Ministry of Economy,

Innovation and Science and the Ministry of Education to develop policies and initiatives at primary and secondary school levels.

ANDALUCIA EMPRENDE seems the agency best suited to implementing an integrated approach to developing a culture of entrepreneurship in the region,

including through awareness raising campaign, high profile public events, entrepreneurship competitions, entrepreneurship awards, support (financial and nonfinancial) for start-ups, etc.

Promote self employment to tackle unemployment and diversify the economy The rising levels of unemployment, the need to diversify the economy (e g. away from construction, real estate, etc.)

combined with the population‘s latent interest to establish a business (GEM, 2006) call for a greater focus on providing opportunities for people to establish their own businesses though self employment or creation of firms.

Such an approach should not be driven solely by R&d&i considerations: a strong focus on innovation could restrict the flow of viable business ideas.

The current economic situation means that entrepreneurship should be promoted widely. Most people, including Andalusians, recognise the benefits of being their own boss.

Selfemployment is typically the simplest and quickest way to start a business. There is generally little bureaucracy involved,

start-up capital is low, and record-keeping, accounting and taxation are straightforward. By contrast, setting-up a legal entity is a more demanding affair,

However, there might be need a for some new programmes specifically focusing on this type of entrepreneurship.

and benchmarks A significant part of the current support for start-ups in the region relates to business incubation.

Many business incubators have been established by the region; universities and municipalities also implement their own business incubator programmes over and above those supported by the region.

A notable example is Andalusia Technology Park (PTA), which provides funding, support and information for business creation through a five-stage development model involving:

Incubator stage: open to the pre-incubated firms, as well as others. It offers lower rents and a support team of 8-10 people over a three-year period of time.

Market rents and less intensive support services are provided but there is no constraint on the length of contract.

This incubation system is undoubtedly extremely helpful to the firms that are lucky enough to graduate through the five enterprise development stages.

whereas the European benchmark for incubated businesses is 85%.%Thirdly, it may actually hamper rapid growth

In particular, the region should conduct an independent evaluation of its business incubation model and benchmark it with international best practices.

and incubators to ensure that the system is as efficient as possible. Introduce forms of support to corporate spinoffs The region‘s spin-off support is currently almost entirely focused on universities,

The specific nature of corporate spin-offs means that they are an important aspect of the knowledge economy:

here, knowledge and experience is combined into new products, services and process. Measures to support corporate spinoffs could have important results:

and diversifying the regional economy. The regional government should therefore undertake a review of the current levels of corporate spin-offs in the region,

The Entrepreneurship Action Plan for Wales: Developing a culture of entrepreneurship Description of the approach The Entrepreneurship Action Plan for Wales (EAP) seeks to promote a culture of entrepreneurship in Wales through three key elements:

i) recognising the opportunity: creating a greater awareness of the opportunities and benefits of entrepreneurship in order to encourage more people to start a business

or to grow the business they are in, and to develop a greater entrepreneurial culture within our institutions, communities and businesses;

ii) creating enterprises: creating a greater number of sustainable start-up businesses with potential for further growth, particularly by underrepresented groups of society such as women, the young, ethnic minorities, etc;

and iii) going for growth: increasing the number of businesses in Wales that grow, thereby creating greater wealth, employment and opportunity.

Rationale for the intervention Although the Andalusia region has recognised the importance of entrepreneurship and has implemented a range of activities,

the approach to developing a culture of entrepreneurship in the region is not as comprehensive,

including close involvement of the private sector and extensive awareness raising campaigns, combined with an integrated set of activities involving schools, vocational educational establishment, universities, etc.

The Entrepreneurship Action Plan for Wales offers concepts which are suitable for replication by a large region such as Andalusia

subject to the necessary customisation. Reasons for success The creation of a private sector-led steering group is critical.

i) fostering a culture for entrepreneurship ii) unlocking the potential iii) enterprising communities iv) investing in knowledge

The strategy of the programme was guided by a private sector-led Entrepreneurship Implementation Panel; the operational part of the project was managed by a special enterprise team established within the Welsh Development Agency.

