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TRADITIONAL SMES AND INNOVATION:
THE ROLE OF THE INDUSTRIAL POLICY IN ITALY
ENTREPRENEURSHIP & REGIONAL DEVELOPMENT,
V
OL. 15, N. 3, PP 253-271
Secondo Rolfo and Giuseppe Calabrese
Abstract
The aim of the paper is two-fold. Firstly, it analyses the Italian aid programmes for
innovation and technology and, in particular, the role of the regions according to the
more recent theoretical framework. The second aim is to match the Italian SMEs needs
for technological innovation and the state and regional aid programmes. Two empirical
research programmes carried out at Ceris-Cnr (Institute of Economic Research on Firms
and Growth – Italian National Research Council) confirmed that the approach to
innovation of Italian SMEs tends to satisfy the demand of the existing market through
incremental processes. The most common way of introducing new technology is by
purchasing of new machines and equipment to reduce costs and improve quality. All the
industrialised countries tend to favour the linking of SMEs with external sources of
knowledge. The paper shows that in Italy such a policy clashes with the SMEs’ capacity
for absorbing innovation. Most of them lack the technical structures (technical office,
design department, R&D laboratory, prototype department, etc.) and the graduate staff
capable of interfacing with the research world.
Keywords: Innovation, SMEs, policies for innovation, Italy.
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1 Introduction
Since the 1980s all the governments of industrialised countries and of those undergoing
industrialisation have adopted a vast range of instruments which can be considered
policies for innovation. However, this concept has not yet been clearly defined and the
theoretical literature available is still insufficient, while empirical information is
fragmented and, in any case, very recent.
Generally speaking, it is possible to identify two aspects within the innovation policies:
one is scientific and the other is technological. They are substantially based on the linear
model of innovative process, which was criticised by Kline and Rosenberg (1986) in as
much as the relationship between science and technology is extremely complex and
leads to widely varying situations. However, for some time after the Second World War
many governments considered the technological policy an appendix to the scientific
policy and they therefore privileged financing research activities and the growth of
connected structures (teaching and research).
Recent investigations have shown the weakness of this system. The technological part
has become increasingly more important and has been translated into a true
technological policy, by which we mean the overall measures that influence company
decisions regarding the development, the sale or the adoption of new technologies
(Mowery 1994). The intervention of European governments is nowadays almost
exclusively aimed at SMEs and attempts to improve the link between the world of firms
and that of state research.
Since the 1980s all these elements have led the European governments to rethink their
industrial and scientific policies and they are increasingly abandoning the direct aids for
investments and creating a number of more versatile and undirected measures. This
approach has also been followed by some regions as a complement to state programmes.
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At present, innovation policies embrace three main support typologies: mission policies,
diffusion and technology transfer policies and infrastructural policies.
− Mission policies consist of financial support for research into cutting edge
technologies, whether carried out by research institutes or firms. The principal
objectives of these initiatives are to concentrate state financial resources on both
basic research and on applied research at a pre-competitive level.
Support for general technologies through co-operation between businesses appears
more interesting. Examples of this are the Sematech programmes in the USA and
Esprit, Brite, Race and Eureka in Europe. This second and more recent approach is
influenced by the conviction that it is possible to reduce research costs and distribute
the risks through co-operation. However, some empirical research have shown that
economies of scale are not always present and that the appropriation of the results
from joint research is absolutely depending on the precence of internal structures of
knowledge and expertise. The internationalisation, which has occurred in the
scientific and industrial context of advanced technologies, also poses the problem of
coherence between the objectives of the governments and the beneficiaries. In fact
while at a EU level co-operation between companies and research institutes from
different countries is an important objective, the relationship with US or Japanese
companies still poses some problems. In any case it is important to note that this type
of policy for innovation increasingly tends to elude any rigid national formulation to
assume international connotations with all the positive and negative implications
which have already been encountered, for example within the EU programmes and
Eureka.
− The diffusion and technology transfer policies are the most traditional initiatives.
They were based on aids (through subsidies or tax credits) to purchase new
machinery or equipment incorporating innovations. However, as the characteristics
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of the innovative process have changed, throughout the 1980s the emphasis has been
on measures aimed at favouring the transfer of knowledge with particular attention to
SMEs.
Dodgson and Bessant (1996) point out that these policies may be of little use if the
capability gap which often prevents the smaller companies from making use of
external know-how is not filled. For this reason the most recent objectives of these
policies have become: the promotion of research within the companies; the
collaboration between companies and between companies and universities; the
creation of new technology based firms. Moreover, EU promote incentives for the
employment of young researchers and the creation of research groups (permanent or
temporary) with personnel drawn from industry, universities and research institutes.
This type of activity is linked to the conviction that a considerable part of the
innovation is produced tacitly and therefore the diffusion and technology transfer
policies must involve those who created the knowledge.
