SECOND OECD CONFERENCE OF MINISTERS RESPONSIBLE FOR SMALL AND MEDIUM-SIZED ENTERPRISES (SMES) PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY TOWARDS A MORE RESPONSIBLE AND INCLUSIVE GLOBALISATION EXECUTIVE SUMMARY OF THE BACKGROUND REPORTS Second OECD Conference of Ministers responsible for Small and Medium-sized Enterprises (SMES
) Promoting Entrepreneurship and Innovative SMES in a Global economy Towards a More Responsible and Inclusive Globalisation Executive Summary of the Background Reports Istanbul,
Turkey 3-5 june 2004 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT Pursuant to Article 1 of the Convention signed in Paris on 14th december 1960,
to achieve the highest sustainable economic growth and employment and a rising standard of living in member countries,
and thus to contribute to the development of the world economy; to contribute to sound economic expansion in member as well as nonmember countries in the process of economic development;
PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 3 Table of contents Preface...5 Introduction...
7 Entrepreneurship and SME Innovation...8 Tools for SME Innovation...17 SMES in the Global economy...
25 Enhancing the Role of SMES for Development...32 Evaluation of SME Policies and Programmes...
40 PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 5 Preface At the first OECD Conference for Ministers Responsible for SMES, hosted by the Italian government in Bologna, Italy, in June 2000,
Ministers from nearly 50 member and nonmember economies adopted the Bologna Charter for SME Policies.
They envisaged the Bologna Conference as the start of a policy dialogue among OECD member countries
and nonmember economies and that it would be followed up by a continuous monitoring of progress with the implementation of the Bologna Charter.
and sets out some policy messages and recommendations that have emerged from preparatory work in the OECD Working Party for SMES and Entrepreneurship.
The wide variation in stages of economic development, institutional arrangements and political context across the economies participating in the Bologna process, now more than 80,
The messages and recommendations outlined below provide material from which governments may choose to draw in promoting innovative SMES in the global economy.
PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 7 Introduction Ministers have the opportunity to assess priorities for SME policies The second OECD Conference for Ministers Responsible for SMES brings together 30 OECD countries
and more than 50 nonmember economies at Ministerial level to exchange views on Promoting Entrepreneurship and Innovative SMES in a Global economy.
It offers Ministers the opportunity to take stock of the progress that has been achieved in implementing the Bologna Charter, adopted at the Bologna Conference in June 2000.
They may also assess policy priorities for realizing the potential contribution that small and medium-sized enterprises (SMES
and grow if the business environment in which they operate permits this to happen. Some of the issues relate to policies that affect the whole economy
and hence the general business environment in which SMES must operate. Other issues relate to policies
and programmes more specifically oriented to supporting enterprise creation, fostering entrepreneurship and facilitating the growth and prosperity of SMES once established.
Still others relate to mobilising human resources in particular women, to realise their full economic potential. 1 A second major focus of the conference is the continuing process of international economic integration
and ways to encourage 1. This work is an important part of the follow-up to the OECD Growth Project (The New Economy:
Beyond the Hype, OECD, Paris, 2001) which underlines the need for micro-policy reforms to enhance innovation and productivity in knowledge-based economies.
These relate in particular to the four main microdrivers of growth: entrepreneurship, innovation and technology diffusion, information and communications technologies,
and human capital. PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY 8 OECD 2004 SMES, especially in developing economies,
to take best advantage of this process. This report summarises the background reports prepared for this conference.
The main messages emerging from the preparatory work for the conference incorporated in a series of background reports,
Entrepreneurship and SME innovation. Tools for SME innovation. SMES in the global economy. Enhancing the role of SMES for development.
The final two sections summarise work relating to two sets of issues which cut across many of the other conference themes and
Entrepreneurship and SME Innovation Fostering entrepreneurship and firm creation Entrepreneurship and firm creation generate jobs,
The creation of new businesses and the contraction or exit of less productive firms are key elements in the dynamism of modern economies.
This points to the importance of ensuring that the business environment is conducive to rapid expansion of young,
especially PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 9 innovative firms once they establish themselves.
