SMEs must become research intensive

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1 oktober 2012 | EU Commissioner Geoghegan-Quinn appeals to SMEs to close the valorisation gap. A US-inspired Small Business Innovation Programme, should give them a nudge.

The follow-up to the EU’s Framework Programmes in the area ofresearch, Horizon 2020, will offer €18 billion specifically fortransforming knowledge into commercially attractive products andservices. Another €32 billion is available to tackle the bigsocietal challenges. But still the small and medium sizedenterprises need to close the gap, European Research CommissionerMáire Geoghegan-Quinn said at a meeting of SME’s in Brussels. Anewly devised Small Business Innovation Programme should give themthe last push.

Here you find Commissioner Geoghegan-Quinns fullspeech.

“Ladies and Gentlemen,

SMEs in many Member States are severely hit by the crisis.Creating new SMEs or helping them to grow has become ever moreimportant because we need thriving and innovative enterprises toget the European economy back on track, to provide growth andjobs.

So, I am delighted to have this opportunity to talk about howEuropean Research and Innovation Policy is currently supportingSMEs, about recent developments and our plans for the future underHorizon 2020.

The main source of growth in Europe is our capacity to createnew knowledge and to transform ideas into commercially-attractiveproducts and services. The European Union is serious aboutrevitalising its economy, and this means finding better ways toinvolve and support SMEs in the research and innovationprocess.

Technological breakthroughs

We must commercialise our scientific and technological advancesfaster and more fully so that we can face and, indeed, profit fromglobal competition. This is where entrepreneurs and SMEs arecrucial. SMEs have the agility to bring technological breakthroughsand service innovations more quickly to market.

SMEs are drivers of innovation – and this is regardless ofwhether they are traditional crafts enterprises or young high-techcompanies, whether they are mainly active in local markets or havecustomers world-wide.

That is why, under Innovation Union, we are working hard toestablish the conditions that will let SMEs flourish. The EuropeanCommission has already made four legislative proposals on theframework conditions that will help innovators and businesses, andSMEs in particular, to get their ideas to the market. Let me say afew words about each of these.

Patent costs reduced by 80%

The excessive cost of patenting across the EU is a burden thatfalls disproportionately on SMEs. The European Commission’sproposal for unitary patent protection will reduce the costs by upto 80%.

The standardisation package aims to modernise the system so thatstandard-setting is 50% quicker by 2020.

Last December, the Commission proposed a new venture capitalregime so that funds can easily raise capital across Europe, andsupport growing businesses with a European and globalperspective.

Innovation-friendly eco-system

Again in December, the Commission made a proposal to moderniseEU public procurement legislation, including concrete measures tofacilitate innovation.

All of these actions, and many other initiatives underInnovation Union, are meant to create an innovation-friendlyeco-system with better links between research and business and moreinvestment in research and innovation.

But besides these major policy initiatives, we are also takingaction at the European level to ensure that SMEs receive the rightfinancial support at the right time.

Innovative economies bounce back quickly

The 2011 report on the State of the Innovation Union shows thatpublic spending on research and innovation is crucial for theshort-term resilience of our economies and essential forfuture growth. Those countries that have maintained or increasedtheir investment in education, research and innovation areweathering the economic storm better, and are well placed to bounceback quickly.

The European Commission champions the importance of research andinnovation for growth and jobs. This is why we launched innovationUnion, and why we have proposed to increase European support forresearch and innovation to 80 billion Euro under the new Horizon2020 programme.

The sources of growth and jobs

Yes, this is ambitious, but is also a timely and necessaryinvestment in the sources of growth and jobs.

I am very pleased that UEAPME and other SME representatives havedeclared strong support for Horizon 2020, in particular the raft ofmeasures dedicated to SMEs.

Horizon 2020 will fill gaps in funding for high-risk researchand innovation by SMEs. It will create business opportunities outof the need to tackle major societal challenges. It will strengthenproductivity and innovation capacity and it will help innovativeSMEs to grow.