Their main role was to commission work from a range of different organisations to ensure the delivery of the programme.

By coordinating the role of different organisations and providing the funding for activities, a coherent approach to the development of entrepreneurship across Wales was established.

if there is effective implementation by all the organisations responsible for delivering the Entrepreneurship Action Plan. The EAP also requires significant levels of medium term political support backed up by financial resources such as through the Structural Funds.

Effective delivery and implementation of successful initiatives requires new approaches to education and training, community enterprise, business start-ups, development funds and the many other areas for action

Relevance to Andalusia and considerations for adoption Andalusia recognises the importance of developing a stronger enterprise spirit in the region

as shown by the Global Entrepreneurship Monitor for Wales, include a noticeable change in the attitudes of the people in Wales towards entrepreneurship and a public sector that increasingly and explicitly supports entrepreneurship across its activities.

Its success has resulted in an increase in new business start-ups. This type of approach would be advantageous in the Andalusia region:

entrepreneurship in its widest sense would be supported, rather than being restricted to an R&d&i focus. For further information Department of Enterprise Innovation and Networks Welsh assembly government Plas Glyndwr, Kingsway Cardiff CF10 3ah Tel:++

++44 2920 828821 Web-site: www. wales. gsi. gov. uk Start-up Subsidies in Germany: Transiting from unemployment into self employment Description of the approach Germany has suffered from persistently high unemployment rate,

The new entrepreneurs also need to be given support both before the start-up phase (entrepreneurship training, business plan, etc.

and investment into establishing incubators already, a relevant issue for the region to consider is a benchmarking model that would allow it to assess its performance relative to the European experience.

The best example of such benchmarking is funded the EC report Benchmarking of Business Incubators (CSES, 2002.

Rationale for the intervention One of the key initiatives that the Andalusia authorities have pursued in relation to entrepreneurship

and start-ups is the establishment of business incubators. International best practice has demonstrated their value. The European incubator benchmarking study (CSES,

2002) highlights that there are about 900 incubators in the EU generating approximately 40 000 net new jobs annually

and that incubators accelerate the start-up of new businesses and help maximise their growth potential in a way that is more difficult for alternative SME support structures to achieve.

However, incubators are not a panacea for entrepreneurship and job creation. The experience of incubators in the EU has been mixed.

Therefore the contribution of the above EC study was to prepare benchmarks for what constitutes successful incubators (see table below).

It is important for Andalusia, having invested a large amount of time and funding, to assess the extent to which it is performing according to these benchmarks and,

if it falls short of those standards, to consider what needs to be done to maximise efficiency in future.

Reasons for success The EC benchmarking study identified a number of critical quantitative and qualitative factors

which should be considered in developing a successful incubator policy. The table below sets out some of the key issues that could be considered by the Andalusia region.

Table 6. Summary of key EU business incubator benchmarks Setting Up and Operating Average Range Benchmark Average capital investment cost €3. 7 million

€1. 5 to €22 m NA Average operating costs €480, 000 p. a. €50, 000 to €1. 8 m NA Percentage of revenue from public

subsidies 37%0%to 100%25%Incubator space 3, 000 m 90m-41, 000m 2, 000 4, 000 m Number of incubator tenants

27 firms 1-120 firms 20 30 Incubator Functions Average Range Benchmark Incubator occupancy rates 85%9%100%85%Length of tenancy

of incubator staff: tenants 1: 14 1: 2 1: 64 1: 10-1: 20 Percentage of managers time advising clients 39%5%80%50%Evaluating Services

and Impacts Average Range Benchmark Survival rates of tenant firms 85%65%100%85%Average growth in client turnover 20%p. a. 2001

) 5%to 100%p. a. 25%Average jobs per tenant company 6. 2 jobs per firm 1 to 120 NA New graduate jobs per incubator

p. a. 41 jobs 7 to 197 NA Cost per job (gross) €4, 400 €124 to €29, 600 €4, 000 to €8, 000 Source:

Box 4. Summary of key EU business incubator qualitative factors Setting Up and Operating Business incubators should be designed to support

Incubators should be promoted by an inclusive partnership of public and private sector stakeholders. During the development phase

and a business plan to be devised that can provide a framework for incubator operations. There are a number of different set up funding models

but the evidence is that public support for the establishment of incubators will remain critical for the foreseeable future.

which incubators cover their operating costs and whilst many incubators rely on public subsidies, there is a strong argument in favour of dependence on this source of revenue funding being minimised.