− According to the most recent analyses (Justman and Teubal 1996) the infrastructural
policies seem to take up a central role since technological development will be
increasingly conditioned by the presence of a state offer of technological capability
available for a variety of applications by companies or institutions. In such a
situation, it is obvious that many of the measures related to mission and diffusion
policies for innovation would be a part of the new concept of Technological
Infrastructure Policy (TIP) such as scientific and technological parks and the research
institutes, which act as catalysts of knowledge and incubators for new entrepreneurial
activities. Nevertheless in various countries numerous experimental projects have
been started at local and national level to set up centres for technological transfer and
foster firms in making use of the scientific and technical services offered by these
centres and universities. In the most advanced countries, this has led to the creation
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of a vast structure of technological services and brokerage that mainly involves three
types of protagonists: the producers of innovation (universities and research centres);
the collective economic organizations (chambers of commerce, industrial
associations); the autonomous institutions created specifically for dealing with
technological transfer (agencies, information centres, incubators).
According to this basic classification, section 2 examines the Italian policy for
innovation at the national (section 2.1) and regional level (section 2.2). Section 3 shows
the main results of a research on the innovation needs of a sample of traditional Italian
SMEs in particular about the obstacles to external relationship (section 3.1) and human
resources (section 3.2). The conclusions (section 4) highlight the improvements to
reduce the gap between SMEs technology approach and the state aids programmes.
2 Innovation policies in Italy for SMEs
The analysis of the Italian situation first of all shows an evident division between the
various types of state schemes carried out between the post-war period and the present
day. For too long education and research systems have been managed separately
without any attempt being made to update and modernise them. Therefore not only have
the two systems remained substantially centralised, but over the years the distance
between them has also increased in terms of knowledge and fulfilment of the
requirements of the country. This is not merely a problem of non-communication or
non-awareness between the world of research and the world of SMEs (Bower 1992;
Charles and Howells 1992). Rather, in the midst of general disinterest, technological
trajectories and learning processes have been forcibly separated as is shown by the
recent research “Road Map for Italy” (Murst-Confindustria 1999). For this reason the
weak mission policy, mainly pursued through the National Research Council, has
principally benefited the university-research system and, to a lesser degree, big
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companies. Until the amendments made in 1995, also the most important innovation
scheme (law 46/82) disfavoured SMEs (Ceris 1997b).
A specific law (317/91) intended to become the principal support for the diffusion and
transfer of innovation in SMEs, but it has been largely disregarded because of: chronic
lack of funds
1
, delays in issuing the necessary rulings and overlapping with other
schemes. In effect this bill has become a simple law for encouraging investments
without therefore leaving the traditional approach of the Italian industrial policy (Tattara
1996), that is, indiscriminate support without a strict evaluation of the projects. The
formulation of this law was in many ways highly innovative both as far as the financial
measures, participatory loans and tax credit were concerned, and with regard to the
adoption of quick procedures. However, its application and the results attained were
considerably less than expected. The intent of the law was to affect simultaneously the
demand and the offer of innovation. In the first case by encouraging SMEs to ask and
absorb innovation. In the second case by facilitating: the setting up of consortia for
supplying real services; loan consorts; risk capital through participatory loans and the
setting up of financial companies for innovation and development.
In this context it is possible to note the lack of an infrastructural policy, above all in
favour of technological transfer. There is no national dedicated structure and measures
aimed at encouraging and urging state and private bodies are totally missing. The recent
and limited experience of scientific and technological parks clearly shows the lack of an
organic and coherent plan.
As far as the important and delicate matter of technological transfer through individuals
is concerned, the measures supporting the employment of young graduates and
researchers has met with unequivocal success and the available funds ran out within just
a few weeks. On the other hand the transfer of state researchers was a failure due to the
opposition of the researchers and the deep separation between SMEs and state research.
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Further critical elements emerge from the comparison with other countries. There is no
strong agency
2
and no links between firms and the university and research system which
elsewhere plays the role of supporting the introduction of young graduates in firms.
2.1 National policies
Overall, the Italian measures of industrial policies are generally structured into three
operating procedures: automatic, valuable and negotiable. The automatic procedure is
applied in case the examination of the investment plan is unnecessary. The valuational
procedure concerns systematic and complex projects to carry out after the application
proposal. The negotiable procedure refers to territorial or industrial development
programme within schemes of collective agreement.
In 1999 the Italian innovation policies have been thoroughly revised and complied with
this pattern:
− the automatic mechanism are granted through subsidies or tax credits to SMEs with
poor financial resources and without structured research and innovation (research
orders, purchase of machinery and know-how, consulting fees, recruitment of
researchers, temporary transfer of state researchers). This level is being partially
delegated to the regions;
− the valuable procedure occurs in the presence of research projects presented by firms,
universities or other public bodies (industrial or pre-competitive research,
international cooperation, training of researchers, setting-up or up-dating of R&D
laboratories, new technologies based firms). The financial and scientific evaluation is
done by ministerial offices;
− the national research programmes are included in the third level. With this instrument
the Italian Government singles out main subjects and arranges calls for proposals.
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Since 1997 the state grant is partial and the private contractors maintain the property
rights of the results.
The more the procedure is demanding, the higher the size of the benefit is. The same
project receives more financial subsidy by the negotiable procedure than by the
valuational and, of course, by the automatic mechanism (Rapporto Met, 2001).
The attention paid to SMEs within the industrial policies is slowly evolving, in
particular with regard to innovation, which is often considered to concern exclusively
big companies. In the past state aids usually suffered from planning incapacity, short-
run vision, excessive bureaucracy, decision making centralisation, lack of co-ordination.
