Business Innovation - Centre for Business Research€¦ · Logistics Innovation • Innovation in...

CBR Conference: Public Policy for SMEs© Andy Cosh 20th February 2007

Business Innovationin the

United States and the UK

Andy Cosh

Centre for Business ResearchUniversity of Cambridge

Not to be quoted without the author’s permission.Further details about the conference and book can be obtained at: http://www.cbr.cam.ac.uk/news/20Feb07.htm


Innovation

• Innovation questions have played a prominent part in the CBR surveys since 1995 with a consistent set of questions in the four subsequent surveys.

• This presentation focuses on the comparisons across our size groups and sectors over these years.

• It also draws on the CBR 2004 Innovation Benchmarking survey that compared UK and US companies.

• The analysis relates to the survivors in our survey panels, but we show elsewhere that the firms that were acquired were significantly more likely to have been growth-oriented, innovating, carrying out R&D and exporting.


Presentation Overview

Various aspects of the innovation process:

Purpose of innovationInnovation outputsInnovation inputsInnovation information sourcesCompetition Innovation constraints CollaborationGovernment financial support


Presentation Structure

Wherever possible we will present the results following the structure below:

Review the findings about each aspect of innovation across size, sector etc.Establish whether these findings are robust over time based on our previous surveys.Examine size and sector differences amongst US companies drawn from the Innovation Benchmarking survey carried out by the CBR in 2004.Make a matched sample comparison between UK and US companies.


Purpose of Innovation


Purpose of Innovation

• This question was not used in CBR 2004 or IB surveys• Our previous surveys have found:

– The most important objectives are gaining new markets, or market share; improving product quality; and extending product range.

– These are scored more highly than various impacts on the elements of production costs.

– High-tech firms in both manufacturing and business services give significantly greater weight to replacing old products and to extending their product range.

– Although micro firms scored all objectives as less important than larger firms, the relative importance of the objectives was muchthe same across the size groups.


% of firms reporting factor as very significant or crucial objective All Firms Hi-tech

ManufacturingConventional Manufacturing

Hi-tech Services

Conventional Services

Increase market by:Replacing products being phased out 26.3 38.0** 27.1 33.3** 18.9Extending product range 48.4 54.4 51.2 56.8** 38.9Gaining new markets or market share 65.7 66.5 69.1 68.2 59.0Lower production costs by:Reducing production lead times 35.6 37.3* 45.5 22.0 21.7Reducing labour costs 33.7 34.8 41.5 21.2 23.0Reducing materials consumption 25.7 32.9 32.6 9.1 15.9Reducing energy consumption 17.7 17.1* 24.2 6.8 9.9Other objectives:Improving production flexibility 37.5 38.6* 46.2 25.0 25.6Improving product quality 60.7 64.6 65.7 58.3 51.2Reducing environmental damage 17.4 18.4 21.9 6.8 12.2Fulfilling regulations/standards 34.3 39.9 35.7 20.5** 33.9a Means are calculated from scores on a scale of 1-5, w ith 1 = insignificant, 2 = slightly significant, 3 = moderately significant, 4 =very significant, 5 = crucial. **Differences across sectors significant at 5% level or better

The objectives of innovation activities (CBR 2002 Survey)


% of firms reporting factor as very significant or crucial objective Micro Small Medium

Increase market by:Replacing products being phased out 19.1** 28.1 33.2Extending product range 38.3** 50 60.2Gaining new markets or market share 49.3** 70.8 78.1Lower production costs by:Reducing production lead times 23.6** 40.1 42Reducing labour costs 20.7** 37.7 43.4Reducing materials consumption 18.9** 27.3 32.1Reducing energy consumption 13.7** 20 17.9Other objectives:Improving production flexibility 26.6** 43 39.4Improving product quality 51.8** 64.5 64.2Reducing environmental damage 15.1** 19.9 14.2Fulfilling regulations/standards 29.1** 36.6 36.1

The objectives of innovation activities by size of firm (CBR 2002 Survey)

Asterisks in the first column indicate statistically significant differencesbetween the types of business grouped by size (* = significant at the 10%level, ** = significant at the 5% level or better).


Innovation Outputs


Product Innovation

• Product innovation, both diffusion and novel, is more prevalent amongst larger SMEs and growing firms.

• Manufacturing has a higher incidence of product innovation overall, but not novel innovation.

• Both types of product innovation are higher amongst high-tech firms, but no difference is found between high-tech manufacturing and business services in 2004.

• These findings are supported in each of our previous surveys.

• The findings for US companies in 2004 show the same pattern as those for our UK samples.


