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Doc. 8587

18 November 1999

New technologies in small and medium-sized enterprises (SMEs)

Report

Committee on Science and Technology

Rapporteurs: Mr Claude Birraux, France, Group of the European People's Party,

and Mr Petru Steolea, Romania, European Democratic Group

Summary

      Entrepreneurs from small and medium-sized enterprises (SMEs) in Alsace (France) and the Regional Chamber of Trade and Industry (Alsace) together with entrepreneurs from central and eastern Europe gave evidence on the situation of SMEs in Europe during a parliamentary hearing which forms the basis of this report. The entrepreneurs were assisted by representatives of science and technology parks, innovation centres, industry branch associations, technology transfer agencies and universities in a debate on how to improve conditions for SME creation and development by the use of new technologies.

      SMEs account for more than 60 % of jobs in the European Union where the 18 million unemployed could find employment if each of the European Union's SMEs were in a position to employ one additional person. SMEs can play a crucial role for social cohesion in the whole of Europe.

      The report calls for active local (as well as central) support for all mechanisms that facilitate the introduction of new technologies in SMEs to make them more competitive. Industrial fairs, science and technology parks, business incubators and innovation centres, industrial co-operative research organisations, science and technology transfer agencies and institutions of higher education and research can play a crucial role in this context. Help to entrepreneurs and the fostering of entrepreneurship and self-employment form the basis of a strategy to promote SMEs. Unnecessary bureaucracy must be removed and seed-funding mechanisms must be strengthened.

I.       Draft recommendation

1. The Assembly is of the opinion that small and medium-sized enterprises (SMEs) play a very important role for employment and for the economy in most Council of Europe member states.

2. SMEs are generally more flexible than big industries in adapting to new situations and market conditions. They, therefore, as a group, offer considerable advantages for employment, and they can be leaders in applying new technologies. Their potential for the creation of new jobs has been clearly illustrated in Europe as well as in the United States of America.

3. SMEs have played a crucial role in the restructuring of industry in many regions. This make them particularly attractive to European economies in transition, as pointed out in Assembly Resolution 1138 (1997) on promoting small and medium-sized enterprises in central and eastern Europe. They can also play an important role in helping to reduce long-term exclusion from the labour market.

4. The small bureaucracy of SMEs has however considerable difficulties when faced with the extremely complex legal, financial and administrative environment set up by central and local government. This complexity of legislation, rules and taxation measures is the main reason why SMEs go out of business or into the underground economy.

5.       Special attention must be given to possible fiscal and taxation measures that will facilitate and encourage the development of innovative SMEs.

6.       The central person(s) in a SME is(are) the entrepreneur(s). Governments must therefore foster entrepreneurship and encourage self-employment in order that SMEs may flourish.

7.       A regional rather than a horizontal approach may be most effective in fostering SMEs and entrepreneurship. Support structures and mechanisms will normally be more effective at local level. Chambers of Commerce and Industry, branch organisations, other business associations and different vertical and horizontal structures can play an important role in assisting SMEs to acquire new technologies.

8.       Member states as well as the European Union must respond to the challenge by formulating a policy framework that will facilitate the creation and running of SMEs, as well as ensuring adequate assistance for their renewal, development and enhanced competitiveness.

9.       Consequently, the Assembly recommends that the Committee of Ministers:

i.       analyse within its social cohesion strategy best practices regarding assistance to SMEs for job creation, in particular for members of vulnerable groups;

ii.        ask the Higher Education and Research Committee of the Council of Europe to study the role of higher education and research institutions for the creation and promotion of SMEs, including the training of entrepreneurs;

iii.       invite the Congress of Local and Regional Authorities of Europe to assess successful policies for SME development, including the role of science and technology parks, business innovation centres, risk capital availability and other development instruments, and also to identify obstacles to SME development with a view to removing them;

iv.       call on the governments if member states and the European Union:

      a. to pursue and update their policies for assisting SMEs with technology upgrading and innovation programmes;

      b. to give priority to policy measures in favour of SMEs at local and regional levels;

      c. to involve organisations of SMEs including branch organisations and Chambers of Commerce and Industry in this work;

      d. to continue and strengthen programmes encouraging closer contacts between SMEs and higher education and research institutions including the promotion of staff mobility;

      e. to assist SMEs wanting to access information on new technologies (by facilitating access to information search capacities, fairs and exhibitions, demonstration facilities, etc.);

      f. to continue and strengthen support to intermediaries bringing SMEs in contact with R&D capacities or encouraging R&D personnel to create SMEs, in particular science and technology parks, business incubators and similar structures;

      g. to create, in co-operation with private institutions, capital funds available for the lower end of seed and risk capital requirements (2.000-40.000 Euros);

      h. to work towards closer European co-operation and networking among agencies, assistance structures and programmes supporting the introduction and use of new technologies in SMEs, such as the European Association of Research and Technology Organisations, co-operation between European science and technology parks etc;

      i. to use fully the EUREKA RTD (Research and Technical Development) programme promoting European industrial competitiveness to favour the development of high-tech SMEs;

      j. to pay special attention to SMEs in co-operation programmes involving European economies in transition.

