Government SME and Entrepreneurship Policies

After the Crisis

Dr Jonathan PotterOECD, Centre for

Entrepreneurship, SMEs and Local Development

Contact: jonathan.potter@oecd.org

Presentation to OECD/Marche Region/ University of Urbino Economics of

Small Businesses Conference, Urbino, 20-21 October 2010

Presentation structure

1. OECD Working Party on SMEs and Entrepreneurship

2. Impact of the crisis on SMEs and entrepreneurship

3. Broad policy challenges

4. Priorities for policy development

5. Conclusion

2

1.1 OECD WPSMEE

Working Party on SMEs and Entrepreneurship (WPSMEE)

Unique international forum to compare policies and identify good practices in:

•Fostering entrepreneurship

•Harnessing SMEs and entrepreneurship for job creation, innovation and growth

•Helping SMEs meet the challenge of globalisation

Areas such as business environment, globalisation, financing, innovation, training, access to markets, women entrepreneurship

3

1.2 OECD WPSMEE

Bologna Process – common policy tools:

•Bologna Charter on SME Policies, 2000

•Istanbul Ministerial Declaration on Fostering the Growth of Innovative and Internationally Competitive SMEs, 2004

•Brasilia Action Statement for SME and Entrepreneurship Financing, 2006

•Athens Action Plan for Removing Barriers to SME Access to International Markets, 2006

•Tokyo Statement on Strengthening the Role of SMEs in Global Value Chains, 2007

•Bologna+10 High-level Meeting, Paris 17-18 November 2010

4

2.1 Impact of the crisis

5

• Twin shocks to SMEs and entrepreneurs :

―Strong fall in demand for their goods and services

―Strong squeeze on their working capital and investment finance

2.2 Job shedding• In past, SMEs retained employees in recession

more than larger firms – remained true in several EU countries

• But in the USA, SMEs shed jobs faster than large firms – new phenomenon?

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

SMEs Large <50 employees

Net job creation/destruction in the United States (seasonally adjusted) 1999-2009, by firm size, in thousands

Source: US Bureau of Labor StatisticsNote: “SME” refers to firms with 1-499 employees, “large” refers to firms with 500+ employees

2.3 Unemployment

• Unemployment increase of 50% in OECD 2007-10. Wide dispersion by country

2.4 Nature of the recovery?

8

• “Bottoming out” was in mid-late 2009• Gradual recovery in 2010

But…… growth is much slower than in earlier recoveries... unemployment will remain high… protracted restructuring is expected

9

10

3.1 Policy challenges

11

Need to tackle unemployment

Opportunity for restructuring

Enhanced role for new firm creation and SME growth

New technologies, sectors, products

New geographies

Greener economyMore social economy

New jobs and occupations

3.2 New firms and job creation

12

• New firms play the dominant role in job creation in response to unemployment and downsizing

• Nearly all net job creation in the USA from 1977-2005 occurred in firms less than 5 years old (Kauffman)

• Once started, the majority will remain in the SME sector and appropriate SME policies and framework conditions will be required to maintain the positive effect on employment

3.3 New firms and job creation

13

Employment creation by enterprise births, 2005 and 2006As a percentage of the total number of persons employed in manufacturing and services

Source: 1. Mining and quarrying; manufacturing electricity, gas and water.2. Wholesale and retail trade; hotels and restaurants; transport, storage and communications; financial intermediation; real estate, renting and business activities. Source: OECD Entrepreneurship Indicators Project (2009)

3.4 High-growth firms and job creation

14

• High-growth enterprises play a disproportionate role in job creation

• The 10% most rapidly growing enterprises created 50-60% of gross employment gains over a 5-10 year period in France, Italy, Netherlands and Greece

• Nearly 50% started as SMEs• Although the probability of rapid growth declines

with age, the great majority were existing SMEs more than 5 years old

• There are notable differences among countries in share of high-growth enterprises

3.5 Share of high-growth firms

15

1. Mining and quarrying; manufacturing electricity, gas and water.2. Wholesale and retail trade; hotels and restaurants; transport, storage and communications; financial intermediation; real estate, renting and business activities.3. Employer enterprises with fewer than 250 employees. 4. 2008.Source: OECD Entrepreneurship Indicators Project (2009)

Employment definition, 2006As a percentage of all enterprises with 10 or more employees (figures above the bar indicate change from previous

3.6 SMEs, entrepreneurship and innovation

16

• Enterprise churn – firm exit and replacement – raises productivity. Estimated at 20-40% of productivity growth in selected European countries and USA late 90s

• A small group of innovative SMEs are initiators of breakthrough innovation

• New firms represent a significant proportion of all patents filed by business – but varies by country

3.7 Patent applications filed by young firms, 2005

17

Source: OECD, HAN database, October 2009 and Bureau Van Dijk Electronic Publishing, August 2008

As a percentage of patents filed by firms at the European Patent Office (EPO)

4.1 Institutional framework conditions

18

Recognised in Bologna Charter and Istanbul Ministerial Declaration : •Macroeconomic stability – interest rates, exchange rates•Fair and transparent regulations – compliance costs, transparency, bankruptcy procedures, product standards, competition policy, anti-corruption measures•Non-discriminatory tax regime•Access to financial services

4.2 Internationalisation

19

• Markets are increasingly international. Globalisation and open innovation increase the importance of international knowledge connections

• But SMEs are under-represented in the international economy

• Barriers :―Information and knowledge ―Managerial time―Workforce skills―Product and service quality ―Working and investment capital

4.3 Internationalisation

20

• Recommendations:

― Increase the participation of SMEs in international collaborative research programmes

― Address financial barriers to internationalisation

― Support SME upgrading programmes

― Provide brokerage and information services on foreign market and collaboration opportunities

4.4 Intellectual assets management

21

• IPRs are an important tool for protecting and managing intellectual assets

• But SMEs rarely have explicit intellectual assets strategies, lack knowledge of the possibilities offered by IPR regimes, and use IPR less than large firms

• Barriers: ―short-term thinking, ―lack of knowledge of IPR, ―poorly adapted regulatory landscapes (high

fixed costs, need for multiple filings)

4.5 Intellectual assets management

22

• Recommendations:

― Enhance SME awareness of the possibilities to protect their intellectual assets

― Facilitate appropriate advice and consultancy on intellectual asset management to SMEs and new firms

― Adapt the IPR system to the needs of SMEs and entrepreneurs

4.6 Entrepreneurial human capital

23

• Entrepreneurship skills and competencies are necessary for new venture creation. Major gap is in strategic skills

• But entrepreneurship training is limited and there are significant inequalities across countries

• Barriers: ―Poorly adapted cultures and incentives in

formal education• Recommendations:

―Smartly scale up entrepreneurship education in schools, vocational education, universities

5. Conclusion

24

• SMEs and entrepreneurship are important now more than ever

• Barriers exist, including framework conditions, SME internationalisation, intellectual asset management and entrepreneurial human capital

• The WPSMEE is an international forum for policy analysis and exchange

• Messages in the OECD Bologna Process statements and OECD publications

• High-level policy makers will meet in Paris 17-18 November 2010 to set out a road map for the future