Nowadays the simplification of the procedure for applied research, the increase in the
use of EU funding, the co-ordination of the territorial and industrial district pacts, the
new role carried out by the regions, are just a few examples of the change.
The proliferation of laws has always distinguished the Italian state aids. 30 regional and
10 national laws refer to innovation with a plurality of support measures. At a more
general level the national system of support has mainly favoured process innovation
than product innovation (table 1). Because Italian SMEs generally show considerable
difficulties in accessing innovation, policy-makers should enlarge the approach to
innovation more than the mere acquisition of technology by machinery.
Insert table 1 about here
In recent years new measures have been adopted to achieve specific targets. In some
cases they are a copy of the law 317/91 but are limited to the depressed areas, while the
317/91 is valid for all Italian SMEs.
As a matter of fact, the only valid option for the SMEs is still the law 46/82 which has
recently been amended to facilitate SMEs in proposing projects in applied research on
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their own. In fact, the new procedure includes: absence of specific guarantees and
revision of the criteria of assignment, focussing attention on the definition of the
objectives and the economic returns, simplified description of costs, prefinancing,
fulfilment of the applications in 60 days. The procedures for evaluating the economic-
financial reliability are reduced to assess that the applicant does not have company debts
above 50% of the turnover; shareholders’ equity is more than 50% of the cost of the
research project (net of the grant); financial charges are less than 8% of the turnover.
2.2 Regional policies
The formal competencies delegated to the Italian regions
3
as far as industry is concerned
are very limited in spite of the text of the Constitution. Regional industrial policies have
encountered a lack of effective legislative power and of available financial resources.
The Italian regions are, in fact, included in a model of derived financing from the State
budget with tied up funds and without any form of direct fiscal drag. Nowadays, the
central government has displaced some competencies to regions in the field of the
automatic procedures through subsidies.
However, this situation has not prevented some regions from progressively proposing a
series of laws and, at the same time maturing competence and professional skill capable
Insert figure 1 about here
of encouraging local development. Above all in the northern regions it is now possible
to observe a coherent set of rules.
Since the 1980s the Italian regions have joined the national government in actuating
policies generically defined as “for innovation”. In reality the measures adopted at a
local level pursue only, in part, the overall polices for innovation and technology, in fact
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the mission policies to support R&D lie within the competence of the central
government. For this reason Italian regions focused above all on the policies for the
diffusion and transfer of technology and at a lesser extent on infrastructural policies.
The most traditional initiatives were based on encouraging the purchase of new
machinery and new equipment incorporating innovation. In the 1990s the changes in the
innovative process have emphasised the measures aimed at favouring the transfer of
knowledge. Other more recent objectives of the regional policies are: the
encouragement of applied research; the co-operation between companies and between
companies and universities or state research centres; the spin-off in high technology
industries.
In the industrial field the Italian regions tend to pursue three objectives:
- policies to support competitiveness;
- measures aimed at promoting infrastructures and services;
- initiatives to aid territorial areas, industrial districts and areas of re-industrialisation.
As far as innovation is concerned the next three sections will examine each of these
targets.
2.2.1 Regional measures for innovation and quality
All the Italian regions have at least one law for innovation or quality although
considerable differences exist for objectives and forms of facilitation. For instance the
southern regions have rather restricted areas of intervention and generally realised with
structural funds. Other differences are to be found in the presence of particular
requirements such as co-operation between companies, consortia, type of industry,
localisation in the objective areas 2 and 5b, women’s entrepreneurship, occupational
increase, development of R&D laboratories, set-up of company incubators or new
technology based firms.
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The forms of facilitation fall within financial aids and could not be otherwise given the
regions’ inability to adopt tax or employment aids. Initially the Italian regions adopted
soft loan and strict selection procedures. In time however more traditional forms were
introduced as capital and interest subsidies, above all in favour of investments made by
minor or craft businesses. Recently also participatory loans have been adopted.
Regional support in favour of innovation is mainly concentrated on innovation of
product and process. With only a few exceptions, most of Italian regions consider both
innovative methods simultaneously.
Since the beginning of the 1990s the Italian regions have considered the development of
total quality as a further area for supporting improvements in the production process, the
productivity and the competitiveness of companies. The theoretical assumption is that
investment in quality is the first step to invest in innovation. In this area the Italian
regions have been particularly rapid in formulating forms of support. In fact Lombardy
was the first region in Europe to act in favour of quality, but other regional legislators
rapidly took up the same objectives. While the contributions are not high, on average
between 10 and 20 thousand of Euros, the regional initiatives have often managed to
convince companies to invest in quality. In fact while investments in quality were
initially seen as acquisition of a competitive advantage over direct rivals, at present they
are seen as necessary costs in order not to lose competitiveness.
The analysis of the legislation has shown many differences from region to region.
Impact evaluation is quite impossible because: first, some laws have come into effect
quite recently, second, most regional laws often do not oblige regional councillorship to
prepare technical-financial reports on the measures carried out. This is a widespread
lack of information on the state of actuation of the regional laws and a profound
difficulty in the evaluation of the results. Even in the cases where data has been
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gathered, they are frequently lacking in order and method and in assessment of the
benefits obtained.
However, as shown in table 2 almost 4000 companies in the regions in which it has
been possible to gather final data, have benefited from contributions and facilitation in
setting up quality control systems, and more than half of these were in Lombardy alone.
