DIT SMEs Forum holding V INSME Annual Meeting Financing SMEs Innovation at times of global financial

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DIT SMEs ForumholdingV INSME Annual
MeetingFinancing SMEs Innovation at times of
global financial crisisSalvatore Zecchini
April 21, 2009Jumeirah Emirates Towers, Dubai,
United Arab Emirates
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• SMEs, especially innovatives ones, are hit harder
  by the current global financial crisis than other
  firms.
• More vulnerable, because they involve higher risk
  and weaker financial structures.
• Still they deserve special attention, because
  they are essential for long-term economic growth.

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• Our focus
• Scale of the financial problem for RD and
  innovation
• Main stumbling blocks
• Solutions adopted in OECD countries

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Source, OECD-Eurostat Entrepreneurship Indicators
Program, Measuring Entrepreneurship a digest of
indicators, 2008
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Source, OECD-Eurostat Entrepreneurship Indicators
Program, Measuring Entrepreneurship a digest of
indicators, 2008
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Main Science and Technology Indicators
Source OECD, Main Science and Technology
Indicators, October 2008.
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• SMEs generally invest less than larger firms in
  RD and innovation.
• RD and Innovation expenditure is very sensitive
  to firms financial constraints and to business
  cycle.

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Cyclicality of innovationBusiness funded RD,
patents (applications to the European Patent
Office), trademarks (filed at the US Patent and
Trademark Office) and GDP (Annual growth rate
for the total of OECD countries divided by
standard deviation)
Source OECD, Patent database.
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Innovation expenditure growth in the Italian
Enterprises
Source La ricerca e sviluppo in Italia, ISTAT,
2008
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SMEs investing in in-house innovation ( of SMEs)
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• Sources of financing difficulties
• Cash-flow problem and profit squeeze
• Credit rationing
• Reduction in fundraising for equity capital, seed
  and VC investment, private equity

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• Other consequences
• Breakdown of supply chains
• Kowledge network disruption
• Redirection of RD resources
• Risk of more destruction than creation.

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Leverage of the Italian manufacturing enterprises
Source Rapporto sulle tendenze nel sistema
produttivo italiano, Bank of Italy, November 2008
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Short term debt on total financial debt in the
Italian enterprises
Source Rapporto sulle tendenze nel sistema
produttivo italiano, Bank of Italy, November 2008
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Banks with tighter lending conditions
Source EcoWin, in Denmark National Bank,
Monetary Review, 4th Quarter 2008.
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Global venture capital investment 2000-2008 in USD
Source VentureXpert, 2009
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Recent investment trends in the US
Source PricewaterhouseCoopers and National
Venture Capital Association
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Experienced or expected impacts of the crisis on
SME and entrepreneurship financing
Experienced or expected impacts of the crisis on
SME and entrepreneurship financing
Source Country Reponses to the 14 January OECD
WPSMEE Questionnaire on the Impact of the Global
Crisis on SMEs and Entrepreneurship Financing and
Credit reform Economic 2008/09.
Source Country Reponses to the 14 January OECD
WPSMEE Questionnaire on the Impact of the Global
Crisis on SMEs and Entrepreneurship Financing and
Credit reform Economic 2008/09.
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Policy responses
Source Country Reponses to the OECD WPSMEE on
the Impact of the Global Crisis on SMEs and
Entrepreneurship Financing, Turin, 26-27 March
2009
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• Government approach
• Supply-side measures
• -loan guarantee and direct lending
• -tax incentives
• -public-private partnership in equity investment
• -investment subsidies
• -promotion of leasing and factoring
• Demand-side measures
• -macroeconomic demand support
• -public procurement
• -innovation-oriented restructuring
• -new funding for research
• Regulations and Standard setting

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Private Equity Venture Capital Markets
Source Country Reponses to the OECD WPSMEE on
the Impact of the Global Crisis on SMEs and
Entrepreneurship Financing, Turin, 26-27 March
2009
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• Other measures to be considered
• Dissemination platforms
• Networking
• Code of standards
• Exit markets for VC
• Innovative clusters
• Innovative infrastructures
• Financial tutoring
• Infrastructure for dialogue and consultation
• Monitoring of financial constraints
• Subsidizing highly skilled workers
• Addressing social consequences of t.p.

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• R D and innovation depend on an entire system
  of institutions, infrastructures and critical
  players.
• No Government package of measures can alone
  substitute for a coherent effort by all the
  parties in such a system.
• Whats at stake in innovation is the return to
  high and sustainable economic growth and to
  better our society and living standards.