SMES AND THE NEW GEOGRAPHY OF BUSINESS: NO SME IS AN ISLAND. The era of Global Opportunity, Global Competition, Global Talent?

– by Juha Saukkonen –

intertwinedTo the members of INSME and readers of its publications the fact more and more known and acknowledged by public and political spheres has been clear for long: net job creation in all developed economies – and increasingly also in the emerging countries – is based on SME cohort of companies. The key word in this statement is NET. Yes, multinationals and large domestic organisations still hire – but parallel to hiring they fire, outsource, offshore even more.

Let’s look at the country where I come from: Finland with its 5,5 million population. Between years 2002 and 2013 microsized and small firms created 102.000 net jobs in them. In the same timeframe the large corporations were job destructors, the balance for them shows -16.000 jobs. As said earlier, the knowledge of this SME role in employment dynamics is spreading, and even more and more students honing their professional skills for the career in business are increasingly aware and attracted in SMEs as their future workplace. And since the youth of today is much more international and diverse than any generation up to this date, their offering to SMEs has much more of global flavor than we have seen earlier.

SMEs have been, are and will be also key players in internationalization of economies and societies they operate in. At this front, however, there is still road ahead. Or in other words – much of underused potential. How much of the total amount of exports do the SMEs account for: Eurostat (2014) points out Estonia and Denmark with their appr. 30 % share as leaders in this measurement, followed by a bunch of countries with 25 % contribution of SMEs (employing less than 50 people), Sweden, Italy, Netherlands, Austria. My home country Finland has the same figure in 10 %! Even in the countries leading the league table there are constantly projects and initiatives aimed at ranking up in the SMEs and export competition.

What could we do? I state that we have a sleeping beauty or a race horse kept in the stable in the hands-on, pragmatic cooperation between SMEs and institutions of higher education. I do not say that because it sounds good in the eyes of my own supervisors, but because I´ve “been there, done that” – In my 10 years in academia after a career in industry I count having 300+ projects of this kind on my belt, and hope more to come. Sometimes failing, sometimes succeeding – and continuously aiming at developing that action further.

Due to the nature of a blog-writing, I do not add any references and research citations in here, but I would like to summarize briefly the drivers that seem to point towards more and better interaction between SMEs and educational institutions – meaning both students and faculty members in them:

SMES:

  • Need to adapt to technologically more and more demanding – and enabling – environment. Both in what comes to their own products and services as well as in their processes making those products and services;
  • To master those technologies and obtain them at the right time, place and cost they need to network with others. Increasingly the most relevant partners are not the ones nearest to you – it is a global ballgame;
  • The better you become, more opportunities there are on the global market, and your international customer might be just a few mouse-clicks away;
  • If and when you have a global opportunity, so does the competition, if you are not prepared to knock the away-from-home doors, someone from out there will knock the doors of your “home customers”.

STUDENTS:

  • Do not even think the way we older generations do. They are cultural and digital savvies, for them the question of home market – or just home – is irrelevant, they tend to think globally in all aspects of life, business included;
  • Want to make meaningful things – do things were the impact can be seen – SMEs are more likely to offer that then a role as a small part in a big corporate machine;
  • Want to meet and learn from and for true entrepreneurship – that can not be done by reading about the subject – live experience is what counts.

UNIVERSITIES:

  • Are required to show their worth and impact: how are you improving life and society around you?
  • Are willing to keep up-to-date with latest advancements – and agile SMEs are always in the front-line showing where the world is going to.

These points are more just examples of our hopefully joint motivation to collaborate rather than the whole story. It would be equally easy to make a list of challenges and showstoppers to the interaction promoted. But just like more generally in life, it is always easy to slip to be running that problem-track. As somebody wisely said “A problem can only be a true problem if there is a solution. If not, then it is a law of nature and you should not spend time on it”. The point is: there always is a solution-track running next to the problem-track. We should run that track!

Members of INSME as well as Universities and SMEs have a lot of good practices to present and share, as well as ideas to develop these issues further. I challenge all readers to share a) everything that we already know that works in making our SMEs more international and prosperous via involvement of academia and global talent in them b) to give ideas for a blueprint of a collaboration that you have not yet seen but feel is needed.

The poet John Donne said close to 400 (!) years ago that “No man is an island”. Today we can extend that statement to companies. Even if there were islands, we would be a part of an archipelago of international business. And the other islands always have something we do not have. And vice versa. Let´s embrace this new order head up – and hands on!


juha-saukkonenJuha Saukkonen | Senior Lecturer of JAMK University of Applied Sciences, International Business

As a faculty-member in his School of Business, Juha is involved yearly in 50+ Education-Enterprise projects and 2-3 larger R&D projects, where SMEs and organization supporting SMEs are involved. He is a member of the Finnish Network Academy in Futures Studies and publishes regularly on the topics of Entrepreneurship, Project-based learning and Foresight. On top of research and teaching duties, he is a certified coach for tech- and knowledge-based start-ups for Supercoach Entrepreneurial Training ® (SET) methodology.