II.       Explanatory memorandum by Mr Birraux and Mr Steolea

Table of content

      paragraphs

Introduction       1-3

The SME       4-7

The entrepreneur       8-11

Employment       12-16

New technologies and SMEs       17-18

      i. Interaction with suppliers and customers,

      analysis of competitors products       19-21

      ii. Acquisition of new equipment and machinery       22-29

      iii. Movement of personnel       30-32

      iv. Interaction with R&D activities       33-39

The organised environment of a SME       40-50

Training       51

Preliminary conclusions       52-56

-oOo-

Introduction

1.       Your Rapporteurs introduced a motion for a resolution on new technologies in small and medium-sized enterprises in December 1997 with a view to assessing the importance of and method for assisting SMEs in their development.

2.       Mrs Guirado and others at the same time tabled a motion for a recommendation on science and technology parks whose clients are mainly small and medium-sized enterprises. These and other similar institutions have proved to be efficient instruments for the creation and development of SMEs by, inter alia, assuring the transfer and use of new technologies. The present memorandum covers both initiatives.

3.       The report has been drawn up on the basis of the findings of a hearing on this issue, organised by the Sub-Committee on Technology Policy and Energy on 12 May 1998 (Annex I) including an exchange of views with Russian and French experts in this field, and with the participation of OECD, on 25 March 1999 (Annex II). Valuable inputs were also given during the Committee's meeting in Manchester on 7 and 8 June 1999. All the eminent experts encountered are most warmly thanked for their valuable contribution. Inspiration has also been sought from work undertaken by the European Union and the OECD.

The SME

4.       The European Union defines a SME as an enterprise employing less than 250 workers, having a turnover of less than 40 million Euro per year, and having less than 25 % of its capital or voting rights held by a large enterprise or a group. There are some 15 to 20 million such enterprises in the European Union, which represents more than 99% of the total number of enterprises. They represent more than 60 % of jobs and production turnover.

5.       The hearing on new technologies in SMEs also revealed that Russia in 1998 had registered some 850.000 SMEs of which 50 thousands could be termed small innovative "technology-based" enterprises (SIE). These SIEs had about 300.000 employees, which corresponded to about 20% of the Russian science and technology workforce. The recent economic crises (beginning 1999) had regrettably caused a considerable decline in SMEs. In Lithuania, more than 160.000 had been registered by January 1st 1997 (with the main criteria being that they have less than 100 employees). A rapid increase in SMEs was also reported from other European economies in transition following the collapse of the centrally planned economy and the disintegration of many big companies with important R&D resources. The bad economic conditions for many universities has also played a role in pushing researchers out of the university sector to engage in different self-employment activities and the creation of SMEs. The majority of the SMEs in the whole of Europe have less than 50 employees. These small enterprises account for more than 90% of total SMEs in many countries.

6.       A recent European Commission study concluded that 3 % of SMEs were creators of new technology, 10% were intensive users of new technology ("technology leaders") and the rest used new technologies, but without paying particular attention to them or placing them high in their order of priority ("technological followers"). It is of interest to note that according to OECD statistics, 7.5 % of the total number of persons in employment (or 10.6 million) worked in the high technology sector (as defined by OECD). The percentage varies by country and by region, the highest being Germany (10.5 %) and the region of Baden Wurtemberg (D,17.3%). High technology exports by OECD countries have increased from about 17% in 1980 to more than 26% in 1993.

7.       Among innovative manufacturing enterprises in Italy, France, and Germany, according to OECD, between 50 and 60% regularly made innovations (mostly incremental). Innovations in SMEs are more sporadic (according to perceived needs) than in big companies having a long-term R&D capacity. In general, output and employment in the OECD area have expanded faster in technology intensive sectors. But traditional sectors, whether low technology manufacturing or services, which incorporate advanced technologies, also showed above average growth.

The entrepreneur

8.       The life and development of a small and medium-sized enterprise are often very dependent on the founder(s) and his/her/(their) family(ies) or the director(s). The leadership is thus assumed by a single person or a small group of persons – the entrepreneur(s).