The average contribution was approximately 15 thousand Euros, while in Piedmont,
where the type of incentive was soft loan, the average value was almost 45 thousand. As
far as innovation is concerned more than 1300 companies received support.
In some regions the potential for activation of regional financing has generated
investments which were three times greater.
Insert table 2 about here
2.2.2 The lack of infrastructural policies
The traditional measures are insufficient to cover the increasing needs of the SMEs
above all in terms of: direct and concrete support for innovation; availability of
information; training of technicians, appropriation of the results of external research
(patents, trade marks), etc.
These defects have been widely accepted and interpreted in the development of the
policies for technological innovation in other industrialised countries, in particular
France, UK and Germany (Ceris 1997a). They have focused, both at a national and a
local level, above all on measures designed to improve links between firms and research
which are essential to create that substrata for the growth of a culture and an
entrepreneurial approach aimed at technological innovation. The local governments of
these countries have therefore accentuated the infrastructural policies since the
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conviction that the technological and scientific infrastructures represent the skeleton of
an innovative system.
In Italy, the infrastructural part of the regional policies for innovation show serious
limitations not only due to the delay with which these problems have been faced
4
, but
above all due to the superficiality in planning and managing of the various measures.
Due to the lack of national and regional laws and programmes
5
, the decisions of local
administrators have been influenced by the availability of EU funds rather than a correct
analysis of the local situation and the real needs of the firms.
Ceris (1997b) has identified only 161 operative structures of which the centres offering
services of a technological type (wholly or in part) are only 80
6
. Moreover, many of the
institutes examined had only a modest level of activity or were in an initial or terminal
stage of their being. The same is true of the 23 Italian scientific parks: very few of them
are fully effective and can not be compared French technopoles or UK science parks.
The Italian infrastructural system for innovation is currently in a delicate situation of
transition. Only a few centres are fully operative and self-financing, while the others
either are in trouble or promptly failed squandering state funds without leaving any
trace of their actions. Amongst the few successful activities are some centres for
services to innovation located in industrial districts. In fact more than half of the service
centres studied by Ceris (42 out of 80) have their headquarters in industrial districts with
a high concentration in the areas with a lengthy local tradition (Piedmont and
Lombardy) and of considerable regional aid (Emilia Romagna and Tuscany). The
success of these centres is closely linked to the location, the more vital and expansive
these districts are the easier it is to find efficient structures (Calabrese, Cariola and
Rolfo 2001). The results of this situation have unfortunately been translated into a high
rate of failure of projects proposed and delays in reaching the operative stage due to this
need to overcome resistance and obstacles of various kinds. In fact, the successful
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centres are evolving continuously and tend to be more similar to consulting companies
rather than state agencies.
A further critical element is the substantial isolation of many centres both with respect
to the training and research institutes present in the area (universities, state research
centres), and to similar structures operating in other areas or other regions. This causes,
for example, the lack of common initiatives that in other countries allow a synergetic
relationship between these institutions by offering competencies and equipment
7
. The
lack of synergies leads in some cases to competition at a local level in the supply of
certain services, for example laboratory testing, which can be offered by both the
service centres, by other state structures present locally such as research institutes (CNR
and ENEA) and by industrial technical institutes. This is not a positive phenomenon for
the local system which cannot globally and synergically manage the activities of the
state institutions, nor for the latter who may be led by opportunistic behaviour (funds
from the sale of services) to distance themselves from institutional activities.
As far as isolation is concerned, it must be emphasised that this not only causes non-
circulation of experience, but it also determines a competitive situation due to the
evolution of the more active centres towards the offer of services with a higher
technological and qualitative level, and the expansion towards other areas.
2.2.3 Innovation policies for industrial districts
In accordance to the law 317/91 the industrial policy for districts is completely
delegated to the regions, but after 10 years we are still at the beginning. In fact, at the
end of the year 2000 only 5 out of 20 regions had completed the legislative procedures
(recognition of the districts, indications of the objectives, setting up of local committees
and identification of the aids).
The delays and the hesitation of the regions are largely attributable to the ambiguity of
the delegation set out by the 317/91 law that prescribed high limitations. For instance,
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the regions could support only innovative projects relating to more than one firm, on the
basis of a programme contract stipulated between consortia and the regions. Apart from
the restriction of the beneficiaries only to the groups of firms (dictated by the worry of
transferring to the regions the management of incentives to individual firms), this norm,
if applied to the letter, reduced the intervention margin of the regions to a minimum.
The regions have forced the national regulations, extending the benefits to centres for
innovation or bland forms of association, and substituting the programme contracts with
programmes for regional development. In the majority of cases, the beneficiaries of the
programmes for the districts remain collective subjects but the temptation to repeat the
system of incentives in favour of individual firms is ever present.
Lombardy has been the most active region. In 1993 it had already recognised the
districts, defined the procedures for predisposition of the development plans and
allocated the funds. The content of the different regional laws are very similar, often the
same lexical format has been used, in particular concerning the financing and the aims
of the projects. In this sense the Lombardy law may be considered a true prototype. The
regional laws do not deem the district as the sum of many SMEs, but rather as a single
and organic structure of firms that interact with the institutional bodies in order to
analyse in depth the problems of the productive system, pursue the more efficient use of
existing industrial policies, seek and activate new forms of intervention. It is the entire
system that is considered a beneficiary of the support and not the individual subject. For
this reason the original mechanisms of cooperation and collaboration are favoured and
the SMEs are required to form a consortia of not less than five to realise one or more
projects.
