Study on impact of European research and innovation supportive programmes on SMEs in manufacturing sector

We are living in a complex and dynamic world in which innovation and entrepreneurship are occupying a decisive role for economic development. According to Joseph Alois Schumpeter “carrying out innovations is the only function which is fundamental in history”. He also stressed that it is entrepreneurship that “replaces today’s Pareto optimum with tomorrow’s different new thing”(Joseph Alois Schumpeter 2005), (Śledzik 2013). Innovation is a major driving force for economic growth and development of companies. The globalization of markets caused a very competitive environments for companies. The rapid technology evolution, fast changing market, more customer demand trends requires high quality new product/process to be efficiently and effectively answer to this demand. Innovation play a key role is to transform firm’s inner capabilities, making it more adaptive, better able to lean, able to learn, to exploit new idea between (Maravelakis et al. 2006). Innovation goes far beyond R&D. It goes far beyond the confines of research labs to users, suppliers and consumers everywhere – in government, business and non-profit organizations, across borders, across sectors, and across institutions (OECD 2013) But the main problem is it is often believed that unlike many other core processes such as manufacturing or logistic, outputs of innovation are hard to predict due to the very fact that the source of innovation is creativity. This makes the management of innovation hard and many firms (mostly SMEs) gave up to bother themselves with it; if the output is unpredictable or even worse you want it to be unpredictable, why bother to measure it. And since it is sometimes impossible to capture innovation in simple and common firms’ indicators and targets performance frameworks, most managers leave it in the hand of R&D specialist. (Kolk et al. 2012) Fortunately there are many successful companies that overcame these challenges and harness the benefits of innovation as a manageable process throughout the whole company. These benefits have included largest market share and greater returns for new products and services; successful entry to new markets, etc. these companies use different policy and strategy and hire different instrument to make this happen. But the most important challenge for managing innovation is the measuring tools and all comes down to this old quota in management that “if you cannot measure it, you cannot manage it”. This means that how hard it looks but there are many tools that make innovation management possible through different measures and practice in firms, national and international levels. The importance of SMEs as backbone of European economy, has been recognized more and more in this decade. SMEs are primarily responsible for wealth and economic growth, next to their key role in innovation and R&D. In Europe, SMEs account for 99 out of every 100 businesses and 58 cents in every euro of value added and 2 in every 3 employees are working in a SME. The five key sectors in EU economy are manufacturing, construction, business service, accommodation and food, wholesale and retailed trade which accounts for 78% of all SMEs (EC 2014). Manufacturing is one of the largest R&D driven sectors. It is an essential factor of the innovation chain: manufacturing empower technological innovations to be applied in products and services, which are marketable in the marketplace and is key to developing KETs to making new products affordable and available so as to increase their societal and economic benefits and reach the desired impacts. Innovation investment in mechanical engineering (EC 2012), in the business enterprise sector manufacturing, accounted for the highest share of researchers in most EU Member States. In 2008, 14.1 % of all EU-27 tertiary students were attending in engineering, manufacturing and construction education. 39.8 % of enterprises in the EU-27 were considered innovative in terms of technological innovation in 2008. In most countries, the share of innovative enterprises was generally higher in manufacturing than in services. In 2009, 2.4 million people were employed in the high-tech manufacturing sector in the EU-27 (EC 2009). But still SMEs in this sector are facing many difficulties in their path to innovation. It is often mentioned that the smaller the firm, the more exposed they are the risk of rapid changes. Pressure from change-demanding market with the moto of innovate to survive makes innovation essential part of daily practice of these kind of firm from one hand. On the other hands high risk and limited financial and non-financial resources obstacle many SMEs to innovate effectively. Therefore public provision is vital element for SMEs. Because of this, governments and administrations in country level and higher provide supportive programmes for SMEs. In EU this has been done through research and innovation funding programs like seventh framework for research and innovation and recently H2020. This support has been available in different forms such as grants, loans and, in some cases, guarantees, directly or through programmes managed at national or regional level such as the European Union’s Structural Funds. SMEs can also benefit from a series of non-financial assistance measures in the form of programmes and business support services. This work is an attempt to first have a review on current practice and tools in innovation by study on state of art literature in terms of innovation management, performance and measures. Then the attention is paid particularly to SMEs; The barriers and difficulties that nowadays small firms face regarding their innovation activities. Finally the results from supportive action from European commission regarding innovation activities of SMEs will be discussed to achieve an overview on SMEs performance. In the first chapter, first a short introduction about innovation and innovation process will be present. It will be followed by a review on different innovation models that have been theorized during last decades. This begins with simple linear model of innovation then the evolutionary path of innovation dynamic models will be tracked to more realistic complex model which consist of the systems of disruptive and discontinuous events that involve networks of actors and resources. In the second chapter, innovation in small firms will be argued, first the necessity of innovation for SMEs and furthermore the key enabling factors that helps SMES to be innovative, and finally the barriers. Third chapter will focus on innovation different metrics and measures- common and new. Advantages and disadvantages of each will be demonstrated in detail. The fourth chapter begins with a brief discussion about European SMEs (more focus on Manufacturing sector) and their importance for Europe. Then innovation importance through EC perspective and European commission support for innovation in SMEs -Its previous, current and future supportive program will be summarized. This will be followed by demonstration of some of these program results in order to give an overall view on impact of Supportive program role on SMEs in Europe. At the end, by using result of EC surveys, a picture of current situation of SMEs in Europe will be depicted.