There is also considerable variation across industries. In particular, entry and exit rates have been exceptionally high in recent years in ICT-related service sectors
and productivity New firms must often have an innovative edge on their competition in order to survive, particularly in younger
or products and contribute to productivity improvements in the economy as a whole. While in the short term cost reductions and increased competitive pressure can lead to job shakeouts,
In the longer term, the resulting productivity increases are the basis for higher economic growth and rising living standards. and provide social benefits.
Governments have recognised increasingly the contribution that social entrepreneurship can make to reducing poverty and empowering disadvantaged groups.
Many countries operate specialised entrepreneurship schemes to assist target population groups. Such schemes need to be designed carefully
Policies should ensure a business environment conducive to entrepreneurship and enterprise creation. Creating a business environment conducive to entrepreneurship and enterprise creation in
which innovative young firms have scope to expand rapidly once they have established themselves requires a broad range of mutually reinforcing and supportive policies.
Many of these affect the economy as a whole but impinge importantly on potential entrepreneurs and SMES.
which are essential to provide a basis for a stable macroeconomic environment. They also include structural policies that determine the overall economic framework in which the business sector operates,
such as those affecting labour markets, tax design, competition, financial markets and bankruptcy laws. The PROMOTING ENTREPRENEURSHIP
AND INNOVATIVE SMES IN A GLOBAL ECONOMY 10 OECD 2004 way these structural policies affect enterprise creation and small businesses should be taken into account in their formulation stages.
Regulatory and administrative burdens on small businesses should be kept low. There is considerable evidence that regulatory and administrative burdens can impinge adversely on entrepreneurial activity.
since (according to a World bank study2) they appear to be associated with less private investment, higher consumer prices and greater corruption.
which the World bank finds is generally more flexible in advanced countries than in developing economies, limits management flexibility and leads to smaller firm size and less research and development as well as less investment in technology.
Education and training (including lifelong training) in entrepreneurship and creativity are preferred the 2. World bank, Doing Business in 2004:
PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 11 instruments for encouraging entrepreneurial behaviour in societies,
and evidence suggests that such programmes can have an impact on entrepreneurial activity and enterprise performance.
entrepreneurship is integrated not sufficiently into educational curricula or integrated into national long-term economic strategy and planning;
there is a need for a broader acceptance of the concept of education and training for entrepreneurship;
Entrepreneurship and SME policies also have an important local dimension. Indeed, facilitating increasing rates of enterprise creation is an almost universal concern for local authorities who seek to accelerate development or reverse decline in localities,
whether disadvantaged or prosperous. Programmes aimed at reducing social distress and unemployment, including chronic unemployment,
New enterprises can procure a range of benefits that contribute to local development, including: rises in employment and incomes;
enhanced provision of services for consumers and businesses; and possibly, demonstration and motivational effects. Determinants of rates of enterprise creation at the local level include demographics, unemployment, wealth, the educational and occupational profile of the workforce, the prevalence of other small firms and infrastructure endowment.
Programmes and support policies should be evaluated systematically Governments often need to go beyond provision of the framework conditions that influence the business environment to address policy
and market failures that dampen entrepreneurial activity and limit the scope for innovative small firms to grow.
In practice, this requires programmes and support policies for small enterprises which may be complex and involve scarce resources.
Many PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY 12 OECD 2004 of these programmes and policies are designed
and implemented at the local level. To ensure that these programmes are cost effective and well targeted,
and framework conditions to underpin the entrepreneurial business environment. Policy design in areas such as competition, the regulatory framework, the tax system, labour markets, financial markets and bankruptcy laws should take account of the way these areas impinge on SMES and innovation in knowledge-based economies.
Ensure the reduction and simplification of administrative regulations and costs which fall disproportionately on SMES.
Integrate entrepreneurship at all levels of the formal education system and ensure access to information, skills and expertise relating to entrepreneurship via lifelong learning programmes for the adult population.
Promote the diffusion of training programmes by stimulating the private market's supply of such services and providing hands-on focused courses.
