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IEE Engineering Management | February/March 2006 1918 IEE Engineering Management | February/March 2006

Business strategy

Without risk there can be no innovationand without managing the fundingthat enables small to medium-sizedenterprises (SMEs) to take thenecessary risks, it also hinders thesebudding enterprises from producing

innovative ideas. SMEs, which include those engaged in low,medium and high technology, are ill equipped to bear all thecost, risk and management organisation required to growinternally to the degree called for by the Lisbon andBarcelona accords – agreements which were created to helpEurope become internationally competitive.

As Sir Digby Jones, director general of theConfederation of British Industry (CBI) noted at the launchof the report ‘Can Europe Make it? SME innovationpartnering – the missing links’ on 5 October 2005, Chineseand Indian companies are not only going to have your lunchbut your dinner as well. The sheer scale of size of Chinaand India put together covers nearly a third of the world’spopulation. With growth proceeding rapidly – especially inChina – and more of the manufacturing from the Westbeing relocated to these two countries, how can Europemaintain its competitiveness, especially with increasingcomplaints about growing bureaucracy in the European

Union (EU)? The only route for competitiveness, Sir Digbypointed out, is through innovation and adding value to allproducts and services.

NON-HIGH-TECH GAZELLES RUN JUST AS FASTWith 65% of European gross domestic product (GDP)coming from small firms – compared to 45% in the US – andan increasingly globalised marketplace in which they haveto operate, it is very worrying that Europe’s SMEs are losingthe battle to compete with cheaper suppliers from the AsiaPacific and more technologically advanced offerings fromthe US. Everyone in industry and government now acceptsthat this is a major threat to the future prosperity of the

The future of European wealth is beingsmothered in bureaucracy says

Professor Ruth Taplin

Managingfunding

Europe’s SMEs are losingthe battle to compete withcheaper suppliers fromthe Asia Pacific

‘‘’’

➔

for innovativeEuropean SMEs

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18 IEE Engineering Management | February/March 2006

Business strategy

Without risk there can be no innovationand without managing the fundingthat enables small to medium-sizedenterprises (SMEs) to take thenecessary risks, it also hinders thesebudding enterprises from producing

innovative ideas. SMEs, which include those engaged in low,medium and high technology, are ill equipped to bear all thecost, risk and management organisation required to growinternally to the degree called for by the Lisbon andBarcEuro

AConfof thpartnand Ibut yand IpopuChinbeinmaincomp

Union (EU)? The only route for competitiveness, Sir Digbypointed out, is through innovation and adding value to allproducts and services.

NON-HIGH-TECH GAZELLES RUN JUST AS FASTWith 65% of European gross domestic product (GDP)coming from small firms – compared to 45% in the US – andan increasingly globalised marketplace in which they haveto operate, it is very worrying that Europe’s SMEs are losingthe battle to compete with cheaper suppliers from the Asia

The future of European wealth is beingsmothered in bureaucracy says

Professor Ruth Taplin

Managingfundingfor innovativeEuropean SMEs

IEE Engineering Management | February/March 2006 19

logically advanced offerings fromustry and government now acceptst to the future prosperity of the

Es are losingo compete withppliers fromcific’’

➔

elona accords – agreements which were created to helppe become internationally competitive.s Sir Digby Jones, director general of theederation of British Industry (CBI) noted at the launche report ‘Can Europe Make it? SME innovationering – the missing links’ on 5 October 2005, Chinese

ndian companies are not only going to have your lunchour dinner as well. The sheer scale of size of Chinandia put together covers nearly a third of the world’slation. With growth proceeding rapidly – especially ina – and more of the manufacturing from the West

g relocated to these two countries, how can Europetain its competitiveness, especially with increasinglaints about growing bureaucracy in the European

Pacific and more technothe US. Everyone in indthat this is a major threa

Europe’s SMthe battle tcheaper suthe Asia Pa

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The other 98% that could bestimulated into high growthwill have to compete for just20% of the budget

‘‘’’

fulfilling their potential, which will be even more difficultwithout adequate Framework 7 support.

