The 13th OECD Rural Development Conference was held in Cavan, Ireland on 28-30 September 2022 under the theme "Bulding Sustainable, Resilient and Thriving Rural Places". These are the presentations from the Pre-conference session "Empowering SMEs in Rural Places". This presentation is by Jenny Vyas For more information visit https://www.oecd.org/rural/rural-development-conference/.

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EMPOWERING SMES IN RURAL PLACES
OECD Rural Development Conference
28 September 2022, Carvan, Ireland
Jenny Vyas
OECD - Centre for Entrepreneurship, SMEs, Regions and Cities (CFE)

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Outline
1. CFE and SME work
2. Barriers to growth and enabling conditions
3. Rural characteristics common to SMEs
4. Policy takeaways

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CFE and SME agenda
CFE has led substantial the work on SME’s over the past
decades:
• SME Outlook
• D4SME and Green Financing for SME platforms
• Creation of a new Committee on SME’s
• Newly released recommendation

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SMEs are part of the business fabric,
particularly in rural areas
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Source: OECD Structural and Demographic Business Statistics Database, 2018 (http://dx.doi.org/10.1787/sdbs-data-en)

5. © OECD | Centre for Entrepreneurship, SMEs, Regions and Cities | @OECD_Local |
SME’s locate in all regions but rural SME’s
face some common characteristics
Rural places are
• Remote to markets (e.g. higher transportation costs)
• Lack density and thick markets (economies of agglomeration)
• Access to skilled labour
• Access to R&D innovation
• Niche markets and product differentiation are areas of opportunity
• (see on Rural well-being publication a full section characteristics)
• Less diversified economic base makes them more vulnerable to global
shocks (inflation, gas, fertilizers)

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There extent differs by type of rural area
6
1.Rural
Inside
FUA
2. Rural
close to
cities
3. Rural
remote
area
Limited access to
infrastructure,
finance
Large distances and
high transportation
costs. -> Limiting
GVC integration.
SME benefit of cities’
infrastructure but also
corporate
relationships market
pervasion and
communication
networks.
Depending on the
connectivity, these rural
areas can have
access to markets,
services but may
compete on talent with
urban areas.
Source: (OECD, 2020) Rural Well-being : Geography of Opportunities.

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SME framework identifies a number barriers
to enhance performance
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Source: 6+1 pillars of SME and entrepreneurship performance
OECD (2019), OECD SME and Entrepreneurship Outlook 2019.

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SMEs have great potential
8
Source: (OECD, 2021), Understanding Firm Growth. Helping SMEs Scale Up.
In Italy, SME of
southern regions with
below-national average
GDP per capita such as
Basilicata (100% rural
land), Campania and
Puglia have a higher
incidence of scaling
Spain: SMEs in
Andalucia (65% rural
land) and Murcia (44%
rural municipalities)
have higher incidence of
scaling than wealthier
regions in the country.
Based on new microdata work:

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SMEs growth drivers
9
Source: (OECD, 2021), Understanding Firm Growth. Helping SMEs Scale Up.

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Regional attraction policies can foster and strengthen
FDI-SMEs linkages productivity and innovation spillovers
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Source: OECD (2022), Strengthening FDI-SME linkages and ecosystems: A Policy Toolkit.
Attracting quality FDI: Beyond job creation and capital investment, FDI can help
SMEs and rural areas increase productivity and innovation through knowledge
spillovers => but not all FDI has the same potential for spillovers.
Increasing SME absorptive/attractive capacity : innovation is an accumulation
process that require SMEs to achieve a certain level of productivity/performance =>
SMEs are often less productive than larger/foreign firms and do not have the
capacity for building the linkages that could support transfer.
Strengthening FDI-SME linkages : a number of diffusion channels exist that
could support knowledge and tech transfer => but there are not all efficient or
fully exploit.
Creating enabling conditions: all conditions that ensure an optimum in the above,
including structural aspects, geographic conditions etc.

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Evidence from the FDI-SME review of Portugal & Alentejo
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Source: (OECD, 2022),Strengthening FDI and SME Linkages in Portugal.
• FDI mainly concentrated in the Lisbon area, with limited spillover potential to other regions such as Alentejo.
• Alentejo has high productivity gaps between foreign/domestic firms and a large population of low productivity micro-firms.
• Rural area with no access to any functional urban areas within a 60-minute drive
• Tailored policy approaches that take into account regional heterogeneity are key to maximizing the benefits of FDI-SME linkages
for local economies.

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A complex mix of policies and policy systems with multi-level
approaches required
Pol
Technical
assistance
Regulatory
incentives
National strategies
and action plans
Information &
facilitation services
Collaborative
networks
Policy mix
Financial support
schemes
Investment
promotion
policy
Regional
development
policy
SME&E
policy
Innovation policy
FDI-SME diffusion
channels channels
Value chain linkages
Strategic partnerships
Labour mobility
Competition - imitation
12
Source: EC/OECD (forthcoming), Enabling FDI-SME linkages and productivity and innovation spillovers in EU countries and regions: Towards a Policy Toolkit.
Source: OECD (2022), Strengthening FDI-SME linkages and ecosystems: A Policy Toolkit.

