1 - Empowering SMEs in Rural Places - Jenny Vyas
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The OECD Rural Development Conference discusses the significant role of SMEs in rural economies and the barriers they face, such as limited access to markets and resources. It highlights the importance of tailored policies to enhance productivity and innovation through FDI-SME linkages and underscores the need for collaborative networks and educational partnerships. The document emphasizes that understanding regional characteristics and specific challenges is vital for effective rural economic policy.
1 - Empowering SMEs in Rural Places - Jenny Vyas
- 1. @OECD_local www.linkedin.com/company/oecd-local www.oecd.org/cfe EMPOWERING SMES IN RURAL PLACES OECD Rural Development Conference 28 September 2022, Carvan, Ireland Jenny Vyas OECD - Centre for Entrepreneurship, SMEs, Regions and Cities (CFE)
- 2. © OECD | Centre for Entrepreneurship, SMEs, Regions and Cities | @OECD_Local | Outline 1. CFE and SME work 2. Barriers to growth and enabling conditions 3. Rural characteristics common to SMEs 4. Policy takeaways
- 3. © OECD | Centre for Entrepreneurship, SMEs, Regions and Cities | @OECD_Local | CFE and SME agenda CFE has led substantial the work on SME’s over the past decades: • SME Outlook • D4SME and Green Financing for SME platforms • Creation of a new Committee on SME’s • Newly released recommendation
- 4. © OECD | Centre for Entrepreneurship, SMEs, Regions and Cities | @OECD_Local | SMEs are part of the business fabric, particularly in rural areas 4 Source: OECD Structural and Demographic Business Statistics Database, 2018 (http://dx.doi.org/10.1787/sdbs-data-en)
- 5. © OECD | Centre for Entrepreneurship, SMEs, Regions and Cities | @OECD_Local | SME’s locate in all regions but rural SME’s face some common characteristics Rural places are • Remote to markets (e.g. higher transportation costs) • Lack density and thick markets (economies of agglomeration) • Access to skilled labour • Access to R&D innovation • Niche markets and product differentiation are areas of opportunity • (see on Rural well-being publication a full section characteristics) • Less diversified economic base makes them more vulnerable to global shocks (inflation, gas, fertilizers)
- 6. © OECD | Centre for Entrepreneurship, SMEs, Regions and Cities | @OECD_Local | There extent differs by type of rural area 6 1.Rural Inside FUA 2. Rural close to cities 3. Rural remote area Limited access to infrastructure, finance Large distances and high transportation costs. -> Limiting GVC integration. SME benefit of cities’ infrastructure but also corporate relationships market pervasion and communication networks. Depending on the connectivity, these rural areas can have access to markets, services but may compete on talent with urban areas. Source: (OECD, 2020) Rural Well-being : Geography of Opportunities.
- 7. © OECD | Centre for Entrepreneurship, SMEs, Regions and Cities | @OECD_Local | SME framework identifies a number barriers to enhance performance 7 Source: 6+1 pillars of SME and entrepreneurship performance OECD (2019), OECD SME and Entrepreneurship Outlook 2019.
- 8. © OECD | Centre for Entrepreneurship, SMEs, Regions and Cities | @OECD_Local | SMEs have great potential 8 Source: (OECD, 2021), Understanding Firm Growth. Helping SMEs Scale Up. In Italy, SME of southern regions with below-national average GDP per capita such as Basilicata (100% rural land), Campania and Puglia have a higher incidence of scaling Spain: SMEs in Andalucia (65% rural land) and Murcia (44% rural municipalities) have higher incidence of scaling than wealthier regions in the country. Based on new microdata work:
- 9. © OECD | Centre for Entrepreneurship, SMEs, Regions and Cities | @OECD_Local | SMEs growth drivers 9 Source: (OECD, 2021), Understanding Firm Growth. Helping SMEs Scale Up.
- 10. © OECD | Centre for Entrepreneurship, SMEs, Regions and Cities | @OECD_Local | Regional attraction policies can foster and strengthen FDI-SMEs linkages productivity and innovation spillovers 10 Source: OECD (2022), Strengthening FDI-SME linkages and ecosystems: A Policy Toolkit. Attracting quality FDI: Beyond job creation and capital investment, FDI can help SMEs and rural areas increase productivity and innovation through knowledge spillovers => but not all FDI has the same potential for spillovers. Increasing SME absorptive/attractive capacity : innovation is an accumulation process that require SMEs to achieve a certain level of productivity/performance => SMEs are often less productive than larger/foreign firms and do not have the capacity for building the linkages that could support transfer. Strengthening FDI-SME linkages : a number of diffusion channels exist that could support knowledge and tech transfer => but there are not all efficient or fully exploit. Creating enabling conditions: all conditions that ensure an optimum in the above, including structural aspects, geographic conditions etc.
- 11. © OECD | Centre for Entrepreneurship, SMEs, Regions and Cities | @OECD_Local | Evidence from the FDI-SME review of Portugal & Alentejo 11 Source: (OECD, 2022),Strengthening FDI and SME Linkages in Portugal. • FDI mainly concentrated in the Lisbon area, with limited spillover potential to other regions such as Alentejo. • Alentejo has high productivity gaps between foreign/domestic firms and a large population of low productivity micro-firms. • Rural area with no access to any functional urban areas within a 60-minute drive • Tailored policy approaches that take into account regional heterogeneity are key to maximizing the benefits of FDI-SME linkages for local economies.