59.461.8

56.160.2

56.8

42.0

65.7

72.5

53.9

67.464.3

73.2

59.1

74.6

50.9

31.9 32.930.3 31.4

34.6

21.7

34.8

42.3

27.6

36.3 35.7

45.0

30.1

48.7

25.2

0

10

20

30

40

50

60

70

80

AllMan

ufactur

ing

Busines

s serv

ices

Older

Newer

Micro**

Small

Medium

Stable/D

eclin

ing

Medium

growth

Fast g

rowth

High-tec

h man

ufactu

ring

Conventi

onal m

anufac

turing

High-tec

h busine

ss se

rvice

s

Conventi

onal b

usine

ss se

rvice

s%

of F

irms

Innovators Novel innovators

Exhibit 3.1 Introduction of product innovations

Source: Cosh and Hughes (2007)


77 7381

8677 77

83

72

89

67

5247

5767

52 5359

47

63

44

0

20

40

60

80

100

All

Small

Medium

Large

Manufac

turing

Busines

s serv

ices

High-tech

manu

factur

ing

Conve

ntiona

l man

ufactu

ring

High-tech

busin

ess s

ervice

s

Conve

ntiona

l busin

ess s

ervice

s

% o

f Firm

s

Innovators

Novel innovators

Introduction of product innovations - US companies



Process Innovation

• A lower proportion of firms report process innovations.• Process innovation rises with firm size and is higher for

growing firms.• It is higher for manufacturing and this is accounted for by

the significantly lower process innovation amongst conventional business services firms.

• These findings are supported by the previous CBR surveys.

• US companies show a similar pattern in relation to firm size, but conventional manufacturing firms exhibit higher rates of process innovation than their conventional counterparts.


49.353.4

44.0

50.3

45.2

32.3

55.2

62.3

45.4

55.0 53.858.2

52.255.4

40.7

19.2 18.8 19.5 18.7 20.2

12.6

19.7

30.5

17.1 18.921.3

15.519.3

28.5

17.1

0

10

20

30

40

50

60

70

AllMan

ufactur

ing

Busines

s serv

ices

Older

Newer

Micro

Small

Medium

Stable/D

eclin

ing

Medium

growth

Fast g

rowth

High-tec

h man

ufactu

ring

Conventi

onal m

anufac

turing

High-tec

h busine

ss se

rvice

s

Conventi

onal b

usine

ss se

rvice

s%

of F

irms


Exhibit 3.2 Introduction of process innovations



62 59 6272

63 60 5867

60 59

34 30 3544

33 35 33 33 34 36

0

20

40

60

80

All

Small

Medium

Large

Manufactu

ring

Business

servi

ces

High-tech

man

ufacturin

g

Conve

ntional m

anufactu

ring

High-tech

busin

ess s

ervice

s

Conve

ntional b

usiness

servi

ces

% o

f Firm

s

Innovators

Novel innovators

Introduction of process innovations - US companies



Logistics Innovation

• Innovation in supply, storage and delivery exhibit lower rates than for product, or process innovation.

• Manufacturing, older, larger and growing firms have higher rates of introduction.

• Novel logistics innovation does not show any distinct pattern except that medium-sized firms have higher incidence of this from of innovation.

• These findings are supported by our previous surveys.• In the US the same picture emerges in relation to size.• However, although manufacturing has a higher rate of

logistics innovation overall, it is lower than US business services in terms of novel innovation and this is due to the higher rate amongst conventional business services.


12.4

15.8

7.7

13.1

9.5

4.9

14.6

19.7

10.9

17.4

14.6

18.2

15.2

9.8

7.1

3.8 4.0 3.4 3.9 3.82.4

3.8

6.9

3.9 3.44.7

2.3

4.4

6.7

2.5

0

5

10

15

20

25

AllMan

ufactur

ing

Busines

s serv

ices

Older

Newer

Micro

Small

Medium

Stable/D

eclin

ing

Medium

growth

Fast g

rowth

High-tec

h man

ufactu

ring

Conventi

onal m

anufac

turing

High-tec

h busine

ss se

rvice

s

Conventi

onal b

usine

ss se

rvice

s%

of F

irms


Exhibit 3.3 Introduction of logistic innovations



4337

46

56

44 40 4146

41 39

17 16 19 2216

2115 17 19 23

0

20

40

60

All

Small

Medium

Large

Manufac

turing

Busines

s serv

ices

High-tech

manu

factu.

..

Conve

ntiona

l man

uf...

High-tech

busin

ess .

..

Conve

ntiona

l busin

e..%

of F

irms

Innovators

Novel innovators

Introduction of new supply chain methods or supply, storage or delivery methods - US companies



Novelty of Sales

• Newer, growing, larger and high-tech firms have a higher proportion of their sales accounted for by new, or significantly improved products or services.