9.       Entrepreneurs are essential agents of change in a market economy, fuelling the drive for increasingly efficient use of resources and facilitating trade between parties with different preferences and endowments. Entrepreneurial behaviour is likewise a key to accelerating the generation, dissemination and application of innovative ideas. In societies undergoing rapid economic change, a high degree of entrepreneurship will help to cushion adverse social impacts by facilitating the creation of new employment opportunities as old ones decline. The entrepreneurial function will affect both the rate at which new firms are created and their chances of survival and growth as well as the fate of already existing firms. Policy measures to help SMEs should therefore focus on assisting the entrepreneur(s) or motivating and encouraging entrepreneurship.

10.       Europe has an excellent educational and scientific base. Centuries of tradition have in many cases turned higher education and research institutions/universities into safe havens for basic long-term research with limited contacts with the outside world. For SMEs on the other hand, having to sell their products, processes or knowledge, the hurdle for continuous existence is commercial success. The two worlds will have much to gain from closer contacts. Mobility between them should therefore be fostered.

11.       The hearing on 12 May 1998 suggested creating academies of entrepreneurship, where future entrepreneurs (also coming from the R&D sector) could receive training by experienced entrepreneurs.

Employment

12.       SMEs as mentioned above, play a major role for employment. In the European Union they account for about 2/3 of the total number of jobs. The most job creating SMEs, according to a EU study covering 500 enterprises, are the innovative ones and those investing in product quality. The enterprises covered by the survey had created 112.000 jobs between 1989 and 1993.

13.       An OECD survey has shown that an important part of new employment in Canada and the USA in the 1990s came from self-employment and micro-entreprises. In the United States, for example, the very smallest firms - those between one and four employees - created 35% of all new jobs (450.000) in 1995.

14.       It is important in this context to relate the job-creating capacity of SMEs to the employment of vulnerable groups in its local environment. SMEs can make a major contribution to the well- being of the local society surrounding them by diminishing social exclusion and long-term unemployment.

15.       SMEs can however be vulnerable. The Committee on Economic Affairs and Development in its report on promoting small and medium-sized enterprises in Central and Eastern Europe (Doc. 7948, Rapporteur: Mr Figel) pointed to the fact that over 40% of the SMEs in this region went out of business before the end of the third year of existence. It is important therefore to improve assistance to these enterprises also with a view to stabilise their existence and thus their contribution to employment.

16.       The Committee on Science and Technology has drawn up a separate report on the new technologies and employment (Doc. 7713, Rapporteur: Mr Beaufays), which recommendations (Recommendation 1314 (1997)) contain many valuable proposals also with regard to SMEs.

New technologies and SMEs

17.       The problem addressed during the hearing on 12 May 1998 and the following committee meeting on 25 March 1999 particularly looked at the methods by which new technologies could be introduced in SMEs. The following main vehicles were identified:

- the interaction with suppliers and customers and the technical analysis of competitors products

- acquisition of new equipment and machinery

- the movement of personnel

- interaction with research and development activities and with technology broker – extension services.

18.       It is not the aim of this report to assess the relative importance of these different modes of technology diffusion, nor to make a description of them. However, a few comments could be made on each.

i. Interaction with suppliers and customers, analysis of competitors products

19.       The Romanian privatised company SC ROMBOX SA, which took part in the hearing in 1998, had used this mode of technology upgrading. The company employed 200 persons and had sales revenue in 1997 of 2.5 million Euro. It was dependent on new technologies and know-how to solve its environmental problems. The centralised and bureaucratic character of the state-owned R&D institutions had, in addition to high costs, forced ROMBOX to work with bigger companies, producers of chemicals and/or machinery, to solve these problems. Some funds had been obtained from bilateral or international assistance programmes.

20.       An important instrument in creating and promoting suppliers/customers contacts is industrial expositions and fairs. These are often organised by product areas or industry branches. Smaller firms may not have a capacity to engage actively in using fairs for their technology marketing or technology acquisition. Some assistance to this end should therefore be made available within the framework of existing assistance mechanisms for SMEs.

21.       Exhibitions and fairs can also be useful for comparing own products with that of competitors and can give valuable impulses for product/process improvements and innovations.

ii. Acquisition of new equipment and machinery

22.       There are several aspects of this important issue, ranging from leasing of space to the construction and/or acquisition of new production equipment. The hearing on 12 May 1998 was given a detailed information on the setting up of a new Ion Beam Applications (IBA) company by the help of the Catholic University of Louvain (Belgium). The company in its start-up phase used laboratory as well as office space belonging to the university. The university also found partners and helped in financing the building of a prototype of the equipment needed, a mini-cyclotron (particle accelerator). The patent for the new equipment had been taken in the university's name. The construction of the new cyclotron had been subcontracted to local companies. A new microfilter membrane developed as part of the construction gave rise to the creation of a separate company, which after a start-up phase found new premises in the science park in Louvain-la-Neuve.

