254
Int. J. Innovation and Regional Development, Vol. 3, Nos. 3/4, 2011
Building capabilities for innovation in SMEs:
a cross-country comparison of technology extension
policies and programmes
Philip Shapira*
Manchester Institute of Innovation Research,
Manchester Business School,
University of Manchester,
M13 9PL, UK
and
School of Public Policy,
Georgia Institute of Technology,
Atlanta, Georgia, USA
Fax: +44 161 275 0923
E-mail: pshapira@mbs.ac.uk
*Corresponding author
Jan Youtie
Enterprise Innovation Institute,
Georgia Institute of Technology,
Atlanta, Georgia 30332-0640, USA
Fax: +1 404 894 8194
E-mail: jan.youtie@innovate.gatech.edu
Luciano Kay
School of Public Policy,
Georgia Institute of Technology,
Atlanta, Georgia 30332-0345, USA
Fax: +1 404 894 8194
E-mail: luciano.kay@gatech.edu
Abstract: There has been a growth of policy attention in many advanced and
developing countries to stimulating innovation at the enterprise and
establishment level, particularly in small and medium-sized enterprises
(SMEs). This paper examines technology extension policies and programmes
for building capabilities for innovation in SMEs for a selected set of
programmes and countries in the US, Japan, Germany, Canada, Spain, and
Argentina. These programmes represent a range that offer best practice insights
at the international level and/or which have particular relevance for new sets of
countries seeking to implement such systems. The study shows technology
extension programme designs and operations are influenced by the innovation
systems in which they are embedded. Drawing on our comparison of
international examples, implications are discussed for the formulation of
national and regional policies for the development of technology extension and
related innovation programmes targeted to SMEs.
Copyright © 2011 Inderscience Enterprises Ltd.
Building capabilities for innovation in SMEs
255
Keywords: capabilities; innovation; technology extension; small and mid-size
enterprise; SMEs; comparison; policies; programmes; regional development.
Reference to this paper should be made as follows: Shapira, P., Youtie, J. and
Kay, L. (2011) ‘Building capabilities for innovation in SMEs: a cross-country
comparison of technology extension policies and programmes’, Int. J.
Innovation and Regional Development, Vol. 3, Nos. 3/4, pp.254–272.
Biographical notes: Philip Shapira is a Professor of Innovation, Management
and Policy at the Manchester Business School, University of Manchester, UK;
and a Professor of Public Policy, Georgia Institute of Technology, Atlanta,
USA. His research interests include science, innovation and technology
management and policy, economic development, and policy evaluation. He is a
Co-editor of Innovation Policy: Theory and Practice. An International
Handbook (Edward Elgar, 2010). He holds a PhD in City and Regional
Planning from the University of California, Berkeley.
Jan Youtie is a Manager of Policy Studies in Georgia Tech’s Enterprise
Innovation Institute and Adjunct Associate Professor in the Georgia Tech
School of Public Policy. Her research focuses on technology-based economic
development, innovation measurement, and manufacturing modernisation. She
is a Director of the Program on Science, Technology, and Innovation Policy at
Georgia Tech. She holds a PhD in Political Science from Emory University.
Luciano Kay is a PhD candidate, School of Public Policy, Georgia Institute of
Technology, Atlanta, USA. His research interests include industrial
development, innovation, and entrepreneurship. He holds a degree of
Licenciado en Adminstracion from Facultad de Ciencias Economicas,
Universidad Nacional del Litoral in Santa Fe, Argentina.
1
Introduction
The competitiveness of businesses in advanced and developing economies has
experienced challenges in recent years on multiple fronts. Factors underlying these
challenges include intensified competitive pressure due to globalisation, industrial
restructuring and outsourcing by large companies, developments in technology and
management, and policy pressures to maintain higher-wage employment and develop
regional innovation systems. While large companies regularly attract much of the
attention in debates about competitiveness and globalisation, policies for innovation
frequently focus on small and medium-sized enterprises (SMEs). There is a long-held
view that SMEs make a central contribution to the innovativeness of an economy
(Schumpeter, 1934). The rubric of SMEs and innovation evokes narratives about hightech startups that emerge from work done in the founder’s ‘garage’ or that are spinoffs
from a university laboratory. In the US, SMEs have been termed ‘gazelles’ when they
achieve annual growth rates in sales of 20% or more (Birch, 1979). Another important
role model is presented by the ‘mittelstand’ or medium-sized companies in Germany that
succeed through world-class technology and quality in specifically-defined market niches
and extensive exporting.
256
P. Shapira et al.
However, not all SMEs are overtly innovative. There is great heterogeneity in
enterprise characteristics, resources, motivations, sectoral and regional attributes, and
other factors, and concomitant wide variations in orientation towards and capabilities to
undertake innovation (Shapira, 2009). Typically, SMEs lack market power (by virtue of
their smallness) and can be cautious or even inert in taking innovative actions due to the
real risks of business failure and constraints of knowledge, expertise, and finance.
SMEs are numerous, usually comprising upwards of 98% of business establishments
in most economies. By share of enterprise employment, SMEs occupy a relatively larger
role (70% on average in Europe and in Japan) and a lesser role in the US (under 50%). It
should be noted that definitions of SMEs vary by country and industry sector. These
definitions are nearly always based on employment size or financial characteristics.
In the US and Canada, the threshold for an SME is 500 or fewer employees across most
sectors. Japan uses a threshold of 300 or fewer employees to describe an SME. The
European Union offers a standard employment-based definition of an SME to include:
medium-sized enterprises (50–249 employees); small enterprises (10–49 employees); and
very small (micro) enterprises (nine or fewer employees). The upper limit in Argentina’s
definition of an SME is 200 or fewer employees and there is also a financial based
definition (European Commission, 2003; Industry Canada, 2007; METI, 2006; SBA,
2005; UIA, 2007).