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Innovation as the key component of the winning strategy for SME growing

– by Rubén Darío Cruz –

SMEs have been recognized as critical in the economic and social development of most countries. They are especially important for their role in job creation with low investment, regional development, as suppliers to large companies, entrepreneurship development, and, in case of new technology-based firms, innovation of new products and processes. SMEs have also become major players in the international technology market. Many SMEs are now the home of innovation and have become the new builders on the job market. SMEs all over the world, in developed and developing economies alike, are confronted with the same forces leading to the overwhelming need for change. These forces have led to the failure of some and have left others struggling to survive.

The leaders of SMEs must cope with the impact of globalization and its consequences of open economies, highly competitive market place, and the transnational flows of expertise, technologies and services. The realization that change is essential and that it must happen immediately, is not sufficient. SMEs must know what to change and how to change. There are so many factors involved in the successful management of an SMEs that it becomes difficult to know which aspects need to be changed, and which aspects need to be left as they are. While the challenges vary from one SME to another, following the analysis of the Business Development Bank of Canada1, you can summarize the winning strategy for SME growing (revenue, profits, jobs) in next points:

1. Clients. SMEs must be client-focused, client-centric businesses; the activities they conduct must be addressing client’s need. An SME must serve its clients well and, if required, it must revamp product and service offerings according to clients’ needs and expectations. This allows SMEs to increase their sales to existing clients and attract new ones. This strategy is unanimously supported, regardless of the business’ degree of growth (strong or sustained), location or size. Every identifiable functional aspect of the SMEs’ management system must be structured in such a way that it enhances the capability of the SME to meet the needs of its clients.
2. People. Leaders of growing SMEs also pay special attention to managing their human resources, that is, building a talent pool.
3. Investment. In many cases, growth is contingent on the resources invested in the business: investment is the expense that pays dividends.
4. Innovation. Innovation is the top strategy for fostering the growth of SMEs. Innovation is the ability of the SME to design and develop products (goods or services) and processes to maintain a competitive edge and move toward even higher value-added activities. In fact, innovating is hand in hand with the ability to understand clients’ needs and adapt offerings accordingly. Just like understanding and satisfying clients’ needs, innovation is one of the most important strategies, regardless of the SME level of growth, size or location.

An innovative SME is the one able to focus its actions considering its strategy, able to learn from mistakes, from competitors, from suppliers and specially from clients; an organization focused on systematically doing (than talking) and, because of that, it obtains results reliably and repeatedly over time. These results are competitive advantages and greater added value from products (goods/services) and processes, leveraging knowledge and technology to obtain those results. Quoting Larry Keeley from Doblin, “The most innovative organizations rely on systems of individual and teams working across functions in their organizations. Innovation isn’t the work of only scientists, engineers or marketers; it’s the work of an entire business and its leadership”. Innovation must not depend on luck or the talent of any single employee, instead, it must rely on an orchestrated set of systemic organizational capabilities (strategy, R&D, technology readiness, marketing, resources management) maintained and improved through an Innovation Management System (processes, organization, resources & competencies, metrics and incentives).

There are some tips to innovate:

  • Get ideas and feedback from suppliers, clients and other stakeholders. Innovation is a team sport. In fact, an organization that depends on itself is destined to fail. As stated in the book “Ten Types of Innovation: The Discipline of Building Breakthroughs”2, in today’s hyper-connected world, no company can or should do everything alone. Collaboration provides a way for firms to take advantage of other companies’ processes, technologies, offerings, channels, and brands, pretty much any and every component of a business. Collaboration allows a firm to capitalize on its own strengths while harnessing the capabilities and assets of others, signifying external relationships, partnerships, consortia and affiliations. Collaboration also helps executives to share risk in developing new offers and ventures. These collaborations can be brief or enduring, and they can be formed between close allies or even staunch competitors.
  • Organize innovation as any other business process involving the whole SME staff. They have intimate knowledge of the business and industry, and are often the best source of ideas. Paraphrasing again Larry Keeley, when a firm organize innovation, as any other business process, its people start to act and think differently over time, and when they see different and better results emerge from these behavioral shifts, culture, innovative thinking and creativity take care of their selves. The problem with trying to change the culture, to stimulate innovative thinking and to unleash the creative potential of the people of an organization is that it is a bit like trying to hug a cloud, you can see and feel it, but it is hard to get a grip on it. To shift the behaviors of an organization, it is required to define and drive the change from multiple angles. It is not enough just to festoon walls with pretty posters, run corporate innovation fairs to enhance creativity, perform brainstorming sessions, proudly display the company ping pong tables with toys, sticky notes, color markers, Nerf balls and guns, besides sport a gleaming new innovation center. It is very rare indeed for actual innovations to make it to market following all of that hoopla. Is is alto not enough just to hire more innovative, risk-taker or creative individuals because without a clear approach to guide and coordinate their efforts, the right place in the organization to house them, and the appropriate metrics and incentives to guide them, they will fail.
  • With the help of the SME staff, develop an innovation strategy to improve products and services, processes, marketing strategy, business model, and supply chain. Remember to keep it up to date.
  • Don’t look for a magic formula. Instead, try to make gradual improvements. They may be as simple as changing one process, adapting a product for a new market or exploring new ways to reach clients.
  • If applicable, consider patenting the innovations and protecting the intellectual property.

The planning and deployment of a winning strategy considering the four points above requires special care of the next two issues: Information and Change Management.