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Key messages for policy makers
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1. SMEs are a critical part of
the rural fabric playing a role
in economic growth and
social cohesion
3. FDI-SME ecosystems are
sources of knowledge and
tech spillovers to regions.
Tailored and coordinated policy
approaches are needed that
account for regional specificities
and the heterogeneity of local
SMEs.
Innovation, digitalisation and
integration to networks can
help SMEs be more productive
and innovative.
2. Rural SMEs face
additional barriers to start
up and growth
Without an SME perspective
it will be difficult to realise
rural policy objectives thus
policies should go beyond
emergency support

14. 
Twitter: @OECD_local
LinkedIn: www.linkedin.com/company/oecd-local
Website: www.oecd.org/cfe
Thank you
Jenny.VYAS@oecd.org

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Higher education institutions for creating networks and
overcoming challenges in rural areas
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Source: (OECD, 2021), Supporting Entrepreneurship and Innovation in Higher Education in Sweden; (European Commission, 2022), New European Innovation Agenda.
HEIs are key actors in regional innovation and development strategies
After the COVID-19 pandemic, HEIs transitioned to new forms of teaching and learning,
connected their research to the needs of their communities.
Fostering industry-university
collaborations in training, education and
transfer of research knowledge (e.g.EU-
funded Digital hubs), including with
multinationals
Providing teaching that addresses
skills gaps in the (local) labour
market.
Building entrepreneurial
skills for stimulating
entrepreneurial mindset.

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Examples : Enhancing FDI-SME diffusion channels
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Partner search: Assisting in finding partners both abroad and in Lithuania for
SMEs and research institutions, for creating and implement innovations
(strategic partnerships)
Startups Connecting Links: Group Portuguese SMEs in specific areas /
sectors and approach MNEs to introduce the Portuguese start up ecosystem
and the capabilities of companies and their potential, with a double objective:
to promote value chain linkages and M&As (value chains)
Source: OECD Data Lake on SME and Entrepreneurship Policies, accessed 22 Sept 2022, https://www.oecd.org/cfe/smes/data-lake-flyer.pdf
Lithuania
France
Portugal
Territoires d'Industrie : The programme aims to develop industrial skills and
the mobility of employees, as well as the attractiveness of territories and
industries and the revitalization of brownfield sites. (labour mobility)
IP strategy Offer: is a grant scheme which aims to support R&D performing
innovative SMES to develop an IP strategy focussed on their individual needs
(Competition & knowledge exchange)
Ireland

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Examples: strengthening enabling factors
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Regional investment aid : Investment incentives can be granted for new or
established companies in the following types of projects: a) industrial
production, b) technology centers, c) combined project of industrial production
and technology centers, d) shared services centers (productivity enhancing
FDI)
Agroimpulso: Financial support for the digital transformation of agro-food
industry and rural areas, with maximum loans of EUR 1 500 000 over nine
years and minimum contribution of EUR 25 000. SMEs co-finance a minimum
50% of the loan (absorptive capacity of SME)
Southern Italy 2030: This strategy aims to i) invest in education for
enhancing entrepreneurial spirit and innovation, ii) implement business R&D
tax incentives as well as tax reliefs for companies hiring people from Southern
Italy, and iii) attract foreign investment through SEZs (agglomeration/cluster
effects).
Source: OECD Data Lake on SME and Entrepreneurship Policies, accessed 22 Sept 2022, https://www.oecd.org/cfe/smes/data-lake-flyer.pdf
Slovak
Republic
Spain
Italy

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Recent OECD publications on SMEs and
entrepreneurship
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February 2021 June 2021 October 2022
November 2021 January 2022
Other CFE/EST publications:
OECD (2022) Financing SMEs and Entrepreneurs 2022: AN OECD SCOREBOARD https://doi.org/10.1787/e9073a0f-en
OECD (2021) Supporting Entrepreneurship and Innovation in Higher Education in Sweden
OECD (2022) Recommendation of the Council on SME and Entrepreneurship Policy

19. © OECD | Centre for Entrepreneurship, SMEs, Regions and Cities | @OECD_Local |
Let’s take one minute on the current situation
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Source: OECD (2023 provisional), OECD SME and Entrepreneurship Outlook 2023 and OECD (2019) OECD SME and Entrepreneurship Outlook 2019.
• Inflation is breaking records, driven
by increases in food, energy and
commodity prices
• High uncertainty and tightening of
market conditions
Cyclical trends, megatrends and efficient firm size
• Digitalisation and integration in
GVCs as major game changers =>