Let me explain, first, the overall thrust of the programme:Horizon 2020’s simplified structure is composed of three distinct,yet mutually reinforcing priorities:

  • Innovation starts with excellent research, and Horizon 2020’sfirst pillar is aimed at boosting excellence in Europe’sscience base. A proposed investment of over 24billion Euro will enable the most talented scientists tocarry out cutting edge research of the highest quality.
  • The second pillar aims to boost industrialleadership, with actions to make Europe a more attractiveplace for business to invest in R&D and innovation. The budgetwill be nearly 18 billion Euro.
  • The third pillar, with nearly 32 billion Euroof funding, is aimed at Tackling SocietalChallenges such as health, food security, clean energy,green transport, climate change and security.

More SME-participation needed

Horizon 2020 introduces real simplification, which is of realinterest to SMEs. We are proposing to cut red tape cut across theboard, and the simpler programme architecture will make it easierfor applicants to see where the opportunities lie. I am keen toincrease the participation of SMEs in the programme and, moreimportantly, to enhance the impact of the funding they receive.

Horizon 2020 takes an integrated approach to SMEs, which is inline with the Small Business Act. This includes applying thecurrent definition of an SME as laid down in the Recommendation of2003.

We want more SMEs to participate across the whole programme.Through this approach, it is expected that around 15% of the totalbudget dedicated to Leadership in Enabling and IndustrialTechnologies (the first part of the second pillar) and SocietalChallenges will go to SMEs.

Target of 15% allocation to SMEs

Horizon 2020 builds on the experience of the 7th FrameworkProgramme for Research. Under FP7, we have already achieved a lot.We are on course to exceed our target of allocating 15% of thebudget to SMEs and we estimate that by the close of FP7 next year,some 17,000 SMEs will have been supported.

FP7 projects have increased the research and innovationcapability of SMEs, giving them access to the best researchknowledge in the Union, access to international networks, andaccess to new partners, new markets and new customers.

However despite this, SMEs do need to get better at exploitingresearch results. Only a few SMEs are using the results ofFramework Programme projects for strategic business innovation.There are many reasons for this, but the most important one is thatR&D support schemes have not been conceived with a strongenough business logic and from the perspective of SMEs.

New: Small BusinessInnovation Programme

For Horizon 2020 we have applied the ‘think small first’principle. We have carefully listened to SMEs’ needs and we havelooked at successful best practices worldwide, notably the SmallBusiness Innovation Programme, or SBIR, in the United States.

What the Commission proposes in Horizon 2020 is a new approachto SME research and innovation funding in Europe: an SBIR-typeinstrument.

By bringing together the research and innovation-related SMEmeasures that are currently spread across several programmes,Horizon 2020’s SME instrument will provide one comprehensive andsimple scheme adapted to the needs of SMEs. This is somethingreally new, as is the idea that the instrument will cover the wholeinnovation cycle in three distinct, but seamlessly connectedstages, including links to private finance.

The SME instrument will be competitive, business-oriented andfocused on creating impact. It will support SMEs in developinghigh-potential innovations and bringing them closer to market. Andit will provide incentives to leverage private co-investor orfollow-up investments.

Mentoring and coaching

An additional and crucial element is the support network thatwill provide mentoring and coaching for beneficiary SMEs, to boostthe impact of the funding they receive.

The possibility of “single company support” is an importantdevelopment – a group of SMEs or indeed a single SME can take thelead in projects and organise them to better fit their ownpurposes.

By focusing on the strategic needs of SMEs and marketopportunities, we want the dedicated instrument to appeal to abroader range of innovative SMEs and support a broader range ofinnovation activities. In that way, more SMEs will be encouraged toparticipate in Horizon 2020.

A good chunk of the Horizon 2020 budgetary target for SMEs willbe delivered through this dedicated SME instrument.

Build innovation capacity

But that’s not all. Horizon 2020 envisages many more ways tosupport SMEs. Additional SME-specific measures include an actiontargeting research-intensive SMEs that will support the next stagein the Eurostars Joint Programme, implemented in partnership withMember States. We are currently in close discussion with them andhope to make a new proposal in 2013.

