Small innovative companies make a big difference
11 March 2014
The triple crises in Europe affected business innovation and R&D in a negative way. The market entry of innovative businesses in Europe was obstructed and risk capital dried out. Investment in innovation suffered due to the unstable market conditions and the macroeconomic situation. Surely, in times of uncertainty fewer companies would boost R&D spending and invest in innovation. This is especially valid for the small and medium enterprises (SMEs).
The crises were a stress test for the small companies and many failed to pass it. At the same time innovation demand for SMEs grew higher than ever because it meant survival, productivity, growth and competitiveness. Small companies innovate to maintain market share and achieve greater efficiency. Currently, 99.8% of all firms in the EU are SMEs and this is why small innovative companies are crucial for the economic growth and sustainability. In the long-run, economic growth depends on the establishment and support of business environment that fosters innovation. Innovation-intensive countries which create and implement new technologies develop faster than countries that do not innovate. This is why innovative businesses have a special place in the long-run development of the EU.
Innovations and R&D are hardly digestible in our daily round and the best way to tell the story is to look at real life examples. In 2013 I did research on 256 young innovative companies in Belgium. They are small, highly innovative with products and services that reshape and create markets. Due to the high risk nature many of these companies do not survive through their first critical years. Many of these firms co-exist in clusters such as science and industrial parks. That is where a network of enterprises, organisations and academic institutions houses knowledge transfer, suppliers and expert capacity. Many of the young innovative companies in Belgium are university spin-offs – a bridge between universities and businesses, providing jobs and added value to society.
A typical example of innovative businesses concentration is the Louvain-la-Neuve Science Park – a large cluster of small innovative businesses. Established in 1971 as part of the Catholic University of Louvain, it is the first of its kind in Belgium and it is the biggest one in the region of Wallonia. The area of the science park is 231 hectares and it is the home to almost 200 companies that have committed investment amounting to €440 million. Approximately 5,200 employees work there and the majority of them are scientific workers. Louvain-la-Neuve Science Park is specialised in life sciences, engineering, ICT, chemicals and other fields. The park itself is part of a local group of scientific and technology parks which includes the Scientific Park Monnet, Einstein Scientific Park, Fleming Scientific Park, Scientific Park Général and Scientific Park Athena. Louvain-la-Neuve Science Park is a mixture of academics, on the one hand and innovative companies, scientific and research organisations, on the other. This combination of factors creates a suitable environment for small innovative firms to start-up, grow and generate added value through innovation.
Zooming in at individual companies, my research revealed that some of the small innovative companies are established as spin-offs from the Université Catholique de Louvain (KU Leuven). Following the business path of such companies is of particular importance in order to understand how such firms initiate their activities. The KU Leuven Research and Development, a specialised organisation for setting up spin-offs, plays a major role. Initially a project proposal based on a scientific discovery is submitted and thoroughly reviewed. After the approval of the idea, the KU Leuven Research and Development provides assistance to the researchers in creating a business plan for a start-up and for identifying investors. In order to ensure knowledge transfer, the KU Leuven Research and Development allows the know-how to be utilised later for educational and research purposes. Once the company is created, it starts operating in the cluster environment which provides networking and partnership opportunities. The cluster provides more security for such companies because joint research projects drive the cost of R&D down to an affordable level. This is how a small company, engaging creative ideas of young researchers, might become a disruptive innovator, capable of reshaping markets. Successful cases, on the other hand, attract more of the usually scarce risk investment, both public and private. More entrepreneurs and innovators are attracted too. In the end, all these ingredients create an almost self-sustaining cycle that provides jobs, economic growth and added value to people.
There are many cases like the one I described and their cumulative effect will create a big difference on a larger scale in the EU. This is why investment in innovation and R&D, focused on small firms and their clustering, is a must-have for the European economy. Such investment will transform the European SME sector to a competitive and productive population of firms. The market value and employment capacity of small innovative businesses will be improved significantly. In addition, such companies have the capacity to close the gap between universities and businesses. Finally, small innovative companies could contribute to the economic convergence in the EU and to the long-run goal of economic growth and sustainability.