OECD sees rising “entrepreneurial economy” and calls for strategic promotion of innovation in SMEs

Paris, June 2010. In a new flagship publication on “SMEs, entrepreneurship and innovation”, the OECD states that new and small firms have gained importance in the innovation process due to increasing income, more “niched” market demand and changing technologies.

This has reduced the disadvantages of small firm size. As a consequence, the OECD sees a new “entrepreneurial economy” rising, as opposed to the “managed economy” of the past.

The OECD finds that new and small firms are not more innovative than large firms. However, they play an important role on the innovation stage as they replace less productive firms, they place incumbents under competitive threat and they commercialise knowledge that would otherwise remain unexploited in large firms.

Whereas in the past innovation policy was mainly concerned with investment in research and development, the OECD assumes that it may now be necessary to focus more on where innovation actually occurs – i.e. within companies – and the conditions needed to support it. Thereby the OECD stresses that innovation is not just science and technology. It is new products and services in all sectors of the economy, new marketing methods and changes in ways of organising business, in their business practices, workplace organisation and external relations. In all this, new and established SMEs play a vital role. In fact, new firms and SMEs are key players in a new type of innovation: one that is widespread across many agents and “open” in the sense that it has been created by many contributors from different organisations and spheres.

The OECD further distinguishes between a few high-growth-potential “breakthrough” SMEs that are highly innovative and a great majority of “ordinary” SMEs that innovate little and incrementally. Policy should distinguish clearly between these two groups, but both should be encouraged.

The book presents data related to SME and entrepreneurship policy activities from 40 countries around the world. Among other policies, the OECD highlights programmes related to start-ups from universities, for example the German EXIST, the Austrian “AplusB” (Academia plus Business) and TechnoPartner in the Netherlands. Such programmes support graduates and university researchers in starting a company, for example by coaching, facilitating access to finance, and creating an entrepreneurial culture at universities. These programmes can inspire policy development in other countries.

In addition to presenting data about SME and entrepreneurship policy, the book explores policy imperatives in three action areas which the OECD considers as major yet insufficiently recognised: knowledge flows, entrepreneurship skills and social entrepreneurship.

• As regards knowledge flows, the main message is that new firms and SMEs do not innovate alone but in collaboration with others. Connecting to global knowledge flows is a new challenge in this respect.
• Entrepreneurial education is increasingly provided at higher education and vocational education institutions as well as in schools. However, SMEs participation in such education is currently rather limited.
• Finally, the OECD highlights the increasing importance of social entrepreneurship, i.e. the aim to provide innovative solutions to unsolved social problems through some form of business. Social enterprises often need support different from what is provided to traditional businesses.

The main recommendation from the book is that “policies to strengthen entrepreneurship and increase the innovative capabilities of SMEs should be one of the main planks of government innovation strategies”. Governments should target SMEs and entrepreneurship as a major source of new jobs in the recovery from recession.  

The book can be viewed and purchased at the OECD website.