There will also be measures to build SMEs’ innovation capacity -such as networking and brokering – and to support market-driveninnovation. Reinforcing the innovation support of the EnterpriseEurope Network will make it even easier for SMEs’ to access Horizon2020.

To promote and to accompany the specific SME measures in Horizon2020, the Commission will set up a dedicated body of stakeholdersand experts in SME research and innovation. This will involve SMEsmore closely in EU research and innovation support, and it willfoster transnational knowledge exchange and networking. I hope thatI can count on your participation and input.

Access to risk finance

I would like to say a few words on the opportunities provided by’access to risk finance’, which is essential to enhance thecompetitiveness and growth potential of innovative firms.

The current financial and economic crisis is marked by a fall inlending and reduced availability of venture capital. Young,knowledge-driven companies are having a particularly hard time insecuring finance on reasonable terms.

There is a significant gap in the market between the demand andthe supply of risk finance, from both the debt and the equity side.But there are steps that we can take at the EU level.

Venture capital

In Horizon 2020, we intend to strongly reinforce loan guaranteeand venture capital facilities for innovative SMEs. We shalloperate these in close conjunction with complementary facilities inCOSME, the Programme for Competitiveness of Enterprises andSMEs.

The two programmes, COSME and Horizon 2020, will jointly supportEU financial instruments providing debt and equity financing forinnovative firms, and especially for SMEs with growthpotential.

On the equity side, both programmes will jointly makeseed-funding, early-stage and growth-stage investments in supportof a seamless, EU-wide venture capital scheme. Horizon 2020 willfocus largely on early-stage venture capital funds, and COSME ongrowth-stage ones.

Across borders

The venture capital scheme will also cover investments infunds-of-funds that operate across borders and that invest inventure capital funds that will, for the most part, have a thematicfocus in line with the goals of Europe 2020.

On the debt side, both programmes will provide loans andguarantees. Together, they will support the research and innovationthat are necessary to tackling social challenges, enhancingcompetitiveness and fostering sustainable growth.

Horizon 2020’s debt facility will also address thecommercialisation phase of the dedicated SME Instrument that Idescribed earlier, with a specific sum, yet to be defined,ring-fenced for this purpose.

As you can see, major initiatives are planned. But in advance ofHorizon 2020’s arrival, the Commission has already taken othersteps to tackle the issue of risk finance for innovative SMEs.

European Investment Bank

In preparing Horizon 2020’s debt financing instrument for SMEs,the Commission and the European Investment Bank Group launched theRisk-Sharing Instrument (RSI) for SMEs and smaller mid-caps inearly 2012. The aim is to incentivise financial intermediaries -commercial banks – to extend loans and financial leases toinnovative SMEs and small mid-caps from 25,000 Euro up to 7.5million Euro.

The initial target was to leverage up to 1.2 billion Euro ofloans by the end of 2013. But demand has been so high that we havedecided to extend the scheme. An additional contribution from theCommission of 150 million Euro will bring our target up to 2billion Euro of loans for SMEs and Small Midcaps. We will alsointroduce a new product: counter-guarantees, mainly for promotionalbanks and guarantee societies.

I am proud to announce today that the first agreement betweenthe European Investment Fund and a commercial bank for a portfolioof 120 million Euro will be made in Vienna this Wednesday, 3October. This is excellent news, and I am also delighted to saythat we are expecting around ten agreements to be signed before theend of this year.

Stairway to excellence

As you can see, we are already working very closely with theEuropean Investment Bank. I will also ensure that Horizon 2020 willwork in close synergy with other EU programmes – not just withCOSME as I already mentioned, but also with Cohesion Policy, whichyou will hear more about later this morning.

Synergies with cohesion policy – especially with those aspectsrelated to research and innovation – can help build ‘stairways toexcellence’. The development of smart specialisation strategieswill boost cohesion funding as a driver for innovation andexcellence. This is an approach that gives priority to investmentsin research and innovation programmes that play to a region’sstrengths, including the strengths of its SMEs.”


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