Encouraging innovative SMEs in ICT: give me a single market!

25 May 2011 Author: EIFonline

SMEs provide two thirds of the private sector jobs and contribute to more than half of the total value-added created by businesses in the EU. SMEs are the true back-bone of the European economy, being primarily responsible for wealth and economic growth, next to their key role in innovation and R&D. SMEs however complain that growing and expanding in Europe or internationally is a tough proposition because of the lack of an Internal Market.

Once SMEs cross their national border they find that there are highly specific rules on how you can or cannot work in another EU country; there are detailed laws to expand, that differ greatly from those in their country of origin or neighboring countries. At the EIF breakfast debate on 25 May, where a panel of entrepreneurs provided their views on these topics, one of the speakers mentioned that his operation from Germany was treated as if they were behaving criminally when the German tax authorities noticed that money was (legally) being moved to another part of the company outside Germany.

Hence, many of the SME expansion and growth problems are not related to technology issues but to the administrative burdens, the legal system and the lack of an Internal Market. There is a huge need for a simplified process in Europe for running a business.

One of the speakers mentioned that he once received a generous offer to move his business to the US. The venture capitalist who made the offer simply said that since Europe does not have a Single Market, the USA would be a splendid alternative: one huge Single Market, promising rapid expansion and possible worldwide growth from there. It appears to be a much quicker route today than going 'via Europe'. In addition, venture capital in Europe is much less accessible than in the US. Because it is more fragmented it is harder for SMEs to bring their innovations to the market.

The IPR issue, obtaining the right patent protection, is another part of the problem in Europe. Several SMEs have been advised by lawyers in Europe to first go to the US to apply for a patent and then come back to Europe because it's so much easier 'there'. To be able to defend your SME patent the costs can be exponential. Often SMEs do not have the resources to handle this process. 

The startup of an SME is not the problem. Problems start when you want to work with it and grow it in Europe, that's the real challenge. The fragmented markets in Europe obstruct real growth fuelled by innovation.It is no longer sufficient to have a good idea and to go to the market; today one must compete at an international level. The Public Private Partnership launched by the European Commission was welcomed as a step in the right direction to bridge the existing gaps.

At the same time, there is a need for a faster time-to-the-market approach. Currently some SMEs work in tandem with multinationals on their patents for example to get the registration covered. Of course this means the SME would have to give away a share of the profits to this multinational for their help.

Finally there is yet another dimension to the transparency of patents worldwide. In China for instance it is impossible to gain insight into how Chinese patents are treated compared to Western patents. In Germany or Paris there would be no problem to make such a comparison between case law concerning two national EU Member State patents. Such issues can be an additional challenge in the ever-increasing global competition race. If Europe wants to succeed in stimulating SMEs in ICT to become more innovative and to produce the next Google or Microsoft it should work hard on creating a true Internal Market to that end.


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