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Technology upgrading, diffusion and transfer:

Building capabilities for innovation in small and medium-sized enterprises

Philip Shapira1,2
Congress on Innovation Policy and Technology Transfer Universidad de San Martin de Porres, Lima, Peru September 6, 2011

Institute of Innovation Research, Manchester Business School, UK Tech School of Public Policy, Atlanta, USA

Technology upgrading, diffusion and transfer: Building capabilities for innovation in small and medium-sized enterprises

Proposition and SME


innovation challenges & case for intervention

Upgrading Program

services and strategies design parameters


Insights and Key



effective set of innovation support mechanisms for small and medium-size firms (SMEs) is one of the foundation measures that nations and regions seeking to improve their economic standing need to have in place.

Key concepts
SMEs 99% of enterprises (focus: 10-250 emp.) manufacturing, services, agri. lower productivity, use of technology


new ways of doing things product, process, service, business model new to market, new to firm
value-added / living standards equity, resilience, sustainability free trade < performance, distinctiveness innovation system policy mix broader economic & societal frameworks national and regional roles

Economic standing

Foundation measures

Constraints to SME innovation

Multiple barriers, including:

Finance Know-how

Finance: difficulty in accessing external finance, high innovation costs and therefore high economic risk Know-how: limited internal know-how to manage the innovation process; Skills: shortage of, and limited access to, qualified personnel; limited absorptive capabilities Markets: access to markets to meet customer needs and enter foreign markets; Relationships: isolation and weaknesses in business relationships, value chains, networks Regulation: addressing laws and restrictions; Strategy: challenges in identify new trajectories and means to achieve them

Markets Relations Regulation Strategy

Upgrading services

guidance, brokering and outreach mechanisms in the field to stimulate companies to improve their use of technology and to stimulate innovation


known as: technology extension, industrial extension, innovation services, real services

Typical mechanisms

Information provision Benchmarking and assessment Technical assistance or consultancy Training Group or network services Collaborative projects (R&D, implementation) Strategy development; coaching and mentoring

Upgrading services:

Rationales for Intervention



Demand-side: SMEs lack information, knowledge, resources to implement modern methods and new technologies Supply-side: Large customers, vendors, consultants dont or cant support SMEs; Trade associations weak

Government and

service failures

Gaps in public service provision for SMEs


economic development

Promote local and regional clusters of enterprises



Economic competitiveness maintaining jobs while growing wages; Expand exports Develop supply-chains and clusters, for new rounds of technological growth

Orientation and integration

Enterprise Innovation

Capabilities and Strategies:

Product, process, and service innovation Organizational and managerial innovation Innovation in marketing or business models Upgraded skills and capabilities Pragmatic approach to technology; step-wise change Integrate technology with other enterprise needs and strategies Demand-side measures Innovations in systems of innovation (public & private)


Complementary Policy Actions:

Positioning upgrading services +





Mature TAA

Start up




Upgrading SMEs for innovation:

What it is not!

Not just about technology transfer from labs to firms but about systemic measures to improve firms technological and business capabilities for innovation Not just about advanced technology but about pragmatic improvements in operations and practices, usually with commercially-proven technologies Not a short-term jobs program Results will take time to materialize and require sustained efforts; and some direct jobs may be lost as productivity increased Not just a government program but a process that is driven by industry needs and market opportunities and leverages existing resources Not a resolution to crisis or radical economic transition requires an existing, reasonably stable industrial base

SME upgrading services:

Anticipated outcomes

Business improvement - above the line

Capabilities New knowledge and skills Stronger relationships Innovative products and services

Business performance - below the line

Increased productivity (value-added / employee) Increased quality, performance Business stability and growth Added sales, exports Increased wages; may retain jobs (but this is not a quick-fix jobs program) Develop innovative regional clusters Increase attractiveness for FDI

Regional & national economic development

SME upgrading program models


models (in multiple countries)


goals, structure and operations Services and strategies Resources, customer relations, & evaluation

international examples


Institutes (Germany) Kohsetsushi Centers (Japan) FEDIT - the federation of technology centers in Spain Manufacturing Extension Partnership (US) Innovation Vouchers (UK)

1. Fraunhofer Institutes (Germany)

The model: Non-profit association Applied R&D; commercialization and transfer services Scale: 59 Fraunhofer institutes, 40 cities in DE 1.4B revenues, 40% industry 14,000 staff; 12,000 projects/year

Bottom line: Highly advanced capabilities, developing and transferring new technologies to firms; project focus; requires sophisticated SME demand

2. Kohsetsushi (Japan)

The model: Public industrial technology and testing institutes, dedicated to SMEs, run by local governments under national framework 50% R&D; 50% transfer and field services Scale: 180 centers in 47 prefectures (20 in Tokyo) 0.8B revenues / very low fee income 6,000 staff; 50,000 SMEs/year Bottom line: Good in transferring catch-up R&D to SMEs; extensive service; field service; networking; public sector rigidities.