Incubator Functions The provision of physical space is central to the incubator model. Standard good practices now exist with regard to the most appropriate configuration of incubator space.

The value added of incubator operations lies increasingly in the type and quality of business support services provided to clients

and developing this aspect of European incubator operations should be a key priority in the future. Business incubators should charge clients for the support services they provide

but the level at which prices are pitched should be designed to minimise the risk of crowding out private sector providers.

With regard to incubator operating procedures, it is essential that there is a clearly defined target market and that this is reflected in the admission criteria.

Whilst achieving high occupancy rates is important to generate income this consideration needs to be balanced against the importance of maintaining selective admission criteria.

Adopting exit criteria that ensure a turnover of client companies is desirable even if the turnover of firms makes revenue levels from rental income and other services less certain.

Aftercare and networking with firms that have left an incubator should be regarded as just as important as providing services to incubator tenants.

The quality of the management team, and adoption of a businesslike approach to running incubators and monitoring clients, is crucial to performance

and best practices in this field are becoming standardised. The type of activities client companies are pursuing

in particular the technology/knowledge intensity of these activities, is the key factor (rather than physical features, etc.

that should be used to differentiate one type of incubator from another. Evaluating Services and Impacts The performance of business incubators should be judged primarily in terms of the results achieved,

i e. the impact they have on businesses, wider economic development and other priorities. In assessing the impact of incubators,

there is a need to obtain feedback directly from client companies. Likewise, a distinction should be made between gross and net impacts achieved by business incubators.

Although new economy incubators are currently out of favour, there are many lessons to be learnt that are relevant to the more traditional model (and vice versa).

Across Europe, there are a variety of different business incubator models and precise modalities should reflect local, regional and national circumstances and priorities.

Similarly, although only limited comparisons are possible, the research confirms significant differences between the way in

which European and US incubators operate and therefore scope for a sharing of experience and know-how.

Overall, business incubators are a very cost-effective instrument for the promotion of public policy objectives.

Best Practice and Policy Recommendations Business incubators should be encouraged to benchmark themselves against best practice standards

and to take the steps required to achieve them. Benchmarking and best practice sharing should focus on the four key incubator service areas:

entrepreneur training, business support, financing and technology support. Business incubators should be encouraged to periodically undertake impact assessments.

A further priority should be for business incubators reduce their dependence on public subsidies. There is a need to professionalize the occupation of business incubator management.

Source: CSES, 2002 Relevance to Andalusia and considerations for adoption There is a need to establish a monitoring

and evaluation (M&e) mechanism for the incubation activities since they are one of the most extensive and expensive activities being pursued by Andalusia,

as far as entrepreneurship and start-ups are concerned. The proposed evaluation against quantitative benchmarks would enable the region to assess the current incubator policy

and whether there is a need for refinement, thus increasing policy effectiveness. To illustrate the point,

the survival rate of firms reared in an incubator environment should be significantly higher than the business success rate amongst the wider SME community.

The EC benchmark for the survival rate amongst tenant firms is set at 80-90%.

%suggesting that incubators are not operating as efficiently as might be hoped. Whilst survival rates are only one possible indicator of the performance of incubators

and others might be equally of importance (for example, the extent to which incubators contribute to high-growth firms or the employment impact in terms of job creation),

this suggests the necessity for an evaluation of the Andalusia incubator practice so far. This would provide a basis for change,

especially in view of the need to transit to the next programming phase where the region is likely to benefit from a reduced level of EU Structural Funds.

For further information Centre for Strategy & Evaluation Services LLP Westering House 17 Coombe Road Otford, Kent TN14 5rj United kingdom Tel:++

CSES (2002) Benchmarking of Business Incubators, Final report, DG Enterprise, Brussels. EC (2003) Green Paper:

Entrepreneurship in Europe, Brussels. EU (2010) Europe 2020: A European strategy for smart, sustainable and inclusive growth.

