Promoting innovation among SMEs

I am interested in how governments can promote innovation in the private sector, especially within micro, small and medium-sized firms. This includes the role of government in establishing innovation eco-systems, supporting research and development, and advising business directly.

A recent report on innovation in low-income countries has caught my eye. Japan Voeten, from Tilburg University, has written a report entitled, Enabling Innovation and Productivity Growth in Manufacturing Small and Medium Sized Enterprises in Low Income Countries, which presents eight case studies of manufacturing SMEs in Kenya. This is part of a four-year research project on ‘Enabling Productivity and Innovation in Low Income Countries’, which is supported by the UK Government’s Department for International Development. The project aims to deliver robust high quality evidence from Africa and Asia on how to increase innovation in manufacturing SMEs so as to raise productivity, through a coordinated set of thematic and country case studies providing internationally comparable data.

This Kenya report finds that all the interviewed companies innovated is some form or other. They all expanded their business operation, responding to market opportunities, and hired more staff as a result. The cases confirm the positive impact of innovative manufacturing SMEs on employment generation. Most of them created employment income for poorer groups. There were no cases where jobs were replaced by machines or other technology. Instead, SME owners innovated and expanded to respond to business opportunities.
Interestingly, the business owners involved in the study were VERY suspicious of government: “SMEs indicated that they avoid interactions with government (and government officials). They do not want to expose themselves, and doubt whether government could effectively and efficiently develop relevant technology for manufacturing SMEs”. Overall, government was not seen as a supporter of new technology or business innovation. The respondents, instead, felt that they would be better served by direct business advice, presumably from experts in their field. However, there was also a call for better education systems: “SME owners and managers complain that university and college graduates do not have the required technical and craftsman’s skills, exposure to modern technologies, or an entrepreneurial and creative attitude. One entrepreneur specifically suggested to creating establishments that train workers on use of latest technology. The enterprises can employ these skilled workers and give the owners the confidence to purchase new equipment and machinery”.

Finally, the report discusses innovation systems: “The innovation process was initiated, managed and owned by the company without any external involvement or support from other businesses. There were no cases of collaborative innovative activities of joint technology acquisition. Although the companies are open to sharing information about their needs, most of the owners/managers avoid cooperation with companies and keep everything for themselves…. Likewise, no company enjoyed the spill-over of technology from larger, foreign or other technologically more advanced firms. There were no examples of large foreign enterprises subcontracting and making technology available to SMEs or exchanging information”.

One interesting idea presented by a respondent to the study was to develop non-government business information exchange networks and platforms, establishing contact between entrepreneurs in Africa and beyond, to facilitate discussion and deals within the various sectors.

The need for information sharing and networks that diffuse experiences, contacts, technology and general information appears particularly relevant to these firms.