Executive Summary

Overview of topicPublicationReport

Innovation Capacity of SMEs overview

Innovation capacity of SMEs publicationInnovation capacity of SMEs report

Report presented by Eurico Neves

The ‘Innovation Capacity of SMEs’ is a key topic for Europe’s competitiveness and growth. The contribution of enterprises to innovation is crucial, and a dynamic business sector is a key source and channel of technological and non-technological innovation. Smaller companies frequently exploit technological or commercial opportunities that have been neglected by more established companies and bring them to market, contributing to growth and employment.  As such, the Innovation Capacity of SMEs is naturally at the top of European, national and regional innovation policy priorities. It is therefore a natural focus of the INTERREG IVC programme, and is addressed by several of its projects.

The present study concludes that INTERREG IVC projects on the Innovation Capacity of SMEs theme directly address the most relevant and pressing issues faced by European SMEs today. In the form of policy options, they contribute to identifying solutions to the barriers faced and, through interregional cooperation between regional actors they contribute, and can contribute further, to improving policy learning and sharing in the theme. The highlights of these conclusions are presented next.

INTERREG IVC projects addressing the most relevant issues of innovation capacity of SMEs

In order to find solutions, it is first important to understand the problems. Policy actors can only intervene in order to support SMEs to innovate by creating mechanisms to help them overcome barriers to innovation if they manage to interpret correctly what these barriers faced by companies are.
In the Policy Review section of this report, we will present the results of an extensive literature review that concludes with an identification of the most relevant barriers to innovation faced by SMEs in Europe:

  1. Shortage of own financial resources and the problem of accessing finance for innovation –  a seemingly perennial problem but one certainly exacerbated following the recent global financial crisis and current economic slowdown. Innovation is costly and companies must make investment choices with scarce resources; innovation is often in competition with other business functions for this investment.
  2. Innovation management skills – innovation processes from the generation of ideas to the generation of profits on the markets from 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 efficient and effective. However, as a young theme in innovation support, diverse approaches to innovation management exist, and the market is only starting to develop.
  3. Insufficient marketing of innovation and of innovative products and services, for example by further promoting internationalisation and by 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 EU competitiveness, and companies must expand to growing markets.
  4. The need to address the lack of research capabilities in most firms and in particular SMEs – collaborative research, technology transfer and innovation activities between companies and between public and private organisations.
  5. 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 analysis carried out within this study shows that the 7 INTERREG IVC projects reviewed 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 with a view to its transfer and implementation in other regions. This shows that INTERREG IVC projects and their partners are well aware of the challenges faced by SMEs in their quest for innovation and are eager to support them to overcome them.

Each of the 5 main barriers to innovation listed above is covered by a minimum of 9 Good Practices addressed by the projects within their activities, and each of these Good Practices is a pre-validated solution for a tangible problem, ready to be taken-up by another region.

INTERREG IVC projects identify solutions to the identified barriers

The present study reviews the solutions put forward by the INTERREG IVC projects for the SME innovation problems identified and which offer a complete set of policy options, from small-scale to large-scale, from fast impact to long, structuring effect. These include, in particular, the following themes/mechanisms such as:

  • funding for innovation: Voucher schemes, Bank Loans covered by regional authorities and Regional Venture Capital Funds;
  • shortage of skills to manage innovation: Good Practices for addressing Innovation Management Skills, Creativity Thinking and Product conception, specific technological competences, and specific skills for SMEs such as Design, or ICT.
  • marketing of innovation: INTERREG IVC projects have screened several Good Practices for supporting the internationalisation of SMEs, fostering participation in Public Procurement processes, enhancing Digital Marketing, achieving Local expansion and developing or improving a corporate image (Corporate Social Responsibility).
  • lack of research capabilities: The most common solution to the lack of research capabilities in SMEs addressed by INTERREG IVC projects concerned the use of Technology Transfer, through which SMEs can acquire pre-commercial research results from academic / research organisations, and continue with their development and subsequent commercialisation. An alternative path has been supporting the endogenous creation of research competences within the SMEs, in particular through the hiring of qualified staff with a research profile.
  • 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, and the creation and ongoing facilitation of business networks, for more informal forms of cooperation.

This unique inventory of policy options positions INTERREG IVC projects at the heart of the policy improvement processes in Europe, situated inbetween the more theoretical policy design stage and the delivery of mainstream regional policies and programmes aimed at improving and expanding service provision to end users.

INTERREG IVC projects contribute to improving policy learning and sharing through interregional cooperation between regional actors

While highlighting the relevance and very high potential of the achievements of the INTERREG IVC projects addressing the Innovation Capacity of SMEs theme so far, the present study also points out that implementing effective learning processes in such a (relatively) new area as innovation support, where there are still very few certain recipes for success, poses 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 of success / impact criteria.
  • Implementation of formal programme evaluation / review mechanisms such as peer review or other external review schemes and overall the adoption of an ‘evaluation culture’ for innovation support; this has been carried out in several INTERREG IVC projects covered in this analysis.

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 these to other parties; in INTERREG IVC projects, this is normally done through networking among partners, and networking of the partners with international organisations.
  • Access to support and assistance for the implementation of external good practices, such as twinning mechanisms or partnering fora / platforms; INTERREG IVC projects have addressed this issue through sub-projects, which are run by ‘mini-programme’ projects and typically gather a small group of regional partners around a specific topic, either by networking for the development of regional implementation plans, such as in capitalisation projects or by developing dedicated platforms for the sharing of strategies.

Regional Policy Actors can build on the 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 the identification and sharing of good practices) or on the implementation / adaptation of external practices (in particular the capitalisation projects), 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.

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 the set-up of pilots, trials and  small-scale implementation.

As of 31 December 2015, this website is no longer updated. Follow news on interregional cooperation at www.interregeurope.eu