Global Entrepreneurship Monitor (2006) Andalusia. OECD (2001) Fostering Entrepreneurship, OECD, Paris. OECD (2003) Entrepreneurship and Local Economic Development:

Programme and Policy Recommendations, OECD, Paris. OECD (2009) Fostering Entrepreneurship in Eastern Germany, OECD, Paris. Granados-Cabezas (2010) Diagnostic Report Chapter, this publication.

Wolfe, D. 2010) University Industry Collaboration, this publication. CHAPTER V: SME DEVELOPMENT IN ANDALUSIA Introduction SME development and growth is critical to fostering entrepreneurship, job creation and economic development in Andalusia as a result of the dominance of SMES in the regional economy.

However, the region is currently characterised by a small number of innovative and internationally competitive SMES and a broader mass of firms operating in traditional sectors and supplying local markets.

and nature of SME development in Andalusia, focusing specifically on levels of innovation, internationalisation and the quality of the support environment in the region,

It makes a number of policy recommendations regarding improving the support environment for the different types of SME before proposing a number of learning models that may offer important lessons for Andalusia.

Currently, the export performance of the Andalusia economy is dominated by a small number of firms (both SMES

In part, the diagnosis of regional policymakers is that this relates to the firm size structure of the regional economy (see below) with an over-preponderance of very small firms.

Even in the most open economies, SMES are reluctant internationalists because they lack the capacities of larger firms,

Assessment of the region SMES in the Andalusia economy The Andalusia economy is dominated by SMES with over 99%of firms having less than 500 employees (see table below.

either self-employed or employing less than 10 people accounting for over 95%of enterprises. While the region experienced a high rate of new business start-ups and a significant increase in jobs during the period of economic growth from the mid 1990s up until the present economic downturn in 2007/2008, the continued lack

of mittelstand firms, medium-sized firms between 50 and 500 employees, demonstrates an underlying structural problem.

with a failure to grow indigenous enterprises to a level that can contribute more significantly to employment creation and regional growth.

The imbalances in the regional economy were exacerbated further in the boom period from the mid 1990s to the 2007

This resulted in a shift of resources, particularly of capital and labour, from the more productive and internationally competitive sectors of the economy.

The global economic downturn has worsened probably this situation: the most recent data available indicate that the larger firm sectors,

have been affected more heavily than smaller enterprises seeing much greater percentage falls in their numbers (see table) with severe implications for loss of jobs.

Table 7. Size structure of firms in Andalusia, 2008 Size of firm%of total enterprises%change 2007-8 Micro-enterprises 95.06-1. 73 Self employed (no employees

-499) 0. 55-11.68 Large enterprises(+500) 0. 08-37.46 Total 100.00-2. 44 Source:

Despite this small base, exports increased as a proportion of the total activity in the regional economy over the decade 1995-2005, rising from 20.8 percent to 24.9 percent of GDP (Consejo Economico y

The most recent evidence from EXTENDA suggests that the region‘s exports were holding up well compared to other Spanish regions in the face of the economic downturn.

but many of which are involved primarily in local and national markets in sectors such as biotechnology, aeronautics, information technology and communications.

Developing effective innovation and internationalisation policies for Andalusia‘s SMES therefore needs to recognise the diverse needs and different potentials of these three different segments of the economy.

An analysis of the SME development policy environment Andalusia has established a well state-driven policy environment supporting

The availability of EU funds in the recent past in particular mean that there has been a significant level of investment in high technology infrastructure and support

business start-up and venture capital for the more dynamic SMES. In particular, there is a considerable level of public support, at different levels (EU, national,

the Andalusia Technology Park (PTA) in Malaga, for example, has 530 enterprises employing more than 10 000 people.

in favour of backing the in vogue=high tech sectors‘might be in danger of missing opportunities based on the region‘s existing strengths a wider problem of the thrust of the region‘s innovation policy.

and expansion creating more medium sized firms from the encouraging number of micro enterprises that are being created?

