An International Research Handbook
PRIME Series on Research and Innovation Policy in Europe
Edited by Ruud E. Smits, Stefan Kuhlmann and Phillip Shapira
Chapter 8: Innovation and Small and Midsize Enterprises: Innovation Dynamics and Policy Strategies
Philip Shapira INTRODUCTION A central component of any effort to encourage economy-wide innovation has to be attention to small and medium-sized enterprises (SMEs). Such firms are the modal type, comprising about 99 percent of all enterprises in developed economies (OECD, 2002, Table AI). As indeed many panels and studies have declared in recent years, for an economy to be successful in a world of increased international competition, innovation - the creation and use of new products, process, services, or organizational forms - is critical, and small firms and entrepreneurs (along with large firms and other institutions) have themselves to be innovative to contribute towards this goal (see, for example, European Commission 2005; ]SBRI 2007; Kaufmann Foundation 2007). The difficulty is that many small and midsize enterprises lack the capabilities, resources and incentives for innovation, are concerned about the risks associated with change, and - even if disposed towards innovation - are skeptical about the role of government in its efforts to foster innovation. Moreover, the scale and diversity of the small business world makes policy design to encourage innovation in SMEs anything but a simple process, despite - or perhaps because of - the fact that government is a major factor in establishing frameworks, institutions and incentives which affect innovation in SMEs. In other words, SMEs and policymakers are variously influenced, aided and at times stymied by one another in the directions that each takes, in the context of the multiple further factors that bear upon decisions, strategies and performance...
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