Information. Specially in developing countries, a vast majority of SMEs have no systematic method for collecting, storing and utilizing basic data that measure performance, e.g. revenue, costs, production, etc., that is, they do not have a Financial Management Information System (FMIS). A FMIS can be broadly defined as a set of automation solutions that enables an SME to plan, execute, and monitor the budget by assisting the prioritization, execution, and reporting of expenditures, as well as the custodianship and reporting of revenues (World Bank, 2011). A FMIS allows to identify problem areas more quickly and to correct them before they became serious. A reliable FMIS is a prerequisite for the deployment of a winning strategy for SME growing.

Change Management. Change is always a painful but necessary tool for management improvement in an SME seeking to improve its performance: a project can be designed to diagnose an SME’s need for new practices and implementation plan for transformation. The SME transformation process is a continuous and iterative process, although, for purposes of explanation can be divided into three phases, namely, diagnosis, planning, and implementation. In most cases the process is facilitated and directed by an external consultant but some SMEs try to manage the process with internal teams. It must, however, be remembered that whether internal or external consultants are used, the ultimate success or any transformation process will depend on the commitment from the organization’s leadership at all levels of staff.
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1. BDC Study, “SMEs and growth: challenges and winning strategies”, October 2015.
2. Keeley, L., Walters, H., Pikkel, R., Quinn, B., “TenTypes of Innovation: The Discipline of Building Breakthroughs”, John Wiley&Sons, Abril 2013, p. 276

Rubén Darío Cruz

Ruben D. Cruz obtained the BSc. degree in Electrical Engineering and the MSc. degree in Electrical Power from the Industrial University of Santander – UIS (Bucaramanga, Colombia), and the Ph. D. degree in Electrical Engineering at the Bolivarian Pontifical University – UPB (Medellín, Colombia) sponsored by Electrical Interconnection – ISA. During a semester of his doctoral studies he was a Visiting Fellow at the Department of Electrical and Computer Engineering of the University of Texas at Austin (USA).
In addition to his participation in the Development and Network Optimization Team of the major transmission company of Colombia (ISA), his career includes the Colombian Petroleum Company (Ecopetrol) and eight year as full professor at the Industrial University of Santander (UIS) where he also was the director of the School of Electrical Engineering (E3T) during six years. Since 2012 he is with the Center for Research and Technological Development of the Power Industry (CIDET) as Chief Innovation Officer (CINO).
During his 20 years of professional, research and teaching experience he has focused his interests on planning, management, operation, monitoring and regulation of energy markets, the implementation of best practices management models and developing models for technological scouting and innovation management for the power industry. He has authored and co–authored several technical papers in all those areas.

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Where Does Innovation Belong?

– by Richard Dealtry –

dandelionI am very interested in questions about innovation.

Where does it belong in any company? Who is the head of innovation? Are they at Director-level or does responsibility reside with someone in Accounts, or Production, or HR, or Logistics, or Marketing? Have you ever come across a Head of Innovation?

You may say that innovation does not have a champion but is a shared responsibility. So my next question is

What is being shared in this group of people?

There are literally hundreds of possible innovations in every company. And they are so diverse as not to suit the responsibilities of any one person or group of people.

So possibly we can conclude that innovation is something that does not belong in any particular place; it is a variable subject or issue and belongs to no-one! It also varies in size and importance. Someone or some people have to decide how to prioritise the large number of innovations, identifying which comes first, second, third and so on. Also they have to decide when and where it is, or they, are resourced and implemented.

This sounds like quite a major undertaking. The key is knowing who to give the responsibility to and how to make it work for everyone.

Every company is different, but it is clear that there needs to be a group, that does not decide what innovations are needed, but that can collect, process, authorise and fund good innovative ideas in the company; everything from the simplest of changes in working practices to the most tricky technological or scientific developments. If this decision making is wrong, you either have a disaster or nothing at all.

So what do we mean by innovation?  

In practice, innovation has several different meanings depending upon where you are coming from and where you are trying to get to. But what does the dictionary say? To innovate means to introduce new methods, ideas or products.

This definition itself provides a wide range of change processes, depending upon your starting point. There is simple innovation, moving through a range of changes to very complex and diverse innovation. Each stage has a degree of change and may involve just one or two people through to literally hundreds of people with different skills.

One of the unusual features of innovation is that you do not always know that you are being innovative, maybe not even until sometime after the event. And then, the person at the centre of the change may be called the innovator. It may not be the person who initiated the change process, but someone outside and disconnected with that change process.

So what term is used to describe the achievements of more able innovatory people? What sort of psychometric profile do these people have?

If we look at these psychometric profiles we can detect which people fit this innovative role. In simple terms we have reflectors, theorists, pragmatists and activists, the four main personality lead types. We know that the creative role or activist has the highest level of the innovator attributes. And those creative activists are generally a rare breed. When these aspects of personality are highly present, they are often not supported by the people who are strong in opposing or related skills; pragmatists, reflectors or theorists. This is an illustration that people within the process may or may not be best suited to participate in an innovation process.

People’s learning styles have a tremendous influence upon the innovative process and we need to understand them to manage the process effectively and efficiently.