) The most dynamic firms are in this sense the ones that are able to capitalise on the local support environment,

In an environment of shrinking business support more targeting of SME activity in this direction should be encouraged,

Additionally, the contraction in global economic demand from the recent downturn may make the penetration of international markets even harder for SMES.

2003) whereby SMES are able to=piggyback‘on the backs of larger customers into international markets.

and innovation tend to be customers or suppliers in their own value chains rather than external research bodies (either public or private)( Cumbers et al.,

what are viewed as knowledge-economy sectors such as IT and biotechnology, Andalusia needs to reassess the competitive prospects of many of the firms in these sectors.

number of customers; geography of markets supplied to and change over time; evidence of collaborative networking;

There are clearly good opportunities in sectors such as renewable energy and aerospace where the region already has established international lead firms,

and knowledge now available with internet communications to meet their specific needs. Typically the smaller SMES will identify innovation needs based on resolving day-to-day problems.

The availability of alternative employment in the growing economies of the nearby cities of Florence, Siena and Pisa resulted in an outflow of the farming population attracted by less arduous and more economically rewarding forms of employment.

which food is produced, the consequences for health and environment, and the subsequent importance of the visibility of the food chain.

with short supply chains between producers and consumers meant that it could meet the demands of the new type of consumer (Morgan et al.,

2006) also highlight the=broad stakeholder involvement‘behind these initiatives so that a bottom-up rather than top-down approach has been pursued that encouraged SMES to become more involved in strategic agendas.

who want to diversify economic development creating new job opportunities for local people, developing new housing and diversifying agriculture and many of the local consortia (e g.

or the growing demand in Spain and elsewhere for organic food products. The traditions of cooperative production and distribution in Andalusia‘s agri-food sector, allied to the existing decentralisation of economic development initiatives to the local level, also provide opportunities for the development of the kind of territorially based

strategies that have made the Tuscan model successful. Indeed Andalusia has its own models in this regard such as the Jerez and Montilla wine regions.

Sonninor@cardiff. ac. uk Professor Gianluca Brunori, Department of Agronomy and Management of the Agro-ecosystem, Group of Agricultural and Environmental Economics, University of Pisa, Via del

gbrunori@agr. unipi. it Danish low-tech clusters and the‘village economy'Description of the approach Confounding conventional analyses of globalisation, Denmark, with few natural resources and high production costs by international

Continued presence in low technology sectors has been achieved without the establishment of a large-firm dominated economy.

The Danish model has been referred to as the=village economy‘becomes it is founded upon clusters of SMES

but this is not built on investment in high technology or a high level of R&d (Maskell, 1998).

Rationale for the intervention As a small open economy with 50 percent of its economic activity accounted for by international trade,

Denmark has lacked traditionally the ability to undertake interventionist industrial strategies and demand-side economic policies of larger countries.

Despite this, in the late 1980s the Danish Government identified the threat of increased global competition to the position of its firms in international markets.

what is referred sometimes to as the=negotiated economy‘(Amin and Thomas, 1996; Maskell, 1998): 80 percent of workers are in trade unions

and opportunities for meeting to discuss common problems and issues. Such interactions do not necessarily encourage cooperation especially among the smallest firms where rivalry is often quite acute

What Maskell refers to as the=Village‘nature of the business environment=does not force the firms to cooperate

A tradition of long term specialist apprenticeships between 5 and 10 years has continued through the 2000s despite increased competitive pressures on firms from foreign low cost competition (Christensen, 2010.

Obstacles and responses Despite growing international competition from lower cost producers in China and Eastern European, Denmark‘s employment remained relatively stable up until 2007 but with the economic downturn and collapse of global demand in many key markets,

so have been reliant in the past on larger multinational customers (e g. IKEA in the furniture industry. Additionally, some industries face ongoing problems of uncertainty arising from the consumer markets they serve.

but involve the key stakeholders in different sectors (e g. businesses, labour unions, social economy organisations.

Greater autonomy from the regional government in developing sector specific agendas would allow Andalusia SMES to generate their own strategies with regard to innovation and productivity improvements.