Several studies claim that SMEs generate a disproportionate share of net new jobs
(Birch, 1979; Observatory of European SMEs, 2004). In addition, the combination of
small firms with regions that support flexibility and interfirm linkages has been found to
encourage innovation and promote competitive advantage (Piore and Sabel, 1984; Porter,
1990). On the other hand, there is evidence that SME performance lags that of larger
corporate counterparts. Indeed, in the US, the manufacturing productivity gap (measured
by value-added per employee) between large firms and SMEs has widened over time. On
average, value-added per employee in SMEs was about 80% of that of large
establishments in the 1960s; by the late 1990s, value-added per employee in SMEs on
average was less than 60% of that of large establishments (ModForum, 2003). Moreover,
the job growth seen in the SME sector is not entirely independent or due to textbook
entrepreneurship. Harrison (1994) argues that large corporations, through mechanisms
such as industrial restructuring and corporate outsourcing, have caused many jobs to
reappear (rather than grow) in small firms. Additionally, while policy narratives focus on
entrepreneurial high-technology firms, these are only a small minority of all SMEs in the
economy. Lags in innovation uptake have been noted among the majority of SMEs,
typically those which operate in traditional or resource-based industries, at the lower-ends
of supply-chains and subcomponent operations, and in ‘lifestyle’ or family operations
lacking the appetite for change (Shapira et al., 2006).
It is this heterogeneity that makes policy responses to assist SMEs so difficult.
Perhaps unsurprisingly, multiple policies and programmes targeted towards SMEs are
common in most national innovation systems (Hassink, 2002; Shapira, 2009). For
instance, Japan has an SME support system that includes some 250 regional SME support
centres, 54 prefectural SME support centres, and 8 SME venture business support
centres, as well as support organisations in more than 500 local chambers of commerce
and industry, thousands of other prefectural and local small business associations and
societies, and many new facilities to foster small business exchange, incubation, research,
and venture funding (Aoyama, 1999; METI, 2005; Shapira, 2008). These organisations
provide an array of services including information supply, business and machinery credit
Building capabilities for innovation in SMEs
257
insurance and loans, tax credits, R&D subsidies, management training, support for new
business creation, assistance with technical upgrading and internationalisation, mutual
insurance schemes, assistance with succession, mergers, and the avoidance of
bankruptcy, and support for SMEs in specific industries (for example, in textiles). In the
US, Shapira et al. (1997) identified some 750 organisations with formal relationships to
deliver or provide support services to manufacturing SMEs. These organisations included
national, state, and local government agencies; non-profit technology or business
assistance centres; economic development organisations; universities and community
colleges; private consultants; utilities; federal laboratories; and industry associations. This
situation of multiple and at times overlapping programmes is found in many other
advanced economies.
Furthermore, policy responses to foster innovation in SMEs are complicated by the
multidimensional nature of the problems encountered by these enterprises. Challenges
exist at the firm level, at the industry level, within the context of social infrastructure, and
in the innovation environment. There are demand side gaps, with SMEs lacking
information, expertise and skills, training, resources, strategy, and confidence to adopt
new technologies and techniques. Supply side gaps exist in terms of the costs for vendors,
customers, consultants, and other business assistance sources to reach and service SMEs.
System-level factors are present in areas such as the limited quantity and sometimes poor
quality of education and training services available to SMEs, lack of access for SMEs to
universities and national laboratories and technology centres focused on research
missions and high-end technologies, and existing government programmes focused on
economic development or generic non-technological services. Moreover, the increasing
presence of open markets, low-cost but technologically capable competition, shifts from
economies of scale to economies of scope, and new open innovation approaches present
further challenges in the innovation environment of SMEs (Caputo et al., 2002; Shapira,
2001).
This article explores one policy approach – technology extension service (TES) –
for advancing adoption of technologies and encouraging innovation in SMEs. We
examine TES programmes in six countries: the USA, Japan, Germany, Canada, Spain
and Argentina. We probe the design and operation of these services, as well as
their degree of integration with other policies for innovation. These countries
have national innovation systems with varying levels of decentralised governance. We
posit that the TES service models in each country will share some functional attributes
but differ in design and organisation in ways that are influenced by the national
innovation system of that country. Hence, we observe that the TES programmes in the
six countries share a reliance on the capabilities of personnel who deliver services and
fulfil important boundary spanning functions by linking multiple complementary
framework policies and direct assistance programmes administered by public and
private organisations. They also share characteristics such as the ability to offer
customised services to account for differences in regional and national innovation
systems, approach to R&D services offerings, methods for reaching customers through
distributed delivery systems, and flexibility in funding mechanisms. At the same time, we
see differences that reflect the national innovation systems in which these TES
programmes are embedded. These differences have to do largely with the relationship
between the national and regional innovation systems and the resulting characteristics of
the SMEs that operate within these systems.
258
2
P. Shapira et al.
TES roles and features
For the purposes of this study, we define TES as the ‘deployment of outreach
mechanisms in the field to stimulate companies to acquire or improve their use of
technology and stimulate innovation’. This definition presents the TES not only as a
service delivery programme but also as an intermediary in the institutional setting in
which the firm operates. An important feature of the TES is to encourage multilevel
collaboration and involvement across disconnected SME policy arenas in activities to
support technology and innovation in firms (Figure 1).
Figure 1
TES as an intermediary intervention in enterprise knowledge sources and relationships
(see online version for colours)
The mission of a TES programme characteristically encompasses improvement in firm
productivity, quality, product performance, workforce skills, and learning capabilities.
Enhanced regional and national competitiveness is a broader goal, while societal returns
such as enterprise stability and growth, upgrading of job skills, and sustainability
processes are also emphasised.
TES programmes mostly work with existing SMEs, although they may engage with
micro-enterprises, supply chains and their branch facilities, and regional clusters and
agglomerations. Typical TES services include information provision; benchmarking and
assessment; technical assistance or consultancy; training; group or network services;
collaborative projects (e.g., R&D, implementation); strategy development; and coaching
and mentoring. Some TES programmes undertake applied research. All have strategies
and mechanisms to share and diffuse knowledge about innovation and technology to
SMEs. These commonly involve the integration of technological and knowledge-based
Building capabilities for innovation in SMEs
259
practices, often of a practical nature, with other enterprise needs and strategies to improve
firms’ technological performance. TES programmes have recently become more
associated with explicitly encouraging innovation in SMEs including product or process
innovation, organisational or managerial innovation, innovation in marketing or business
models, and skills and capabilities upgrading. Although online computer-accessed
services and standard tools are increasingly used, knowledge is most typically transferred
through expert staff rather than through codified approaches. TES is not effective as a
one-off response to a short-term crisis (such as a plant closure); rather, results from these
programmes may take time to materialise and require sustained efforts, and some direct
jobs may be lost in the short-term as productivity is increased. Although there is usually a
strong public mission and public funding contribution, successful TES programmes stress
processes that are driven by industry needs and market opportunities and which leverage
other private resources and service suppliers.