So, the first challenge is there for you to see in your team members. It is useful to know the strengths and weaknesses of your team profiles when forming your new learning innovative management groups. You cannot always pick and choose the right combination of learning styles to be successful; you have to work with what you have. However, you can identify the immediate obstacles to success in managing innovation and focus on engendering process behaviours as well as outcomes.

It is true to say that there are good and bad innovations, so be careful and maximise the good development opportunities that provide the incentive for everyone to work hard at establishing the best way forward. Achieving a good innovation transformation is a classic self and group development that involves many disciplines. Project management, security of information, data sharing and confidentiality all combine together with that vital ingredient of innovatory thinking. Peer-to-peer learning can strengthen a multi-generational workforce in the search for new process solutions. Age of participants is just a number.

For innovation projects, it is important to strengthen collaboration in the context of “are you ready for this way of working”, as this is a real time research and development process where nothing is clear at the outset. Too many companies start this process with no formal policy on the type of reward for achievements that are above and beyond the scope of existing job specifications.

If you want good innovations and you have a good idea of what you are looking for, you must have a strategic imperative to drive, plan and process the route map for achieving it. And then get people with the right capabilities involved; those who want to be involved!


Richard Dealtry

richarddealtry-2Executive Chairman, G-ACUA – the Global Association of Corporate Universities and Academies

Richard has extensive international executive experience in significant organisational development initiatives and renewal. His pioneering works include real-time learning and actionable processes that significantly leverage performance standards and organisation capability. He is dedicated to helping organisations design and manage competitive strategic management platforms for change and development through inspirational and dynamic new learning management solutions.

Richard founded G-ACUA in 2007 and continues to lead the G-ACUA network and its strategic development. G-ACUA works in many countries, offering an extensive portfolio of programmes, resources and services to its members. There is an increasing demand for knowledge about best practices in this competitive and challenging global business environment and G-ACUA carries-out continuing intelligence research into developments in the field of time sensitive development and best practice in response to the urgent needs of its membership.

Web: http://www.g-acua.org
Email: richarddealtry@btconnect.com

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Entrepreneurial culture and start-ups: a new culture encouraging entrepreneurship could trigger more innovative start-ups

– by Klaus-Heiner Röhl –

lily-pads-691919_1280Start-ups and innovative entrepreneurs are drivers of economic growth in regions and nations. But European regions show a rather low number of successful high growth start-ups compared to the United States. Innovative start-ups in Europe are scarce, even though there are encouraging start-up clusters in a few leading cities such as London or Berlin. But really innovative start-ups with disruptive technologies that become global companies like Google or Amazon are not being founded on the continent. And beyond a few prospering clusters, many regions in Europe are experiencing unsatisfactory growth rates and high unemployment. Founding companies with new creative ideas could reduce this problem, but in most regions little has happened in this way. Even in Germany, which has a strong base of growing SMEs, the number of companies being founded has been falling lately and innovative start-ups are rare.

Start-ups have a cultural dimension
There are strong indicators that Europe’s weakness in entrepreneurship may have a cultural dimension, too. International studies show that regions which contain many innovative start-ups also have a specific entrepreneurial spirit. Leading start-up regions like the Silicon Valley or Tel Aviv seem to profit from a particular entrepreneurial culture. This culture comprises aspects like the personality structure of successful entrepreneurs as well as regional phenomena, e.g. an innovative milieu with functioning networks promoting innovation and entrepreneurship while also binding individuals to the region. With respect to the personality structure of entrepreneurs, a desire for autonomy, risk tolerance and trust seem to be important factors. Positive feedback and successful role models strengthen regional entrepreneurial activity after an initial trigger like a university-related technology park has led to a first cluster of high-tech start-ups.

European deficits in entrepreneurial culture
In Europe, traditions and informal norms as well as institutional arrangements tend to favour dependent employment over self-employment and start-ups, which reduces flexibility and innovation in a time of crisis. Furthermore, a “can do” attitude is lacking. Individual risk aversion is high and the failure of start-ups is seen as a confirmation to this mind-set. In contrast, start-up hotspots in the United States or in Israel possess a “culture of second chances”, where once-failed entrepreneurs can quite easily attract financing for a new business idea. In Europe, however, not much attention is paid to the experience the entrepreneur has gained in founding their first company; instead, a stigmatisation effect closes the door to financing a new start-up.

Recommendations for strengthening entrepreneurship
In order to foster entrepreneurship in the high-tech sector and the digital economy in general, we need to encourage a culture of failure and support a greater openness to new ideas. Specific recommendations to this aim are:

Strengthen entrepreneurial culture in schools
Cultural change should begin at an early point in life – that is, already at school. Strengthening the entrepreneurial spirit as early as possible in the education system could generate significant multiplier effects through role models and peer-group influences. International initiatives such as the JUNIOR student company programme should be expanded in order to familiarise students with the idea of self-employment and entrepreneurship early on.

Encourage unemployed persons to found companies
The provision of start-up grants is a successful measure against long-term unemployment. However, in Germany, support for unemployed people looking to found a company has been cut back in recent years, as unemployment receded. But with high immigration, there seems to be a growing potential for entrepreneurship among people seeking employment again. In Europe, particularly countries with high unemployment could benefit from unemployed persons founding companies.