• High-tech business services show a particularly high proportion of novel product sales.

• These findings are generally supported by our previous surveys except that the relationship with firm size is not consistent.

• We show for the CBR 2004 sample that the novelty of sales is positively related to firm growth, but negatively related to profitability.

• We find no difference between sizes and broad sectors in the US, but high-tech companies have higher novelty.


71.4

79.4

55.8

83.8

72.9

75.0

82.1

72.7

74.8

85.8

72.2

79.4

77.8

77.9

79.1

14.4

11.4

22.3

9.3

14.0

14.2

9.8

15.1

13.4

8.0

13.2

11.6

12.1

12.0

11.2

14.3

9.2

21.9

6.9

13.1

10.8

8.1

12.2

11.9

6.2

14.5

8.9

10.1

10.1

9.7

0 10 20 30 40 50 60 70 80 90 100

High-tech manufacturing

Conventional manufacturing

High-tech business services

Conventional business services

Fast growth

Medium growth

Stable/Declining

Medium

Small

Micro

Newer

Older

Business services

Manufacturing

All

% of Firms

Unchanged product or serviceImproved product or serviceNew product or service

Exhibit 3.4 Distribution of sales by novelty of product or service



Exhibit 3.9The proportion of new products in total sales in 2004and profitability 2001-2004

New products as % of sales No. of firms

2004 2004

All firmsLow (<10%) 970 8.1 ** 7.0 ** -0.7High (>10%) 588 5.7 4.8 -0.4MicroLow (<10%) 325 19.5 ** 17.0 0.0High (>10%) 98 13.2 15.0 1.1SmallLow (<10%) 504 6.0 ** 5.1 ** -1.0 *High (>10%) 380 4.6 4.0 0.1MediumLow (<10%) 141 5.5 4.2 * -1.2High (>10%) 110 4.9 3.8 -1.4ManufacturingLow (<10%) 515 6.8 ** 5.1 ** -1.0High (>10%) 340 4.2 3.9 -0.6Business servicesLow (<10%) 455 11.5 ** 9.7 ** -0.3High (>10%) 248 7.8 6.4 0.8

Profit margin (median values) Median change

2001 2004 2001-04


Exhibit 3.10 The proportion of new products as a % of sales in 2004 and growth 2001-2004

New products as % of sales No. of firms

2004 2004

All firmsLow (<10%) 914 0.0 ** 11.6 **High (>10%) 521 6.7 20.2

ManufacturingLow (<10%) 510 0.0 ** 8.5 **High (>10%) 313 3.6 13.4

Business servicesLow (<10%) 409 0.0 ** 19.9 **High (>10%) 217 12.0 28.6

Median employment growth Median turnover growth

2001-04 2001-04


58.4

68.1

50.0

70.3

65.4

63.1

62.5

61.4

63.8

63.1

19.8

16.7

25.6

17.7

19.1

18.8

19.0

21.2

18.1

19.0

21.8

15.1

24.4

12.0

15.5

18.1

18.5

17.4

18.1

17.9

0% 20% 40% 60% 80% 100%

Hi gh- t ech manuf act ur i ng

Convent i onal manuf act ur i ng

Hi gh- t ech busi ness ser vi ces

Convent i onal busi ness ser vi ces

Lar ge

M edi um

Smal l

Busi ness ser vi ces

M anuf act ur i ng

Al l

% of Fi r ms

Unchanged pr oduct or ser vi ce

I mpr oved pr oduct or ser vi ce

New pr oduct or ser vi ce

Distribution of sales by novelty of product or service - US companies



Innovation Outputs in the UK and US

• We use samples matched by age, size and sector in order to directly compare UK and US companies.

• We find no differences in the intensity of product and logistics innovation between the two countries.

• However, process innovation and novel innovation of each type have a higher incidence in the US.

• The higher incidence of novel innovation in the US is particularly associated with the manufacturing sector.

• There is little overall difference between the countries in the proportion of sales represented by new products.

• The UK has higher novel sales in business services than found for the matched US sample.


75%

56%

40%46%

26%

13%

75%

62%

40%

51%

34%

16%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Productinnovation

Processinnovation

Supplysystem

innovation

Novel productinnovation

Novelprocess

innovation

Novel supplysystem

innovation

Percentage of firms reporting innovations



Companies reporting novel innovations – by sector

(%)

Novel product

innovation Novel process

innovation Novel supply

system innovationSector UK US UK US UK US High-tech manufacturing 48 56 17 32 9 13 Conventional manufacturing 41 46 25 34 10 17 High-tech services 59 64 39 33 21 16 Conventional services 41 43 31 37 19 20


36%

33%

55%

37%

38%

40%

31%

51%

28%

36%

0% 10% 20% 30% 40% 50% 60%

High-tech manufacturing*

Conventionalmanufacturing

High-tech services

Conventional services*

Total UK US

Mean % of sales on account of new or significantly improved products or services by sector



Innovation Inputs


R&D Activity

• Whether we measure the proportion of firms engaged in R&D activity, or with R&D staff, we find that larger, manufacturing, growing and innovative firms are more likely to be R&D active.