We anticipate that TES programmes are influenced by their national innovation
systems and their existing business and institutional structures. Hence, we would expect
that variations in the specific design of a given country’s programme, outreach
parameters, targets, and service offerings reflect the specificities of that country’s
national innovation system. For example, innovation policies and programmes in the US
occur within a large federal system comprised of multiple national and state level
agencies that target a sizeable and diverse population of SMEs. We thus expect US TES
programmes to be flexible and broad-based, reflecting regional characteristics and
differences among states with any standardisation aimed at a general level and derived
through federally-sponsored approaches. The German innovation system’s decentralised
governance structure and concentration of narrowly-niched global leaders among its SME
population suggests that its TES programmes will also be regionally-oriented with an
emphasis on enhancing world-class capabilities and services. Countries with a high
degree of regional clustering, such as Spain, would be expected to develop TES
programmes that are decentralised and specialised according to the industries in the
regions. Table 1 summarises our expectations for how the national innovation system
may influence the construction of the TES programme. To probe this relationship, we
employ a comparative analysis of seven TES programmes in our six countries [see
Kolodny et al. (2001) for an earlier cross-national study]. Summaries of case studies of
the programmes are presented in the next section. We then present a cross-case analysis
and our findings. The results will show that TES programmes not only reflect the nature
of their innovation systems but also go beyond this context to address gaps in embodied
knowledge, resources, geographic distance, and learning.
3
Case studies: TES programmes in six countries
3.1 US Manufacturing Extension Partnership
The US Manufacturing Extension Partnership (MEP) is one of the primary federal
programmes of industrial services for manufacturing SMEs, organised under the National
Institute of Standards and Technology (NIST) in the Department of Commerce. The MEP
is a nationwide yet decentralised network of 59 centres,1 more than 300 local offices, and
more than 1,000 professional specialists2 in all 50 states. Originally, these centres were
created to transfer federally sponsored state-of-the-art technology, but later they started
260
P. Shapira et al.
delivering pragmatic assistance, appropriate to state and local conditions, with business
services, quality systems, manufacturing systems, information technology, human
resources, and engineering and product development (‘soft’ business practices). Groups
of centres collaborate with one other, the NIST national programme, and other
organisations to implement shared tools and service offerings to firms.
Table 1
Country
Germany
US
Canada
Japan
Spain
Argentina
Innovation systems, SMEs, and TES programme features
Key innovation system and SME
characteristics
TES features
• Middlestand market-niche global
leaders
• Long-standing commitment to skills
training
• Stand alone and highly decentralised
• Emphasising high capability
• Large geography, with decentralised
clusters of SMEs
• High diversity – from high tech to
traditional resource-based
• Branch plants and supply chains
• Links to US
•
•
•
•
• Traditional industries
• High degree of regional clustering
and industry clustering
• Decentralised and specialised
• Large population of SMEs
• High diversity – from high tech to
traditional family
• Numerous very small manufacturers
• Traditional hierarchical supply
chains
• Important role of national and state
policymakers and policy consistency
• Traditional industries, relatively
under-resourced
• Uneven distribution of innovation
capabilities (focused on Buenos
Aires)
• Flexible and broad-based
• Decentralised yet part of national
system
Similarities to US model
Technical and financial
Not just manufacturers
Use of external experts
• Consistency and stability
• Programme scale and geographical
proximity to industry clusters
• Fluctuating public funding
• More broad-based, less
technologically focused
• Significant concentration in major
population centres
The MEP offers a down-to-earth approach to technology extension – i.e., the programme
customises its service offerings to the real and perceived needs of companies, rather than
being driven by high-level research targets. The MEP has a focus on manufacturing
SMEs; although MEP centres do serve larger companies and supply chains, the bulk of
effort is targeted towards small and mid-sized companies (defined as with fewer than 500
employees, but most companies served are smaller). The MEP’s decentralised
organisation supports this approach by allowing each centre, within certain operational
and performance parameters, to customise its organisational model (in-house vs. brokered
services), service offerings, and delivery based on the needs of its clients and the
institutional capabilities within its service region (Shapira et al., 1995). The MEP also has
relatively well-developed evaluation systems which combine conventional activity
reporting with systematic client surveys, special studies, and external reviews to promote
not just programme justification, but also reflection and learning. The MEP funding
Building capabilities for innovation in SMEs
261
model combines federal, state and company sources. Although federal funding has in
recent times been uncertain, this diversified funding model ensures engagement of key
stakeholders and combines both public service and private missions. The MEP staffing
model typically employs industrially-experienced personnel who often join centres with
prior industrial experience and may move back to industry or to other centres after a
period of time, ensuring constant refreshing of expertise.
3.2 Kohsetsushi centres, Japan
Japan’s long-established and extensive system for small business incorporates a network
of more than 180 locally administered Public Industrial Technology Research Institutes
(Kohsetsushi centres) for SMEs. Kohsetsushi centres are publicly-sponsored institutions,
with large engineering staffs, that offer free or low-cost services to Japanese
manufacturers with 300 workers or less. Japan began to establish these industrial
research, experiment, and testing institutes at the turn of the 20th century, based in part
on the US model of agricultural experiment stations and extension services (Shapira,
1992). Today, there is at least one centre in each of Japan’s 47 prefectures and more than
20 centres in the Tokyo metropolitan region. More than 6,000 researchers and engineers
are employed in the centres, which are administered and largely funded by prefectural
and municipal governments through a system budget exceeding US$ 1 billion (Shapira,
2008). The centres offer a consistent set of services that include applied research and
R&D projects with SMEs, testing and instrumentation, technical assistance and training,
plus new firm support, internationalisation, and information provision.
The Kohsetsushi programme represents a model of stability and consistency. There
are a large number of centres, allowing nationwide geographical coverage within or
adjacent to regional industry clusters. There is usually a combination of general centres
alongside sector-oriented centres targeted to upgrading particular industries through the
adaptation of emerging technologies. Kohsetsushi centres undertake research, technology
transfer, and training missions. There are facilities for prototyping and trial industrial
production using new machines and technologies at the centres. Centres are dedicated to
serving SMEs (with fewer than 300 employees) and staffing is very stable (which ensures
good relationships with local SMEs, although makes it harder to rapidly respond to
demands for new expertise). Public funding is predominant, with relatively low income
from fee generation.