Integrate the local development dimension into the promotion of entrepreneurship. The roles of sub-national authorities in the promotion of entrepreneurship are of paramount importance
and should be defined and coordinated with central governments, as appropriate for each country. Ensure that programmes in support of SMES
and entrepreneurship are realistic in terms of cost and are designed to deliver measurable results. An evaluation culture should be developed to ensure that programmes are monitored systematically
and assessed for their performance in achieving objectives and for their cost-effectiveness. Strengthen the factual and analytical basis for policymaking
An internationally comparable set of indicators should be developed for monitoring the level of entrepreneurial activity and the entrepreneurial environment in each country.
PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 13 and based on evidence to the degree that this is possible.
Fostering women's entrepreneurship Women's entrepreneurship is potentially an important source of growth Women's entrepreneurship has increasingly become recognised as an important source of employment and potential growth.
Indeed, self employment represents one of the most important job options for women, especially for women in developing economies.
their entrepreneurship provides society with different, and often innovative, solutions to management and organisational problems as well as to the exploitation of new opportunities. but this source is untapped largely.
However women still represent a clear minority of entrepreneurs nearly everywhere (Figure 1). Furthermore, they generally choose to start
and their prospects for success. PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY 14 OECD 2004 Figure 1. Female employers and own-account workers Percentage of total employers and own
Canadaindonesia Japan Korea Mexiconew Zealandphilippinesunited States Selected APEC economies, 1998 PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 15 The empirical basis for informed policy design needs to be improved Reliable data
and analysis relating to women's entrepreneurship are scarce and provide little empirical basis for policy design.
Definitional issues complicate data collection, and some national systems prohibit statistics at the individual level, making gender-specific analyses impossible.
More precisely, women face different obstacles at different stages in this process (e g. opportunity identification, opportunity exploitation and fund-raising.
which influence entrepreneurship. These relate to the political context, institutional framework, family policies market forces and the suitability of particular individuals,
Specific obstacles to greater entrepreneurship by women include inappropriate educational background, lack of role models, the gendering of entrepreneurship, weak social status,
competing demands on time notably associated with family responsibilities and limited access to finance. Progress can be made by removing obstacles to female participation in the labour force,
An important area where progress can be made is in removing obstacles to female participation in the labour force.
and entrepreneurial activities more PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY 16 OECD 2004 specifically.
Such policies are part of the wider package of economic and social arrangements in any economy
Economies in transition and the Nordic countries, for example, have some of the best provisions for working women
but do not stand out as having high levels of female entrepreneurship. However, family-friendly policies allow more flexibility to manage time
and entrepreneurship contribute more effectively to encouraging more equal opportunity between men and women, these should incorporate a women's dimension at the design stage.
Support for women's entrepreneurship should not be confined to government policies and programmes. Women entrepreneurs and associations representing them have much to teach each other.
Networks should be encouraged both within economies and internationally to support the diffusion of knowledge and experience within the private sector to facilitate entrepreneurial endeavours by women.
PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 17 Tools for SME Innovation Financing for innovative SMES Access to risk capital is a major obstacle to SME expansion.
and promoting entrepreneurship generally will have benefits in terms of women's entrepreneurship. Listen to the voice of women entrepreneurs.
This can be done by ensuring that the impact on women's entrepreneurship is taken into account at the design stage.
These are major sources of knowledge about women's entrepreneurship and valuable tools for its development and promotion.
Co-operation and partnerships between national and international networks can facilitate entrepreneurial endeavours by women in a global economy.
Improve the factual and analytical underpinnings of our understanding of the role of women entrepreneurs in the economy.
PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY 18 OECD 2004 capital. First, the returns to innovative activities are highly uncertain and often skewed.
Addressing these problems requires finding ways to fuse entrepreneurship and finance. This involves ensuring the availability of entrepreneurial, technical and managerial expertise to the providers of finance and engaging investors actively in the development of the firm.
The desirability of close contacts between suppliers of funds and those requiring finance also points to the importance of regional and local initiatives, support of business angel networks and business incubators. and not to a lack of funds.
For example, even the well-developed venture capital market in the United states has benefited from federal funding for many years.
where difficulties PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 19 accessing finance are most acute (Figure 2). It should also be managed by the private sector
and structured to leverage private sources of financing. The experience of several countries with small business investment companies may offer useful guidance.