23.       There are also companies being created for a certain production or service that will proceed by leasing the necessary space and equipment. A Russian company in Novgorod, IMC System, has specialised in serving such enterprises with equipment and training comprising

. Search of progressive technological processes and equipment,

. Analysis of possibilities of their effective application, especially in SMEs,

. Expertise of the SME projects,

. Recommendations for equipment rational use,

. Assistance in delivery, mounting and start-up operation of the equipment,

. Designing of the whole complex of post installation services

. Complete payment of the whole equipment cost at the expense of company's resources.

24.       These services considerably help SMEs to reduce their costs during the initial stages of their business.

25.       Leasing can be a major impulse in the development of entrepreneur activity. It allows mobilising resources on the capital markets and stimulating delivery of expensive equipment to production companies, helping them to renovate their technical facilities, including new technologies introduction, at the absence of free financial resources. Leasing favourably differs from simple commercial crediting by its directness, target orientation, up to the complete list of the equipment necessary to a businessman for development of his own business.

26.       The equipment proprietor during the leasing agreement period is the leasing company. That considerably reduces the magnitude of the required collateral and warranties comparing with the credits. The leasing mechanism allows investments in production equipment and new technology without capital demands on each businessman. This allows the generation of jobs and earnings by employing equipment not belonging to the SME. The equipment can be bought back gradually.

27.       The many enterprises working with the production of extruded plastic products often started off by leasing the extruder equipment in many cases developed by the company delivering the raw materials. In this and in many other cases, demonstration equipment can play an important role in promoting investment in new technologies. Laboratory or other smaller equipment may be promoted by the use of mobile exhibitions such as technology buses etc.

28.       Another example combining leasing and technology transfer the Relikt Company in Moscow, working to develop and introduce Modula programmes for computer-aided design and computer-aided manufacturing (CAD-CAM) in the textile industry. It was started in 1996 on the initiative of the Fund for Assistance to Small Innovative Entreprises (FASIE) in co-operation with German expertise and with financial assistance of the EU TACIC Programme. The company has 32 staff members and has so far (March 1999) helped 58 small textile companies in introducing CAD/CAM and is in final negotiations with another 280 companies. Russia has some 2500 small textile companies but the industry collapsed during the 1998 economic crisis resulting in only 4% of the 1990 production capacity. The new technology combined with a new economic climate has improved the competitiveness of the SMEs involved considerably. Relikt's services are on leasing agreement until the SME using it can proceed to full or partial payback.

29.       In all situations of investment in new equipment or production space, access to capital funds can be a crucial factor. The hearing pointed to a particular need for the lower end of seed and risk capital requirements, ranging from 2.000 to 40.000 Euros.

iii. Movement of personnel

30.       It is well known that persons are the most important capital of any enterprise and this is perhaps even more true for a small and medium-sized enterprise. For the latter category, and in particular for the smallest businesses, the know-how and skills of the leading persons are crucial to the introduction of new technologies. But for these smaller units, the qualifications of the entire staff are important. The knowledge a person brings with him/her becomes a key factor in the technology transfer process and is crucial for the creation of a new enterprise. Schemes that encourage personnel from the R&D sector, public or private, to share their knowledge with SMEs or develop their products or process ideas by creating an SME have proved most efficient if rightly managed. Such schemes can be runned by universities and can be financed by local and central funds.

31.       The Norwegian (Bergen-based) systems laboratory for innovation and employment (SYSLAB) is a recent scheme trying to encourage self-employment of graduates (mostly unemployment) from higher education and research institutions in SMEs. The scheme is designed to create direct relations through visits between the potential "employee" and the SME. These visits are in addition used to gather important data on the SMEs, which can be used for the design of other assistance products.

32.       Since the scheme was introduced in 1992 it has provided local SMEs with some 300 well motivated "knowledge workers" and given rise to the creation of 22 new companies (May 1998). Similar schemes have been set up in France, Spain and Sweden and discussions are under way for the establishment of a "syslab" system in Russia.

iv. Interaction with R&D activities

33.       Three typical situations were described during the 1998 hearing. The first was a typical high technology situation represented by the biotechnology company "Transgene", founded in 1979 and now employing 200 people of whom 50 had PhD level. It was created on the initiative of researchers in the Strasbourg region and has maintained close links with university and academic circles. During its successful development two factors had been of major importance: the creation from the beginning of a strong and very united management team, and the establishment of partnership with pharmaceutical firms permitting the validation of the developed technology and products (bankers might be able to evaluate an enterprise, but in a field as highly specialised, partnership with its sector of competence was essential).