Use massive open online courses (MOOC) to teach entrepreneurship
Online entrepreneurship courses are a very effective way to teach entrepreneurship particularly to those who have already entered the labour market or are at a later stage of the education system. This applies especially to the mostly young refugees that have entered Europe during the last years, and who oftentimes come from a culture that is characterised by high numbers of self-employed people. With the German Federal Employment Agency’s online programme “Ready for Study” and the recently founded Kiron University, a platform that allows refugees to start online courses at renowned universities, a start has been made.

Encourage connections between the emerging start-up scene and existing SMEs
Innovative companies in the digital sector and small or medium-sized companies in manufacturing industry should be encouraged to co-operate in order to realize bilateral advantages. Networking and bundling of activities would be beneficial to both parties. Ideas generated by innovative start-ups could be transferred into internet-of-things applications engineered by SMEs. The different mind-sets and organizational structures of start-ups and SMEs could trigger valuable synergy effects.

This contribution is based on the IW Policy Paper “Entrepreneurial culture and start-ups – Could a cultural shift in favour of entrepreneurship lead to more innovative start-ups?”


klaus_2

Dr. Klaus-Heiner Röhl is Senior Economist at Institut der deutschen Wirtschaft Köln – Cologne Institute for Economic Research, Germany.

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How Asia increases productivity through SME internationalization

– by Shigehiro Shinozaki –

per-blogSince the 1990s, the global economy has been supported by high growth of labor productivity in Asia. However, the growth pace of labor productivity in the region has been slowing since the 2008/09 global financial crisis, contributing to global economic slowdown. Moreover, as Asia’s population is aging, labor force accumulation will gradually diminish, and it will negatively affect region’s productivity growth. Enhancing labor productivity is thus a central policy issue to sustain growth in Asia.

ADB’s Asia SME Finance Monitor noted that small and medium-sized enterprises (SMEs) play a key role in boosting national productivity. They account for 96% of all enterprises and 62% of national labor force in Asia, but their contribution to national GDPs is still less than half. This suggests SMEs’ potential to reverse the deceleration trend of labor productivity, by strengthening their dynamics.

Global value chains (GVCs) are the key driver for enhancing SMEs’ productivity and advancing Asian economies. Regional cooperation and integration, such as the ASEAN Economic Community, brings global business opportunities to SMEs. The resultant trade liberalization and investment encourages structural changes in the SME business model from being domestically focused to being globally competitive. This has increased SMEs’ attention to participating in GVCs, and requires policymakers to consider how to create and support an enabling environment for domestic SMEs to enter the GVC.

There are several benefits for SMEs to participate in GVCs. For instance, SMEs can increase their competitiveness through business linkages, improve product quality by technology transfer, and expand their business to overseas marketplaces with job creation. On the other hand, there are various factors constraining SMEs from stepping forward, including labor market rigidity, regulations across the country, non-tariff barriers, SMEs’ inability to meet the quality and standards for certain products, managerial constraints, and insufficient financial resources.

UNCTAD (2013) estimated that 80% of global trade takes place within GVCs with multinational firms. This vertical firm linkage model is typically seen in the automotive and electronics industries, where a large multinational firm leads the overall production network and is mainly responsible for final assembly of products, marketing, sales, logistics, and/or exports and imports of products with partner large firms. In this model, SMEs are incorporated in the production network as mostly only end-tier or lower-tier suppliers such as raw material suppliers or partly first-tier suppliers of parts and components. A value chain mechanism that various types of SMEs can tap will need to be developed further, focusing on horizontal firm linkages.

Horizontal firm linkages are a critical model of GVCs in developing Asia, especially in the export-oriented agri-business, food processing, and handicraft industries, where SMEs are involved throughout the production chain as suppliers from the end-tier to the first-tier, the lead firm or producer, packaging and storage firms, marketing agents, wholesalers and retailers, and/or exporters and importers of products. For instance, farm products and raw materials are traded across the border and processed by the small firm in a particular country, and the final products are traded by SME exporters globally. In this model, SMEs often make up a business cluster, but not all clusters are successful because of a lack of the cluster manager coordinating the production process and logistics among participating SMEs and across the country.

SME internationalization has arisen from the demand of an increasingly globalized economy. Participation in GVCs enables SMEs to access a large customer base, learning opportunities from large enterprises and business partners, and boost their productivity and job creation. Strengthening competitiveness and connectivity is required for SMEs in GVCs. In particular, well-coordinated business clusters are essential for functioning horizontal firm linkage models. SMEs need a product quality control, skilled labor, and the owner’s education and ambition, for successful participation in GVCs. To this end, they need to develop business networking, acquire support from business development services (BDS), and secure access to finance. These are critical policy support areas but also areas requiring private sector support.

ADB report identified policy priorities for integrating SMEs into GVCs, which include greater access to trade finance and growth capital through innovative financing models. Economic expansion in Asia has created a base of growth-oriented SMEs with a need for access to long-term growth capital, while the global economic uncertainty has tightened financial institutions’ risk management and financial regulations, making it difficult for global SMEs to tap their timely growth capital funding. This requires new financing solutions for SMEs involved in GVCs, addressing an increased demand for supply chain finance and trade finance.