Against a historical background of over-dependence on foreign owned firms and declining manufacturing activity, it represents an important boost to Scotland‘s knowledge economy

Scottish Enterprise and the devolved Scottish government which was established in 1999 (Leibovitz 2004; Rosiello 2004, Birch and Cumbers, 2009.

agriculture, and environmental services. The cluster is dominated SME, with 60 percent independent firms and 26 percent spin-offs from public research organisations such as universities.

and attracting foreign direct investment, the region‘s enterprise development agency, Scottish Enterprise, embarked on a policy of identifying strategic clusters in the 1990s with a focus upon both identifying potential endogenous growth dynamics alongside the continuation of developing external links to key global

commodity chains ad actors. The region‘s history and tradition at the forefront of medical sciences

going back to the eighteenth century Scottish Enlightenment, and the emergence of a fledgling life science industry in the late 1980s, stimulated by spin-off companies from three of Scotland‘s universities,

therefore an opportunity for Scottish scientists and technologists to develop new patents, products and processes to supply a growing global market.

Scottish Enterprise and the Scottish government have provided substantial support for the cluster through grant funding (e g. a Proof of Concept), cofunding (e g.

Co-investment Fund) and other financial schemes (e g. ITI Life sciences. Of particular note is the Intermediate Technology Institute one of 4 within Scotland (the others being in IT, energy and media)

and to a certain extent has been successful in its strategy of longer term investment to pick=winners‘in scientific areas that it considers to have rapid growth potential.

funded by Scottish Enterprise, which represents a worldwide network of leading Scots who provide advice,

Scottish-based firms are plugged very well into the commodity chains of the main European and United states pharmaceutical multinationals.

The skills and experience such returnees bring to firms are invaluable when operating in the global economy.

a key problem for life science SMES has been the availability of venture capital, which is limited in Scotland:

The limits of specifically=Scottish‘late-stage investment inhibit the achievement of a critical mass of medium and large firms

driven in the past by initiatives to attract foreign direct investment. The focus more recently on key knowledge economy sectors and a series of cluster initiatives hold some important policy lessons for Andalusia

which is now pursuing a similar course. The successful capitalisation on the region‘s educational and scientific assets may also hold lessons for Andalusia

With smaller resources in the future, investment in high tech activities should be directed at the most promising sectors that already display some international capability, rather than spreading resources too thinly.

For further information http://www. scottish-enterprise. com/your-sector/life-sciences-sector http://www. cppr. ac. uk/centres/cppr/researchthemes/trademobilitygeographicconcentration/lifesciencec

Director of International Networks, Scottish Enterprise, Atrium House, 50 Waterloo St, Glasgow, G2 6hq. http://www. globalscot. com/Contactus/Contact. aspx

Asheim, B. Isaksen, A. Nauwelaers, C. and Todtling, F. eds) 2003 Regional Innovation Policy for Small and Medium Enterprises.

In Asheim, B. Isaksen, A. Nauwelaers, C. and Todtling, F. eds) 2003 Regional Innovation Policy for Small and Medium Enterprises.

Christensen, J. L. 2010 Low-tech, High Performing Clusters in Knowledge-based Economies. Paper presented at the DRUID Summer Conference, London, June.

Environment and Planning A. 35 9, pp. 1689-1706. Isaksen, A. 2003 National and regional contexts for innovation.

In Asheim, B. Isaksen, A. Nauwelaers, C. and Todtling, F. eds) 2003 Regional Innovation Policy for Small and Medium Enterprises.

In Asheim, B. Isaksen, A. Nauwelaers, C. and Todtling, F. eds) 2003 Regional Innovation Policy for Small and Medium Enterprises.

Maskell, P. 1997 Learning in the village economy of Denmark. In Braczyk, H. J. Cooke, P. and Heydenreich, M. eds) Regional Innovation Systems.

Specialisation and Prosperity in Small Open Economies, London, Routledge. Maskell, P. 1998 Successful low-tech industries in a high-cost environments:

the case of the Danish furniture industry. European Urban and Regional Studies 5, 2, pp. 99-118.