International capital markets have a role to play. The need for proximity and close interaction between investors and entrepreneurs at early stages of firm development should not lead to neglect of the contribution international capital markets can make.
In this regard the impact of the forthcoming Figure 2. Venture capital investment, 1999-2002 Percentage of GDP Note:
The definition of private equity/venture capital tends to vary by country. Source: OECD Venture capital Database, 2003.0.80 0. 70 0. 60 0. 50 0. 40 0. 30 0. 20 0. 100 Israel Expansion
Start-up and early growth financing Buyout and others United Statescanadakoreaswedennetherlandsunited Kingdombelgiumfinlandeuropean Uniongermanyaustraliafrancenorwayirelandspaindenmarkswitzerlandnew Zealanditalypolandczech Republicportugalgreeceaustriahungaryjapanslovak Republic PROMOTING ENTREPRENEURSHIP
AND INNOVATIVE SMES IN A GLOBAL ECONOMY 20 OECD 2004 Basle II agreement on innovative SMES and on SMES in general in developing countries should be the object of further research
and should be kept under review. Where current regulations restrict institutional investors from providing risk capital or limit international investment in venture capital they should be reviewed with a view to easing
or eliminating them. Key policy recommendations Concentrate policies for promoting availability of risk capital to innovative SMES mainly on early stages of the financing of the firm.
and those who require finance, particularly for small-scale investment. Regional and local equity initiatives (e g. regional funds) are
therefore appropriate for such types of investment. Such equity programmes should be created in parallel with the development and support of regional and local business angel networks as well as business incubators.
Increase the managerial and technical expertise of intermediaries whose role is to evaluate and monitor companies.
which countries with less well developed capital markets can draw on the expertise of countries with well developed stock markets.
Access to liquid international stock markets and an investment community that has expertise in venture capital-backed initial public offerings avoids the need to create new institutions.
or barriers to flows of foreign venture capital funds should be reviewed with a view to reducing,
PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 21 Recognition and measurement of intangible assets should be improved.
They can only partly secure such access through markets for goods, services, intellectual property rights and human resources.
PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY 22 OECD 2004 and geographically concentrated clusters of innovative firms are another.
Clusters are localised innovation systems where increasing private and social returns on public and private investment result from physical
In addition, further examination of best practices and countries'experiences is suggested in such areas as the role of universities and knowledge-intensive services in cluster Figure 3. Types of innovative networks 1
US GU 12.9 14.4 16.0 15.8 21.9 19.1 PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 23 development, the regional attractors of knowledgeintensive foreign direct investment,
but all must be aware of the opportunities and constraints created by the intellectual property system.
PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY 24 OECD 2004 Key policy recommendations Improve SMES access to information about networking opportunities.
This will require co-operation among all stakeholders including SME associations, public agencies and intermediary organisations to correct deficiencies in existing sources of information.
PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 25 SMES in the Global economy Facilitating SMES'access to global markets Globalisation offers SMES opportunities The globalisation of business has drawn increasingly SMES
Many entrepreneurs are recognising the opportunities that this process offers and gaining access to global markets has become a strategic instrument for their further development.
Access to global markets for small businesses can offer a host of business opportunities such as larger and new niche markets;
and is often an essential strategic move for SMES with large investments in intellectual property. and poses challenges.
These challenges can expose them to heightened international competition from foreign firms, and may result in the loss of traditional markets to lower-priced competition from overseas.
Challenges and threats may concern the following: standards and international compatibility issues; intellectual property protection;
the broad picture for many OECD and some nonmember economies is that of a low,
A study conducted for Asia-Pacific Economic Cooperation (APEC) economies suggests that SMES account for less than 30%of total exports in the region. 3 3. C. Hall, Profile of SMES and SME Issues
PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY 26 OECD 2004 In Europe exporting activity rises with firm size.
The share of medium-sized enterprises engaged in exporting is more than twice that of micro-enterprises. 4 US experience suggests that exporting SMES often confine their efforts to one market.
A 2001 survey of European enterprises showed that around one-third of SMES report an increasing number of international business contacts,
ranging from 30%for micro-enterprises to 50%for medium-sized enterprises. 5 Few SMES invest abroad.
