Key policy messages and Conclusions
The present study has conducted an in-depth analysis of 7 concluded or ongoing INTERREG IVC projects that focus on the theme of the Innovation Capacity of SMEs. The study has reviewed the Good Practices, sub-projects and other initiatives deployed by these projects and has drawn conclusion with regard to their alignment with the most pressing policy trends in the field of SME support and their relevance for regional actors active in assisting SMEs to overcome barriers to innovation. The main findings and policy recommendations are presented next.
1. Relevant findings for regional actors
The present study has reviewed good practice support mechanisms in a selection of INTERREG IVC projects and the analysis of their contribution towards addressing the barriers to innovation faced by SMEs in Europe. The overall results clearly show that it is possible to improve SME innovation support in Europe through a learning process that enables the improvement of internal practices and/or the adoption of external good practices, from one region into another region, or from another dimension.
a) INTERREG IVC projects show a good understanding of the SME problems…
In order to find solutions, it is first important to understand the problems. Policy actors can only intervene to support SMEs to innovate by creating mechanisms to help them to overcome the barriers to innovation if they manage to correctly interpret what the barriers faced by companies are.
In the Policy Review section of this report, we have presented the results of an extensive literature review that concludes with an identification of the most relevant barriers to innovation faced by SMEs in Europe:
- Shortage of own financial resources and the problem of accessing finance for innovation - a seemingly perennial problem but one certainly exacerbated by the recent global financial crisis and current economic slowdown. Innovation is costly, and in business investment, choices regarding scarce resources have to be made, and innovation is often in competition with other business functions for this investment.
- Innovation management skills – innovation processes from the generation of ideas to the generation of profits on the markets with new products / services require management. An increasingly complex innovation system that combines ‘open’ innovation approaches with closed ones requires more sophisticated innovation management skills within the company if innovation is to be efficiently and effectively fostered. However, as a young theme in innovation support, diverse approaches to innovation management exist, and the market is only starting to develop.
- The growing interest in, and public policy focus on, the marketing of innovation and innovative products and services, namely by promoting internationalisation and exploiting public procurement opportunities – because achieving solutions for societal challenges prevails at both the EU and national levels as does developing lead markets in a bid to restore the EU’s competitiveness, and companies must expand to growing markets.
- The need to address the lack of research capabilities in most firms and in particular in SMEs – collaborative research, technology transfer and innovation activities between companies and between public and private organisations.
- Addressing weaknesses in networking and co-operation with external partners - successful innovation is very dependent on the identification, cultivation and maintenance of good linkages between different actors in the global value-chain and as ‘open innovation’ becomes more embedded in SME business strategies this challenge can only increase.
The 7 INTERREG IVC projects analysed offered a complete coverage of these barriers, both in terms of initial objectives and project implementation activities. Within the 7 projects, an impressive total of 93 relevant measures (sub-projects, Good Practices or other initiatives), directly aimed at addressing one or more of the barriers listed above, has been identified and shared by project participants, having in view its transfer to and implementation by other regions. Each of the 5 main barriers is covered by a minimum of 9 Good Practices addressed by the projects within their activities.
These 93 Good Practices constitute a repository of knowledge which is a very relevant asset for regional policymakers wishing to improve local support policies. INTERREG IVC projects have explored the potential of these Good Practices through networking and knowledge sharing amongst regional actors and the implementation of learning cycles including assessment / review of local practices and the introduction of new / improved practices at local level based on the experiences shared with other regions, opening the way for the deployment of direct support measures towards final beneficiaries (the SMEs) in other regions.
This positions INTERREG IVC projects at the very core of the policy improvement processes in Europe, situated inbetween the more scientific and academic oriented policy conception stage (better handled at the level of European Commission’s instruments such a Pro-Inno and Europe Innova) or infrastructural investments (possibly both at the level of European Framework Programmes and Structural Funds) and the actual mainstream implementation of measures or stimulation of use of infrastructures at regional (or transnational level), which are better carried out by national and regional programmes such as those implemented through structural funds.
b) … And present pre-validated solutions for local implementation
The set of good practices addressed by INTERREG IVC projects in the field of the Innovation Capacity of SMEs offers a repository of pre-validated solutions, at the level of regional policies, for the barriers listed above. The Good Practices / measures addressed have been benchmarked by regional actors with an inside knowledge of the field, assessed in terms of impact and potential transferability to other regions and in some cases enriched through pilot implementation or through contributions from other regions.