- 12. © OECD | Centre for Entrepreneurship, SMEs, Regions and Cities | @OECD_Local | A complex mix of policies and policy systems with multi-level approaches required Pol Technical assistance Regulatory incentives National strategies and action plans Information & facilitation services Collaborative networks Policy mix Financial support schemes Investment promotion policy Regional development policy SME&E policy Innovation policy FDI-SME diffusion channels channels Value chain linkages Strategic partnerships Labour mobility Competition - imitation 12 Source: EC/OECD (forthcoming), Enabling FDI-SME linkages and productivity and innovation spillovers in EU countries and regions: Towards a Policy Toolkit. Source: OECD (2022), Strengthening FDI-SME linkages and ecosystems: A Policy Toolkit.
- 13. © OECD | Centre for Entrepreneurship, SMEs, Regions and Cities | @OECD_Local | Key messages for policy makers 13 1. SMEs are a critical part of the rural fabric playing a role in economic growth and social cohesion 3. FDI-SME ecosystems are sources of knowledge and tech spillovers to regions. Tailored and coordinated policy approaches are needed that account for regional specificities and the heterogeneity of local SMEs. Innovation, digitalisation and integration to networks can help SMEs be more productive and innovative. 2. Rural SMEs face additional barriers to start up and growth Without an SME perspective it will be difficult to realise rural policy objectives thus policies should go beyond emergency support
- 14. Twitter: @OECD_local LinkedIn: www.linkedin.com/company/oecd-local Website: www.oecd.org/cfe Thank you [email protected]
- 15. © OECD | Centre for Entrepreneurship, SMEs, Regions and Cities | @OECD_Local | Higher education institutions for creating networks and overcoming challenges in rural areas 15 Source: (OECD, 2021), Supporting Entrepreneurship and Innovation in Higher Education in Sweden; (European Commission, 2022), New European Innovation Agenda. HEIs are key actors in regional innovation and development strategies After the COVID-19 pandemic, HEIs transitioned to new forms of teaching and learning, connected their research to the needs of their communities. Fostering industry-university collaborations in training, education and transfer of research knowledge (e.g.EU- funded Digital hubs), including with multinationals Providing teaching that addresses skills gaps in the (local) labour market. Building entrepreneurial skills for stimulating entrepreneurial mindset.
- 16. © OECD | Centre for Entrepreneurship, SMEs, Regions and Cities | @OECD_Local | Examples : Enhancing FDI-SME diffusion channels 16 Partner search: Assisting in finding partners both abroad and in Lithuania for SMEs and research institutions, for creating and implement innovations (strategic partnerships) Startups Connecting Links: Group Portuguese SMEs in specific areas / sectors and approach MNEs to introduce the Portuguese start up ecosystem and the capabilities of companies and their potential, with a double objective: to promote value chain linkages and M&As (value chains) Source: OECD Data Lake on SME and Entrepreneurship Policies, accessed 22 Sept 2022, https://www.oecd.org/cfe/smes/data-lake-flyer.pdf Lithuania France Portugal Territoires d'Industrie : The programme aims to develop industrial skills and the mobility of employees, as well as the attractiveness of territories and industries and the revitalization of brownfield sites. (labour mobility) IP strategy Offer: is a grant scheme which aims to support R&D performing innovative SMES to develop an IP strategy focussed on their individual needs (Competition & knowledge exchange) Ireland
- 17. © OECD | Centre for Entrepreneurship, SMEs, Regions and Cities | @OECD_Local | Examples: strengthening enabling factors 17 Regional investment aid : Investment incentives can be granted for new or established companies in the following types of projects: a) industrial production, b) technology centers, c) combined project of industrial production and technology centers, d) shared services centers (productivity enhancing FDI) Agroimpulso: Financial support for the digital transformation of agro-food industry and rural areas, with maximum loans of EUR 1 500 000 over nine years and minimum contribution of EUR 25 000. SMEs co-finance a minimum 50% of the loan (absorptive capacity of SME) Southern Italy 2030: This strategy aims to i) invest in education for enhancing entrepreneurial spirit and innovation, ii) implement business R&D tax incentives as well as tax reliefs for companies hiring people from Southern Italy, and iii) attract foreign investment through SEZs (agglomeration/cluster effects). Source: OECD Data Lake on SME and Entrepreneurship Policies, accessed 22 Sept 2022, https://www.oecd.org/cfe/smes/data-lake-flyer.pdf Slovak Republic Spain Italy
- 18. © OECD | Centre for Entrepreneurship, SMEs, Regions and Cities | @OECD_Local | Recent OECD publications on SMEs and entrepreneurship 18 February 2021 June 2021 October 2022 November 2021 January 2022 Other CFE/EST publications: OECD (2022) Financing SMEs and Entrepreneurs 2022: AN OECD SCOREBOARD https://doi.org/10.1787/e9073a0f-en OECD (2021) Supporting Entrepreneurship and Innovation in Higher Education in Sweden OECD (2022) Recommendation of the Council on SME and Entrepreneurship Policy
- 19. © OECD | Centre for Entrepreneurship, SMEs, Regions and Cities | @OECD_Local | Let’s take one minute on the current situation 19 Source: OECD (2023 provisional), OECD SME and Entrepreneurship Outlook 2023 and OECD (2019) OECD SME and Entrepreneurship Outlook 2019. • Inflation is breaking records, driven by increases in food, energy and commodity prices • High uncertainty and tightening of market conditions Cyclical trends, megatrends and efficient firm size • Digitalisation and integration in GVCs as major game changers =>