• These findings are supported by our previous surveys.• The pattern is very similar amongst US companies.• Using the matched sample comparison we find a higher

level of activity in the US in terms of the proportion of firms engaged in R&D, expenditure on R&D, its ratio to sales and the ratio of R&D staff in total employment.

• The differences in incidence are stronger in manufacturing.


52.1

7.4

44.2

45.3

33.4

55.5

41.6

20.0

37.8

37.1

28.9

43.5

37.1

0 10 20 30 40 50 60

Innovators

Non-innovators**

Fast growth

Medium growth

Stable/Declining**

Medium

Small

Micro**

Newer

Older

Business services

Manufacturing**

All

% of Firms

Exhibit 3.5 Proportion of firms engaging in R&D last year



92.2

83.7

73.6

88.1

80.6

84.3

54.5

67.4

83.9

79.0

0 10 20 30 40 50 60 70 80 90 100

Large

Medium

Small **

High-tech manufacturing



Conventional business services **

Business services

Manufacturing **

All

% of Firms

Proportion of firms engaging in R&D last year - US companies



23.5

2.1

19.5

24.0

13.3

33.6

18.4

3.8

18.4

15.8

12.7

19.1

16.3

50.7

7.0

42.6

44.5

32.1

54.5

40.3

18.7

36.9

35.7

28.0

42.0

35.9

0 10 20 30 40 50 60

Innovators

Non-innovators

Fast growth

Medium growth

Stable/Declining

Medium

Small

Micro

Newer

Older

Business services

Manufacturing

All

Full-time Full or part time

Exhibit 3.6 Percentage of firms with staff engaged in R&D



77

70

81

55

86

78

83

53

0 10 20 30 40 50 60 70 80 90 100


Conventional manufacturing*

High-tech services

Conventional services UK US

Percentage of companies engaged in R&D (%)



Comparison of Innovation Inputs – UK vs US

Firms engaged in R&D (%)

Average part time R&D staff

(Median)

Average full time R&D staff

(Median)

Average total R&D

expenditure (£000)

Average R&D/Sales ratio

(%) (Median)

Average R&D Staff/total

employee ratio (%)

UK 71 4 2 2655 3.06 3

US 76 5 2 3250 3.33 4


3.6

2.7

1.2

4.1

1.9

1.4

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

10-99* 100-999 1000+

Number of employees

R&D sales ratio (%)



4.2

1.5

8.2

1.7

5.0

1.3

11.6

2.0

0 2 4 6 8 10 12 14


Conventionalmanufacturing*

High-tech services

Conventional servicesUK US

R&D sales ratio by sector (%)



Innovation Information Sources


Information Sources

• This question was not used in the CBR 2004 survey and has not been used consistently in the past.

• The findings of the CBR 2002 survey were:– Sources internal to the firm were most commonly used.– Customers were the most important external source, but less so

for micro firms.– Suppliers were the next most important external source.– Firms in the same line of business were also important.– Universities and HEIs were rarely regarded as important.

• The matched sample comparison suggests that UK firms were more active users of most sources.

• A different picture emerges when we look at the importance of the information source.


Innovation sources of information

Sources Micro Small MediumInternal:Within the firm 50.3** 69.4 76.2Within the group 6.3** 11.9 23.8External:Suppliers of equipment, materials and components 26.5 31.1 25.6Clients or customers 31.3* 37.8 38.5Competitors in your line of business 11.6 13.4 14.7Consultancy firms 2.8 4.2 4.8Financiers 1.2 2.1 1.5Universities/higher education institutes 2.3 2.9 4.8Government or private non-profit research institutes 1.9 1.3 1.5Patent disclosures 0.7 1.7 2.6Professional conferences, meetings, professional journals 5.6 4 3.7Fairs/exhibitions 7.7 8.7 10.3Trade associations, chambers of commerce 3.7 4 3.7Computer-based information networks 9.5 8.2 6.2

2002 Survey The relative importance of different sources of information for innovation by size of firm (% very significant or crucial)


