WARN-Count in xref table is 0 at offset 513920 2013 Brief on INNOVATION PERFORMANCE Brief on SME INNOVATION PERFORMANCE 2012/2013 Annual Report of European SMES Chiara Marzocchi, Ronald Ramlogan and Dimitri Gagliardi Manchester Institute of Innovation Research MBS, the University of Manchester. UK June 2013 2013 Brief on INNOVATION PERFORMANCE ANNUAL REPORT ON EUROPEAN SMES 2012/2013 2 Client: European commission June, 2013 DISCLAIMER The views expressed in this document are those of the project consortium members and do not represent any official view of the European commission. The responsibility for the content of this report lies with the project consortium 2013 Brief on INNOVATION PERFORMANCE ANNUAL REPORT ON EUROPEAN SMES 2012/2013 3 PROJECT CONSORTIUM MEMBERS 2013 Brief on INNOVATION PERFORMANCE ANNUAL REPORT ON EUROPEAN SMES 2012/2013 4 Contents 1. Introduction...5 2. SME Innovation Performance...6 3. SME Innovation Performance: final remarks...11 REFERENCES...12 ANNEXES...14 I. Proportion of Product and Process Innovation (enterprises...14 II. TOTAL INNOVATION EXPENDITURES (2010)..15 III. R&d EXPENDITURES †intramural (2010)..16 IV. R&d EXPENDITURES †extramural (2010)..17 INDEX OF TABLES Table 1: Firms cooperating for innovation-Proportion of product and process innovative enterprises (2010)..6 Table 2: Proportion of total expenditures on innovation by SMES and large firms (2010) 7 Table 3: Proportion of total expenditures in intramural R&d by SMES and large firms 2010)..8 Table 4: Proportion of Total Expenditures in Extramural R&d, SMES and large firms 2010)..9 2013 Brief on INNOVATION PERFORMANCE ANNUAL REPORT ON EUROPEAN SMES 2012/2013 5 1. Introduction Innovation is arguably one of the main drivers of economic growth and the capacity to innovate among the most important factors enhancing competitiveness on a global scale Grossman and Helpman 1991, Nelson 1996, Baumol 2002. Such capacity depends on a series of framework conditions which enable firms to pursue the necessary investments in R&d and enhance the knowledge content of the product and services delivered and hence their productivity Recent literature suggest that European SMES have increased their share of absolute R&d expenditures but such intensity of R&d expenditures is on average low as SMES tend to engage in less R&d intensity sectors (Moncada Paternã Castello 2011. Latest analyses reported in the Innovation Union Scoreboard (2013) also highlight that in general the innovation divide between the Member States is widening, with less innovative countries no longer catching-up with the most innovative countries. This means that differences in innovation performance in the European union have started to increase signalling a possible start of a process of divergence in Member States†innovation performance. In this perspective, it has been observed that the framework conditions for business R&d vary considerably across European countries, with the Northern European countries holding top positions on many indicators quite systematically (EU Competitiveness Report on SMES 2011 2013 Brief on INNOVATION PERFORMANCE ANNUAL REPORT ON EUROPEAN SMES 2012/2013 6 2. SME Innovation Performance This section will focus on innovative SMES and will investigate investments associated to innovation; expenditures in R&d both internal and external to the firm; and proportion of enterprises cooperation active engaging in product and process innovation. The tables and figures below are sourced from Eurostat available aggregates of the last edition of the Community Innovation Survey (CIS 2010. Data represent SMES compared to Large firms. In the present analysis we consider sectors defined as â€oeall Core NACE rev 2 -Private, nonfinancial activities†related to innovation1 The table below (see also Figure 1a in Appendix) shows proportions of product and process innovative enterprises engaged in cooperation divided by size class. As the table shows, small and medium enterprises cooperate on innovation in about the 34 per cent of cases (EU-27 average. In 13 countries SMES were innovative and cooperating as much on product and process innovation as large firms. Nordic countries (Finland and Sweden) featured strongly within that group as well as The netherlands and Germany Table 1: Firms cooperating for innovation -Proportion of product and process innovative enterprises (2010 COUNTRY SMES LARGE Austria 0, 4708 0, 5531 Belgium 0, 4747 0, 4692 Bulgaria 0, 142 0, 2031 Cyprus 0, 5515 0, 7257 Czech republic 0, 3301 0, 4134 Germany 0, 4545 0, 5405 Denmark 