34.       The second example was a refractory producing enterprise with 70 employees. For its household waste incinerators, the company needed a new and more performant technology to bind silicone carbide with clay that could be produced using existing equipment because of the excessive cost of new kilns (10 to 20 million French francs). A solution had been found by employing specialised university R&D capacity on a contract basis. The result had been a success. Patenting of the new formula had not been chosen because it would disclose the new formula for the company's competitors.

35.       A third, somewhat similar example but with a more general and long-term horizon for co-operation with university R&D was presented by Erstein Sugar Refineries. Many problems have already been solved through such co-operation including environmental, equipment and machinery, the molecular chemistry of the extraction process, etc. Today work is under way to identify new products and markets with sugar beets as the raw material.

36.       It was pointed out during the 1998 hearing that the public R&D system (universities etc) was not preparing its researchers or graduates to understand the culture and problems of an SME. Intermediaries like science parks or other structures were often needed to bridge this communication gap. The higher education and research system was also not encouraging risk taking although schemes had been introduced to this end.

37.       The University of Manchester Institute of Science and Technology (UMIST) is an example of a higher education and research institution that has successfully developed a variety of schemes aiming at improving university-industry links. Such activities are also pursued by many other higher education and research institutions and vary from training to consultancy and contract research. Particularly attractive are schemes bringing research students in direct contact with industry by doing their theses on an industrial problem. Other measures allow researchers to work full-time or part-time on industry projects. This can also lead to the creation of new SMEs.

38.       A new structure set up by UMIST to help biotechnology commercialisation from the science base was the Manchester Biotech Ltd. Incubator opened in January 1999. It aims to assist the considerable competence in the field of life sciences, chemistry and computer sciences in Manchester by transforming new ideas and innovations into viable businesses. Academics are given entrepreneurial training and management support for the start up of companies. Such new companies are also given direct access to seed core funding. Outside initiatives using the incubator will have access to the extensive academic and clinical facilities and expertise in Manchester. New companies should normally graduate to other local sites after one to three years. So far three companies had been created by the incubator and two more were in development.

39.        Another example worth mentioning is Twente University in the Netherlands. Of the 291 enterprises it has helped create (1977), only 80 have disappeared – the success rate for five years' survival is 86 %. The remaining 211 enterprises employ 1.800 persons. This positive result is largely due to a close co-operation with other local partners, including another training institution and a business and science park. The three categories of persons concerned are students, researchers and entrepreneurs wishing to cooperate with the university in creating a new enterprise. All candidates are carefully selected and successful candidates are assisted in the development of their business plans. The best plans are rewarded in different manners such as through part-time employment at the university (normally for one year) free locations for the new enterprise, free expert assistance from the university, loans without interest up to 30.000 florins (13.611 EURO) and other financial assistance schemes. This and other examples all point to the importance of having a coherent and favourable environment for the creation and development of high-tech SMEs.

The organised environment of a SME

40.       It has been mentioned above that the introduction and successful use of new technologies in SMEs or the creation of new SMEs demand many services. Some of these can be provided or encouraged by public intervention, others can be the result of a collective action of SMEs themselves. The first institutions that deserve mentioning in this context are the Chambers of Commerce and Industry (CCI). These institutions exist in different forms in most countries at the regional (local) as well as national level. One of their traditional roles has been to facilitate the transfer of technologies to its members, in particular SMEs. In France, the CCIs are public establishments of an administrative nature, whereas in other countries, they may be voluntary associations of local businessmen. The first Chamber of Commerce in France was created as early as 1599 and in the 18th century the Chambers of Commerce developed in the big trading towns. France has to day 161 CCIs covering "economically coherent" areas. The CCI's job was essentially to ensure that SMEs in the spheres of trade, industry and services, benefited from the required know-how.

41.       At regional and local level there were specific services in the CCIs, set up in the late 70's intended to ensure that innovation penetrated SME, because if an enterprise had not reached a certain "critical mass" of know-how, it could not acquire part of the knowledge existing outside it. These services were known as regional scientific and technical information agencies ("Agences régionales d'information scientifique et technique" – ARIST). The ARISTs were made up of multidisciplinary teams of engineers with an additional qualification in the field of scientific and technological information research. The role of the ARISTs were to translate research findings into useful feasibility studies to be exploited by SMEs, in particular outside their main area of competence. The Internet was a new source starting to be exploited.

