OECD Highlights Enterprise Policy Shortcomings

31 Oct 2019 | 01.01 pm

OECD Highlights Enterprise Policy Shortcomings

Minister promises new SME and entrepreneurship strategy

31 Oct 2019 | 01.01 pm

The Department of Business, Enterprise and Innovation has published a review by the OECD of Ireland’s policies on SMEs and enterprise.

The government says the report will form the basis of new policies and strategies to improve SME productivity levels, resilience and potential for growth and internationalisation.

The review was commissioned by business minister Heather Humphreys  (pictured)  and includes best practice examples from countries with similar challenges to Ireland. An ‘SME and Entrepreneurship Consultation Group’ has been established to consider the review and the next steps.

The government says it intends to publish a new strategy on SMEs and enterprise by the end of the year, based on the review’s recommendations.

Minister Humphreys said: “The OECD’s recommendations will form the building blocks of an ambitious new national SME and entrepreneurship strategy, which I will bring forward by the end of this year.”

The OECD report examines how to strengthen SMEs and entrepreneurship across the economy. It covers the characteristics and performance of SMEs and entrepreneurship, the business environment, the framework for policy formulation and delivery, national programmes for SMEs and entrepreneurs, the role of local bodies and interventions in tailoring policy to spatial differences, the productivity performance of SMEs, and the design and delivery of business development services.

While recognising that attitudes toward entrepreneurship are also positive overall, and that Ireland is a successful generator of high-growth firms and its SMEs are innovative, the report is critical of enterprise policy.

“Business dynamism and the startup rate are relatively low,” the OECD report states. “Irish SMEs are not very active in international markets and SME productivity growth is stagnant. There are also weaknesses in SME management skills, capital investment levels and technology adoption.”

In the context of a strong business environment, the report says there’s a need to prioritise skills and finance.

“Ireland offers a favourable regulatory environment, low taxation, extensive R&D support and good physical infrastructure. However, access to finance remains problematic and incentives could be strengthened for investment in SMEs and entrepreneurship,” the report states.

“Ireland has good arrangements for the co-ordination of SME and entrepreneurship policies across government, including for policy monitoring and evaluation.  However, the country lacks a unified SME and entrepreneurship policy document that could show in one place the full range of support that is provided for SMEs and entrepreneurship together with the related objectives, activities, targets and budgets. This would be an important guide for future policy development and monitoring.”

Expand LEO Remit

When it comes to existing support programmes, the report finds  “a danger of some traditional SMEs falling between the support offers of the Local Enterprise Offices, which mainly focus on smaller enterprises, and Enterprise Ireland, which primarily targets firms demonstrating export potential. 

“The remit of the LEOs could be expanded to address this concern,” the OECD report says, adding that innovation support, measures to promote internationalisation, and more support for microcredit and credit guarantees together with emphasis on improved financial literacy in the sector, will all be necessary.

The OECD report goes on: “A multi-pronged approach is needed to increase SME productivity growth. Ireland has many SMEs with low productivity compared to the frontier firms in their industry. The causes include prolonged use of low-productivity techniques, under-investment in capital, weak management practices, insufficient adoption of digital technology and limited direct entry into export markets. 

“A range of policy initiatives need to be applied to address this multifaceted issue. They include increasing take-up by SMEs of Skillnet Ireland management training programmes, expanding vouchers for digitalisation processes in SMEs, integrating international standards adhesion in SME development programmes, and increasing SMEs’ take-up of R&D incentives.”

OECD ENTERPRISE POLICY RECOMMENDATIONS

  • Publish a unified cross-government policy statement covering both SMEs and entrepreneurship, setting out ambitious targets and aligning all relevant policies and schemes. Implementation of the national strategy should be overseen by a new interdepartmental committee on SMEs and entrepreneurship.
  • Target a 50% increase in the number of SMEs exporting, including by driving ambition and innovation among indigenous SMEs.
  • Broaden the remit of Local Enterprise Offices to include scaling small businesses of between between 10 and 50 employees. As part of this work, introduce a simple online tool for micro and small enterprises to better match enterprise needs with the services available.
  • Increase adoption of best practice management techniques, including in the key areas like digital and automation skills and in sales, marketing and accountancy. Also encourage a wider take-up of Skillnet Ireland programmes to develop management capabilities in Irish SMEs.
  • Achieve a step-up in financial skills and knowledge among SMEs so they can make better use of the mix of debt and equity finance available in the Irish market. Similarly, increase the take-up of guarantee schemes to improve the financing environment for SMEs.
  • Encourage and support SME involvement in innovation collaborations between SMEs and research institutions, as well as collaborations between SMEs, research institutions and multinationals. This will benefit everyone involved and also help SMEs to discover new technologies and improve their management practices.
  • Ramp up support for the digitalisation of SME business processes, especially through the LEO network;
  • Simplify the administrative processes for SMEs applying for R&D tax credits to encourage more take-up. This will build on the improvements already made.
  • Support greater SME engagement in the areas of energy and the environment, particularly in research, innovation and procurement. This will improve productivity and competitiveness, and accelerate the transition to the low-carbon economy.
  • Roll-out a new standards adoption programme for SMEs. This should include guidelines on integrating standards in products and services together with consulting advice on adopting appropriate standards. Standards development and use can enhance productivity in SMEs, facilitate supply chain linkages and international collaborations, and enhance spill-overs from multinationals to SMEs.
  • Establish a national support framework for local enterprise-led networks and clusters across the country to drive SME participation. This will help to spread the message around the supports and opportunities available. It will also support the professional development of managers of these networks.

• The full OECD review is available here, and is accompanied by a roadmap for the government to follow, which is available here.

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