0, 3059 0, 4023 Estonia 0, 3506 0, 5075 Spain 0, 2721 0, 464 Finland 0, 4143 0, 5105 France 0, 3421 0, 4154 Hungary 0, 1315 0, 2608 Ireland 0, 4557 0, 5199 Italy 0, 4676 0, 4521 Lithuania 0, 1943 0, 3587 Luxembourg 0, 3889 0, 5443 Latvia 0, 1084 0, 2755 Malta 0, 3568 0, 4231 Netherlands 0, 4678 0, 4215 Poland 0, 1591 0, 3363 Portugal 0, 5449 0, 6295 Romania 0, 1703 0, 235 1 All Core NACE activities related to innovation activities (B c, D, E, G46, H, J58, J61, J62, J63, K and M71 2013 Brief on INNOVATION PERFORMANCE ANNUAL REPORT ON EUROPEAN SMES 2012/2013 7 Sweden 0, 3683 0, 4081 Slovenia 0, 4167 0, 5977 Slovakia 0, 2653 0, 3079 United kingdom 0, 2326 0, 1783 EU-15 0, 3904 0, 4418 EU-27 0, 3474 0, 4133 Source: Eurostat, DIW econ, London Economics, MIOIR Overall, recent empirical findings show that the environment for innovation has changed with the importance of new and small firms to the innovation process has increased However such improvement is balanced by an uneven distribution of small firm innovation between a few highly innovative and high-growth-potential firms and the great majority of SMES that innovate very little compared to their larger counterparts OECD 2010. The data suggest that SMES innovate less than large firms across a range of categories including product innovation, process innovation, non-technological innovation, new to market product innovations and collaboration in innovation activities In the following tables is presented proportions of innovation expenditures by firm size Innovation expenditure covers a wide array of input associated to innovation activities at the firm level. As such, they consider all the investments associated to: R&d; acquisition of advanced machinery, equipment and software for innovation; purchase or licensing of patents and non-patented inventions, know-how and other types of knowledge; training for innovative activities; design activities for the development of new products; other market activities (such as: market research, changes to marketing methods and advertising). ) On average (EU-25) the share of SMES innovation spending was 36%of total expenditures on innovation. In 2010, SMES in Greece and Ireland accounted for around the 50%of total expenditures on innovation. In 13 countries SMES level of expenditures in innovation was more than the overall sample average (see also Appendix: Figure 2a Table 2: Proportion of total expenditures on innovation by SMES and large firms (2010 COUNTRY SMES LARGE Austria 0, 34 0, 66 Belgium 0, 33 0, 67 Bulgaria 0, 43 0, 57 Cyprus 0, 48 0, 52 Czech republic 0, 38 0, 62 Germany 0, 16 0, 84 Denmark 0, 21 0, 79 Estonia 0, 67 0, 33 Spain 0, 33 0, 67 Finland 0, 22 0, 78 2013 Brief on INNOVATION PERFORMANCE ANNUAL REPORT ON EUROPEAN SMES 2012/2013 8 France 0, 33 0, 67 Hungary 0, 20 0, 80 Ireland 0, 49 0, 51 Italy 0, 44 0, 56 Lithuania 0, 41 0, 59 Luxembourg 0, 36 0, 64 Latvia 0, 39 0, 61 Malta 0, 47 0, 53 Netherlands 0, 45 0, 55 Poland 0, 21 0, 79 Portugal 0, 45 0, 55 Romania 0, 25 0, 75 Sweden 0, 28 0, 72 Slovenia 0, 41 0, 59 Slovakia 0, 37 0, 63 Source: Eurostat, DIW econ, London Economics, MIOIR In a study employing Community Innovation Survey data over 16 countries, Holzl (2009 found that high-growth SMES are more innovative and that R&d is more important to high growth SMES in countries closer to the technological frontier The next two tables provide a more specific proxy of the actual expenditures in research and development at the firm level providing a more direct assessment of the investments purely associated to technological innovation The tables distinguish between intramural and extramural R&d. The former defined as all creative work undertaken within the enterprise that increases knowledge for developing new and improved goods or services and processes, and the latter considering the same activities as above, but performed by other companies, including other businesses within your group, or by public or private research organisations and then purchased by the enterprise In 2010, the EU-25 average proportion of intramural R&d expenditures by SMES was around the 35 per cent and the countries with a higher quota of SME investment in internal R&d awere eleven, among which Lituania (LT) with the highest levels (74 %Poland, Finland and Denmark respectively these countries recorded the lowest amount of resources invested in internal R&d Table 3: Proportion of total expenditures in intramural R&d by SMES and large firms 2010 COUNTRY SMES LARGE Austria 0, 30 0, 70 Belgium 0, 29 0, 71 Bulgaria 0, 45 0, 