Governments can also promote inward foreign direct investment which can serve as a vehicle for SMES to access international markets indirectly by joining the supply chains of multinational enterprises.
Indeed, foreign direct investment is often an efficient way to diffuse technology and better business methods to SMES and enhance their international competitiveness. especially non-tariff barriers.
PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 27 across borders. This applies especially to access to information as regards tax
regulatory frameworks and requirements, advisory services, markets and regulation, and dispute resolution processes. This will require active collaboration among governments, international agencies and the private sector to address issues,
and services geared to high-growth nascent and existing entrepreneurs. Promoting e-business adoption by SMES E-business offers great potential benefits to SMES,
Promote the role that foreign direct investment can play as a vehicle for SMES to access international markets.
In particular, the inclusion of local SMES in the supply chains of multinational enterprises, and their resultant (indirect) involvement in exporting activity can lead to significant diffusion of technology and more efficient business models,
thereby raising the international competitiveness of SMES. Encourage the smooth, cross-border growth of SMES by reducing the need for internationally active SMES to comply with multiple sets of rules or requirements.
advisory and support services for SMES and dispute resolution procedures. Enhance incentives for new public-private partnership initiatives that would help SMES reach global markets for innovative products and access foreign sources of advanced technologies and knowledge.
PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY 28 OECD 2004 business-to-business interaction and real-time communication can reduce information asymmetries between buyers and sellers and build closer relationships among trading partners.
In the business-to-consumer context the Internet provides an effective tool for communication, often providing customers with better service
and allowing their needs to be monitored more accurately, facilitating new product development. A home page with a direct link to a business e-mail account provides an easy contact point
and eases problems of communicating across different time zones . but they have been slower than large firms to take advantage of them.
or lack of incentive to change business models unless returns are clear. But SMES also face generic barriers to adoption,
and to foster business environments that facilitate e-business and the use of more complex applications of information technology.
Liberalisation and competition in network infrastructure should continue and be strengthened, Rollout and use of quality infrastructure at affordable prices are crucial.
and effective use of broadband services require policies that: promote effective competition and continued liberalisation in infrastructure, network services and applications across different technological platforms;
encourage investment in new technological infrastructure, content and applications; and ensure neutrality across competing and developing PROMOTING ENTREPRENEURSHIP
AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 29 technologies to encourage interoperability and innovation and to expand choice.
Public financial assistance to expand coverage for under-served groups and remote areas could complement private investment where appropriate,
provided it does not preempt private sector initiative or inhibit competition. Figure 4. Internet penetration by size class, 2001 or latest available year Percentage of businesses using the Internet1 1. In European countries, only enterprises in the business sector,
but excluding NACE activity E (electricity, gas and water supply), NACE activity F (construction) and NACE activity J (financial intermediation), are included.
The source for these data is the Eurostat Community Survey on enterprise use of ICT.
In Australia, all employing businesses are included, with the exception of businesses in general government, agriculture, forestry and fishing, government administration and defence, education,
private households employing staff and religious organisations. Canada includes the industrial sector. Japan excludes agriculture, forestry, fisheries and mining.
and only includes enterprises with NZD 30 000 or more in turnover. Switzerland includes the industry, construction and service sectors. 2. For Canada
OECD, ICT database and Eurostat, Community Survey on ICT usage in enterprises 2002, May 2003.100 90 80 70 60 50 Finland 10-49
) Greece United kingdom (2001) Mexico (1999) 2 50-249 250 and more 10 and more PROMOTING ENTREPRENEURSHIP
AND INNOVATIVE SMES IN A GLOBAL ECONOMY 30 OECD 2004 and digital content, including increased use of e-government services,
Digital products, information services and interaction with government in areas such as procurement regulatory compliance and tax offer SMES important potential efficiency gains
and marketing opportunities. While the potential contribution of e-government is significant, the private sector must play the key role in providing content.
Strengthened crossborder co-operation among all stakeholders is necessary to reach these goals. Of particular relevance for small firms are low-cost on-line dispute resolution mechanisms among firms
Whereas large enterprises can afford specialised staff, SMES must often rely on the qualifications and training of their general workforce.
PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 31 Key policy recommendations Move beyond policies for basic connectivity
and promote broadband competition and liberalisation in network services and applications. Where the needs exist,
and without preempting private initiative or inhibiting competition, complement private investment with public financial assistance to expand coverage for under-served groups and remote areas.
Strengthen the infrastructure for trust security (including spam and viruses), privacy and consumer protection. Intellectual property protection of ICT innovations and digital products is necessary to build the confidence among SMES that is essential
Strengthen cross-border cooperation between stakeholders and the development of rules with cross-border application.
E government services to enterprises should be used as a tool to improve efficiency of government interactions and operations with SMES.
PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY 32 OECD 2004 Enhancing the Role of SMES for Development Transition
and developing economies need to strengthen their capacity to take advantage of trade and investment opportunities.
which countries grow is their ability to integrate with the global economy through trade and investment.
Enterprises in transition and developing economies face major challenges in strengthening their human and institutional capacities to take advantage of opportunities in these areas.
While governments make trade and investment policies, it is enterprises that trade and invest. Therefore, supply-side bottlenecks in the trade and investment areas and the way in which governments, development partners and the private sector itself address these constraints have direct implications for the economic growth potential of transition and developing countries.
SMES have an important role in contributing to development and poverty reduction. Most enterprises in transition and developing countries are SMES.
These firms typically account for more than 90%of all firms outside the agricultural sector, constitute a major source of employment
and generate significant domestic and export earnings. In the poorest countries they nevertheless make up a relatively small part of the economy,
contributing less to employment and output than the informal sector (Figure 5). An important policy priority in low-income countries is to facilitate the creation of SMES
and structural policies that contribute to healthy business environments conducive to enterprise creation and growth;
SME development strategy must be integrated into the broader national PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 33 development and poverty reduction strategy of transition and developing countries.
Dialogue and partnerships between the stakeholders (public sector, private sector and civil society) foster ownership of these strategies, make them easier to implement (by better addressing SME needs),
national, and global markets require substantial investments in sustainable development of institutional and physical infrastructure
Continued dialogue and partnerships between stakeholders about implementation and review of supportive measures, particularly, those related to capacity building in private sector service providers, yields improved outcomes.
M. Ayyagari, T. Beck and A. Demirgüc-Kunt, Small and Medium Enterprises across the Globe, World bank Policy Research Working Paper 3127, WASHINGTON DC, August 2003, pp
Middle income High income Income group Low income Middle income High income Income group SME sector (median values) Informal sector PROMOTING ENTREPRENEURSHIP
AND INNOVATIVE SMES IN A GLOBAL ECONOMY 34 OECD 2004 Trade and investment capacities of SMES must be strengthened.
and investment opportunities and reap the benefits of the international trading system. This means they need to be competitive and productive.
as well as to build their trade and investment capacity. Business support agencies (including financial institutions) must be oriented customer
Strengthen the business support system, through an intermediary role, by building capacity in business services, both public and private (e g. provision of market, product and process information,
accounting, market analyses and research, legal advice, transport, express delivery and advertising). Develop a national strategy for export development
but which involves participation by all key stakeholders. The overall objective should be to increase the volume and value of exports and the number of exporting companies.
The benefits of foreign direct investment to local SMES should be maximised. The potential benefits of foreign direct investment to host economies include sources of external capital
technology and knowledge transfer, job generation, skills enhancement and enterprise development through linkages and spillover effects.
These include backward linkages with suppliers, forward linkages with customers, linkages with PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 35 competitors who set new standards
and necessitate greater efficiency, and linkages with technology partners. A programme to strengthen linkages between foreign direct investors
and local SMES would include: Improving the flow of information about potential local suppliers to potential purchasers in multinational enterprises
and about supply opportunities to potential suppliers through the development of a national Web site and/or business directories, supplemented by meet-thebuyer events.
Targeting suppliers on the basis of proven abilities and commitment to future improvements, Working closely with multinational enterprises by inviting them to help potential suppliers to a) understand their supply requirements,
b) identify areas in which they have good opportunities to supply, and c) draw attention to weaknesses they must overcome
in order to succeed. Such an intermediary role helps to build mutual understanding and trust between multinational enterprises and potential suppliers.