3.3 Fraunhofer Institutes, Germany
The Fraunhofer Society (established in 1949) undertakes applied research and technology
transfer through 57 institutes in 40 locations in Germany with about 15,000 staff. Each
institute manages its own programme of research and application, marketing, and budget,
within overall guidance set by the Society and governing boards. The concentration of
institutes is high in key industrial areas of the country. For example, there are 14
Fraunhofer institutes in Baden-Württemberg each with specialisations in focused areas
such as solid state physics, solar energy, measurement techniques, materials, chemical
technology, industrial engineering, and biotechnology. Overall, these institutes provide
joint pre-competitive research, bilateral applied research with individual firms, prototype
manufacturing, and pre-production and cooperative technology transfer arrangements
262
P. Shapira et al.
with companies. Customers include large companies, SMEs, and public sector clients,
with which customised research projects are undertaken individually or within consortia.
In 2006, the total annual research budget (all centres) of the Fraunhofer Society was
about €1.2 billion. About one-third of the revenue is derived from core institutional funds
from public sources, with the balance from contract research from industry (another
one-third) and the public sector (Fraunhofer-Gesellschaft, 2007).
The Fraunhofer institutes focus on applied contract research services. Fraunhofer
institutes typically specialise in targeted technologies and are not geographically
restricted (i.e., although located in a place, often with excellent partner relationships with
universities, a Fraunhofer institute can serve any customer in the country or
internationally). Fraunhofer institutes typically offer highly-customised services to their
clients; these are often high-value, relatively large projects. The funding model combines
core institution funding with contract research. Fraunhofer staff combines a scientific
approach with an industrial orientation, seeking publications, patents, research contracts,
licenses, and startup companies. There are a relatively high number of students and
trainees engaged in Fraunhofer institutes.
3.4 Steinbeis centres, Germany
The Steinbeis Foundation (headquartered in Stuttgart), founded in 1971, operates as a
private foundation under state sponsorship. Steinbeis transfers existing know-how in
education and industry and helps SMEs to access expertise and new technology through
cooperative projects, consulting and technical assistance, and training. Technical services
are delivered mainly through semi-autonomous technology centres located primarily at
polytechnic universities of applied sciences. The organisational units of the Foundation
include transfer centres, research centres, consulting centres, and a university (in Berlin).
In all, the Foundation sponsors some 565 centres or units – the vast majority in
Baden-Württemberg – involving about 4,600 staff (mostly employed on a part-time or
project basis including about 800 university professors, with about 1,200 permanent staff)
(Steinbeis Foundation, 2007). Steinbeis centres’ budgets are mostly funded through client
projects. In 2005, they reported an income of €94.9 million, primarily coming from fees
for services from clients (Steinbeis Foundation, 2007).
The Steinbeis centres represent a flexible approach to the ramping up and adapting of
a technology extension programme. Steinbeis centres leverage university professors and
part-time staff to create localised capabilities. Centres are funded primarily through
contract research, from industrial and public sources. If centres fail to attract such
revenues, the system allows centres to close, with new centres opened based on predicted
demand and revenues. The customer base is not restricted; customers include large
companies, SMEs and public sponsors. With centres often directed by professors, there
are close relationships with universities (particularly applied universities) and high
numbers of students and trainees are engaged in projects. There is a decentralised
organisational model with individual institutes pursuing significant autonomy within the
overall framework and branding of the Steinbeis Society.
3.5 Industrial Research Assistance Program, Canada
The Industrial Research Assistance Program (IRAP) is administered by the National
Research Council and is Canada’s main technology support programme for SMEs
Building capabilities for innovation in SMEs
263
(Atkinson-Grosjean et al., 2001). Its mission is ‘to stimulate innovation in Canadian
small- and medium-sized enterprises’ (NRC, 2007). Unlike technological extension
programmes in other countries, IRAP provides technical and financial support to firms.
IRAP does not target manufacturing SMEs exclusively; its client base – all enterprises
with fewer than 500 employees – has increasingly been comprised of service firms. On
the other hand, IRAP places more of an emphasis on technology and innovation-oriented
SMEs than on SMEs in conventional lines of business through promoting service
offerings that have a relatively high technology and innovation content. IRAP services
are delivered through a network of some 250 Technology Advisors (ITAs) located in 150
regional offices in 90 cities throughout Canada.
IRAP represents a long-established federal programme, founded in 1962, which
leverages existing technology service organisations to serve as local hosts. This allows
extensive geographical coverage, important in a physically large country like Canada.
Additionally, access to a nationwide technology network, the Canadian Technology
Network, contributes to the programme’s ability to meet local needs while at the same
time offering more technological expertise. The provision of non-reimbursable grant
subsidies for private R&D represents a best practice for stimulating this type of activity in
SMEs, which often lack the financial wherewithal to pursue emerging areas. IRAP
typically engages staff with business expertise, including in industrial laboratories, as
well as technical or training specialties. IRAP also undertakes formal and public
evaluation of programme performance.
3.6
Federación Española de Entidades de Innovación, Spain
Federación Española de Entidades de Innovación (Spanish Federation of Innovation and
Technology Organizations or FEDIT) is a non-profit organisation, which is privately
owned and based on membership. The majority of its members are technology centres
that are officially registered (CIT). Among the activities developed by FEDIT in its role
as an ‘umbrella organisation’ for the centres are the elaboration of proposals to improve
the legal and administrative framework in which the centres operate, and the promotion
of cohesion and cooperation among its members (FEDIT, 2005). As of 2004, there were
61 member centres distributed across Spain that employ nearly 4,270 workers, including
in-house specialists and consultants contracted to work on a part-time basis. The
technology centres are very different in nature as a result of the economic characteristics
of the region in which they operate. Typical centre services include R&D project
assistance; technical assessment and advice; technology diffusion; standards and quality
certification; training; international cooperation; and general information. More than half
of the centres’ budgets (totalling USD$ 878 million for 2005) comes from private
industry, with the remainder coming mostly from regional governments.