55 Cyprus 0, 46 0, 54 Czech republic 0, 51 0, 49 2013 Brief on INNOVATION PERFORMANCE ANNUAL REPORT ON EUROPEAN SMES 2012/2013 9 Denmark 0, 19 0, 81 Estonia 0, 56 0, 44 Spain 0, 41 0, 59 Finland 0, 17 0, 83 France 0, 24 0, 76 Hungary 0, 29 0, 71 Ireland 0, 45 0, 55 Italy 0, 39 0, 61 Lithuania 0, 74 0, 26 Luxembourg 0, 28 0, 72 Latvia 0, 57 0, 43 Malta 0, 66 0, 34 Netherlands 0, 29 0, 71 Poland 0, 15 0, 85 Portugal 0, 34 0, 66 Romania 0, 34 0, 66 Sweden 0, 21 0, 79 Slovenia 0, 30 0, 70 Slovakia 0, 38 0, 62 Source: Eurostat, DIW econ, London Economics, MIOIR Finally, the last table looks at the proportion of R&d expenditures from companies outside the enterprise. The average level of outsourced investment for SMES was slightly lower than the average internal expenditures: 32 per cent (against 35 per cent suggesting that SMES mildly tend to carry their R&d in house rather than purchasing it from other firms. Eleven of the considered countries had a level of extramural expenditures higher than average, with Lituania†s SMES (LT) having up to the 86 per cent of their R&d purchased from other companies Table 4: Proportion of Total Expenditures in Extramural R&d, SMES and large firms 2010) 2 COUNTRY SMES LARGE Austria 0, 26 0, 74 Belgium 0, 14 0, 86 Bulgaria 0, 39 0, 61 Cyprus 0, 47 0, 53 Czech republic 0, 15 0, 85 Denmark 0, 15 0, 85 Estonia 0, 54 0, 46 Spain 0, 21 0, 79 Finland 0, 20 0, 80 France 0, 34 0, 66 Hungary 0, 05 0, 95 Ireland 0, 27 0, 73 Italy 0, 26 0, 74 Lithuania 0, 86 0, 14 2 All Core NACE activities related to innovation activities (B c, D, E, G46, H, J58, J61, J62, J63, K and M71 2013 Brief on INNOVATION PERFORMANCE ANNUAL REPORT ON EUROPEAN SMES 2012/2013 10 Luxembourg 0, 45 0, 55 Latvia 0, 57 0, 43 Malta 0, 52 0, 48 Netherlands 0, 25 0, 75 Poland 0, 08 0, 92 Portugal 0, 43 0, 57 Romania 0, 14 0, 86 Sweden 0, 18 0, 82 Slovenia 0, 43 0, 57 Slovakia 0, 41 0, 59 Source: Eurostat, DIW econ, London Economics, MIOIR Although increasing institutional efforts to harmonize data for the understanding of the relationship between innovation and SMES performance, comparative exercises at the EU level still provide controversial results because of sampling selection issues (Criscuolo et Al. 2010), and for the difficulty to separate the effect of context dependent factors (such as firm†s age, or type of innovation or culture context) in the analysis (Rosenbush Et al 2011 However, recent literature on the relationship between R&d intensity and productivity found that firm size and R&d intensity, along with investment in equipment, enhances the likelihood of having both process and product innovation. Both these kinds of innovation have a positive impact on firm's productivity, especially process innovation Among SMES, larger and older firms seem to be less productive. Finally, product innovation seems to have a positive impact on firms'labour productivity (Hall Et al 2009). ) These results hold across four large EU economies with a high SMES intensity such as Italy, France, Germany, Spain and UK (Griffith et al. 2006 2013 Brief on INNOVATION PERFORMANCE ANNUAL REPORT ON EUROPEAN SMES 2012/2013 11 3. SME Innovation Performance: final remarks In the previous section we looked at key innovation inputs such as broad investments associated to innovation and expenditures in R&d; and at the innovation output in terms of the proportion of enterprises engaging in product and process innovation Despite our analysis was bounded by data availability, it is relevant to remember that to increase SMES competitiveness other elements should be considered. Such elements are defined according to the idea that innovation occurs within a wider framework which is identified by the environmental conditions enabling the innovation process and that eco -system factors play a crucial role in determining direction and opportunities to innovate Allman Et al. 2011 In particular, key enablers of the innovation process rest on the interplay between available resources and knowledge creation, a relationship shaped by factors such as human capital, infrastructures, access to finance and knowledge exchange between public research base and entrepreneurs Research into human capital has suggested that innovation-driven growth in small and medium sized firms is fostered by a broad range of capabilities both managerial and entrepreneurial (Kakaki 2003; Macpherson and Holt 2007. Moreover, a recent study highlights how skills are very relevant enablers of SMES capacity to export (Love and Roper 2013. Human and social capital in turn