Local Economic and Employment Development (LEED Programme)
Action Space for Strengthening entrepreneurship - Modernisation, diversification and internationalisation of existing SMEs
Analysis of the SME market
In programming and defining activities and interventions in support of the SME sector, it is important to develop “demand-driven” policies, reflective of the identified needs of SMEs themselves and tailored to their individual circumstances. Demand-driven policies are more likely to achieve the results sought and to provide a cost-effective use of public funding. In order to design more demand-driven interventions, it is necessary to understand the needs and opportunities of the SMEs being targeted by analysing the structure of the SME sector in terms of its growth potential, the specific constraints on growth that it faces, and the types of support most likely to mitigate these constraints. Gathering such information requires direct contact with SMEs, and it is recommended that a series of surveys are undertaken at regional and local level.
Evaluation of programmes and policies to date
Delivering a wide range of programmes and policies to the SME sector reflects a high degree of commitment to the objective of encouraging growth. Over time, however, it is important to become more selective in the programmes being delivered, homing in on those which can be shown to achieve the greater benefits. It is recommended therefore that a series of evaluations be undertaken of the range of SME support policies currently being delivered at both national and local level. This will involve measuring outcomes against original objectives, and comparing outcomes across different programmes. In order to identify the impact of policies at the level of individual SMEs, it will generally be necessary to talk directly with client businesses in order to establish how they have benefited from support. In order to avoid “survey overload”, it should be possible to incorporate evaluation questions into the market surveys. SMEs could be asked about their take-up of support so far, what actions they took in response to it, and how those actions improved their growth potential and performance. The results of the evaluation work can be used to refine the range of support measures, concentrating on those with the highest impact and simplifying access for the SMEs themselves.
Improved links with other policy areas
Success in achieving a more innovative and internationally competitive SME sector will require a multi-disciplinary approach. A lack of connection across policy areas is the main obstacle to acheive it In order to create a more supportive environment for SME growth, better connections across policy areas will be required. Two particular areas where improved links could be effective are with FDI policy and with R&D policy.
Success in attracting FDI creates a potential new source of demand for goods and services locally. A key element in successfully making a productive connection between FDI and local suppliers is to intervene early in the process, as the investment is being considered and made rather than after the event. The international investor needs to have the confidence that local supply capability can be developed, and will need to be directly involved in advising and training local SMEs. Similarly, the SMEs will require time to develop the service levels and skills demanded.
Another key policy connection necessary on behalf of SMEs is with the R&D infrastructure in universities, colleges and research institutions. Small companies with growth aspirations will generally be able to identify for themselves where they need product or process improvements. But they may not have the detailed technical knowledge or time to develop these on their own. Improved connections with sources of technology innovation will be required, along with a greater degree of market and business orientation from the relevant institutions.
SMEs have the possibility to modernise and internationalise through providing an outsourcing service to international companies. Outsourcing provides an opportunity to work very closely with an overseas customer, improving the quality of local products and services, gaining an entry point into export markets and developing local management and technical skills, while benefiting from a steady revenue stream. There are potential disadvantages of course, in terms of dependence on one or two large customers and over-specialisation on those customers’ technical requirements. But on balance, the approach offers a “fast track” to product innovation and exporting.
It is therefore recommended that the potential of an outsourcing initiative be examined in more detail through a feasibility assessment. The market opportunity should be measured, specific potential customers identified, technical requirements determined and local capacity measured. Any barriers to market entry would be identified, and support provided to address these. The feasibility work could be undertaken under the auspices of SME Agencies in collaboration with relevant local enterprise agencies in areas where the sectoral potential is highest. There may also be a role for the Chamber of Commerce in supporting the initiative through export promotion and trade exhibitions.
Local clustering opportunities
Most development agencies worldwide have adopted clustering as a model for their industry interventions. Most have also identified a similar mix of industries on which to build clusters, for example life sciences, ICT and semiconductors. As a result, the overall concept has been diluted and does not offer the competitive advantage that it was initially intended to.
Nevertheless, it can work well in specific circumstances and this is often the case where the cluster is built upon a well established natural resource or industrial capability. Once identified, these opportunities could be best exploited at regional and local level, beginning with systematic audits of the SME base in the selected sectors and its links with the local education and technical infrastructure.
International Learning Models