FEDIT is an example of the use of an intermediary organisation to
build a national programme through networking and linking existing organisations that
perform technology extension activities. Established relatively recently (1996), the
programme is non-profit in status and allows for differences in local service offerings
depending on the needs of area SMEs. The core membership of FEDIT is comprised of
industrially-oriented technology centres, which generally have a sector focus related to
regional industry characteristics. Staffing in these centres combines research- and
industrially-oriented personnel, providing applied research, consulting and training
services. Coverage is not geographically uniform in Spain. Constituent centres have a
264
P. Shapira et al.
mix of public and private funding, although there are efforts underway to increase
funding from public sources. The system serves a large number of companies, mostly
SMEs.
3.7 Instituto Nacional de Tecnología Industrial, Argentina
Created in 1957, the Instituto Nacional de Tecnología Industrial (INTI) is an autonomous
entity operating under the jurisdiction of Argentina’s Secretary of Industry, Trade, and
Small and Medium Enterprise. INTI offers a range of services to SMEs, including value
chain and cooperation support. This institute is also concerned with other social aspects
of the technology, since it was developed to advance, among other goals, ‘collective
appropriation of knowledge’. INTI also has a division called Extensión y Desarrollo,
which provides training and consulting services to SMEs. The services provided by the
INTI centres include training, certification, and technology diffusion. In addition, INTI
provides SMEs with access to research laboratories. The centres work with all relevant
industrial sectors: meat processing, processing of food products and juices, fishing, wood
working, pulp and paper, textiles, chemical, electronics, equipments and machinery,
plastics and rubber, leather, and construction.
INTI is a centrally-chartered technology development and transfer institute, under a
government ministry. INTI operates a variety of business and technology services,
including a technology extension division. The institute supports a system of R&D
centres and laboratories in about one-half of Argentina’s provinces. Hence, coverage is
not geographically uniform but rather is focused in centres of population and industry.
INTI centres are mostly sector-focused and provide a range of R&D, training, and
certification services. The assisted companies are predominantly SMEs. The funding
model combines public sources, donor contributions, and service fee income, with most
funds coming from public sources, although year-to-year funding fluctuations have
introduced a measure of instability into the programme. INTI has been engaged in recent
policy exploration regarding how best to have impact on the competitiveness of its
manufacturing base. Multifirm collaborative projects, sponsored by Japanese and
European organisations, have been organised among sets of firms in horizontal industries
such as metalworking in response.
4
TES programme and innovation system characteristics
The case study programmes offer a series of insights about the design of technology
extension programmes. These are highlighted through a cross-national programme
analysis, which is reported in this section. Features discussed in this section include
geographic distribution, embodied knowledge, funding models, and programme learning
and assessment. Across these features, we see the influence of national innovation system
context and interrelationships with SME capabilities in the ways in which programmes
target and evolve their operations.
Geographic distribution. Notwithstanding the rise of globalisation, the national
innovation system continues to define the context within which SMEs operate. One
feature of these systems, in our case studies, is the decentralisation of innovation
intervention, with states or regions undertaking important roles in programmes of
Building capabilities for innovation in SMEs
265
technological and economic development. In particular, the TES programmes that we
examined all report operating with decentralised structures of centres and offices. These
decentralised locations perform important place-dependent functions in partnership
formation, relationship development, efficient service delivery, and awareness. However,
the programmes differ in their approach to geographical distribution of service outlets.
For example, in Argentina, INTI has sponsored a greater numbers of centres near
high population areas with agglomerations of firms, including half of the 30 INTI
centres operating near Buenos Aires. Japan’s Kohsetsushi centres are found in all
Japanese prefectures, although there is a greater representation of centres in Tokyo,
and, in addition to general centres, the system includes centres with a sector focus
related to particular local industries, such as textiles or machinery. Kohsetsushi
centres generally serve SMEs in their region. Similarly, Canada’s IRAP has good
geographical coverage with 150 offices in 90 cities, while the US MEP has centres in
every state, often with additional local offices situated to enhance efficiency and
travel times to customers in geographically isolated rural areas or highly congested
urban cities. In the US case, a centre typically serves companies in its own territory
(state or substate area), and while there are specialties, companies from any industry
can be served. On the other hand, in the German model, Fraunhofer and Steinbeis
institutes are mostly targeted to specific technologies, and can serve companies and
sponsors without regard to territory (although often there is an important local client
base).
Embodied knowledge. Working with SMEs to foster change in strategies,
business practices, and innovation requires the capability to impart formal and tacit
knowledge over time and in ways that can be customised to the diverse needs and
absorptive competencies of the assisted firms. TES programmes embody such
capabilities and skills through the engagement of highly qualified staff with technical and
business experience to go out and build knowledge-exchange relationships with
companies. However, there is a range of staffing models represented in the case study
programmes. In some instances, staff is employed directly by the programme; in other
examples, staffs are employees of partner organisations or are consultants. The staffing
mix also varies between senior (highly-experienced in business) and junior (potentially
more up-to-date technologically) workers. The Japanese system could be characterised as
the most rigid, with a staffing system that supports early-career entry and lifelong
employment. The Fraunhofer centres have developed a core of stable and highly qualified
staff coupled with more transient younger workers (including students and trainees) who
are attracted to the centres to gain research and project experience. Steinbeis centres tend
to be led by professors who operate on a part-time basis outside of their academic duties.
About 11% of FEDIT’s employees are doctorate degreed specialists. The MEP centres
are staffed by industrially experienced specialists hired by their host organisations and the
mix of in-house and partnered staff depends on whether a particular centre chooses to
deliver most of its services internally or through brokered sets of partner organisations.
Most MEP centres that deliver services with internal specialists tend to benefit from a
significant movement of specialists coming from industry, although these individuals
may subsequently go back into the private sector as well. IRAP’s technology advisors
include employees that are hired by their host organisations as well as experts at
organisations that are part of the Canadian Technology Network and some NRC staff.
INTI also uses a mix of in-house specialists and contract workers. With the exception of
266
P. Shapira et al.
the German programmes, use of consultants is common in TESs. Consultants may
serve as contractors to complement the capacity of in-house staff, as in FEDIT and INTI
(and some MEP centres that primarily employ a brokered service model). Consultants
may be used to fulfil specialised needs as in the MEP, IRAP, and Kohsetsushi. They can
also serve as a source of employment of students (Steinbeis) and in-house specialists
(MEP).