The currency-swap trade settlement, initially exercised by the People’s Republic of China and the Republic of Korea, is one of the innovative approaches to trade finance facilitation for SMEs. This system enables the importer (buyer) in each country to borrow in the exporter’s currency, to pay for trade bills in that currency. The advent of financial technology or fintech has brought more opportunities for SMEs to access timely and low-cost financing for global business development. Digital finance, represented by mobile banking, internet banking, and crowdfunding, will help them enter into the global marketplaces.

A cross-border policy and regulatory coordination is necessary to support SME participation in GVCs. The development of horizontal firm linkages across the border needs policy coordination among countries concerned in international labor mobilization and trade facilitation. Regulatory coordination in data sharing and financing across the border is crucial for global SMEs to raise timely working and investment capital for international trade. Developing a BDS ecosystem is critical to effectively enhance SME participation in GVCs, which requires public and private sector collaboration. National policymakers need to use broader and coordinated policy approaches for integrating SMEs into GVCs and supporting innovative financing models accessible for these enterprises, which will contribute to accumulating skilled labor forces and stimulate productivity growth in Asia.

This blog rephrased the discussion published as an ADB blog.


Shigehiro is Financial Sector Specialist (SME Finance), Sustainable Development and Climate Change Department, Asian Development Bank (ADB). Shigehiro supports ADB developing member countries in improving SME access to finance through various technical assistance projects. His expertise includes policy issues in microfinance, SME finance, housing finance, and capital market development especially in Asia. Prior to joining ADB, Shigehiro worked at Japan’s Ministry of Finance, the OECD, and as an advisor to the Government of Indonesia.

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Crowdsourcing Innovation

– by Adriano La Vopa –


parachute-1432296_960_720“Crowdsourcing is the act of taking a job traditionally performed by” an employee “and outsourcing it to an undefined, generally large group of people in the form of an open call”
. With these words in 2006 Jeff Howe on Wired online magazine explained for the first time the approach of sourcing tasks or activities from a crowd of people, generally outside the company, by means of calls that are usually open to the external world.

Following Howe’s definition, any company can basically leverage crowds out of their four walls to have some works done. Such a definition recalls also the very popular concept of Open Innovation, by Professor Chesbrough (2003), through which he basically explains how companies can leverage what is outside to create new knowledge, architectures and systems from which the company will benefit. To stress this concept of leveraging external knowledge, there is another quote I love, the one of Bill Joy, the Sun Microsystems’ co-founder “[…] no matter who you are, most of the smartest people work for someone else”. This latter clearly speaks by itself, showing a deep wisdom and consciousness that there are talents outside your company that are definitely smarter than the ones you have in house.

Then, the question is: how to leverage those talents, this knowledge, and how to reach them? The reply is definitely: by means of crowdsourcing.

Crowdsourcing is therefore sitting under the wide umbrella of Open Innovation, following the paradigm of opening to the outside world, and looking for leveraging the external knowledge by means of contests, challenges or calls that can gather any kind of contribution. Designs, solutions, ideas, concepts, expertise, skills, technologies, IP are just a few examples of what can be sourced by effectively exploiting the crowd. At a certain extent crowdsourcing is also linked to the main scouting activities, where in general a company seeks what they do not have in house, usually with a narrower focus, or need.

All these means are definitely affordable by any company, of any size, and of any pockets. What I always suggest to companies approaching the crowd, and willing to launch a challenge or a call, is that they have to set two very basic things: their strategy and their need.

Strategy

An effective strategy is indeed the very first step on approaching crowds. You can use the typical top-down approach, where you drive the show, can set the challenge, select communities and gather solutions. On the other hand, you can think to use a bottom-up approach, where the base is driving, by opening a generic call and waiting for contributions from the crowd.

In both cases, you should carefully balance the equation: company vs. communities (i.e. specific crowds). The right side of the equation is indeed expecting you to carefully plan the way you are going to cluster, assess, select and discard the results of your activity. This implies you have to plan in advance:

  • the time you are going to spend on this activity;
  • the resources you are going to invest (a team of assessors); and
  • the money (your budget) you are going to spend.

The left side of the equation imposes you to also carefully plan and look into the right communities to source from. This means you have to be clear on who you are going to ask your “question”, or outsource your “job”. For instance, there is no need to post a challenge on a social media if you would like to attract only mechanical engineers from Europe for solving your problem with the design of your product.

To be clear on what your company is going to do, and how, to reach the final goal of the crowdsourcing campaign you are launching is essential. To be clear means also you have to know what you want, and what your real need is.

Need

In several projects I worked on, defining the need is not always an easy task. Reasons for finding this exercise quite difficult are many: language, day-to-day work, jargon, mindset, and so on. In any case, there are few simple steps that I usually suggest to follow:

  • Be clear on what you need, and what is needed from a person to do in order to solve your issue, or to deliver what you want;
  • List down criteria, or requirements, that you are going to follow when assessing and selecting the best ideas;
  • Ask for an external help, meaning that you should ask to an external colleague (external to your team or department) to have a look at your brief, in order to understand if it is clear enough also to someone that is not daily in contact with a specific product, or service;
  • Use the right language for the right community. If you are going to ask for new ideas to your customers, do not use a technical language, or acronyms, but be very basic and use a “foul proof” vocabulary.