42.       Another well-functioning French support structure for SMEs presented at the Hearing was the ANVAR ("Agence Nationale de Valorisation de la Recherche" - The National Agency for the Promotion of the Research). ANVAR through its 24 regional delegations invested in 1997 1.4 billion French Francs in support of some 300 projects (one third of which were innovation projects). Since 1979 it had been at the origin of some 30.000 technological innovations. Its investments in new ventures were repayable in the case of success of a project at zero interest. ANVAR was acting both in the European and international area. 30% of the SMEs supported by ANVAR had been created within the past three years. ANVAR worked closely with all other actors surrounding SMEs and was national focal point of the CRAFT programme (Co-operative Research Action For Technology) set up by the European Commission to stimulate technological progress in SMEs.

43.       The support system in the Netherlands could also be mentioned since the state offers a series of fiscal measures as well as loans at less than 1% interest rates for the creation of high technology enterprises. The implementation and contacts with the SMEs are assured by research funds and innovation centres. Local and regional bodies, including universities are given an important role in this context (as is shown in the case of Twente university above).

44.       Many schemes could be presented from various countries. The Russian situation, however, because of its dimensions, may deserve a special mentioning. Russia, as has been referred to above, is operating since 1994, a Fund for Assistance to Small Innovative Enterprises (FASIE) representing 1% of the federal science and technology budget. It has also accorded small enterprises simplified procedures of accounting and taxation. In 1997, the Fund together with the ministries of science and education created a programme of innovative activity (PIA). The Fund (FASIE) and the PIA give soft loans with up to 20% lower interest rates compared with the central banks' rates. Since 1996, the Fund has run a special project to establish a network of innovative technology centres (ITCs). The ITCs information network was in 1997 connected to the universities' national science and technology network and further co-operation including with the science and technology parks are under development.

45.       EUREKA, a Europe-wide network for industrial R&D co-operation launched in 1985 should be mentioned in this connection since the scheme increasingly plays a role for the strengthening and development of SMEs. EUREKA is a framework through which industry and research institutes from 26 European countries and the European Union develop and exploit the technologies crucial to global competitiveness. Seven additional countries from central and eastern Europe have some form of associate status. The projects accepted under the EUREKA scheme are formulated by the enterprises (or research institutions) directly involved (must involve at least two EUREKA members). A selection criterion is that they must be high-tech, market-oriented R&D projects. These are financed mainly from national resources. The present public funding level for projects amount to about 20% of total investment. The percentage of SMEs using this scheme is increasing (the number of SMEs has grown by 69% since 1993) but varies considerably from country to country. In France SME projects represented 46% in 1997–1998. The scheme is under evaluation with a view to finding the best answer to its possible continuation and strengthening.

46.       Many enterprises have since long established their branch organisations and these in turn had been at the origin of the creation of branch research facilities or university chairs. The branch research institutions had linked up in a network with the name European Federation of Industrial Co-operative Research Organisations (FEICRO). FEICRO members represent a most competent potential for many SMEs in a number of sectors. A big advantage is their knowledge of industrial culture and their closeness to industrial problems and particular knowledge of different branches of industry. FEICRO has from 1999 joined forces with the European Association of Contract Research Organisations to form the European Association of Research and Technology Organisations (EARTO) with the motto: working together with industry to raise European economic performance. The EARTOs membership comprises some 60 research companies and organisations and 12 national organisations of co-operative and collective research centres corresponding to some 350 research and technology organisations of the European Union and countries having science and technology co-operation agreements with the EU. These organisations, in turn, represent some 6000 engineers and technicians working to serve more than 500.000 enterprises each year in all sectors of industry and branches of technology. A further enlargement of this network structure to a pan-European organisation would certainly benefit SMEs all over the continent.

47.       The last organised approach to help introducing new technologies in small and medium-sized enterprises or to assist in creating new SMEs mentioned during the 1998 hearing was the science and technology parks (or institutions of a similar nature). The classic ingredients of science and technology parks are educated and entrepreneurial individuals, young high-tech companies and a local university (or other institution of higher education and research) with a strong research base and investment in real estate. This combination has created a powerful image of something new happening and the lure of wealth creation and economic growth.

48.       The core of the science and technology park idea is the commercialisation of university based scientific research by means of product and process innovation, leading to new industrial development and economic benefit. The presence or involvement of a university is what separates a science and technology park from thousands of business or industrial parks that have sprung up across most industrial countries. The science and technology park is seen as a bridge across which university research can be transferred from academia to industry or the market place. A second group of core ideas focuses on location, and the notion that proximity to the university has a benefit for businesses located on the park and will facilitate better interaction between university and industry. Having a cluster of suitable premises nearby enables university staff who wish to commercialise their research to grow there business on a convenient site, and businesses located on the park can, at least in theory, access the research outputs and the research staff of the host university or other R&D institutions.