also activate networking opportunities and increase firms†absorptive capacities, defined as the capacity of make use of external knowledge Institutional, physical and financial infrastructures such as the normative framework stimulating trade and competition; an increasing communication and digitalization accessibility; as well as smooth lending technologies augmenting credit availability are all historically tested keys to pursue the expansion of productivity (Mokyr 2008 2013 Brief on INNOVATION PERFORMANCE ANNUAL REPORT ON EUROPEAN SMES 2012/2013 12 REFERENCES Allman K.,Jakob Edler, Luke Georghiou, Barbara Jones, Ian Miles, Omid Omidvar Ronnie Ramlogan and John Rigby (2011), Measuring Wider Framework Conditions for successful innovation. A system†s review of UK and international innovation data, NESTA Report, London (UK Baumol William J. 2002), The free-market innovation machine: analysing the growth miracle of capitalism, New jersey: Princeton university Press Bronwyn H. Hall, Francesca Lotti and Jacques Mairesse (Jun.,2009), Innovation and Productivity in SMES: Empirical Evidence for Italy, Small Business Economics, Vol. 33 No. 1 Cohen W. M. and Levinthal D. A (1990) Absorptive Capacity: A New Perspective on Learning and Innovation. Administrative Science Quarterly, 35 (1), 128-152 Criscuolo C. Squicciarini Mariagrazia, Lehtoranta Olavi (2010), R&d, innovation and productivity, and the CIS: sampling, specification and comparability issues, MPRA Paper No 39261 (http://mpra. ub. uni-muenchen. de/39261/1/MPRA PAPER 39261. pdf European commission (2011), Competitiveness Report on SMES (2011), European Commission, Research and Innovation http://ec. europa. eu/research/innovation-union/pdf/competitiveness -report/2011/executive summary. pdf#view=fit&pagemode=none European commission (2013), Innovation Union Scoreboard http://ec. europa. eu/enterprise/policies/innovation/files/ius-2013 en. pdf Griffith R.,Elena Huergo, Jacques Mairesse, and Bettina Peters (2006), Innovation and Productivity across four European countries, Oxford Review of Economic policy, Vol. 22 No 4 Grossman G. M.,Elhanan Helpman (1991), Innovation and Growth in the Global Economy, Massachussets: MIT Press Holzl W. 2009), Is the R&d behaviour of fast-growing SMES different? Evidence from CIS III data for 16 countries, Small Business Economics, Vol. 33 pp 59†75 Kakati M. 2003), Success criteria in high-tech new ventures, Technovation, Vol. 23 Issue 5, pp. 447†457 2013 Brief on INNOVATION PERFORMANCE ANNUAL REPORT ON EUROPEAN SMES 2012/2013 13 Kline, S. J.,Nathan Rosenberg (1986. â€oean overview of innovation†In R. Landau & N Rosenberg (eds. The Positive Sum Strategy: Harnessing Technology for Economic Growth. Washington, D c.:National Academy Press, pp. 275†305 Love J.,Stephen Roper (2013), SMES Innovation, Exporting and Growth, ERC White Paper N 5 Macpherson A.,Robin Holt (2007), Knowledge, learning and small firm growth: A systematic review of the evidence, Research Policy, Volume 36 pp 172-192 Mokyr J. 2008), The Institutional Origins of the Industrial revolution, in Elhanan Helpman, ed.,Institutions and Economic Performance. Harvard university Press, 2008 pp. 64-119 Moncada Paternã Castello P. 2011)" Companies'growth in the EU: What is research and innovation policy's role?""IPTS Working papers on Corporate R&d and Innovation series http://iri. jrc. ec. europa. eu/papers. htm Nelson R. R. 1996), The Sources of Economic growth, London: Harvard university Press OECD (2010), SMES, Entrepreneurship and Innovation, Centre for Entrepreneurship SMES and Local Development, Paris: OECD Publishing Rosenbusch N.,Jan Brinckmann, Adreas Bausch (2011), Is innovation always beneficial A meta-analysis of the relationship between innovation and performance in SMES Journal of Business Venturing, Volume 26, Issue 4, pp 441†457 2013 Brief on INNOVATION PERFORMANCE ANNEXES I. PROPORTION OF PRODUCT AND PROCESS INNOVATION (ENTERPRISES Source: Eurostat, DIW econ, London Economics, MIOIR 2013 Brief on INNOVATION PERFORMANCE ANNUAL REPORT ON EUROPEAN SMES 2012/2013 15 II. TOTAL INNOVATION EXPENDITURES (2010 Source: Eurostat, DIW econ, London Economics, MIOIR 2013 Brief on INNOVATION PERFORMANCE ANNUAL REPORT ON EUROPEAN SMES 2012/2013 16 III. R&d EXPENDITURES †INTRAMURAL (2010 Source: Eurostat, DIW econ, London Economics, MIOIR 2013 Brief on INNOVATION PERFORMANCE ANNUAL REPORT ON EUROPEAN SMES 2012/2013 17 IV. R&d EXPENDITURES †EXTRAMURAL (2010 Source: Eurostat, DIW econ, London Economics, MIOIR

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