Helping SMES that have the potential to supply multinational enterprises to identify their needs and then to access the public and private support services they need.
Offering some form of monetary incentive to multinational enterprises and local SMES to participate in the linkage programme.
This could include contributing to the salary costs of engineers and managers in multinational enterprises
which devoted time to supplier upgrading (Singapore); cash grants to promising suppliers to help with initial investment costs (Ireland;
and subsidized training and consultancy necessary for enhancing supplier capability (Chinese Taipei. Developing capacity building programmes that include supply chain
and cluster initiatives which recognize the potential for developing tiers of suppliers to maximize trickle down effects,
including to micro-enterprises as lower-tier suppliers. PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY 36 OECD 2004 Governments in advanced economies should promote policy coherence and greater effectiveness of development assistance.
Finally, overall policy coherence is essential for the successful implementation of SME development strategies. Development partners need to recognize that better attention to local conditions is necessary for trade and investment capacity building in transition and developing economies.
These have to go hand in hand with market access and improved policy co-ordination among donors.
Key policy recommendations Embed strategies toward the private sector and SMES in countries'broader national development and poverty reduction programmes.
and enterprises able to provide information on markets and standards, advice on strategies, and access to technology and innovation coupled with appropriate financing packages.
so that trade and investment policies and standard setting are aligned with development co-operation objectives and policies.
including a reduction of barriers to trade in manufacturing and agricultural sectors with major benefits and opportunities for developing countries.
Maximise the spillover of management skills and knowledge from multinational enterprises to local SMES. Spillovers of knowledge and management skills to local firms are one of most critical benefits of foreign direct investment for host countries.
Support policy frameworks and multinational enterprise behaviour that facilitate such spillovers and better document real-world cases to increase public understanding of the contribution of foreign direct investment in progression
of development. PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 37 Evaluation of SME Policies
and Programmes Systematic evaluation is an essential element of a well-designed SME policy framework.
Cross Cutting Review of Government Services for Small Businesses, Department of Trade and Industry, September 2002, URN 02/1324.
agencies (support services) 81 Department for Environment, Food and Rural affairs (grants, advice, in kind support) 3 120 Department of Transport
Venture capital Trusts; Enterprise Investment Scheme) 2 590 Total 7 932 (as a per cent of GDP)( 0. 8) PROMOTING ENTREPRENEURSHIP
AND INNOVATIVE SMES IN A GLOBAL ECONOMY 38 OECD 2004 SME policy makers should develop an evaluation culture.
Making programme evaluation central to the policy process begins at the design stage. When legislation is being framed,
and be seen to be more independent than the department PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 39 delivering the programme.
Their detailed knowledge of the programme will be less, however and so they will rely more heavily upon the co-operation of the programme deliverers.
PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY 40 OECD 2004 Towards More Systematic Statistical Measurement of SME Behaviour The empirical basis for SME policy formulation is poor.
A second recurrent theme in the preparatory work for the Istanbul Conference has been the poor empirical basis for informed policy making in the area of SMES and entrepreneurship.
the growth of existing firms or promoting enterprise among target groups in the population. Targets should be specified in measurable ways to facilitate evaluation of the extent to
PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 41 Available high-quality empirical analysis, notably crosscountry comparative studies and longitudinal studies
Nonmember economies should be involved in this work where possible. Develop an integrated business statistical register. This requires that countries introduce a single identification number for enterprises,
so that data from different sources can be matched. It also requires that policy makers address those barriers, often legal,
provide insights about the impact of policies on enterprise performance and growth as well as differences across OECD countries.
PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY 42 OECD 2004 It is desirable to contain costs at statistical agencies
Given these basic problems, it is perhaps unsurprising that detailed subsets of such data and analysis of them, for example women's entrepreneurship,
Some actions, notably the development of integrated business statistical registers, the introduction of single identification numbers for enterprises and their use to link data more efficiently,
can only be taken in capitals and in several cases involve issues (e g. confidentiality, structure of business registers) that require legal,
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