In terms of the type of knowledge shared, there is a significant divergence across
the programmes in terms of their service emphasis and mix. For example,
Fraunhofer institutes are engaged in world-class R&D, seek to build intellectual property
(including through patents), and develop advanced, highly-customised research projects
with industrial and public clients. Certain Steinbeis centres also are involved in
intellectual property development and technology transfer. The Kohsetsushi centres are
also engaged in R&D, although perhaps because of their traditional focus toward
SMEs, this R&D sometimes is frequently viewed as ‘catch-up’ R&D, i.e., replicating
locally what has been done elsewhere. However, there is a move to upgrade the
quality of R&D in Kohsetsushi centres. At the other end of the spectrum, the US
MEPs represent a pragmatic, intermediary approach to technology extension, offering
primarily process improvement, innovation and management guidance, and related
assistance, with the national system offering standardised programmes in the training,
quality, and lean areas. MEP centres do not undertake their own research (under the
MEP programme), although they may be frequently housed in institutions that undertake
research or have partnerships with universities, national laboratories and other research
centres. Hence, MEP staff can call upon research expertise when it is needed by a
company. Most FEDIT centres do undertake applied research and can deliver process
improvement services in line with the needs in the local SME population. In Canada,
the provision of R&D grant subsidies by IRAP is a very highly rated offering.
Canadian firms can use these subsidies to undertake the research themselves and/or
coordinate with other R&D centres. Most of the other programmes do not offer grants or
incentives; however, where centres in other countries do not offer financial subsidies to
R&D for SMEs, they are often in close relationship with other programmes that can
provide such support (for example, other available small business finance programmes in
the Japanese case). In addition to R&D, almost all other programmes offer technical
assistance and training services. In some cases, for example in the Kohsetsushi
centres, there is assistance for testing and for use of equipment. As a rule, many
MEP centres prefer not to serve very small firms because of their instability, inability to
cost-share services, and lack of basic business systems. Fraunhofer centres also tend to
serve larger companies because much of their offerings are highly customised thereby
possessing high transaction costs. Because of the high proportion of micro-enterprises in
Japan, Spain, and Argentina, those programmes are more likely to serve smaller
companies.
Funding models. A basic premise of TES models is SMEs themselves lack resources
of time, expertise, and finance to undertake all aspects of the innovation process, which
can lead to suboptimal innovation investments and economic outcomes. TES intervention
is a response to correct this market failure. However, the ways in which TES programmes
are sponsored varies, from mostly public funding (e.g., Kohsetsushi) to mostly contract
fee revenue (e.g., Steinbeis). The contrasts in funding models can be conceptualised by
placing the programs in a ‘triangle’ based on percentages of federal v. regional v. private
sector funding. Close to the centroid of the triangle are models that combine different
Building capabilities for innovation in SMEs
267
funding sources, for example, the federal-state-private service income model of the US
MEP or the core institutional-contract research mix seen in the Fraunhofer institutes.
INTI places towards a vertex of mostly national funding, while the Kohsetsushi centres
are located towards the corner of mostly regional funding. Significantly, even in
programmes which are highly contract fee-driven (e.g., Steinbeis or Fraunhofer), public
as well as private sources are used. None of the programmes we examined was
exclusively or even predominantly funded from purely private sources. In other words,
each of the technology extension programmes we reviewed maintains, and is recognised
to maintain, a public service mission. This public service mission varies from undertaking
some basic research that industry would not otherwise fund (e.g., the Fraunhofer model)
to providing a base for further applied research (which industry may fund), to ensuring
that SMEs which might not otherwise be able to afford pure market services are assisted
(seen in the state funding in many US MEP centres).
Programme learning and assessment. Engaging in systematic review and learning is
an important element of TES programmes as they position themselves within the broader
innovation system. Learning is inevitably an ongoing and often informal process, but
there are discrete points at which accumulated experience is gathered and assessed
through assessment and evaluation exercises. Such activities have both programme
justification and service improvement aspects. In general, most of the centres are
involved in activity reporting that feeds into justification and legitimisation of the
programme for sponsors and stakeholders. Systematic independent evaluation of these
programmes is less commonly conducted. Activity reporting, in contrast to evaluation, is
often evidenced in annual reports showing numbers of projects, numbers of firms
assisted, revenue obtained from client companies, and the like. A few programmes have
been subject to formal evaluations that feedback into learning and programme evolution.
In the case of IRAP, a large scale formal evaluation employing multiple methodologies
was conducted in 2002 by the NRC’s Policy, Planning, and Assessment Directorate. The
MEP has among the most regularised and developed evaluation systems. In addition to
activity reporting, the MEP conducts client surveys (using an outside survey house) to
gather information on client satisfaction, impacts, and financial outcomes. The MEP also
operates external review panels comprised of centre directors, SME clients, and other
knowledgeable observers to review centre practices and performance. The MEP has
sponsored special studies from time-to-time to examine certain aspects of programme
operations. In the Fraunhofer system, there is often the use of periodic external
independent review panels to assess institute performance and make recommendations
for future development.
The programmes differ in the use of metrics to measure performance. The MEP is the
only programme with a formal metrics-based assessment, one set for individual centres
and another for the programme as a whole. Despite the lack of a common metric to
measure TES performance, reports of the number of clients assisted are found in annual
reports or evaluation studies of four of the programmes, while the Fraunhofer and
Kohsetsushi systems do not report overall figures for number of clients served. The
number of clients served is often used as a measure of penetration of the service, but it is
not without problems. Standardised interactions, brief assessments, and training often
yield a larger number of clients served, while highly customised R&D services can result
in a smaller number of customers being served relative to budget, even if those
customised services may have a greater impact on these customers and the larger
268
P. Shapira et al.
economy. The extent to which there is a relationship between budget and customers
served is explored in Figure 2, which arrays estimates of gross budgets (including public
and private sources) and number of clients served on the x- and y-axis respectively. This
figure focuses on total budget rather than solely on the public budget because of lack of
accurate information on what percentage of the budget comes from public funding as
well as to facilitate comparability across all the programs profiled here. The size of the
bubbles represents estimates of the number of in-house staff, which is another measure of
capacity and resources; for example, one might expect highly customised and R&D
services could involve more in-house staff relative to budget and clients served. Figure 2
suggests a general relationship between the size of the budget and the number of clients
served. The Fraunhofer system is an outlier, likely because of the highly customised
nature of the R&D services it offers to its clients, which is further suggested in its larger
bubble size (i.e., greater number of in-house staff). Although there appears to be a
broadly linear relationship between budget and customers served, there are many caveats
to be considered in this representation such as the intensity of the service and its impact
on encouraging innovation and technology adoption in SMEs, the details of the budget
sources (public versus private/public fee leverage), and staffing model (in-house staff
versus use of part-time contractors) impacts any perspective on the relationship among
resources and clients served.