For the aims of the district programme, the state bodies (chambers of commerce,
industrial development consortia) and territorial bodies (provinces, mountain
communities, town councils), the consortia, the service centres, the state and private
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research centres, the associations of SMEs, the industry associations and the unions can
prepare development projects which must refer to at least one of the following subjects:
joint service centres to support innovation in SMEs; information desks to promote
innovation; promotion of foreign markets and internationalisation of production;
promotion of cooperation between SMEs for R&D and for technology transfer,
technological structures and laboratories for quality control; renovation of abandoned
industrial areas; activation of information technology networks; joint logistic structures;
urbanisation.
The regional intervention consists, in all the regions, of capital subsidies to the extent of
40% of the expenses admitted (50% in Campania and Liguria), with a limit in absolute
value of 250 thousand Euros per year and 500 thousand Euros per three year period (the
double in Campania), and is not cumulative with other contributions.
The aspect which most links the regional laws seems to be the search for self-awareness
within the district, above all in the smaller ones, with the setting up of joint service
centres or information desks, and in the organization of observatories or of “economic
animation” agencies.
Technological innovation is pursued above all in the programmes of the industrial
districts of the most advanced regions such as Lombardy, where the law has been
operative for years. In this region attention is paid to product innovation, with specific
emphasis on technical information and quality control. Innovation in the field of
management is also significant, aimed at responding to the numerous requirements of
the individual businesses in the financial, legislative and marketing fields.
3 Innovation and Italian SME’s
Since the 80s there has been a growing body of literature that focuses on the innovative
behaviour of SMEs. These studies while significantly fewer in number than those
- 17 -
related to large firms, are often characterised by output measurement and the related
R&D process (Link and Bozeman 1991).
Although in many cases it has been possible to demonstrate Schumpeter's (1942) theory
of a positive relationship between size and innovation, the results have shown a certain
ambiguity and inconsistency (Acs and Audretsch 1991; Toedtling 1990; Vossen 1996).
The main cause seems to be imputed to the scarcity of tools capable of measuring the
intensity of the firms' innovative efforts (Kleinknecht and Rejinen 1991). The larger the
size of a firm (and the more its research activity is structured) the easier it is to single
out the indicators from the rest of the activities. The most innovation proxy variables
used are R&D expenditures, the number of employees in R&D and patents. Besides,
SMEs are an unhomogeneous set of firms over conditioned by the type of industry and
the presence of big buyers and suppliers (Holmlund and Kock 1996, Quayle 1998).
It is important to point out that the innovative activity of SMEs is almost always carried
out in a non-structured way by personnel or departments which predominantly organise
other activities (Rothwell and Dodgson 1994). These are often innovative processes of
incremental or imitative nature where the main factor is learning by doing or learning by
using (Favaretto 1989).
The presence and the results of this informal activity emerge, therefore, from other
indicators such as the product or process innovations introduced. This informal research
activity is aimed towards incremental improvements rather than radical innovations
(Santarelli and Sterlacchini 1990).
In order to highlight the innovative approach of Italian SMEs, the Ministry for
University and Scientific Research launched at the end of the 90s a research programme
(Road Map for Italy) focused on the SME needs in terms of innovation and best
practices and policies. This programme involved 300 SMEs operating in mature
industries (mechanics, automotive, textiles-clothing, food and chemical industries)
- 18 -
characterised by low level of technology (Table 3). The firms were indicated by the
local entrepreneurial associations in four regions characterised respectively by strong
role of big companies (Piedmont), large presence of industrial districts (Emilia
Romagna and Tuscany), low economic development rate (Puglia)
8
. The questionnaire
was focused on the SMEs needs for technological innovation by the description of the
last product and process development, the internal competencies, the support of
suppliers and industrial customers in the innovative process, the adoption of information
technology, the role of human resources, the obstacles to innovation.
The first important result of this survey is that entrepreneurs attribute limited
importance to innovation even if they never admit that their companies are characterised
by a low technological level (Rolfo 2000).
Insert table 3 about here
The fundamental reason is due to the fact that SMEs are created on the basis of an
enterprising idea. In all the interviewed firms, the role of the entrepreneur is a
stimulating factor and, to the current day, a source of innovation. The participation of
the entrepreneurs in designing and innovation activities is high and preserves a greater
position of control and influence in this field with respect to production activities.
Often, in fact, notwithstanding the presence of technical structures devoted to
innovation or functions in charge of monitoring the market on international level, the
decisional responsibility is devoted to the entrepreneur intuition or experience.
The prevalently technical background of the entrepreneurs is what distinguishes these
small production realities with respect to the new company start-up analysis conducted,
for example, in English-speaking countries, where more frequently the efforts of a team
covering different and complementary skills can be found at the basis of a new firm. In
- 19 -
Italy, on the other hand, entrepreneurs act essentially alone and are directly involved in
all the company activities from the beginning. This full scale involvement offers few
opportunities for creating and developing an internal technical group which can become
a point of reference for the company. This situation has strongly influenced the
technological culture of the Italian SMEs that is essentially based on traditional know-
how acquired on the job. The innovation process generally follows the trial & error
approach.
