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SME Innovation, exporting and growth in context - James H Love and Stephen Roper
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SME Innovation, exporting and growth in context - James H Love and Stephen Roper


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  • 1. Work Package 5 SME Innovation, Exporting and Growth Jim Love and Stephen Roper
  • 2. Overview • This work package focuses on the relationships between innovation, exporting and growth in SMEs. • It contributes to the main themes on the drivers of growth and the barriers to innovation, exporting and growth. • We already know that innovation, exporting and growth are strongly inter-related – Not intending merely to recreate studies on this, but to research what underlies this process – So examining the contextual influences and taking a comparative perspective where possible
  • 3. White Paper SME innovation exporting and growth A review of existing evidence – what do we know? What is unclear? • Introduction • Context underlying paper • Internal enablers of I and X • External enablers of I and X • Innovation, exporting and performance • Research agenda
  • 4. Context • Evidence suggests that exposure to export markets is important in realising the potential of innovative and high growth firms in the UK. • The joint effects of innovation and exporting lead to economy-wide productivity benefits through a dynamic competition in which innovating and exporting firms gain market share at the expense of others. • Productive resources then flow towards these firms which can use them most profitably. As a result, exporters and innovators tend to grow faster than non-exporters and non-innovators. • Because exporters and innovative firms also tend have higher productivity growth, this process also drives up productivity growth in the UK economy as a whole (the ‘batting average’ effect). There is therefore a potential for policy interest in exporting and innovation at the firm level.
  • 5. Context (contd.) This matters in the context of SMEs. There is evidence that high growth SMEs also tend to have higher productivity than other firms of similar size. Since such firms also tend to innovate and/or export, there is good reason to be concerned with the innovation and exporting performance of SMEs. BUT SMEs in UK not particularly innovate or export-oriented by international comparisons • In terms of the proportion of SMEs introducing at least one product or process innovation the UK ranked 25th of 33 countries (European Union ‘Innovation Union Scoreboard 2011’). • in 2009 UK 19th out of the EU27 in terms of the proportion of SMEs engaging in exporting activity (21 per cent against an EU average of 25 per cent).
  • 6. White Paper – SME innovation exporting and growth in context • Introduction • Context underlying paper • Internal enablers of I and X • External enablers of I and X • Innovation, exporting and performance
  • 7. Internal enablers of I and X • Operational capabilities • Skills and Diversity • R&D capability • Capital Investment/Equipment • Finance (internal) • Design and IP • Leadership and strategy • Leadership and team capability –skills, education and international experience • Ownership type e.g. Family-owned firms
  • 8. Areas of agreement Internal Enablers Areas of Agreement High quality skills contribute positively to innovation and exporting success. The importance of technical skills is also increasingly matched by the value of networking and team-working skills. There is strong positive relationship between R&D and innovation across all firm size bands and industries. Innovation and export success are positive related to firms’ physical capital investments A positive relationship exists between innovation and export activity and strong cash-flow and liquidity.
  • 9. Areas of contention Internal Enablers Areas of contention Robust evidence on the role of people management and employee engagement in shaping firms’ innovation and exports is limited, particularly in SMEs. There has been little rigorous analysis of the returns to design in SMEs. The innovation and export benefits of IP management in SMEs remain poorly understood. The links between workforce diversity, and other firm characteristics such as family ownership, and firms’ innovation and export success remain little explored. Relatively little is known about the relationship between business strategy and planning and innovation and exporting success in SMEs.
  • 10. External enablers of I & X • Knowledge enhancing/augmenting factors • ‘Being there’ –clusters, agglomeration etc. • ‘Openness’: Local/international links • Learning by exporting • Resource enhancing/augmenting factors • Dimensions of policy • Demand side influences
  • 11. Areas of agreement External Enablers Areas of Agreement Purposive links formed by between SMEs can play a positive role in innovation and export growth. SME links are likely to be more positive in ‘stronger’ eco- systems and where SMEs have greater absorptive capacity. Targeted public support for innovation and exporting yield significant additionality. Demand-side factors can provide an important stimulus to both innovation and exporting. The evidence emphasises the positive role of consumer or user-led innovation and public procurement in stimulating SME development.
  • 12. Areas of contention External Enablers Areas of contention Relatively little is known about the mechanisms through which the gains from ‘being there’ operate, particularly for SMEs. It is unclear which eco-system characteristics are influential for SMEs’ innovation and export success. Third, it is unclear which types of purposive linkages have the greatest benefits for SMEs, particularly in terms of supporting export development. There is some uncertainty about the importance of ‘learning by exporting’ for SMEs.
  • 13. Innovation, exporting and performance Innovation, exporting and performance • Innovation and performance • Exporting and performance • Innovation and exporting • Inter-relationships between all three
  • 14. Areas of agreement Innovation, Exporting and Growth Areas of Agreement There is a strong positive association between innovation, exporting and performance in terms of productivity and/or growth. Innovation and exporting appear to work jointly to improve performance. There is a substantial element of interdependence between innovation and exporting, and self- selection is common.
  • 15. Areas of contention Innovation, Exporting and Growth Areas of contention Evidence on SMEs is fairly patchy – specifically, we know little about how much the innovation- exporting-performance relationship involves self- selection for SMEs. Information on different types of innovation and their effects on SME performance is limited. Evidence on the performance implications of intermittent exporting by SMEs is limited. What should the key measure be? Productivity is the key issue in many studies, following the theoretical literature, but should (sales) growth be the key performance measure?
  • 16. Research - First twelve months 5.2 Knowledge antecedents of innovation and exporting in SMEs – How does knowledge from different sources influence innov and exporting in SMEs? – ‘Ambient’ local knowledge, innovation linkages, learning-by-exporting etc – How do SMEs weaker cognitive capabilities influence this? – Influenced by our earlier work on open innovation in SMEs
  • 17. Later research 5.3 Innovation, exporting and growth in SMEs – a comparative analysis • What are the key drivers and barriers of enhanced innovation and exports in SMEs? • What factors influence SME’s ability to successfully exploit new innovations? • How does firms’ operating context influence innovation and exporting? This project would explore the contribution of exports and innovation to growth and other aspects of SME performance. Data sources as for project 5.2 (Months 13-24) 5.4 Assisting innovation, exporting and growth - assessing relative policy effectiveness • Both SME’s innovation and exporting have been seen as important policy targets but which is the most effective in supporting growth? • Are there synergies between policy supports for SME exporting and innovation? • Drawing on the models developed in projects 5.2 and 5.3 this project examines these inter-relations with potential implications for future policy agendas. (Months 24-36)