Evaluating Scottish Enterprise's Cluster Policy in Life sciences: A Descriptive Analysis. University of Edinburgh: Innogen Working Paper No. 16.

Storper, M. 1995 The resurgence of regional economies, ten years later: the region as a nexus of untraded interdependencies.

Evaluating Scottish Enterprise's Cluster Policy in Life sciences: A Descriptive Analysis. University of Edinburgh: Innogen Working Paper No. 16.

The recent economic crisis has made things worse, striking Andalusia harder than the rest of Spain, which has been in itself severely hit by recession. 14 Two different stages of development connote the recent economic history of Andalusia.

and was largely based on investments in infrastructure. The second wave of modernisation builds on the main principles set out in the 2000 EU Lisbon Agenda

(i e. the prioritisation of the knowledge-based economy with a view to making Europe the most competitive economy worldwide);

hence, it emphasises the role of public and private investments in R&d, improved tertiary education, fostered co-operation between industry and university, stronger entrepreneurship, etc.

and the last EU-driven Andalusia Operational Programme for the period 2007-2013 earmarked EUR 2. 38 billion (nearly one quarter of the total) for the promotion of the knowledge economy and for entrepreneurial

the 2006 Innovation and Modernisation Plan for Andalusia (PIMA) which stresses the importance of business enterprise R&d (BERD) investments, industry-university technology transfer,

i e. the entrepreneurship and SME development support system of Andalusia, focusing on four main areas that are relevant for a thriving knowledgebased economy:

i) human capital and labour market; ii) research organisations; iii) entrepreneurship and start-ups; iv) SME development.

The main conclusions and policy recommendations for each of these themes make up the remainder of this chapter. 14.

Human capital and labour market Three key issues have emerged in the area of human capital and labour market:

i) today‘s knowledge-based economy put a premium on education; as a result, the regional government should seek to strengthen further participation in higher education;

ii) the potential contribution of vocational education and technical skills to entrepreneurship and innovation is appreciated not sufficiently in the region;

iii) entrepreneurship education is still at an incipient stage, in spite of the wide offer of training programmes for entrepreneurs.

in the knowledgebased economy there are greater returns from higher education. College graduates make up 29%of the employed population in the region,

Being the current entrepreneurship and innovation strategies mainly based on the promotion of R&d and industry-university technology transfer

This is shown, for instance, by the fact that the ministry of employment is involved not actively in the design of regional innovation and entrepreneurship strategies,

Entrepreneurship education is not as strong in the region as it could be expected, given the emphasis placed by the regional government on entrepreneurship and business innovation.

There is indeed a broad supply of entrepreneur training provided by a very heterogeneous array of actors (universities, technology centres, agencies such as ANDALUCIA EMPRENDEAND RETA),

There is a lack of programmes that tackle entrepreneurship in a more comprehensive and integrated way,

but amongst the ten public universities of Andalusia only the University of Malaga has established recently an elective entrepreneurship course that has, inter alia, poor attendance.

Contribution of research organisations The three key aspects with regard to the role of universities in the regional entrepreneurship and SME development system can be synthesised as follows:

Through less R&d-intensive forms of industry-university collaboration, the regional technology transfer offices will be able to reach out to a wider number of both faculty members and enterprises,

Entrepreneurship and start-ups Andalusia innovation and modernisation strategies (i e. PIMA and PAIDI) stress the importance not only of R&d investments and technology transfer

but also of new business start-ups and entrepreneurial culture as basic pillars of future economic development.

Entrepreneurship promotion is therefore rightly at the top of Andalusia‘s concern, and one organisation in the regional institutional setting is devoted specifically to this aim (i e.

i) despite remarkable strides in key entrepreneurship indicators, Andalusia has still margins for improvement as regards both business creation and entrepreneurial culture.

ii) considering the large investments of Andalusia in business incubators, the regional government should engage in a more regular evaluation of this tool against current EU benchmarks;

iii) an unexplored area by the Andalusia government concerns the contribution of corporate spinoffs to innovation and local development,

The entrepreneurship performance of Andalusia has improved significantly over the last decade, with business density increasing from 51.3%to 63.7%between 1999 and 2007 (Spain:

Total entrepreneurial activity (i e. the entrepreneurship potential measured as the number of people actively engaged in launching a new business) is also still lower in Andalusia than in the whole Spain.