The involvement of technical staff is strictly related to the educational level of the
entrepreneur: as highest is it (e.g. university degree) more (75 %) the firm has a
technical office.
The presence/absence of the technical office outlines two different firm behaviors:
− In the firms equipped with a technical office some innovative aspects can be found,
as for example the cooperation with buyers or suppliers in product development or
the setting up of small R&D laboratories. These are generally annexed to the design
offices where the R&D programmes are developed very often part time. The research
is essentially represented by the development of new products. The temporal
horizons is short-term, in principle the projects must be industrially marketable
within a year. In some companies, the definition of R&D laboratories differs from
the usual standards but in any case they represent a tool of absorptive capacity as
defined by Kinder and Lancaster (2001).
− For the cases in which the need for a technical office is not taken into consideration,
new products are developed on the basis of experience, i.e. on the technical skills of
the entrepreneur whose sharing the innovative activities can seriously endanger the
initial success. This occurs for two reasons. Firstly, he is focused on solving
technical tasks and not on creating a dedicated structure which can support the lack
of designing advanced skills. Secondly, the source of innovation mainly originates
- 20 -
from well-tried and familiar areas and it could raise difficulties in adapting rapidly to
technological leaps.
3.1 Obstacles encountered in external relationship
Most Italian SMEs tend to solve all innovation factors inside or with the end customer,
without acquiring a wider vision of the real obstacles to development and undertaking
alternative paths. Only the firms with a greater presence of graduated employees and
positioned in the most dynamic market industries are partially open to the outside.
This is the case, in fact, of industries which innovate without research. The innovations
are based on accumulated experience and know-how created by the appropriation of
information following the spill-over channels. A good example of this is co-operation
with suppliers.
Another reason which explains the difficulty in employing the state research
organizations
9
lays in the very practical and application-oriented approach required by
the SMEs. This is generally specific to a very restricted area. It is, in fact, basically
impossible to find researchers with such specific skills in the public research
organizations or universities. The obstacles encountered in the creation of this sort of
relationship can be sought mainly in the differences in interests, language and culture -
even though bureaucratic problems and long waiting times are also ascribed.
In this context, the approach to improving the relationship between universities (CNR,
etc.) and companies can only take a top-down approach. Considering that the SMEs
cannot provide requests to the state organizations, the latter will need to invent a
“service” which can satisfy the not expressed technological needs of SMEs.
The SMEs consequently complain of poor undertaking and low visibility of the
activities of universities and research organizations which, generally, do not have a
market oriented approach - by vocation or due to institutional constraints - and
- 21 -
consequently tend to conduct research without “advertising” it very much and without
contacting the SMEs which could be interested.
Another obstacle in the relationship between SMEs and universities and research
centres is the participation in EU research schemes. A specific condition states that 50%
of the R&D costs related to the activity to be financed must be sustained at the promises
of the universities or state research bodies. The researches proposed by SMEs in many
industries do not usually carry such a high technological content to require 50% only for
basic research or strongly scientifically oriented contents, which is the support generally
provided by universities. The type of research of the SME is often more strictly applied
and cannot always be adapted to the university reality. Consequently, the relationship
with research institutions is considered not strategic and the component, material and
machinery suppliers information channel is still privileged. In order to incentivate the
joint participation of firms and universities to externally financed research schemes, it
would be useful to simplify and speed up bureaucratic proceedings and decrease the
resources quota to be devoted to basic research or high scientific contents.
3.2 Human resources and the labour market
The low number of graduates (especially engineers) in the SMEs is the result of social
and cultural factors which lead to consider graduates as potential candidates for
managerial jobs, which in SMEs are often concentrated in the hand of the owning
family. This leads to the tendency for young graduates to leave the SME after a certain
period of time, mainly to be employed in larger companies, and triggers a viscous circle
making the entrepreneurs prefer high school leavers hoping that they will stay with the
company longer.
The scarcity of graduated personnel perfectly matches a reality which employs the trial
& error innovative mechanisms typical of the traditional technical culture. Graduates
- 22 -
(especially engineers) should take advanced skills and methods into the firm but these
are often in contrast with such a culture. Often the entrepreneurs declare with
satisfaction that newly employed engineers go through a training period at the drawing
board or in the workshop. Rarely do the SMEs see the turnover of graduated personnel
as an opportunity for technological updating.
Nowadays, the positions missing in Italian SMEs are characterised by technically and
diagnostic skills (retrieving, interpreting, handling information) with solid interpersonal
and decision making attitudes. This entails reviewing the current school curricula to aim
for a mixed educational process which combines a greater interaction of theory and
practice obtained in in-company training schemes.
In general, SMEs acknowledge that graduates (especially engineers) have a good
theoretical preparation but lack in practical knowledge. On the other hand, for technical
and vocational school leavers, the attitude appears to be split into two. Some say that the
state is part responsible for all the shortcomings in training and others believe that an
attitude of greater co-operation between schools and industries would be useful. The
solution to fill this educational gap will probably be found by facilitating co-operation
between school and profession/production in areas where there is currently not much
harmony.