Defining the need in the right way is essential for an appreciable result of your campaign, and will be giving to the crowd the right trust they need, to start proposing their ideas. If the call is too complex, some people will not even read it; same goes with a call that is too easy, maybe the crowd you want to work with (e.g. researchers) will not engage because they will not feel enough challenged.

At this point, someone could ask: yes, nice concept, but how my business could benefit from it? Benefits are many, but usually could be reduced at three main ones, which are also the ones where most of companies, especially SMEs, are struggling with innovation: time, money and people.

Using crowdsourcing could definitely help you in decreasing the time spent for some activities. Being the crowd your source, you could be able to get the right solution to a problem that otherwise could have been hampering your new product development. Likewise, driving yourself a call, using the top-down approach, you could define a time limit to source solutions, which anyway should be consistent with the complexity of your call. Indeed, you could find a great new algorithm to enable your new protocol for your IoT device, simply sourcing it from outside and avoiding to develop it from scratch. People are also a critical factor to your innovation. The lack of resources, could stack people in their day-to-day work, and not give them the right time to think to new solutions, or “out of the box”. By leveraging the crowd, you basically leverage a potentially huge amount of people, which means extending your R&D department, for instance, asking to external experts how to solve a specific issue. Some simple math: being you a SME, and having just 10 engineers in your mould tooling design department, you might think to ask for help outside, in finding a better solution for your tool wearing problem. There you might find 10-20 more researchers or engineers for every one of yours, and this might be exponentially growing the possibility to find a solution, maybe from the other side of the world, but still valid to solve your problem. Last, but not least, there is money. Money is time, and a cent saved is a cent potentially reinvested in innovation. Thus, what if I can save money by simply asking outside and giving a reward of 10,000 € for a solution that it could have been likely costed my company 10 or 100 times more? This is business, and being able to leverage also this opportunity will make your business benefit from something which is anyway enabling you doing your business, even though it is not your own IP.

After this quick overview, let me just give you few very last advices:

  • Be careful in estimating the way you engage with communities;
  • Be clear that crowds should be benefiting your business and not hampering it, so crowdsourcing is an option, but not the option;
  • Crowdsourcing, as everything, has advantages and drawbacks, so ask for help of some crowdsourcing experts.

I hope I was able to show you a new path for innovating and accelerating your business, by means of crowdsourcing. Those above are just few considerations on how approaching crowds could mean to start your open innovation journey, and to use what others have already done, or are doing. Do not reinvent the wheel over and over, but just be smart and open instead.

 


adriano-la-vopaAdriano is a physicist with a specialisation on Earth Observation and satellite data processing. He earned an international master in Nanotechnologies (and business administration). He has an extensive experience in the technology transfer arena, and masters innovation management processes. He worked along to many SMEs, startups and big multinationals to support their innovation strategies by use of new technologies. He is an expert technology broker, a scout and a consultant, supporting companies in planning and executing their innovation strategies. He has a sound knowledge of processes, tools, methods and ways to empower the hidden innovation potential of any company. Adriano is currently partner at Innoventually, the one-stop source for innovation.

 

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Innovation in Latin America: Potential Untapped Due to Weak Economic Conditions

– by Ricardo Aceves –

Prospects for increasing innovation are lackluster

magnetic-levitationThe weak economic performance seen this year in Latin America has accentuated the need to increase productivity as a key vehicle for more solid and sustained long-term growth. Supporting innovation is a crucial component in the productivity equation, and yet the outlook for this in Latin America is bleak: weak public finances are expected to reduce spending on research and development (R&D) even further this year. Although not all is gloomy and some gains may come from ongoing trade liberalization, Latin America will continue to lack the dynamism of its emerging-economy counterparts as little progress is expected on structural reforms that would grant all stakeholders the same opportunities to succeed.

The consensus is crystal clear among analysts and business leaders that innovation is key to increasing output and productivity, and is a crucial driver to sustainable long-term economic growth. However, measuring innovation in national economies is always tricky: the concept is intangible and not specifically measured by central banks or national statistical institutes. Nonetheless, international agencies, such as the United Nations Educational, Scientific and Cultural Organization (UNESCO) and the Organization for Economic Co-operation and Development (OECD) provide guidelines on how to measure innovation, incorporating variables like expenditure on R&D, incorporation of new technology, growth in labor productivity, number of patents per capita, as well as education standards. Moreover, the policy environment is equally vital. A solid competition policy, a stable contractual environment and an agile bureaucracy are more likely to encourage new entrepreneurs to invest in start-ups and existing players to raise capital investment to grow businesses.

Languishing hopes

Latin America has traditionally lagged behind many other regions in terms of innovation as a result of subdued R&D investment levels, low education standards and a weak policy backdrop. In the period from 2004 to 2009, a combination of free-trade agreements (FTAs) and improved export promotion policies created the initial conditions for innovation in Latin America. In that period, the region registered solid gains in exports of goods and services, which also enhanced competition and opened the gates for larger markets for innovative products and services. The result was the emergence of the region’s largest multinational companies labelled “multilatinas”.

