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Post-pandemic, public bodies must restructure SME support systems for long-term growth with well-functioning innovation systems with the right balance of instruments.

The economic impact of the coronavirus outbreak has been especially severe on SMEs.

In response to this challenge, policymakers in the EU have increased budgets for direct public support mechanisms and SME subsidies. However, many of these new support instruments have been badly designed and poorly implemented, and tend only to focus on short-term liquidity needs.

As governments now look ahead to the so-called ‘new normal’ post-pandemic, the COVID-19 crisis offers a strong opportunity to restructure SME support systems to drive sustainable long-term growth via a well-functioning innovation system with the right balance of instruments. In this article, we define the 10 areas of focus that will drive this objective.

1. Push SMEs to Think Big

Small businesses play a vital role in ensuring economic growth, job creation, and social integration. But as the economic headwinds triggered by the pandemic pick up, the teams in charge of SMEs will need to be more ambitious in order to survive and grow. One way to foster this is to explicitly identify ambition as a key criteria for SME support in all EU countries, thereby enabling the most promising companies to reach their potential.

2. Talent and Diversity Matters

In today’s turbulent times, building SME resilience through capacity development is vital. Policy instruments should focus on building capabilities, forging strong teams and accessing both EU and non-EU talent. This could be done through (digital) talent matching platforms that connect businesses with specific sets of skills in specific countries, such as the ‘Talent Boost’ programme in Finland.

3. Mind the Innovation Gap

Not all SMEs are created equal, and instruments for innovation support should acknowledge this. In regions with fewer innovative SMEs, the focus should be on stimulating the development of new innovative firms. As a result, regional characteristics can become increasingly important SME segmentation criteria, while keeping in mind that the selection pool for public funding should be large enough to maintain an optimal level of competition.

4. Focus on the Ecosystem

The power of large firms to help small and young firms to scale up must not be overlooked. Innovation support organisations should acknowledge this ecosystem dimension in their innovation support models, and create opportunities for knowledge-sharing and cross-pollination of ideas.

5. Make it Simple

Many support initiatives are too complex and inaccessible to be useful to SMEs. Addressing this must become an urgent priority. Co-creation is one way to achieve this, with support service systems designed with and implemented for the client. Unifying disparate support services under one platform with a simple interface that minimises the need for data inputs and maximise information sharing will drive SME adoption, leading to better outcomes.

6. Bring in Private Sector Funding

The gap between the finance available to SMEs and the finance that they could productively use remains a major barrier to the transition from start-up phase to scale-up phase. As this challenge cannot be met by governments alone, new instruments and cooperation structures for raising matched funding from support actors from the public and private sector should be leveraged to increase investment capacities.

7. Keep it Predictable

Certainty and predictability are key in helping SMEs to build economies of scale, innovate and limit risks. In times of economic volatility, a stable policy mechanism, which is ideally disconnected from sudden political changes and short-term government needs, will play a crucial role in ensuring SME trust in the long-term funding environment for innovation investments.

8. Enable a Joined-Up Approach

With resources for SMEs often spread over various support organisations, sufficient budget must be set aside for personnel and cooperation between different agencies. Any design of new policies and instruments should take this additional budgeting into account in order to prevent bottlenecks in implementation.

9. Measure to Manage

Mission-oriented innovation policies can foster disruptive and breakthrough SME innovations to respond to social, environmental, and economic grand challenges such as climate change and resource efficiency, demographic change, clean energy, and inclusive societies. To make this happen, new data will need to be collected and new methodologies will need to be developed to consider the impact SMEs are seeking, while innovation support agencies must develop strategies to monitor progress in this respect.

10. Skill Up the Support Ecosystem

Policymakers often have limited experience of the real world of small business, leading to inadequate or inappropriate interventions. This should be addressed through face-to-face contacts with the entrepreneurial teams that run SMEs in order to gain a better understanding of their needs, as well as increased training and development within innovation support organisations.

Even before COVID-19, the landscape of innovation agencies in the EU was in need of simplification and restructuring. With policymakers now starting to think about the role public support should play in the renewal of the economic structure in the wake of the pandemic, we believe that there exists an unprecedented opportunity to create a better, stronger system, which will support SMEs to innovate their way out of this crisis.

This article is derived from the SMEthod project, which has received funding from the EU Horizon 2020 research and innovation programme under grant agreement No 777491.

About the Authors

Matthias Deschryvere – VTT Technical Research Centre of Finland, Espoo, Finland | Email | LinkedIn

Markku Mikkola – VTT Technical Research Centre of Finland, Espoo, Finland | Email | LinkedIn

Steffen Conn – ISPIM, Manchester, UK | Email | LinkedIn