Fabian Demicoli

Innovation and the Maltese SME

 Innovation statistic scores show that while Malta has shown a marked improvement we are still lagging behind the EU27 average. We are placed in the "catching up group". Our improvement over the last few years however, has been above the EU27 average. Investment in research innovative R&D is relatively low in spite of the Government's efforts. Maltese SMEs are however, showing a marked improvement in non-research innovation such as in marketing and sales processes. Uptake of ICT and broadband has been above average and our SMEs are ready to embrace new technologies. They truly believe that investment in ICT will help them run their businesses.

We see continuous advances in the use of ICT in both business to business and business to consumer areas. The successful uptake of government and EU funded schemes is evidence of this. A good example is the eCommerce initiative.

SMEs were awarded up to 12000 Euros in tax credits to create an eCommerce platform for their products and services, an initiative which was welcomed and which has resulted in many enterprises successfully setting up shop online. The results are encouraging. Admittedly, these were funds spent on non-research innovation. The positive response to the ERDF schemes managed by Malta Enterprise is also worthy of note. The number of businesses who submitted projects under the various sections was considerable and they came from varied sectors. The issue that remains, then, seems to lie in creating new innovative ideas as part of the product rather than the tools that our SMEs use to market and sell their products.

But what is holding the Maltese SME back from investing in research innovation? Our experience seems to point to education as one of the limiting factors. Many of our SMEs have little formal training and therefore may not have the knowledge required. The cost of hiring consultants can be prohibitive. Many resort to re-investing their profits in their business along traditional lines rather than attempt innovation which can be risky. Innovation involves opportunity identification, ideation or invention to development, prototyping, production marketing and finally sales. Entrepreneurship, on the other hand only needs to involve commercialization. To encourage existing entrepreneurs to innovate we must first ensure that they are content doing their business by fostering the right environment. We cannot expect entrepreneurs to invest in research innovation in an environment that does little to encourage entrepreneurship in the first place.

So what is the government's role in promoting and encouraging our entrepreneurs to be innovative?

Our regular business surveys show that our SMEs constantly complain of government bureaucracy and inefficiency.  Through our association with our partners in Brussels we are aware that this phenomenon is widespread across the European Union and there is much to be done to mitigate against this. The quality of management models in research and innovation funding must be enhanced in order to maximise the impact of every euro spent. Rules and procedures should be simplified to encourage companies to participate in research and innovation Framework Programmes. To even consider research innovation, the SME has to be confident that bureaucracy will not hinder his progress and render his project a non starter. Take for example, the training subsidy schemes that are managed by the Employment Training Corporation (ETC). These have been hindered by lengthy delays in reimbursing SMEs who used their business funds to pay for re-training their employees. These delays ultimately result in poor liquidity and therefore innovation will not be high on the agenda for these SMEs.  The economic crisis has also been a factor that has led to liquidity problems in SMEs. It is therefore of utmost importance that aid payments are timely. Late payments can lead to poor liquidity and at worst to SME bankruptcy and make it impossible for them to progress and to ultimately innovate.

Another issue is that state funding schemes usually provide a percentage of the costs involved in setting up a venture. The rest have to be procured by the SME. In Malta this is not an easy task and it is possibly the main reason why the Maltese SME startup is less likely to innovate. Funding in the form of tax credits is also intrinsically problematic for the same reason. While companies which are already profitable can benefit from these schemes, others which are young and still to bear fruit cannot. They still have to revert to the local banks for startup funding and without the necessary security this is usually next to impossible. These are shortcomings that must be addressed if we really expect the young people at MCAST to become budding entrepreneurs. As entrepreneurs, these young people will have the knowledge required to be innovative but it is unlikely that they will have the funding without assistance.

Government also has to ensure that high quality human resources are available. In our view, government is correctly addressing this issue through schemes such as the "My Potential" scheme and through the creation and upgrading of MCAST. The My Potential scheme is producing a considerable number of professionals in ICT by funding their training albeit through tax credits. This has resulted in an increased demand for private graduate and post graduate schooling which has led to new schools being opened or upgraded. There is however, still a gap in the training of existing SMEs. Existing Business owners must be knowledgeable about new trends and new techniques to consider innovating. As an organization we are well aware of this limitation and are continuously organizing training for SMEs. We are also aware that government is working on new initiatives. We hope that with our participation these can make the difference.

We must also foster the right attitudes to encourage our young people to opt for business. Last year during a European Entrepreneurs workshop in Brussels held by the EESC we asked the participants to raise their hands if they think that their country has a positive attitude towards success. None raised their hands. Entrepreneurship is still looked at negatively throughout Europe and Malta is no different. Drastic change in culture is needed in this regard. We also have to work for a positive culture of failure. We must allow for potential poor performance, and be forgiving, to foster entrepreneurship and innovation. Unfortunately Maltese society mirrors this phenomenon. When startups fail, the entrepreneur is never given another chance. This is one of the reasons why Europe still lags behind the USA in innovation. There is a need to improve business risk assessment while still making sure that businesses adhere to good business ethics and practices. This is after all one of the principles outlined in the Small Business Act.

Maltese SMEs have still not made the single European market "their market" although in the past few years improvements have been made. Our SMEs still fear competition from abroad. We are bombarded by complaints against foreign franchises that have recently been set up in Malta. This does not augur well for the Maltese SME and we must work to promote confidence through innovation. We must work to facilitate the international and intersectoral mobility of students and researchers both locally and internationally as this is the key that will open the door to the single market.

The Maltese entrepreneur is typically reluctant to share information that could be of commercial value to his competitors. Maltese entrepreneurs are fiercely competitive. This widespread mentality is what we should set out to counteract through providing platforms for networking and sharing knowledge such as the Kupoma platform which we are discussing today. We must strive to make the Maltese SME understand that the sharing of information with others can be mutually beneficial and can lead to better business performance while at the same time ensuring the SME that his intellectual property rights are protected. Like in other European countries, in Malta the concept of pooled or shared R&D is new and requires a shift in culture which we believe can be achieved only through education. Over the years job mobility for highly trained employees has increased. Once employees change jobs they take their knowledge with them. Much of this knowledge will have been acquired within the enterprise, regardless of the reluctance of the business owner to share information. The knowledge will therefore still be shared without the original employer reaping the benefits of new knowledge in exchange.

Providing a means to interact effectively should certainly help promote open innovation. Kupoma seems to be a step in the right direction. We should also aim to promote open innovation between the SME and academic institutions such as MCAST and the University of Malta. SME organizations such as ours could provide the necessary link between the SMEs and the academics and we would welcome the opportunity.

Finally, we believe that the Maltese Entrepreneur has the potential to innovate and that our SMEs are capable of good ideas. It is a pity that some of these ideas get lost simply because the person who had the idea in the first place is either not interested in developing it, or simply does not have the resources to do so. We must tackle the bottlenecks that prevent good ideas from reaching the market. Through open innovation we can overcome these barriers and the Maltese SMEs can produce better results as a group.

The Europe 2020 Strategy which has been recently published has research and innovation at its core. We should take a good look at the existing aid frameworks and be innovative ourselves to ensure the maximum uptake and ultimate success. It is of utmost importance to listen to the needs of SMEs and to direct funding where it is most needed.

Mr Marcel Mizzi – GRTU Vice President Finance and Administration

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