New Horizons

25 August 2014

In the framework of the partnership agreement the Office of International Engagement – DPC has with universities in Europe and the associated European Internship Program, Ms. Meng Wang and Ms. Licia Cerini from Bocconi University in Milan, our 28th and 29th interns, have analysed Small and Medium-sized Enterprises (excluding micro-enterprises) in regions such as China, Europe and Australia, which are becoming active players in the internationalisation process.

Please read this “exert” from this comprehensive “recent” report, titled: “SMEs (Small to Medium Enterprises) —Knowledge-Intensive Attraction and International Engagement (Europe-China-Australia)” .

A particular emphasis has been given to the importance of SMEs for the local economy [South Australia] and how knowledge and new technologies are considered the key factors influencing SMEs’ success internationally.

The Report focuses on the importance of SMEs for the local economy, especially for Europe, Australia and China, and how knowledge and technology are considered the key factors influencing SMEs’ success.

Based on the estimation, more than 95% of enterprises across the world are SMEs, accounting for approximately 50% of private sector employment. They make great contributions to the GDP and local economy.
Several factors could affect SMEs’ success, but according to the report, new-technology and knowledge are most important. Firms use latest technology to be more competitive and to survive in the crisis. However, due to limited funds or capability for R&D, SMEs work with local universities and research organisations, supported by governments. Different approaches have been attempted by governments to provide incentives to SMEs, including R&D tax credits, innovation prizes and public procurement.
Europe and Australia’s economy is composed mainly of SMEs. The two regions have different kinds of programmes to support SMEs and encourage innovation. Since 2005, Chinese SMEs have gained the government’s attention. Numerous policies were published to support SMEs, especially on technology renovation and structural reform.
How SMEs are involved in the internationalisation process and how knowledge is transferred
There are 4 main reasons for SMEs to internationalise: 1) unfavourable home market situation; 2) access to new markets for growth; 3) access to knowledge; 4) network/social ties and supply chain links. The main barriers for internationalisation are: shortage of capital, limited information of markets, inability to contact potential overseas customers and lack of managerial time, skills and knowledge.
Internationalised SMEs are reported to have a higher degree of creativity and innovation. Innovation and internationalisation are related in two ways: firms need to innovate in order to be able to compete in foreign markets; internationalisation may lead to innovation as a result of so-called “learning-by export/internationalisation” effects. Both the Uppsala Model and the Innovation Related Internationalisation Model show that SMEs would move abroad only when it finishes a certain degree of knowledge accumulation. Knowledge has become the key to success of businesses. Technology, innovation and entrepreneurship, which foster competitiveness, productivity and job creation, are important mechanisms for encouraging sustainable growth. As the Triple Helix Model (Academia-Government-Industry) showed, innovation operates according to an interactive rather than a linear model.

Due to limited funds and capability, it is not easy for SMEs to innovate by themselves. Most of their knowledge and technology are obtained from outside players, such as universities, research organisations, peer SMEs and multinational corporations (MNCs). MNCs may voluntarily or involuntarily help local SMEs to increase the productivity of domestic suppliers through the technology transfer along supply chains. However, this phenomenon could bring long-term positive effects only if the local companies are willing to continuously redevelop the technology acquired from the MNCs involving local R&D (e.g. SMR Automotive Australia based in Lonsdale of South Australia, started as Holden’s supplier, but now SMR provides its innovative products to different companies all over the world).
Since 1984, the European Framework Programme (FP) on R&D has promoted continuously joint research activities, which facilitate the internationalisation of SMEs. In Europe there is a direct link between the level of internationalisation and size of the company.

Australia is an export-oriented country but Australian SMEs show a low level of involvement in internationally collaborative arrangements. The report found that Australian SMEs are keen to invest overseas but are restrained by difficulty in accessing finance and professional advice and support. Besides these, the lack of self-promotion makes good Australian companies unknown to the world.
In recent years, China has been working very hard to get rid of “Made in China” and to obtain international recognition. The rising cost (especially labour cost) and fierce competition of the internal market make the country difficult to maintain its “world factory” position and the profits of companies have fallen significantly over the past 10 years. As a result, it becomes more internationalised, mainly through Mergers & Acquisitions and Joint Ventures. Its overseas investment could be split into three categories: seeking natural resources (in Australia, Russia, U.S. and Africa), reducing production cost (in ASEAN countries) and accessing knowledge (in Europe and North America). Energy is still the main overseas investment sector, followed by Mining, Transportation, Agriculture & Forestry and Fishing.

The multilateral collaboration among Australia, Europe and China, especially cooperation on R&D
The EU economy is the largest in the world, accounting for almost 20% of global GDP, and it has a strong capability of R&D. According to the 2013 EU Industrial R&D Investment Scoreboard, 527 out of the world’s top 2000 companies are based in the EU and have invested 29.3% of their overall investment in R&D. The European programme, Horizon 2020 (2014-2020), will bring the EU stronger R&D capability. With €79 billion over 7 years (about US$15 billion per year), the programme represents 5.7% of the total expenditure in R&D of the EU Member States (totally about US$267 billion per year).
In the past 15 years, China, as a large potential market, has attracted numerous foreign companies; however, the continuously rising costs, the high hidden cost, the stronger local protectionism and fierce competition have made those companies reconsider their presence in China. According to Roland Berger, the “Golden Age” for foreign companies in China has ended. On the other hand, China’s role as an investor is becoming more and more important. Its investment is more attracted by knowledge in countries like Germany, U.S., Canada, Japan and other European countries. Its investment in the consumer goods industry activity is rising rapidly, even much faster than other areas including the natural resources sector. Also nowadays, China’s SMEs have started to invest abroad, rather than only State-Owned Enterprises. The country has become more innovative in terms of R&D spent by the government, the number of publications and patents (right after U.S.) and its policy to attract international talents.

Australia has an increasing focus on innovation and R&D because the country’s economy is also facing a turning point, trying to become more innovation and technology related. Australia has a similar percentage of researchers in its workforce compared to North America and European nations. The country’s rate of spending on R&D is now greater than that of a range of other countries.
The relationship among Europe, China and Australia is not only limited to the trade sector, but also technology and innovation. The EU has a good relationship with both China and Australia, for example, the Horizon 2020 encourages joint research with researchers from both countries. China and Australia enjoy a close relationship because of their large number of immigrants and students, which has made China a pivotal partner not only in trade, but also in cultural, science and technology collaboration.
A particular emphasis has been given to the importance of SMEs for the local economy and how knowledge and new technologies are considered the key factors influencing SMEs’ success internationally. Furthermore, it reports on the multilateral collaboration among Australia, Europe and China, especially cooperation on R&D.:

South Australia
South Australia has set up strategies for improving the regional innovation and R&D competitiveness, enhancing high-value industries, and strengthening connections among University, Industry and Government. The examples (such as Tonsley and SAHMRI) presented in the report demonstrate South Australia’s strong capability of attracting foreign businesses. South Australia is moving to be more competitive in terms of:
Presence of natural resources (mining, biological diversity, wind and sun etc.)
Highly-skilled labour force and international talent pool
Academic excellence and innovative R&D projects
University-Industry-Government connection
High quality of life.