Figure 1.6 Use of sources of knowledge for innovationAll companies

0 20 40 60 80 100

Private research institutes

Government research organisations

Commercial laboratories or R&D enterprises

Universities/higher education institutes

Public sector, e.g. Business Links, Gov't offices

Consultants

Trade associations

Professional conferences, meetings

Environmental standards and regulations

Technical standards or standard setting bodies

Technical/trade press, computer databases

Fairs, exhibitions

Health and safety standards and regulations

Competitors in your line of business

Knowledge within the group

Suppliers of equipment, materials, components or software

Clients or customers

Internal knowledge within the company

UK USSource: Cosh and Hughes (2007)


Figure 1.7 Sources of knowledge for innovation regarded as highly important by users of that source - % UK companies relative to the US

0 20 40 60 80 100 120 140

Government research organisations

Public sector, e.g. Business Links, Gov't off ices

Private research institutes

Commercial laboratories or R&D enterprises

Consultants

Universities/higher education institutes

Professional conferences, meetings

Trade associations

Environmental standards and regulations

Technical/trade press, computer databases

Suppliers of equipment, materials, components or softw are

Technical standards or standard setting bodies

Health and safety standards and regulations

Internal know ledge w ithin the company

Fairs, exhibitions

Clients or customers

Know ledge w ithin the group

Competitors in your line of business

% UK companies relative to USSource: Cosh and Hughes (2007)


Competition


Competition by Sector

• Business service firms, particularly conventional, show higher proportions with little competition and higher proportions with intense competition than manufacturing.

• This is not found in the US sample where business service firms simply face greater competition than manufacturing, particularly high-tech manufacturing.

• In the matched sample US companies have fewer competitors amongst small firms, but more competitors for larger firms than their UK counterparts.

• Overseas competition is greater for manufacturing and high-tech firms in both the UK and US samples.

• Overseas competition is greater for UK companies in each size group compared with the matched US firms.


Exhibit 3.12 Distribution of firms in high-tech and conventional sectors by number of serious competitors in 2004

Median0 1-4 5-9 10-19 20-98 >99

High-tech manufacturing 7.3 37.6 31.7 12.2 8.8 2.4 5Conventional manufacturing 9.4 39.5 24.3 13.7 7.6 5.6 4High-tech business services 10.3 36 25.1 13.1 9.7 5.7 5Conventional business services 15.2 26.3 20.5 18.1 11.8 8.1 5

Percentage distribution of firms by number of serious competitors


Distribution of firms in high-tech and conventional sectors by number of serious competitors in US

Median

0 1-4 5-9 10-19 20-98 >99

High-tech manufacturing 4.5 43.9 29.8 12.4 5.1 4.3 5Conventional manufacturing 3.7 39.9 28.1 15.5 9.3 3.5 5High-tech business services 0.5 37.5 27.2 19.0 12.5 3.3 5Conventional business services 4.8 32.0 26.0 21.6 9.6 6.0 6

Percentage distribution of firms by number of serious competitors


Importance of overseas competitors as a proportion of allcompetitors in 2004

Mean share of serious overseas

competitors0 1<50 50<75 ≥75 %

High-tech manufacturing 37.4 16.8 14.5 31.3 42.1Conventional manufacturing 59.8 17.5 12 10.7 21.1High-tech business services 50 18.8 11.1 20.1 30.4Conventional business services 75.9 12.4 6.7 5 11.5All 61.2 15.9 10.6 12.3 21.5

Distribution of firms by proportion of serious overseas competitors


Importance of overseas competitors as a proportion of allcompetitors in 2004 – US companies

Mean share of serious overseas

competitors0 1<50 50<75 ≥75 %

High-tech manufacturing 38.9 34.8 17.0 9.3 20Conventional manufacturing 58.9 23.1 9.6 8.5 0High-tech business services 60.2 21.0 13.8 5.0 0Conventional business services 78.1 15.0 4.3 2.6 0All 55.9 25.2 11.6 7.3 0

Distribution of firms by proportion of serious overseas competitors


43.047.8

38.2 37.141.0

32.8

0

10

20

30

40

50

60

UK US UK US UK US

10 - 99 100 - 999 1000+

Company size - number of employees

% o

f com

pani

es% of companies with fewer than 5 competitors



51.3

71.9

35.6

66.7

22.4

46.5

0

20

40

60

80

UK US UK US UK US

10 - 99 100 - 999 1000+


% o

f com

pani

es% of companies with less than one quarter of their competitors overseas



Innovation Constraints


Constraints on Business Objectives

• UK manufacturing SMEs in 2004 put increasing competition, demand growth and skilled labour as their three principal constraints.

• The differences between conventional and high-tech firms in manufacturing were small, but high-tech pointed up the access to overseas markets more strongly.

• Business service firms give far less weight to the competition constraint, but more weight to marketing and sales skills.

• The constraints are generally rated higher by the US manufacturing sample, but the top three constraints are in the same order. US business service firms also give the highest weight to marketing and sales skills.