SMEs, as the report outlines, suffer from a lack ofresources both human and financial so becoming a part ofinnovative consortia not only allows them to share R&Dcosts but also knowledge, provides indirect opportunitiesfor marketing through consortia partners, and also diffusesthe envy, failure and blame culture that pervades Europeansociety. This is through partnerships spreading the risk andresponsibility because two or more companies have theability to detect and resolve problems early on. All thecompanies interviewed in the report reflected the fact that,once branded a failure, a company will be perceived as suchand denied further assistance, while in the US there isalways another chance on offer and business failure is notstigmatised. With the current emphasis on high-techgazelles it will make it even more difficult for mainstreamhigh-growth SMEs to obtain funds.

MANAGEMENT SKILLS REQUIREDPeter Davies notes that more effective involvement of high-growth SMEs and the inclusion of such companies in theforthcoming Framework Programme 7 on a large scale isessential if Europe is to raise investment in R&D and reachthe objectives of 3% of GDP, and produce the globallycompetitive knowledge-based economy demanded by theLisbon and Barcelona accords.

Anthony Murphy, director of European Strategy at theDepartment of Trade and Industry, notes that, as Europemoves into the second half of Lisbon economic reform,innovative individuals and organisations will have an evengreater role to play in building European competitivenessand narrowing the productivity gap between Europe andthe US and other global competitors. Just as the cost of R&Dfor high-tech companies is beyond the capabilities of justone company, so too is the task for the vast majority ofmedium and low technology SMEs with limited resourcesprogressing towards higher value products and being moreknowledge intensive without pooling their resources withother companies.

Geoff Haswell, managing director of Piezotag Ltd, notedthe international dimension is imperative because thewider the pool to search for innovative ideas, the more likely

20 IEE Engineering Management | February/March 2006 IEE Engineering Management | February/March 2006 21

Business strategy

attended the report launch, and it was further noted that bythe participants that European policy makers seemconfused about just which SMEs to support. Those smallfirms most likely to turn European investment in researchand development (R&D) into new jobs and increased GDPare what, in the US, are referred to as ‘high-growth SMEs’or ‘gazelles’. However they are not the same as research-led‘high-tech SMEs’; in fact studies show that that only 2% ofgazelles are high-tech. The vast majority of growth occursin existing companies, with the capability to turn newtechnology into world-beating products, but withoutnecessarily being research leaders themselves.

However, the experts noted that this business andeconomic reality is in danger of being missed by theEuropean Commission (EC). The EC is proposing to provideover €8bn of R&D support to SMEs over the next sevenyears as part of its 7th Framework Programme for R&D.But the plan is to concentrate 80% of this on the 2% ofgazelles that are research-led companies. The other 98% ofgazelles that could be stimulated into high growth will haveto compete for just 20% of the budget. The demand isunambiguously there, at present suitable SME schemesexist but are over-subscribed by eager high-growth SMEswanting to innovate but denied support. These provenschemes should be the ones to receive the major part, notthe minor part, of the funds in the future.

These high-growth SMEs, which have great potential forinternal growth and are the future of European wealthgiven the high percentage of them in Europe, werehighlighted in the report. This is particularly timely as thepending substantial allocation of funds may be misdirectedaway from the majority of SMEs capable of helping Europeto meet the targets of the Lisbon and Barcelona accords.

HIGH RETURN ON INVESTMENTThese are companies, says Peter Davies, chief executiveofficer of Pera a technology innovation company, they havebeen assisting to obtain at least a 20% return on theirinvestment, three to five years from joining a consortiumproject. Some companies are achieving well over 30% perannum on the original investment. The EC has estimatedthat the long term net return is €7 for every €1 invested ina collaborative programme so why not continue to supportSME companies that are increasing productivity steadilythrough internal growth?