As a result, co-ordination and co-operation between the ministry of employment and the Ministry of Economy, Innovation and Science would be crucial in this domain.

Incubators are one of the most favoured tools of business development promotion in Andalusia. Only within the Malaga technology park (PTA) there are six of them.

a feature that has been exacerbated by the weight of the construction industry in the regional economy. As of 2008, micro enterprises (less than 10 employees) accounted for 95,

%and small firms (10-50 employees) for 4. 3%of the whole enterprise population, thus making up altogether over 99%of the total.

The paucity of medium-sized firms (50-250 employees) points to an excessive business fragmentation that undermines the competitiveness of the region.

The task of internationalising the regional economy is made complicated by the very different sectors that have an international potential in the region,

whereas foreign direct investment of local firms (e g. through joint ventures with firms overseas) has received much less attention.

whereby SMES are able to piggyback on the backs of larger customers into international markets.

As part of this effort, for example, RETA attracted from 2005 to 2009 EUR 370 million of government funds for R&d investments by the firms hosted in the parks,

and from the type of services firms hosted in technology parks generally benefit. This has enabled the regional government to extend the scope and outreach of its policies,

and RETA should only focus on innovative enterprises in the future. This is a welcome step. As a=slimmer‘organisation, RETA needs to rationalise its mission, reducing the scope of work

Key future opportunities Developing entrepreneurship skills to upgrade local industries Universities are being geared up to be conduits for knowledge and innovation in the new economy but as the OECD study reports, inappropriate

and the experience of the University of Malaga‘s entrepreneurship programme show how entrepreneurship courses in the region tend to go undersubscribed.

Balancing generic entrepreneurship development programmes with tailor-made initiatives aimed at Andalusia‘s strategic sectors is imperative.

This means creating new entrepreneurship and innovation programmes for Andalusia‘s strong tourism industry together with the need to offer schemes that can help scale up its traditional agricultural industry

Blending R&d investment and skills upgrading to broaden the scope of local innovation policies Overall,

renewable energy is one of the main clusters defined by the Ministry of Economy, Innovation and Science;

Identifying and implementing programmes across the production value chains should help identify opportunities for new products, new connections,

and draw in to the region a greater pool of human capital. But an exclusive focus on such a strategy could be at odds with the actual requirements for the region in terms of its economic development today.

most hosted firms collaborated more intensively with external enterprises. It is difficult to judge whether this lack of collaboration is necessarily a negative aspect of SME development.

Improving the governance of public innovation efforts The continued investment in R&d (from EUR 72 million in 1999 to EUR 243 million in 2005) might generate opportunities for

The attractiveness of such ventures has to be measured by the level and capability of SME participation in international activity.

Harnessing the entrepreneurship potential of the youth and migrant population The need for greater strategic direction becomes more significant

Entrepreneurship works when new firms are formed, when new skills are developed and deployed, and when new talent is able to work with new products and services.

Wasted youth potential can have a profound adverse impact on entrepreneurship and economic development in the future.

Diversity through immigration can also be a positive feature of regions as the success of Silicon valley‘s many migrant entrepreneurs will testify.

However, harnessing talent among these communities for work in growing sectors could open up opportunities for new products and markets.

Box 6. Main policy recommendations Human capital and labour market Link training programmes more effectively with sectors in order to improve firm productivity and innovation,

Refocus entrepreneurship education along the models of the best business schools, trying to attract immigrants and to exploit the advantage of Andalusia s geographical location.

Entrepreneurship and start-ups Further develop entrepreneurial culture in the region, including by targeting the new unemployed through self employment programmes.

Setup a business incubation monitoring and evaluation system that assesses the performance of Andalusia incubators against EU current benchmarks.

whereby small firms internationalise their activities by piggybacking on the backs of large customers. RETA Focus work on innovative firms,

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