10.3

9.3

8.9

7.8

15.4

19.2

22.2

19.0

25.1

27.4

34.0

9.8

11.2

11.9

12.6

14.0

16.8

19.6

21.0

23.8

29.4

30.8

0 5 10 15 20 25 30 35 40

Availability of appropriate premises or site

Acquisition of technology

Difficulties in implementing new technology

Access to overseas markets*

Availability and cost of overdraft finance

Management skills

Marketing and sales skills

Availability and cost of finance for expansion

Skilled labour

Overall growth of market demand

Increasing competition

% very significant or crucialConventional manufacturing High-tech manufacturing

Exhibit 3.16 Significant constraints on ability to meet businessobjectives over past three years (Manufacturing)



1.7

11.5

19.1

12.6

24.7

23.7

30.6

25.5

21.1

34.1

34.6

7.3

10.2

19.9

14.8

23.2

28.4

32.4

26.0

33.6

39.8

40.5

0 5 10 15 20 25 30 35 40 45

Availability of appropriatepremises or site**


Difficulties in implementing newtechnology

Access to overseas markets

Availability and cost of overdraftfinance

Management skills


Availability and cost of finance forexpansion

Skilled labour **



High-tech manufacturingConventional manufacturing

Significant constraints on ability to meet business objectives over past three years (US Manufacturing)



3.1

5.0

7.9

4.8

11.4

18.8

16.8

30.2

18.2

18.8

22.3

4.4

5.0

5.0

8.1

20.0

20.0

21.9

25.0

26.3

28.1

38.1

0 5 10 15 20 25 30 35 40 45





Availability and cost of overdraft finance**


Management skills

Skilled labour

Overall growth of market demand**

Availability and cost of finance for expansion**

Marketing and sales skills**

% very significant or crucialConventional business services High-tech business services

Exhibit 3.17 Significant constraints on ability to meet businessobjectives over past three years (Business services)



4.6

10.3

22.1

9.2

29.7

31.8

45.6

38.5

30.8

35.1

38.5

7.8

10.6

21.1

6.3

22.7

36.5

41.6

27.5

45.5

33.2

35.9

0 5 10 15 20 25 30 35 40 45 50





Availability and cost of overdraft finance

Management skills


Availability and cost of finance for expansion**

Skilled labour **



High-tech business servicesConventional business services

Significant constraints on ability to meet business objectives over past three years (US Business services)



Business Constraints – UK vs US

• Constraints on meeting business objectives were rated more highly in the US and the same is the case for barriers to innovation (largely due to small firms).

• The ranking of the innovation barriers is broadly the same but, perhaps surprisingly, the finance and skilled personnel constraints are particularly high relative to the UK.

• The finance constraint on innovation, the lack of skilled personnel and the difficulty of controlling innovation costs are felt strongly by smaller companies relative to larger businesses, particularly in the US.

• Constraints due to regulations and legislation are felt more strongly by small companies (even in the US).


Constraints on business objectives (%very significant or crucial)

0 5 10 15 20 25 30 35 40

Availability of appropriate premises



Diff iculties in implementing new technology

Availability and cost of short-term finance

Availability and cost of long-term finance

Management skills


Overall grow th of market demand

Skilled labour


UK US



Barriers to innovation (%very significant or crucial)

0 5 10 15 20 25 30 35

Lack of technological opportunities

Lack of information on technologies

Innovation too easy to copy

Company's innovation potential too small

Lack of customer responsiveness

Innovation costs hard to control

Lack of skilled personnel

Legislation, regulations, standards, tax

Pay-off period too long

Lack of appropriate sources of f inance

Innovation costs too high



05

10

15

2025

30

35

40


Company's innovationpotential too small

Lack of customerresponsiveness

Innovation costs hard tocontrol

Lack of skilled personnelLegislation, regulations,standards, tax


Lack of sources of finance


UK 10-99UK >1000US >1000US 10-99

Barriers to Innovation(% rating the factor as very significant or crucial)



Barriers to innovation (%very significant or crucial)

0 5 10 15 20 25 30 35 40 45


Company's innovation potential too small

Lack of customer responsiveness

Innovation costs hard to control

Lack of skilled personnel

Legislation, regulations, standards, tax


Lack of sources of f inance


UK High-tech serv US High-tech serv UK Conv serv US Conv serv



Collaboration


Collaboration by UK SMEs• Collaborative arrangements are more common in

business services, larger, newer, fast growth and innovative firms.

• The most common collaborative partners were firms in the same line of business for micro firms and vertical supply chain linkages for larger firms.

• The most important reasons for collaboration were to help expand the range of expertise and products, to assist in the development of specialist services and products required by customers, to help keep current customers, to provide access to markets, to improve financial market credibility and to share R&D.