TES case study programmes: gross budgets, clients served annually, and in-house
staffing (see online version for colours)
Figure 2
60,000
In-house staff
Kohsetsushi
Clients served
50,000
40,000
30,000
FEDIT
MEP
Fraunhofer
20,000
Steinbeis
10,000
INTI
IRAP
0
$0
$500
$1,000
$1,500
Gross budget in USD (millions)
Notes: Gross budget figures include all public and private funding sources reported
(based exchange rates of 1.35 Euros and .95 Canadian dollars to 1 US dollar).
Estimate for firms served by the Fraunhofer system is operationalised as the
number of projects in 2005 referenced in the annual report; this likely overstates
the actual number of clients served, which is not available.
Source: Author analysis of available programme information (for 2005 or
most recent year).
$2,000
Building capabilities for innovation in SMEs
5
269
Conclusions
Our analysis has examined seven TES programmes in six countries that seek to
foster innovation in SMEs through an array of interventions ranging from
applied research and technology transfer to training and business mentoring. We find
that the design and organisation of these programmes reflects the national
innovation systems in which they are embedded. The Fraunhofer institutes and
Steinbeis centres mirror the decentralised nature of Germany’s innovation system, with
expertise and knowledge flows from these programmes tuned to the high-level demands
and specific capabilities of German SMEs. The US and Canadian TES programmes
are part of national initiatives, which enable consistent sharing of broad-based
knowledge. These North American programmes are also decentralised and flexible in
delivery arrangements to leverage local differences and resources; they also use reflexive
evaluation and learning approaches to stimulate programme adaptation and improvement.
The Japanese Kohsetsushi centres exhibit a high level of consistency and stability in
programme structure and also seek to develop specialised knowledge capabilities to
meet the needs of relatively capable SMEs. There is a long-established public
service orientation, with little of the emphasis on contracting and income-generation
seen, for example, in German counterparts. Spain and Argentina illustrate models
that focus on the needs of traditional industries within the innovation systems,
significant levels of clustering around population centres, less availability of public
resources, and the need for less technologically-advanced and more regionally specialised
knowledge.
The analysis has shown that staffing and human resources are central to these
programmes because of the emphasis on tacit knowledge exchanged via face-to-face
interaction. To attain this knowledge, programmes focus on specialists with a certain
expertise profile comprised of technology and business experience plus good
interpersonal capabilities. To identify and hire staff with the requisite expertise
profile, different models of staffing are used based on local human resource availability.
In some cases, such as the MEP, Kohsetsushi, and Fraunhofer institutes, there
are sufficient pools of expertise to support in-house hiring. However, other
programmes – particularly Steinbeis centres and IRAP – involve external consultants
and partnerships with public and private organisations to provide specialised
services. In some cases, as in the example of the MEP which offers staff workshops
and online-training, TES programmes provide opportunities to specialists to upgrade
and update skills and capabilities. Mostly, however, staff training is of an ‘on-the-job’
nature.
Geographical coverage and service points are also important. Imperfections in the
training and consulting markets suggest that high transaction costs and information
asymmetries make it difficult for private consultants to serve SMEs and for SMEs to
identify, hire, and manage consultants (Oldsman, 1997). TES programmes link SMEs to
service delivery providers, public and private. The importance of decentralisation for
awareness-building, relationship development, service delivery, and partnerships
underscores the ability of the TES programme to span disparities in SME policies and
programmes. On the other hand, building a decentralised network can be costly, hence
the need for identification of and proximity to agglomerations of companies and targeting
of service offerings to the specific needs of these companies. Moreover, exploitation of
270
P. Shapira et al.
agglomerations of firms should be leveraged through targeting of value-added services to
groups of firms and networks in addition to provision of core services delivered on a
one-on-one basis.
TES programmes are supported through different models of funding, but public
funding is always present to maintain the programmes’ ‘public-service mission’.
Invariably, there is a funding tradeoff in that more pressure for private funding (fees) or
‘self-sufficiency’ usually means services that move up-market to target larger firms. In
addition, there are tradeoffs between the coverage and impact aspects of these
programmes. A core of public funding thus appears to be important in ensuring that TES
programmes maintain a focus on serving SMEs at the base of the market. We also
observe that pressure to increase coverage (i.e., serve more firms) usually leads to
standardised services, which in turn typically have less impact than customised services.
Alternatively, customised services generally require more staff time and lead to less
coverage of SMEs but often have greater impacts on these companies in terms of
stimulating innovation in products and processes. One of the major management
challenges of TES programmes is to balance such competing demands, although we see
that individual TES programmes come to different solutions, depending in part on the
scale and stability of their core public funding and what levels of fee income are feasibly
generated from assisted enterprises.
Systematic evaluation of TES programmes is not common, but still important.
There is an evaluation tradeoff between activities promoting programme justification
versus those promoting learning and improvement. It is much more usual for TES
programmes to engage in activity reporting, which demonstrates to sponsors and
customers their breadth of engagement. Systematic independent evaluations are rare, yet
they are more apt to provide reliable and independent results to support programme
justification, in addition to supporting ongoing change and enhancement of the
programme. This tradeoff highlights the defining orientation of TES programmes, which
is their flexibility through experimentation, local customisation, learning, and incentives
for improvement.
The case study programmes offer examples of the evolution of knowledge-based
strategies for fostering innovation in regional and national innovation systems. The
strategies suggested in these programmes underscore the extent to which innovation
systems still pose challenges to SMEs’ abilities to maintain competitiveness through
innovation. The decentralised nature of SMEs’ operations emphasises the need for
programmes that can reach out to these facilities in their regional context. Knowledge
gaps continue to be important and underscore the importance of tacit exchanges by expert
individuals or highly experienced industry specialists. These two factors imply that
addressing the innovation needs of SMEs requires some level of public resources, and we
see evidence of TES programmes seeking to leverage multiple sources of funding to
attain sufficient resource bases. Finally, although TES programmes need to evolve along
with the innovation systems in which they are situated, we observe that only a few of
these programmes – especially the US MEP and the Canadian IRAP programmes – use
formal methods for assessment, feedback and learning. This ability to engage in
evaluation and learning, while not formally practiced in most TES programmes,
nevertheless will become ever more important to TES programmes as national and
regional innovation policies seek to address the heterogeneity of circumstances found
among SMEs and in different regions.