The main solutions proposed by INTERREG IVC projects for the barriers to innovation faced by SMEs are:
- In terms of funding for innovation
- Voucher schemes, e.g. small-scale (typically up to €25K) grants for the provision of technical services, as addressed in MINI-EUROPE, DISTRICT+ and PERIA. This measure can typically reach up to 1 000 SMEs per year of implementation with a quick impact in terms of measurable results (1 year or less);
- Bank Loans covered by regional authorities (including city councils) public guarantees, as addressed in the FAME measure under ERIK ACTION. This measure is normally positioned in the range of 100 beneficiary companies per year, with a timeframe of 2 to 3 years for causing impact and loans are usually situated within the €100K to €1M range;
- Regional Venture Capital Funds, either public, private (with regional support), or public-private, as addressed in SMART+ (through the sub-project Innofin), INNOHUBS, INNOMOT, MINI-EUROPE and DISTRICT+. This is the most far-reaching but also the most complex solution, with a typical reach of 10 beneficiary companies per year for investments of € 1M or higher, and a return on investment of 5 years or more;
As can be seen, the available solutions within INTERREG IVC projects are fully complementary in terms of scale, volume of funding and timeframe, offering a full-package of solutions for regional policymakers in the field of SME funding. Additional areas of interest, less covered so far within INTERREG IVC projects, could include tax incentives (exemption or reduction of taxes for companies performing innovation activities) or tax reliefs (tax exemptions for investors who purchase new shares in those companies) and non-bank sources of finance, such as peer-to-peer lending services or crowdsourcing (gathering of funding for specific projects from individuals, normally using a web platform to reach scale).
- In terms of shortage of skills to manage innovation:
- Good Practices for addressing Innovation Management Skills, through training workshops, such as in Innovation Race and KREO (INNOHUBS), Managers School (INNOMOT), Innovation Circles (ERIK ACTION), coaching activities through external experts, such as in Management Voucher and Organisational Innovation (INNOMOT), or through the incorporation of new staff in SMEs, such as in Innovation Assistant, from DISTRICT+;
- Good Practices to address Creativity Thinking and Product conception, which have been addressed in particular in the INNOMOT project on the subject of non-technological innovation, including practices such as Mindshake and Creative Trainer;
- Good Practices to develop specific technological competences, as in the case of KNOW-ECO, a sub-project from DISTRICT+ addressing the topic of Eco-innovation;
- Good Practices to promote the acquisition of specific skills by SMEs, such as Design, as addressed in Summer Design Office (MINI-EUROPE) and New Products by Design (PERIA), both promoting the cooperation between SMEs and design students, or ICT, as addressed in the PRAI/VINCI measure from ERIK ACTION, facilitating the access of SMEs to ICT platforms for cooperation and networking.
In combination, these Good Practices cover the most important skills necessary for fostering and managing innovation in SMEs, and offer regional actors a full package of possible measures to support SMEs to overcome the shortage of skills barrier. Other possible areas for consideration by future projects include the promotion of interactive policy learning to optimize innovation support through tax incentives at Member State level, especially investments in innovation management (e.g. tools, dedicated staff and training), and taking into consideration that today most national tax incentive schemes are limited to R&D investments and research activities and rarely cover aspects of non-technological innovation; tax incentives target established companies generating profits, and this is precisely the group that might benefit most from increasing their innovation management capacity. Furthermore, tax deductibility has an awareness creation effect.
- In terms of marketing of innovation:
- INTERREG IVC projects have screened several Good Practices for supporting the internationalisation of SMEs, supporting companies to access external markets to sell their innovative products, processes or services. This has notably been the case of PERIA, through measures such as International Cooperation Visits and Participation in Foreign Trade Fairs but also INNOHUBS with Business Internationalisation or MINI-EUROPE with I-CREO;
- Public Procurement as an innovation support policy is a trend that has been growing in Europe, and besides having been covered as a main theme by INTERREG IVC projects not covered under this analysis, have also been addressed under INNOHUBS through the measure IVEX (from the region of Valencia), which focuses on supporting local SMEs to participate in international procurement processes of multilateral funding organisations such as the United Nations Aids, the World Bank or Europe Aid, which have specific rules and regulations.