• These findings are supported by our previous surveys.


High-tech Collaboration - extent

• Conventional business service firms are less likely than others to collaborate with customers and suppliers.

• Manufacturing firms are less likely to collaborate with firms in the same life of business.

• High-tech businesses are more likely to collaborate with Universities and HEIs.

• The US sample shows the same characteristics as those listed above, but also shows higher collaboration with firms in the same line of business in each of the sectors.

• UK firms are more likely to have collaborated with universities/HEIs than US firms.


Percent of firms collaborating in the past 2 years by type of collaboration –UK companies

High-tech Conventional High-tech ConventionalCollaboration with % % % %Suppliers 56.2 ** 61.0 58.9 35.8Customers 59.0 ** 61.7 43.5 37.0Higher education institutes 33.3 ** 24.5 25.0 14.5Firms in the same line of business 45.7 ** 51.5 66.1 69.3Private research institutes/consultants 22.9 17.8 15.3 20.5Others 2.9 5.5 9.7 6.9

% of firms collaborating by type of collaborationManufacturing Business services


Percent of firms collaborating in the past 2 years by type of collaboration – US companies

High-tech Conventional High-tech ConventionalCollaboration with % % % %Suppliers 47.5** 56.6 42.0 38.8Customers 55.1** 49.0 47.0 37.0Higher education institutes 19.4 15.4 17.2 12.1Firms in the same line of business 72.9** 64.3 80.1 77.6Private research institutes/consultants 22.3** 22.7 32.0 36.6Others 64.4** 55.6 64.9 52.7

% of firms collaborating by type of collaborationManufacturing Business services


Figure 1.13 Engagement in collaboration or partnership arrangements in the past three years by type of partner

0 10 20 30 40 50 60 70 80

Other

Other higher education institutes

Public sector research and technology organisations/labs

Early stage technology-based companies

Private research Institutes and technologyorganisations/Consultants

Universities

Other enterprises within the parent group

Suppliers

Customers

Firms in your line of business



High-tech Collaboration - purpose

• High-tech were more likely to cite the development of specialist services or products than were conventional firms, particularly those in business service.

• The desire to share R&D was most frequently cited as a reason for collaboration by high-tech manufacturing firms.

• Defensive reasons associated with keeping current customers were most likely to be cited by conventional manufacturing and conventional business service firms.

• Gaining access to overseas markets was more likely to be cited by high-tech firms both in manufacturing and business services.


Exhibit 3.15 Purpose of collaborative arrangements made by high-tech and conventional firms

Purpose of collaborative arrangementsHigh-tech

manufacturingConventional

manufacturingHigh-tech

business servicesConventional

business services% % % %

Share R&D 62.9 ** 41.0 45.2 32.2Expand range of expertise or products 76.2 76.1 79.0 77.0Assist in management of staff development 20.0 22.9 15.3 20.0Improve financial and market credibility 39.0 46.5 54.8 48.4Development of specialist services/products 76.2 ** 69.7 77.4 60.9Gain access to new equipment 26.7 ** 25.7 20.2 17.0Keep current customers 47.6 ** 63.9 44.4 47.8Provide access to domestic markets 35.2 ** 54.7 58.9 43.9Provide access to overseas markets 51.4 ** 37.6 36.3 23.3All firms entering into collaborative arrangements 47.5** 35.3 63.9 47.5


Purpose of collaborative arrangements made by high-tech and conventional firms – US companies

Purpose of collaborative arrangementsHigh-tech

manufacturingConventional manufacturing



% % % %Share in-house research 61.0** 56.7 49.3 37.6Jointly contract out r&d 37.0* 35.6 45.5 31.5Develop specialist services/products 89.0 84.9 89.6 84.3Gain access to specialized equipment 34.9** 35.1 22.9 22.6Gain access to specialized information 37.5** 42.8 56.5 43.8Jointly purchase materials 25.1** 34.0 18.3 20.8Develop licensing activities 26.9** 27.5 37.3 14.7Support spin-off activity 13.7 15.0 14.4 15.7All firms entering into collaborative arrangements 61.0** 48.7 78.2 69.5


Government Financial Support


R&D Tax Credits• We find a reasonably high level of penetration of

awareness and use of the R&D tax credits scheme, which was introduced in April 2000.

• Although the high-tech manufacturing firms show a somewhat higher awareness of the tax credit, there is no significant difference in the extent to which high-tech business services and high-tech manufacturing actually claim tax credit or relief under the scheme. Both have higher awareness and a significantly greater use of the scheme than conventional firms.