The five-year period up to 2009 provided stable public budgets in the region, which prompted many analysts and business leaders to expect that higher private and public investment in R&D would stimulate long-term growth rates. However, these hopes turned to disillusionment and bitterness when Latin America was hit hard by the global financial crisis and, in 2009, the region’s economy contracted for the first time in 20 years. In 2010, the economy rebounded strongly, but GDP growth has decelerated steadily since then. GDP growth fell from 4.5% in 2011 to a meager 0.8% in 2014, before stagnating entirely in 2015. For this year, Latin America’s growth prospects remain grim. The economic analysts FocusEconomics surveys on a monthly basis have reduced the region’s 2016 GDP growth forecasts for 20 consecutive months and they now project that the economy will contract 0.5%. On top of that, data recently released by the United Nations World Intellectual Property Organization (WIPO) revealed that the number of patent applications for new inventions submitted by Latin American entities in 2015 was flat compared to the previous year. In contrast, in the same period, several Asian countries registered double-digit increases in the number of patent submissions. WIPO has attributed Latin America’s recent dismal track record to its poor economic performance, with a plunge in commodities prices exacerbating fiscal pressures, which, in turn, cut the amount of resources that governments, businesses and universities could invest in innovation. According to the Organization, only 1,358 patent applications were registered in Latin America in 2015, which  substantially contrasts the nearly 58,000 submissions registered in Europe and the 60,000 in Canada  and the U.S. combined, and which represented only a fraction of the nearly 95,000 levels recorded in Asia as a whole. Within Latin America, Brazil, Chile and Mexico accounted for the lion’s share of patent applications.

WIPO’s Global Innovation Index (GII) 2016 also showed that Latin America remains well behind other regions. According to WIPO, Latin America has been labelled as a region with important untapped innovation potential. Despite this, the Organization recognized that individual GII rankings, relative to other regions, have not steadily improved. None of the countries in Latin America has been considered “an innovation achiever” in recent years, which WIPO defines as a country that performed at least 10% higher than its peers given its level of GDP. Some such “achievers” are many economies in Sub-Saharan Africa, such as Kenya, Madagascar, Malawi and Rwanda. In Asia, Vietnam and India are clear examples of innovation achievers. Nonetheless, some Latin American economies, such as Chile, Colombia, Costa Rica, Mexico and Uruguay, achieved the highest regional GII results.

Challenging economic situation highlights need for R&D spending

Latin America’s difficult economic situation could prompt some governments to take action and improve the business environment in order to better the conditions for entrepreneurial activity. Under this scenario, since governments are no longer able to rely on high commodities prices to support economic growth, they would instead focus on the structural issues that have curtailed innovation and, consequently, economic growth.

A few of the regions key players have begun addressing the need to invigorate innovation. Mexico is a good example of country that is implementing a program of structural reforms in order to improve competition, productivity and the outlook for stronger potential GDP growth. In Argentina, the turnaround in the political landscape and the consequent change of government has triggered better prospects for an improvement in business conditions for the private sector. In Brazil, although the economy is experiencing considerable turbulence, tentative signs of improvement are emerging and Michel Temer’s temporary government is keeping the innovation agenda squarely on its radar.  

Aside from these examples, there are not many signs that governments in the region are committed to structural reforms to improve the conditions for innovation. As WIPO mentioned, it is vital for governments to overcome short-term political and economic constraints and cling to a longer-term innovation commitment. Data from UNESCO—the latest available are from 2012—confirm that spending on R&D in the region is significantly low. On average, most countries in the region spend less than 0.5% of GDP on R&D and expenditures come mainly from the public sector. In contrast, average expenditure in R&D in OECD countries and in developed economies ranges from 2.0% to 4.0% of GDP. It is important to note that, due to the economic cooling in Latin America, investment in R&D is likely to have fallen further at a time when the growth prospects for the region are not bright.

How can conditions for innovation be improved?

Considering the economic constraints in the region at the moment, governments across Latin America could take action to nurture entrepreneurship and innovation in various ways. Measures that could be taken to persuade investors to spend more on R&D in the region include strengthening competition policies, improving the contractual framework, cutting red tape and enforcing intellectual property rights. Meanwhile, the ongoing effort to increase trade liberalization both within and outside the region—the newly created Pacific Alliance and the Trans-Pacific Partnership if signed by Chile, Mexico and Peru—will encourage domestic businesses to target new fast-growing markets. However, conditions remain weak and the scenario reinforces the view that innovation is not only a strategy for risk-taking or for obtaining larger market shares, but for improving the policy environment, increasing investment in R&D and lifting long-term growth rates materially. The latest Consensus Forecast of 268 analysts from FocusEconomics projects that Latin America’s economy will rebound and expand 1.9% in 2017 and pick up some momentum toward 2020, when economic growth in the region is projected to rise to 3.3%.


ricardo-aceves-focuseconomicsRicardo Aceves is Senior Economist at FocusEconomics where he leads the company’s flagship report, LatinFocus, as well as the Commodities Consensus Forecast report. He holds a Master’s degree in International Business and Economics from the University of Applied Sciences in Schmalkalden, Germany, with a focus on international economics. Ricardo is from in Puebla, Mexico, and is based in Barcelona, Spain.

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