- Digital Marketing is also a growing trend over recent years but still poses some challenges for small and micro-firms with few resources, as e.g. small rural hotels in the tourism sector. This has been one of the focuses of the sub-project IART Territories from SMART+, where partners have directly assisted these businesses to develop a web-presence in order to capture international clients;
- INTERREG IVC projects have also addressed the question of the means to grow locally and achieve a Local expansion, and have developed a portfolio of measures for future take-up by regional actors wishing to intervene at this level. These include SIAI from ERIK ACTION, a public advisory and consultancy centre to help SMEs invest in the region, find partners and clients;
- Finally, as a way to better develop and market innovation, the projects INNOMOT and ERIK ACTION have addressed the issue of developing or improving the perception of business through enhancing Corporate Social Responsibility. To do so they focused on the same Good Practice, Fabrica Ethica from Tuscany, which supports SMEs in environmental certification processes and other social responsibility practices.
These measures cover most of the possible channels of marketing innovation, and offer several implementation instruments, from workshops and training actions, to co-funding programmes (such as Participation in Foreign Trade Fairs or Fabrica Ethica that support part of the costs of SMEs with participation in fairs and environmental certification, respectively) to permanent advice and information structures.
- In terms of lack of research capabilities:
- The most common solution to the lack of SME research capabilities addressed by INTERREG IVC projects dealt with the possibility of using Technology Transfer, through which SMEs can acquire pre-commercial research results from academic / research organisations, continuing with the development work and subsequent commercialisation. This approach has been particularly studied under ERIK ACTION, either for specific sectors such as aeronautics (Helice Network), through the setting-up of permanent networks of research organisations and companies (TT Andalusia) or through the promotion of start-up companies within academic organisations for the direct exploitation of research results (Campus).
- An alternative path is to support the endogenous creation of research competences within SMEs, in particular through the hiring of qualified staff with a research profile. This has been addressed under INNOMOT through the Good Practice ‘Bioenergy for the region’, focused on the hiring of PhD students by SMEs, or PERIA through ‘Creation of R&D units’ and ERIK ACTION through ‘Innovation Assistant’.
Both these measures can provide medium to long-term results at the level of research capabilities of firms within a region, with the first (technology transfer) being capable of producing faster results, and the second being a more structural long-term measure.
An additional area for regional policy intervention at this level is the creation of shared or public service research infrastructures, including laboratories of research organisations. However, this requires a level of investment that is outside the scope of INTERREG IVC projects and falls better under trans-border or trans-regional cooperation (INTERREG IVA or B) or national structural funds.
- In terms of weaknesses in networking and cooperation:
- Cluster policies, for more structured forms of cooperation, often including the creation or appointment of a legal entity for cluster management. INTERREG IVC projects have addressed both policies for cluster creation, as in the sub-projects smart Tourism and TREC from SMART+ or SIDEUM from ERIK ACTION, or, more often, for cluster management and expansion, including the internationalisation of clusters, as in regioNet and SMEsGoNet (SMART+), Productive Clusters, Clusters Support, Pole Programme and RIP-WG (MINI-EUROPE), NICER (specific to internationalisation issues), Lower Silesia Cluster Initiative and Innovation Poles from DISTRICT+ or Cluster Management Services under PERIA.
- Creation and facilitation of business networks, for more informal forms of cooperation. In this case, the focus is on informal and occasional links between companies with common business interests, either because they belong to the same sector – as in Future Food Network and Shops by Hand, both addressed in INNOMOT or Wood Sector Innovation from ERIK ACTION – or because they share common needs (such as research & development needs), such as in RDT Bretagne under ERIK ACTION, or Innovation Regional Network and Business Enterprise Network Belfast from INNOHUBS.