The picture shows the discrepancy between school and industry whereas schools cannot
organise specialised courses to educate the most desired technical figures and the latter
cannot express their needs to the students so that even where such courses are organised
few of them take part.
In this context, the actions undertaken by many firms aim at creating relationships with
some schools offering the students in-company training schemes lasting a few weeks.
These opportunities allow firms to evaluate the potential candidates not only from a
school education point of view but also by their personality. Since the need for on the
- 23 -
job training is widely accepted, recruitment aims at certain skills and attitudes, firstly
flexibility, availability to learn and attitude to changes. These are, in fact, the individual
response of the entrepreneur to a rigid labour market which is deemed the major reason
for not taking on new personnel. It is preferable to seek new organizational solutions in
the firms - which in some cases are very costly - rather than “facing” new recruitment
which entails training and introduction costs and which, above all, restricts the company
structure which can no longer be modified in slack periods.
4 Next steps
The evidence reported in the previous sections allows us to offer some useful
suggestions about the revision of the industrial policy for innovation and technology for
traditional Italian SMEs.
The research reported here confirms that the national system of incentives for
innovation is widely known. The high percentage of companies in the sample which
have benefited from at least one aid for innovation and the complaints of those
companies who for some reason did not obtain them show how consolidated these aids
are.
However, a general negative opinion of the industrial policies emerges from the
interviews. Not all entrepreneurs agree with the proliferation of aids. In fact, according
to some, these forms of assistance “drug” the market, the state should rather improve the
country’s infrastructures and place all companies on the same level.
Those laws in favour of the South that reduce taxes for a given period or favour limited
geographical areas are particularly criticised. Others recognise their theoretical validity
that is however accompanied by effective uselessness, due to the need to present
voluminous and complex applications.
- 24 -
Many firms who have applied in the past (whatever the outcome) would not do so again.
The dead-weight effect is considerable. Due to the lengthy waiting times involved and
the uncertain outcome, the state aids do not affect investment decision. If the outcome is
positive the company would then enjoy a reduction in costs. In such a situation the
efficacy of the measure is approximately nil.
Automatic instruments, such as accelerated depreciation or tax credits, are preferred, as
well as capital subsidies. Nevertheless the company’s interviewed recognise that the
best results are obtained with specific projects.
On the basis of the sample of firms analysed it is possible to suggest a net division
between:
− Aid focussed on process innovation which should be financed by capital subsidies
and automated aids, with a high rate of security, few formalities, rapid response and
ease of use. The percentage of contribution must be limited. The process innovations
are linked to rapid changes in the market and the automatic aids may facilitate the
adoption of new technologies.
− Incentives focussed on product innovation which should be partly financed by very
soft loans. The project must be highly formalised in order to favour selection by a
qualified commission. The percentage of contribution should be proportional to the
difficulty of the project.
Moreover, the relationship between companies’ capacity for absorption of external
technological activities is closely linked to the internal organization of the companies.
In the case of SMEs this capacity for absorption is not necessarily related to R&D
laboratories but more to the technical development. This is at least true for the majority
of companies in traditional and mature industries. The offer of technological services
from an outside research body becomes useless - even when free of cost - if the SMEs
- 25 -
are not capable of formulating a suitable request and accessing a minimum of in-
company professional ability.
This confirms the importance of innovation, which is not based on formal R&D input.
In these firms the sources of innovative activities are technical planning, product
development and the acquisition of technology incorporated in capital assets. Some of
these (e.g. CAD/CAM/CAE/CAS and test equipment) are not very diffused among the
Italian SMEs, but are becoming increasingly essential. These technologies fall halfway
between process and product innovation and can strongly support firm growth.
Another important step is the absolute necessity of infrastructural policies. If we attempt
to compare the Italian situation with that of other European countries, as well as the
quantitative differences already mentioned, the qualitative differences become most
evident. In fact the numbers include a plurality of typologies, objectives and supporters
which belong specifically to each centre. These typologies such as university and
research centre co-ordinating offices are practically unknown in Italy, as well as
demonstration centres. The European commercial chambers almost everywhere are
heavily involved in performing services, even though they are often limited to basic
information and initial contacts.
In countries such as France and Germany the specialisation of the service centres is seen
as fundamental in terms of services provided, of clients served and of supporting
institutes. Clearly this causes the creation of a fairly high number of structures which
could at first seem excessive compared to the needs of the companies but which is
shown to be effective thanks to the capacity to operate within a regional or national
network. The activities of the local state operator are therefore directed not at creating
new structures, which is left to the single or the collective promoter, but to sustaining
the national initiatives in favour of local interests and activating that network of links
- 26 -
which will facilitate SMEs access to various services. This certainly does not eliminate
the risks of overlapping, but competition is effective only for truly marketable services.
In other words with respect to the Italian situation the foreign experiences show strong
specialisation in one or more of the objectives which are functional to the interests of
the promoters without expecting to unite diverging or dissimilar interests. The local
administrations (municipal and provincial), while participating in individual measures
for providing services, are now oriented to create not service centres, but networks
between the players operating in the territory or economic development agencies
capable of co-ordinating and stimulating local and external operators
10
. Moreover, the
industrial system can avail itself, generally at a level of sectorial structures specialised
in research and in the allocation of technological services, of a private nature (Germany
and UK) or state (France).