Most large companies in Europe have developed in sizethrough mergers and acquisitions, unlike most UScompanies that have grown out of smaller ones; this is alsolargely the case in Asia. This has meant that, while manylarge companies in Europe are moving explicitly to a newmodel of corporate innovation – pro-actively building aglobal network of innovation partners, setting up cost-sharing innovation consortia – SME companies are not

originality will be found. This is best accomplished by aproject being undertaken together with an innovationfacilitator who already has a network of research contactsin companies, institutes, universities or other innovationfacilitators such as the Fraunhofer Institute or Pera.

Partnering is essential to enable SMEs to grow to newlevels of strategic thinking research/knowledge intensityand economic growth and to open new routes to marketsand suppliers. This will necessitate a behavioural changein attitude towards the relative importance of partneringfor innovation within many SMEs in Europe. While keepingan eye on the market, opportunities and risks need to beviewed and studied working with a facilitating organisationsuch as Pera. The induction hurdles can then be overcometo develop the key skills in companies to generate and bringout opportunities in partnering. To have maximum impactthis also requires leverage from the vast majority of theforthcoming Framework 7 funding opportunities to be madeavailable from 2007.

The establishment and management of an innovationconsortium has some very different features to normalsupply chain management. Clearly there are pitfalls for acompany inexperienced in this area. The chances of asuccessful expansion depends on a clear strategy at theoutset but also on having a methodical and thorough riskand opportunity analysis of the total route to supply theproduct or service, in volume, in a new market and withpotentially new suppliers. This requires having the bestpossible partner-search process and professional assistancein consortium building which could be pan-European orglobal coupled with adequate funding opportunities madeavailable by the EC for the majority of high-growthSMEs. ■

Professor Ruth Taplin is director of the Centre for Japanese andEast Asian Studies and author of ‘Risk Management andInnovation in Japan, Britain and the United States’(Routledge/Curzon)

THE AMERICAN ANDJAPANESE MODELSAmericans value competition in all walks of life, includingcorporate life, believes Terry Young an experiencedinnovation and commercialisation specialist. Antitrust lawsat both Federal and State levels ensure competition andprevent corporate monopoly, leading to opportunities forSMEs to enter markets. Furthermore, as a generalobservation, financial markets appear more open to SMEneeds in America than in many regions of the world.Corporate taxes are also transparent, predictable,graduated and affordable to SMEs.

A draft report by a 13-member group appointed by theEU and led by Wim Kok, the Dutch Prime Minister, hasstated that the Lisbon Agenda is failing. It concluded that

this is even a threat to the whole existenceof the EU, especially because of excessivebureaucracy. Most recently there is, however,some good news for the UK andScandinavia: a Milken Institute Reportpublished on 27 October 2005 concludedthat the UK is the best country in the worldfor entrepreneurs, with Scandinavia being theonly other European country in the top 10.

New companies are formed with ease inAmerica. Corporate registration fees are low,‘paperwork’ is minimal, and little, if any,bureaucratic oversight is required.Companies can be formed within hours,

compared to months in some other countries – includingwithin the European Union. Rapid response to perceivedopportunities – ‘time to market’ – often proves to be moreimportant than other business considerations, such asintellectual property protection.

In Japan, as explained in Ruth Taplin’s book ‘RiskManagement in Japan, Britain and the United States’, theDevelopment Bank of Japan is using intellectual propertyas leverage to provide aid to SME companies that cannottake medium or high risks in growing or revitalising theirbusinesses. This scheme has not only been successful, saysMasatoshi Kuratomi London chief representative of theDevelopment Bank of Japan, but aids low-, medium- andhigh-tech enterprises. It is doubtful whether any bankinginstitution in Europe would be willing to take on such arole of assisting in the revitalising of SME enterprises asmost European banks are involved in facilitating mergersand acquisitions.

A full copy of the report ‘Can Europe Make it? SMEinnovation partnering – the missing links’ isavailable from the author. Email her at:Ruth.Taplin@btinternet.com

EU and that it is essential to support European small firmsin their struggle to add value to offerings through innovationand improved use of new technology.

This message was endorsed by Sir Digby and otherglobal business experts from Europe, the US and Asia who

The other 98% that could bestimulated into high growthwill have to compete for just20% of the budget

‘‘’’

fulfilling their potential, which will be even more difficultwithout adequate Framework 7 support.