• Around a third felt that the use of R&D tax credit had increased their R&D expenditure to a limited extent and 16% felt that it had increased it to a great extent – so about half who had used the scheme did not feel that their R&D had increased.


Tax Credit Scheme - awareness

No. of firms All Manu-

facturingBusiness services Older Newer Non-

innovators Innovators High-tech manufacturing




Aware that tax credit/relief is available to small firms 2,094 64.4 67.3** 60.4 65.8** 60.4 54.9** 69.5 77.2** 65.0 70.4 57.6

Claimed tax credit/relief 1,263 26.8 30.1** 22.0 26.7 28.1 6.5** 34.4 48.1** 25.2 51.2 12.4

Micro Small Medium Stable/ Declining

Medium growth

Fast growth

Aware that tax credit/relief is available to small firms 49.1** 68.8 79.5 63.4** 74.7 69.5

Claimed tax credit/relief 10.2** 30.9 34.2 22.6** 31.2 33.3


Impact of R&D tax credit scheme on R&D spend

Use of R&D Tax credit/relief led to increase in R&D expenditure

No. of firms All Manu-

facturingBusiness services Older Newer Non-

innovators Innovators High-tech manufacturing




Not at all 155 51.5 50.3 55.8 52.6 48.5 85.7** 48.5 45.6** 52.8 43.5 73.8To a limited extent 98 32.6 34.7 26.9 33.3 28.8 14.3 33.8 35.3 34.4 30.6 21.4To a great extent 48 15.9 15.0 17.3 14.1 22.7 0.0 17.6 19.1 12.8 25.8 4.8Total responses 301 193 104 234 66 21 272 68 125 62 42

Use of R&D Tax credit/relief led to increase in R&D expenditure

No. of firms All Micro Small Medium Stable/

DecliningMedium growth

Fast growth

Not at all 155 51.5 62.5 46.9 61.8 58.1 45.2 51.3To a limited extent 98 32.6 25.0 34.9 27.9 27.6 40.3 33.8To a great extent 48 15.9 12.5 18.2 10.3 14.3 14.5 15.0Total responses 301 24 209 68 105 62 80


Financial Support for Innovation• The Innovation Benchmarking survey examined financial assistance

for their innovation activities from government. This assistance is found to be more widespread in the UK where 20% had received financial support of this kind compared with 12% of US companies.

• The difference in proportion is less for large companies.• Whilst only half as many small business in the US receive

government financial assistance for innovation, the amount they receive is on average five times larger than that received by UKcompanies. It also represents a proportion of their R&D spending(38%) that is over three times greater than that for UK firms (11%).

• Therefore government financial support for innovation amongst companies with less than 1,000 employees is not less in the US, but is more concentrated.

• The figures for large business show similar proportions of both those receiving support and the ratio of that support to their R&D spending – though the absolute level of support and of R&D spending are higher in the US sample of large companies.


20.3

11.9

20.2

8.7

29.927.7

0

5

10

15

20

25

30

35

UK US UK US UK US

All 10 - 99 1000+


% o

f com

pani

es

% of companies receiving government financial support for innovation



Employment size

UK US UK US10-99 40 194 11% 38%

100-999 100 375 6% 39%>1000 750 1,667 6% 5%

All cos 75 417 10% 28%

Amount received (£000) Amount received as a % of R&D spend


Sector

UK US UK US UK USHigh-tech manufacturing 25.5 13.5 60 375 11% 29%Conventional manufacturing 17.4 11.6 46 417 10% 20%High-tech services 28.7 18.2 200 556 7% 27%Conventional services 11.9 5.6 75 208 13% 42%

Amount received as a % of R&D spend% receiving support Amount received (£000)


Summary – UK SMEs

• Innovation output is associated with larger, growing, innovating and high-tech firms.

• Innovation intensity is positively associated with growth, but negatively with profitability.

• R&D is associated with manufacturing, larger and growing firms, but innovative activity is not necessarily dependent only on R&D spend.

• Increasing competition was a higher constraint for manufacturingfirms, whereas high-tech business service firms pointed to the lack of sales and marketing skills.

• Customers and suppliers remain the most important external sources of innovation information and collaboration, but high-tech businesses are using HEIs more frequently.

• High-tech firms do not have higher profitability, but do have a higher risk profile than conventional firms.


Summary – UK vs US companies

• US companies display higher process innovation and higher novel innovation of each type.

• US companies exhibit a higher level of activity in terms of the proportion engaged in R&D and R&D spending.

• UK firms face greater overseas competition.• The ranking of innovation barriers is broadly the same,

but US small companies score the finance and skilled personnel constraints highly relative to the UK.

• UK firms were more frequent users of most information sources, but less likely to regard them as important.

• UK government financial support for innovation is more widespread than in the US, but more thinly spread.

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