3. FEDIT* (Spain)

The model: Non-profit association of innovation & centers Dedicated to SMEs

Scale: 67 centers focused to regional SME clusters 0.5B revenues / 60% private fee income 5,500 technology & other staff; 26,000 SMEs/year
Bottom line: Decentralized federation, local centers guided by local industry associations. R&D (62%), innovation support services & technical assistance (25%), training

*Spanish Federation of Research and Technology Bodies

4. MEP* (US)

The model: Public-private partnership to foster technology, innovation and competitiveness in manufacturing SMEs Decentralized network under federal (NIST) framework
Scale: 50 centers, 390 offices in all 50 US states; no R&D 200M (1/3 federal; 1/3 state; 1/3 private) 1600 field staff / 32,000 manufacturers (10% of total) Bottom line: Experienced field staff; mentor, develop strategies, resolve problems, make qualified referrals for SMEs 1:1, supply chain, cluster, university, & group initiatives Extensive evaluation: increase in productivity of participating v. non-participating firms

* Manufacturing Extension Partnership

+ MEP Program Model

MEP Staff Consultants


Intermediate Actions

Business Outcomes

Development Outcomes


MEP Services
2009 Results > Created 17,721 jobs > Retained 54,354 jobs > Increased $3.5 billion in sales > Retained sales of $4.9 billion > $1.3 billion in cost savings > $1.9 billion invested in modernization, including plant and equipment, information systems, and workforce and training

5. Innovation Vouchers (UK)

The model:

Incentives to forge new linkages between SMEs and technology & knowledge providers Voucher 3,600 - 8,500 to SME to engage qualified knowledge provider university, private sector, creative sector

Scale (through to 2010):

3,000+ vouchers / year; 20% SME match 12 regional development agencies, multiple local organizations

Bottom line:

Vouchers seek to incentivize SMEs to make new connections with knowledge providers, then to develop deeper links and services (with own funds)

Upgrading Programs

Funding, Clients, Staff

In-house staff Kohsetsushi


Clients served


MEP FEDIT Fraunhofer



0 $0 $500 $1,000 $1,500 $2,000

Gross budget in USD (millions)

Arena for upgrading services




Technology centers National laboratories

Target Enterprises

Collaborative firms Private consultants

Other public programs

Outreach and brokering to enterprises

Insights from program models: 1

Practices related to program goals, structure and operations

Decentralized, local Capable and

delivery systems

credible delivery

Value-added Targeting

national role

Insights from program models: 2

Practices related to services and support strategies

Technology offerings

to client capabilities

pragmatically related enterprise needs

Servicing interrelated Coordinating with

system partners

regional innovation


beyond immediate problem solving.

Competent, quality

core staff, with an industrial/business focus

Insights from program models: 3

Practices related to resources, customer relations, and evaluation

Scale, stability, and Leverage existing

a long-term perspective

resources and partnering

with industry

evaluation and strategic planning to strengthen program capabilities

SME technological upgrading good practices and current debates

Good practices
Embedded, sustainable business models Customised, intensive & flexible support Expert-led, long-term relationships with business to develop trust Strong service networks Strong brands, through qualityled assistance

Current debates
Focus on high-growth potential firms rather than blanket support Effectiveness of general versus specialized business support Regional networking and cluster approaches Linking SMEs to research base & commercialization of ideas Public procurement & promoting innovation

Benchmarking our upgrading services:

Ten key questions (1-5)


Do we have a coordinated offer of service or do we run many small, overlapping programs?


Do we have scale and reach are we serving enough firms to make a difference
Are we segmenting the market access for all firms, but focused assistance on firms with capabilities and greatest potential



Are we providing technical assistance and field service to mentor and engage SMEs to upgrade? Are we engaging & training capable staff with business experience, who have the flexibility and capability to customize services?


Benchmarking our upgrading services:

Ten key questions (6-10)


Are we qualifying and upgrading 3rd party service providers and consultants?


Are our programs decentralized, flexible, and linked to local business clusters, working with supply chains, clusters, universities, other regional resources Are we building new capabilities in SMEs and in the support system?
Is the national level providing value-added services (rather than top-down control)? Do we have evaluation & learning functions to understand our impacts and improve service performance?




Ongoing Challenge

effective set of innovation support mechanisms for small and medium-size firms (SMEs) is one of the foundation measures that nations and regions seeking to improve their economic standing need to have in place.

The difficulty lies, not in the new ideas, but in escaping from the old ones*

*John Maynard Keynes, The General Theory of Employment Interest and Money (1935)