49.       The main clients of these parks have been small and medium-sized industries but many larger high-tech companies have also established facilities in the parks. The operation of science and technology parks is facilitated if they have access to seed and risk capital, in particular when setting up new ventures. Science and technology parks have often included or worked in close co-operation with business innovation centres – thus giving a fairly complete service-offer to entrepreneurs. A first meeting of representatives of European business innovation centres and science and technology parks took place in Malaga (Spain) in October 1997 for an exchange of views on ways of improving performance and co-operation Europe-wide. Many local, regional, national and/or EU initiatives to stimulate industrial competitiveness and job-creation in Europe have used science and technology parks as well as business innovation centres and innovation relay centres as vehicles. Most of these centres or parks have a strong local implantation character, often with strong regional (or local) support.

50.       The Zernike Science Park in northern part of the Netherlands, presented during the hearing in 1998, had during a period of eight years contributed to the creation of 80 new enterprises of which only 3 had more or less failed. The resulting employment had been 3000 new jobs.

Training

51.       A central theme in all technology up-grading of industry is training. The "syslab" experience referred to above is built on the concept to develop the ability to "learn to learn" and thus prepare for change and innovation. SMEs, often having less capacity to do in house training, are more dependent on external resources. Professional organisations, such as engineering associations or branch organisations, but also labour unions, play an important role in addition to training institutions, furnishers of equipment and a vast number of other institutions, including universities and other higher education and research institutions taking part in the training enterprise. The particular importance of training and its complex nature with many organisations involved has led one of your rapporteurs to agree to present a separate report on the training of workers in the use of new technologies in response to a motion for a recommendation on these issues presented by Mr Onaindia and others (Doc. 7936).

Conclusions

52.       SMEs play a very important role for employment and the economy of member states. They can be of particular importance for regional and local development. The more than 18 million unemployed in the European Union could find employment if each of its SMEs would be in a position to employ one additional person.

53.       Against this background, it is normal that the Council of Europe within its social cohesion strategy should analyse the role of SMEs. The higher education and research sector could analyse the role of these institutions in preparing graduates and researchers for closer contacts with the SME sector and also for possible ventures encouraging self-employment and the creation of new SMEs.

54.       Given the particular links between regional and local development and SMEs, the Congress of Local and Regional Authorities of the Council of Europe, which already organised conferences on this issue, could continue to pay attention to the benefit for local development of assistance to SMEs for the acquisition of new technologies.

55.       In addition to these concerns about the Council of Europe's possible contribution to strengthening of SMEs there are also a series of policy measures that could be addressed directly to governments, local and regional authorities and to the European Union. Some such measures are specified in the elements for a preliminary draft recommendation below.

56.       The Assembly Resolution 1138 (1997) on promoting small and medium-sized enterprises in central and eastern Europe paid particular attention to the economic assistance which will therefore not be developed in any detail in the present recommendation.

Annex I

PROGRAMME OF THE HEARING HELD ON 12 MAY 1998

9.15 am        Opening of the hearing

9. 20 am       Opening remarks

9. 30 am        Introduction

      Mr Jacques Peres, Deputy Regional Delegate – ANVAR Alsace.

9. 40 am       Presentations made by experts :

10.30 am          Brief presentations by members of the industrial panel

12. 05 am       General debate

12. 40 am       Summing-up of the discussions

12. 50 am        Conclusions

Annex II

Extract of the Minutes of the Committee meeting of 25 March 1999

      

4.       NEW TECHNOLOGIES IN SMALL AND MEDIUM-SIZED ENTERPRISES (SMEs)

Mr Chevnine, Director General of Novgorod Leasing Company IMC Systems, said that the development of small and medium enterprises (SMEs) was an important issue for the transformation of the huge Russian national economy with its consumer market of almost 148 million.

Small and medium-sized businesses were ready to assume important social and economic functions in Russia. However, they were heavily occupied with their vast current problems leaving neither time nor financial or human resources for innovation. The majority of SMEs followed the path of copying basic western technologies and experience.

At the present stage of reforms in Russia, the insufficiency of long-term industrial investments in SMEs was evident, due to the reluctant and cautious behaviour of the overwhelming majority of private investors (first of all, commercial banks). This was in particular caused by       an insufficient number of small businesses with their large collateral possibilities required for direct crediting, and high interest rates (29% in US dollars per annum in the Novgorod region) deriving from the higher risks of such credit and halting the capacity of business to implement new ideas for production and innovation.

The introduction and development of financial leasing operations made it possible to overcome these difficulties. During the last 3 to 4 years, leasing operations in Russia had proved a new and promising form of financing investment in SME fixed assets.

Leasing could in this way be a major impulse to the development of SMEs, allowing them to renovate their technical facilities, creating new jobs and introducing new technologies with limited financial resources.