This ample coverage offers regional actors a choice between the more structured cluster approach, or the more informal network formats. A ‘missing link’ is the topic of ‘use of social media and virtual networking’ for SMEs. While the topic has been touched on by some of the projects analysed (e.g. under the PRAI / VINCI good practice on ERIK ACTION), it stills awaits further exploitation of the potential it surely has to foster networking and cooperation amongst SMEs.
2. Policy recommendations
Learning from others and learning from our own successes and failures is undisputedly a key element in policy-making, and especially so in such a (relatively) new area as innovation support, where there are still very few certain recipes for success. Implementing effective learning processes poses, however, certain challenges that need to be assessed:
Strengthening regional practices, in particular requires:
- Effective benchmarking of existing policies and programmes, as carried out by all INTERREG IVC projects in the identification of relevant regional Good Practices, often including the definition of indicators and success / impact criteria.
- Implementation of formal programme evaluation / review mechanisms such as peer review or other external review schemes, and the general adoption of an ‘evaluation culture for innovation support; this has been carried out in several INTERREG IVC projects covered in this analysis, including in particular MINI-EUROPE (and strengthened further under its successor SMART-EUROPE).
On the other hand, the implementation (and adaptation, when required) of external good practices, implies in turn that the following barriers are addressed:
- Watch mechanisms to identify successful approaches at a global scale and means to disseminate to other parties; in INTERREG IVC projects, this is normally done through networking among partners, and networking of the partners with international organisations, as e.g. in INNOMOT with the exploitation of the links between IMPIVA (the Institute for SMEs of the Valencia Region) and international multi-sectoral organisations, such as the World Bank and the United Nations Aid, through the IVEX mechanism.
- Access to support and assistance for the implementation of external good practices, such as twinning mechanisms (one-to-one) or partnering fora / platforms (one-to-many); INTERREG IVC projects have addressed this issue through sub-projects, which are run by ‘mini-programme’ projects and typically gather 3, 4 or more regional partners around a specific topic (as in SMART+ and DISTRICT+) by networking for the development of regional implementation plans such as in ERIK ACTION and other capitalisation projects, or by developing dedicated platforms for the sharing of strategies, such as in ‘Sharp-Cloud’ from the DISTRICT+ project.
All these steps have been successfully covered by INTERREG IVC projects, as highlighted in this study, and INTERREG IVC offers the necessary framework for a complete policy learning due to several aspects, including:
- International dimension, since each project is composed of a consortium of partners from different countries allowing business to explore an outward dimension of enhancing inter-regional connectivity across borders to achieve critical mass, synergies, complementarities and spill-overs in specific sectors or cross-sectoral areas of economic opportunity;
- Quadruple helix nature, with the possibility to link policy-making and funding organisations (such as regional governments, innovation and development cities, municipalities and other public authorities, which are the most common type of participants in interregional projects) with knowledge providers (e.g. universities), civil organisations such as innovation agents, associations, incubators, cluster management organisations, venture capitalists and banks and (such as final beneficiaries), SMEs and citizens.
- Bottom-up character, since INTERREG IVC projects are quite flexible in terms of approaches, methodologies and focus of projects, leaving ample room for manoeuvre for the testing of new channels, methods and tools, and opening the door to innovation and new experiments.
Regional Policy Actors can build on this favourable framework of the INTERREG IVC programme, and on the Good Practices, tools, results and general achievements of the projects reviewed in this study to introduce further structure and shorten the cycles of their policy learning and sharing processes.
While most of the present projects are focused either on strengthening regional practices (through identifying and sharing good practices) or on implementation / adaptation of external practices (in particular the capitalisation projects such as ERIK ACTION), the current pace of economic transformation in Europe and the pressing needs of SMEs would recommend shorter learning cycles, with the combination of both the strengthening of regional practices and the implementation of external practices within the life-span of a single project. On the other hand, the quantity and quality of the portfolio of Good Practices assembled within the INTERREG IVC programme, of which this study is only a sample, can allow regional policymakers to jump stages by building on the results of the benchmarking of Good Practices from previous projects and focusing directly on the activities of evaluation and adaption of these Good Practices to local contexts and circumstances, including through the setting-up of pilots, trials and small-scale implementation.