SMEs, as the report outlines, suffer from a lack ofresources both human and financial so becoming a part ofinnovative consortia not only allows them to share R&Dcosts but also knowledge, provides indirect opportunitiesfor marketing through consortia partners, and also diffusesthe envy, failure and blame culture that pervades Europeansociety. This is through partnerships spreading the risk andresponsibility because two or more companies have theability to detect and resolve problems early on. All thecompanies interviewed in the report reflected the fact that,once branded a failure, a company will be perceived as suchand denied further assistance, while in the US there isalways another chance on offer and business failure is notstigmatised. With the current emphasis on high-techgazelles it will make it even more difficult for mainstreamhigh-growth SMEs to obtain funds.

MANAGEMENT SKILLS REQUIREDPeter Davies notes that more effective involvement of high-growth SMEs and the inclusion of such companies in theforthcoming Framework Programme 7 on a large scale isessential if Europe is to raise investment in R&D and reachthe objectives of 3% of GDP, and produce the globallycompetitive knowledge-based economy demanded by theLisbon and Barcelona accords.

Anthony Murphy, director of European Strategy at theDepartment of Trade and Industry, notes that, as Europemingranthfoonmprknot

thwi

20 IEE Engineering Management | February/March 2006

Business strategy

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attended the report launch, and it was further noted that bythe participants that European policy makers seemconfused about just which SMEs to support. Those smallfirms most likely to turn European investment in researchand development (R&D) into new jobs and increased GDPare what, in the US, are referred to as ‘high-growth SMEs’or ‘gazelles’. However they are not the same as research-led‘high-tech SMEs’; in fact studies show that that only 2% ofgazelles are high-tech. The vast majority of growth occursin existing companies, with the capability to turn newtechnology into world-beating products, but withoutnecessarily being research leaders themselves.

However, the experts noted that this business andeconomic reality is in danger of being missed by theEuropean Commission (EC). The EC is proposing to provideover €8bn of R&D support to SMEs over the next sevenyears as part of its 7th Framework Programme for R&D.But the plan is to concentrate 80% of this on the 2% ofgazelles that are research-led companies. The other 98% ofgazelles that could be stimulated into high growth will haveto compete for just 20% of the budget. The demand isunambiguously there, at present suitable SME schemesexist but are over-subscribed by eager high-growth SMEswanting to innovate but denied support. These provenschemes should be the ones to receive the major part, notthe minor part, of the funds in the future.

These high-growth SMEs, which have great potential forinternal growth and are the future of European wealthgiven the high percentage of them in Europe, werehighlighted in the report. This is particularly timely as thepending substantial allocation of funds may be misdirectedaway from the majority of SMEs capable of helping Europeto meet the targets of the Lisbon and Barcelona accords.

HIGH RETURN ON INVESTMENTThese are companies, says Peter Davies, chief executiveofficer of Pera a technology innovation company, they havebeen assisting to obtain at least a 20% return on theirinvestment, three to five years from joining a consortiumproject. Some companies are achieving well over 30% perannum on the original investment. The EC has estimatedthat the long term net return is €7 for every €1 invested ina collaborative programme so why not continue to supportSME companies that are increasing productivity steadilythrough internal growth?

Most large companies in Europe have developed in sizethrough mergers and acquisitions, unlike most UScompanies that have grown out of smaller ones; this is alsolargely the case in Asia. This has meant that, while manylarge companies in Europe are moving explicitly to a newmodel of corporate innovation – pro-actively building aglobal network of innovation partners, setting up cost-sharing innovation consortia – SME companies are not

originality will be found. This is best accomplished by aproject being undertaken together with an innovationfacilitator who already has a network of research contactsin companies, institutes, universities or other innovationfacilitators such as the Fraunhofer Institute or Pera.