Building capabilities for innovation in SMEs
271
Acknowledgements
This research initially received sponsorship as part of the project on Technology
Extension System Development for Chile, undertaken with Seminia, Santiago, Chile, for
the Chilean Economic Development Agency (CORFO). The findings and observations
contained in the article are those of the authors.
References
Aoyama, Y. (1999) ‘Policy interventions for industrial network formation: contrasting historical
underpinnings of small business policy in Japan and the United States’, Small Business
Economics, Vol. 12, No. 3, pp.191–202.
Atkinson-Grosjean, J., House, D. and Fisher, D. (2001) ‘Canadian science policy and public
research organizations in the 20th century’‚ Science Studies, Vol. 14, No. 1, pp.3–25.
Birch, D. (1979) The Job Generation Process, M.I.T., Cambridge, MA.
Caputo, A., Cucchiella, F., Fratocchi, L., Pelagagge, P. and Scacchia, F. (2002) ‘A methodological
framework for innovation transfer to SMEs’‚ Industrial Management and Data Systems,
Vol. 102, No. 5, pp.271–283.
European Commission. (2003) ‘European Commission, Observatory of European SMEs, Enterprise
Directorate-General’, available at http://www.europa.eu.int/comm/enterprise.
FEDIT (2005) Technology Centers of Spain: Annual Report 2005, FEDIT, Madrid.
Fraunhofer-Gesellschaft (2007) Fraunhofer-Gesellschaft, available at
http://www.fraunhofer.de/fhg/EN/company/index.jsp.
Harrison, B. (1994) ‘The small firm myth’‚ California Management Review, Vol. 36, No. 3,
pp.142–158.
Hassink, R. (2002) ‘Regional innovation support systems: recent trends in Germany and East
Asia’‚ European Planning Studies, Vol. 10, No. 2, pp.153–164.
Industry Canada (2007) ‘Statistics Canada, key small business statistics – January 2007’‚ Ottawa,
Canada.
Kolodny, H., Stymne, B., Shani, R., Figuera, J.R. and Lillrank, P. (2001) ‘Design and policy
choices for technology extension organizations’‚ Research Policy, Vol. 30, No. 2, pp.201–225.
Ministry of Economy Trade and Industry (METI) (2005) ‘Outline of Japan’s SME Policies, Small
and Medium Enterprise Agency, Ministry of Economy, Trade and Industry, Tokyo, Japan’,
available at http://www.sme.ne.jp/policies/index.html.
Ministry of Economy Trade and Industry (METI) (2006) ‘White Paper on Small and Medium
Enterprises in Japan’‚ Japan Small Business Research Institute.
ModForum (2003) ‘US Census Bureau data, MEP: productivity growth, American
Small
Manufacturers
Coalition,
Washington,
DC’‚
available
at
http://www.nemw.org/smallmanufacturers/advocacyresources.htm.
National Research Council Canada (NRC) (2007) ‘NRC Industrial Research Assistance Program –
IRAP’, available at http://irap-pari.nrc-cnrc.gc.ca/mandate_e.html.
Observatory of European SMEs (2004) ‘SMEs in Europe 2003. Report 2003/7’‚ Office for Official
Publications of the European Communities: Enterprise Directorate-General of the European
Commission, Luxembourg.
Oldsman, E. (1997) ‘Manufacturing extension centers and private consultants: collaboration or
competition?’‚ Technovation, Vol. 17, No. 5, pp.237–243.
Piore, M. and Sabel, C.F. (1984) The Second Industrial Divide: New Possibilities for Prosperity,
Basic Books, New York.
272
P. Shapira et al.
Porter, M. (1990) The Competitive Advantage of Nations, Free Press, New York.
Schumpeter, J. (1934) The Theory of Economic Development, Harvard University Press,
Cambridge, MA.
Shapira, P. (1992) ‘Lessons from Japan: helping small manufacturers’‚ Issues in Science and
Technology, Vol. 8, No. 3, pp.66–72.
Shapira, P. (2001) ‘US manufacturing extension partnerships: technology policy reinvented?’‚
Research Policy, Vol. 30, No. 6, pp.977–992.
Shapira, P. (2008) ‘Putting innovation in place: policy strategies for industrial services, regional
clusters, and manufacturing SMEs in Japan and the United States’‚ Prometheus, Vol. 26,
No. 1, pp.69–87.
Shapira, P. (2009) ‘Innovation and small and midsize enterprises: innovation dynamics and policy
strategies’‚ in R. Smits, S. Kuhlmann and P. Shapira (Eds.): Innovation Policy: Theory and
Practice. An International Handbook, Edward Elgar, Cheltenham, UK.
Shapira, P., Kingsley, G. and Youtie, J. (1997) ‘Manufacturing partnerships: evaluation in the
context of government reform’‚ Evaluation and Program Planning, Vol. 20, No. 1,
pp.103–112.
Shapira, P., Roessner, J. and Barke, R. (1995) ‘New public infrastructures for small firm industrial
modernization in the USA’‚ Entrepreneurship and Regional Development, Vol. 7, pp.63–84.
Shapira, P., Youtie, J., Lamos, E., Bhaskarabhatla, A., Mohapatra, S. and Cheney, D. (2006)
‘Product and Service Innovation, Report to the Manufacturing Extension Partnership, National
Institute of Standards and Technology’‚ Georgia Tech Program in Science, Technology, and
Innovation Policy and SRI International, Atlanta, GA and Arlington, VA.
Steinbeis Foundation (2007) Steinbeis Foundation, available at from http://www.stw.de.
U.S. Small Business Administration (SBA) (2005) ‘SBA, small business size standards’, available
at http://www.sba.gov/size/index.html.
Unión Industrial Argentina (UIA) (2007) Balance 2006 y Perspectivas, Unión Industrial Argentina,
Buenos Aires.
Notes
1
2
Some centres are organised as private non-profit entities; some as part of state agencies (such
as the state Department of Commerce or Science and Technology Office); and some are
embedded in or associated with universities or community or technical colleges.
Most with prior industrial experience (in-house specialists) plus consultants used to provide
specialised services or supplement capacity in high demand service areas.