Leasing was better than simple commercial credit by its directness and target orientation, including the drawing up of a complete list of the equipment necessary for the development of a specific business. On the other side, the leasing company remained the owner of the equipment throughout the term of the leasing agreement, which considerably reduced the collateral and warranties required compared to bank loans. The leasing mechanism also encouraged investors into production and technology transfer, thanks to the lower risks of giving credit to a leasing company than to each separate business.

Taken together, all these factors allowed SMEs to reduce considerably costs at the initial stage of their business, which was the most difficult.

In Russia, all leasing companies were concentrated in Moscow and St-Petersburg except for a few companies in certain larger cities. However, the manufacturing companies in the regions, especially small businesses, had an equally urgent need for leasing services.

The Novgorod Leasing Company had been registered on 16 June 1995. This project had received early support from the regional authorities and had been included in the Regional SME Development Programme. The ideology of the company was from the very beginning oriented not only at solving purely commercial problems, but also at creating favourable conditions for the promotion of broad social activity, initiative, and entrepreneurial spirit. In the company’s opinion, two principal prerequisites were needed for a successful SME development: first, the business environment, i.e. a system of necessary conditions, measures and economic mechanisms, and second, the social basis, i.e. people, open to new ideas, organisational and business approaches.

Orientation to business support, partnership with other business support structures, on both regional and federal levels, allowed the company to reach its major goals effectively.

Mrs Sizova, Director of ‘Relikt’ Research and Industrial Centre, Moscow, presented her experience in the transfer of new technologies to the SMEs in the Russian sewing and confectionery industry.

The Centre was established in June 1992 and employed 32 persons including 3 doctors of technology. Its mission was to develop new computer-based technologies for the sewing industry, to test these at its own production site and to transfer them to small enterprises in the industry.

The best product the Centre had developed was the ‘MIX-R’ computer-based modular technology system. It consisted of relatively independent but interoperable blocks (modules) for computer-aided fashion design, modelling and related product development, plus an original applied database. The system posed very limited hardware requirements and could be operated by personnel with very basic computer skills, being also 3 to 5 times cheaper compared to analogous foreign products. Its modulan structure allowed the companies to purchase and introduce the system gradually, thus avoiding high initial investment. Besides, the hardware (which represented some 70 % of the costs) was provided to the customers through leasing with governmental support.

As of March 1999, ‘MIX-R’ had been purchased by 48 small sewing enterprises in Russia. The introduction of this system had helped to cut the period of introducing new fashion models to one seventh and to spare 60 % of the related costs, also providing a 10 times higher output and a sufficient business flexibility. While in the first quarter of 1999 the Russian sewing industry increased its output by 3 %, the 48 businesses in question showed 40 % growth. Taxes collected from them had increased by 180 %. Among the approx. 4,500 sewing enterprises in Russia, 62 % has expressed their readiness to introduce new computer technologies within 3 to 5 years, 33 % within the next 2 years and 4 % as early as in 1999.

[AS/Science (1999) 15 revised

AS/Science/Tech (1998) 4, 7, 8, 10, 11 and presentation by Mrs Demain]

Reporting committee: Committee on Science and Technology.

Budgetary implications for the Assembly: None.

Reference to committee: Doc. 7967 and Reference No. 2243 of 26 January 1998.

Draft recommendation unanimously adopted by the committee on 13 October 1999.

Members of the committee: MM. Melnikov (Chairman), Birraux (Vice-Chairman), Tiuri (Vice-Chairman), Lekberg (Vice-Chairman), MM. About, Alevras, Asciak, Bartos, Bauer, Beaufays, Brunhart, Cheishvili, Cherribi, Cioni (Alternate: Olivo), Cunliffe (Alternate: Etherington), Dolazza (Alternate: Rigo), Duka-Zolyomi, von der Esch, Mrs Faldet, MM. Fayot, Felici, Fernandez Aguilar, Frey, Gligoroski, Mme Herczog, MM. Ivanov, Kitov, Kittis, Kolb, Kurucsai, Langthaler, Leers (Alternate: Dees), Lengagne, Libane, Liiv, Maass, Marmazov, Mateju, Minarolli, Mozgan, Niculescu, Niza, Lord Northesk, MM. Onaindia (Alternate: Mrs Guirado), Pawlak (Alternate: Luczak), Plattner, Mrs Ragnarsdottir (Alternate: Olrich), Rakhansky, Rapson, Raskinis, Rokos, Roseta, Ryabov, Scheer, Skaarup, Steolea, Tanik, Turini, Uroic, Weyts, Wittbrodt, Yürür, Zhebrovsky.

N.B. The names of those members present at the meeting are printed in italics.

Secretaries of the committee: Mr Lervik, Mr Torcatoriu