Partnering is essential to enable SMEs to grow to newlevels of strategic thinking research/knowledge intensityand economic growth and to open new routes to marketsand suppliers. This will necessitate a behavioural changein attitude towards the relative importance of partneringfor innovation within many SMEs in Europe. While keepingan eye on the market, opportunities and risks need to beviewed and studied working with a facilitating organisationsuch as Pera. The induction hurdles can then be overcometo develop the key skills in companies to generate and bringout opportunities in partnering. To have maximum impactthis also requires leverage from the vast majority of theforthcoming Framework 7 funding opportunities to be madeavailable from 2007.

The establishment and management of an innovationconsortium has some very different features to normalsupply chain management. Clearly there are pitfalls for acompany inexperienced in this area. The chances of asuccessful expansion depends on a clear strategy at theoutset but also on having a methodical and thorough riskand opportunity analysis of the total route to supply theproduct or service, in volume, in a new market and withpotentially new suppliers. This requires having the bestpossible partner-search process and professional assistance

THE AMERICAN ANDJAPANESE MODELSAmericans value competition in all walks of life, includingcorporate life, believes Terry Young an experiencedinnovation and commercialisation specialist. Antitrust lawsat both Federal and State levels ensure competition andprevent corporate monopoly, leading to opportunities forSMEs to enter markets. Furthermore, as a generalobservation, financial markets appear more open to SMEneeds in America than in many regions of the world.Corporate taxes are also transparent, predictable,graduated and affordable to SMEs.

A draft report by a 13-member group appointed by theEU and led by Wim Kok, the Dutch Prime Minister, hasstated that the Lisbon Agenda is failing. It concluded that

this is even a threat to the whole existenceof the EU, especially because of excessivebureaucracy. Most recently there is, however,some good news for the UK andScandinavia: a Milken Institute Reportpublished on 27 October 2005 concludedthat the UK is the best country in the worldfor entrepreneurs, with Scandinavia being theonly other European country in the top 10.

New companies are formed with ease inAmerica. Corporate registration fees are low,‘paperwork’ is minimal, and little, if any,bureaucratic oversight is required.Companies can be formed within hours,

compared to months in some other countries – includingwithin the European Union. Rapid response to perceivedopportunities – ‘time to market’ – often proves to be moreimportant than other business considerations, such asintellectual property protection.

In Japan, as explained in Ruth Taplin’s book ‘RiskManagement in Japan, Britain and the United States’, theDevelopment Bank of Japan is using intellectual propertyas leverage to provide aid to SME companies that cannottake medium or high risks in growing or revitalising theirbusinesses. This scheme has not only been successful, saysMasatoshi Kuratomi London chief representative of theDevelopment Bank of Japan, but aids low-, medium- andhigh-tech enterprises. It is doubtful whether any bankinginstitution in Europe would be willing to take on such arole of assisting in the revitalising of SME enterprises asmost European banks are involved in facilitating mergersand acquisitions.

EU and that it is essential to support European small firmsin their struggle to add value to offerings through innovationand improved use of new technology.

This message was endorsed by Sir Digby and otherglobal business experts from Europe, the US and Asia who

oves into the second half of Lisbon economic reform,novative individuals and organisations will have an eveneater role to play in building European competitivenessd narrowing the productivity gap between Europe and

e US and other global competitors. Just as the cost of R&Dr high-tech companies is beyond the capabilities of juste company, so too is the task for the vast majority of

edium and low technology SMEs with limited resourcesogressing towards higher value products and being moreowledge intensive without pooling their resources with

her companies.Geoff Haswell, managing director of Piezotag Ltd, noted

e international dimension is imperative because theder the pool to search for innovative ideas, the more likely

IEE Engineering Management | February/March 2006 21

in consortium building which could be pan-European orglobal coupled with adequate funding opportunities madeavailable by the EC for the majority of high-growthSMEs. ■

Professor Ruth Taplin is director of the Centre for Japanese andEast Asian Studies and author of ‘Risk Management andInnovation in Japan, Britain and the United States’(Routledge/Curzon)

A full copy of the report ‘Can Europe Make it? SMEinnovation partnering – the missing links’ isavailable from the author. Email her at:Ruth.Taplin@btinternet.com