This type of institutional bodies do not exist in Italy and therefore determines a
tendency to load service centres with supplementary duties, which are excessive in
relation to their resources. This situation could be justified during a pioneering and
spontaneous phase of creation of these structures. However in the light of the experience
matured in recent years it is about time that the regional and local policies for
innovation in small businesses take on a more modern and adequate aspect.
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- 29 -
Table 1: National laws for innovation and technology in Italy
CONTENTS 1329/65 46/82 67/88 346/88 317/91 488/92 598/94 104/95 140/97 449/97
Procedure
Automatic
Valuational
Negotiable
Automatic Valuational Valuational
Valuational
Negotiable
Automatic
Valuational
Valuational Automatic Automatic
Delegated to regions
YES YES YES
Only SMEs
YES YES YES YES
EU Objective 1, 2, 5b
YES YES
Type of incentive
Interest
subsidies
Soft
loan
Capital
subsidies
Capital
subsidies
Interest
subsidies
Capital
subsidies
Capital
subsidies
Tax
credit
Capital
subsidies
Interest
subsidies
Capital
subsidies
Interest
subsidies
Tax
credit
Tax
credit
Process Innovation
YES YES YES YES
Product Innovation
YES YES YES YES
R&D
External
Large
project
Internal
Setting-up or
up-dating
R&D lab.
Internal External
Technology transfer
YES YES
Services
YES YES
Training
YES YES YES YES
Other objectives
International
cooperation
Venture
capital
R&D
infrastructure
Environment
Know-how
purchasing
Recruitment
of researchers
- 30 -
Figure 1: Regional subdivision of Italy
Sicily
Sardegna
Calabria
Basilicata
Puglia
Campania
Lazio
A
bruzzo
Molise
Emilia Romagna
Tuscany
Umbria
Liguria
Piedmont
Valley
of Aosta
Veneto
Friuli
Venezia
Giulia
Lombardy
Marche
Trento
Bolzano
- 31 -
Table 2: Some results of the regional aids (cumulative data till 1997 included)
Quality Innovation
Regions
Type of
financial
support
N.
applications
N.
applications
granted
Regional
funds
(mil Euro)
N.
applications
N.
applications
granted
Regional
funds
(mil Euro)
Total
investment
(mil Euro)
Activation
Ratio*
Valley of Aosta
Capital subsidies n.a. 8 0.15 n.a. 1 0.3 n.a.
Piedmont
Soft loan 500 397 18.1 896 584 26.8 116.8 2.60
Capital subsidies 2,700 2,102 34.1 470 337 13.5 202.9 4.26
Lombardy
Soft loan 576 303 36.4 108.9 2.99
Capital subsidies n.a. 43 n.a. n.a. 83 4.29 n.a.
Bolzano
Soft loan 19 10.8 n.a.
Veneto
Soft loan 44.9 90.2 2.01
Marche
Capital subsidies 770 646 n.a. n.a.
Umbria
Capital subsidies 608 530 5.5 10.9 1.97
Lazio
Capital subsidies 321 184 2.9 15 12 0.3 11.0 3.43
TOTAL 3,910 60,6 1,339 121,9 540,7 2,96
* This is the ratio between the total investment and the regional funds
Source: Calabrese, Cariola and Rolfo (2001)
- 32 -
Table 3: Firm distribution according to industry and technology level
Technology level* Food Mechanics Chemistry Textile Total
Technology competent
3,0 22,7 7,7 2,0 13,2
Minimum capabilities
57,6 52,7 65,4 47,1 53,2
Low technology
39,4 24,5 26,9 51,0 33,6
Total
100 100 100 100 100
* Crest taxonomy (Scientific and technical Research committee)
1
In particular the funds available for the innovative investments have been used to cover only partially
the numerous applications. In fact, capital subsidies were granted only to those companies which applied
the first day the law came into effect and they have received on average a contribution equal to 16.25% of
the investment made. Overall a billion lire has been granted and the grants have covered only 50% of the
applications.
2
For example ANVAR in France and the Teaching Company Directorate in UK.
3
Italy is subdivided in 20 administrative regions. The region Trentino Alto Adige delegated the compe-
tencies on industrial policy to its special-status provinces Trento and Bolzano (figure 1).
4
It must be noted that in the 1980s some regions such as Emilia Romagna have carried out pioneering
work in this field and are even taken as models abroad. However, the results seem more modest than the
ones described in the literature (Cooke, 1996)
5
The law 317/91 and the law 46/82 are the only instruments available in this field even though they have
modest funds and many limits. In any case they have been activated only in the 1990s.
6
For comparison it must be noted that at the end of 1996 in Germany no less than 1,036 structures were
operating in the field of innovation and technological transfer (Reinhard and Schmalholz, 1996)
7
From the Ceris research only two cases of active collaboration between the service centres and the re-
search institutes were found.
8
The SMEs were face to face interviewed by Ceris-CNR of Turin, University of Bologna, S. Anna
School of Pisa and Technopolis of Bari.
9
The most important are the National Research Council (CNR), the Energy and Environment Agency
(ENEA) and the National Institute of Nuclear Physics (INFN).
10
Exemplary in this area is the recent experience of the new German Laender (Pleschak, 1995).
