innovation COMES IN SMALL PACKAGES

Small, medium and micro-sized enterprises (SMMEs), a central policy focus area in South Africa, specifically with regard to economic growth and employment creation, have the potential to become engines of innovation. But lack of funding hampers the sector's innovation development. Irma Wilkinson believes that current SMME policies and programmes need to be broadened to stimulate innovation.

For this study we selected all enterprises with 200 employees or less from the data of the National Innovation Survey 2002-2004. The SMMEs sample was then extrapolated to represent the total SMME sector in South Africa.

The study thus recommended that current policies and programmes which support SMMEs need to be diversified to include a specific focus on innovative, or knowledge-based SMMEs, particularly micro and medium enterprises.

The smaller the better

The analysis indicated that small enterprises that employ between five and 100 employees were more innovative than large enterprises. Research and development played a crucial role in the innovative activities in the sector.

The analysis also found out that SMMEs received little funding from government for innovative activities, with only a fraction (6%) indicating that they received financial support from government sources for this purpose. The relationship between the inclination to innovate and SMMEs (defined in terms of size) was significant, with innovation propensity decreasing as the firm size increases.

Despite lack of government funding, 51% of SMMEs were able to carry out innovative activities in-house. This indicates that the majority of SMMEs use their own funds for innovative projects. Of the 51% SMMEs, 47% undertook research and development (R&D) in innovation activities. Only 16% of the 51% innovative SMMEs cooperated with other enterprises and organisations in their innovative activities. This rate is low compared with innovative small and medium enterprises in the Organisation for Economic Cooperation and Development (OECD) countries. Cooperation between innovative SMMEs in South Africa and foreign partners was especially weak.

Greater diversity in policies

Although innovative efforts by SMMEs appear to be widespread, SMMEs as a whole cannot be considered to be engines of innovation in South Africa. The study thus recommended that current policies and programmes which support SMMEs need to be diversified to include a specific focus on innovative, or knowledge-based SMMEs, particularly micro and medium enterprises.

Targeted, improved and comprehensive SMME support is required in order to foster the development and competitiveness of innovative SMMEs and entrepreneurs. Deliberate efforts, which include government action, are necessary to absorb innovations especially in an uncertain macro-economic environment.

Irma Wilkinson is a researcher in Knowledge Systems.