Giving SMEs A Jumpstart On Innovation

By Dr Sarah Cheah and Ho SeMun

With the rise of disruptive business models and increasing competition from abroad, moving up the innovation chain is vital to the long-term future of Singapore businesses, particularly the small and medium enterprises (SMEs).

Many SMEs, especially the smaller fledgling firms, are often hindered in their growth plans by internal and external obstacles such as size, managerial capacity, skills and access to knowledge and funds.

One strategy they could use to grow their business is open innovation (OI), which is an alternative strategy for SMEs to partner with another company to acquire and generate new knowledge, as well as share the risks and rewards of collaborative innovation. By turning to OI, SMEs can access resources at a lower cost and gain faster entry to new markets.

There are 3 types of OI: inbound OI (e.g., technology purchasing from outside, joint research, research contracts, joint venture, user innovation, collective intelligence), outbound OI (technology sales to outside, spin offs) and integrated OI (cross-licensing, strategic alliances). OI is relevant and critical for SMEs as it can accelerate the pace of innovations and innovative firms are critical elements of a country’s economic development and competitiveness.

In Singapore, while OI adoption amongst SMEs in the ICT sector is moderately high at 60%, most OI activities are limited to getting customer feedback, rather than other forms of OI such as joint R&D with Research Institutes (RI).

These findings came from a recent joint survey conducted by National University of Singapore (NUS) Business School and Singapore Infocomm Technology Federation (SiTF) with more than 200 local SME ICT firms earlier this year. The survey aimed to understand the maturity of OI landscape in Singapore, which will be used to identify the steps needed to encourage more OI and find ways to help SMEs with this strategy.

The survey findings suggest that only a minority (17%) of SMEs engage in deeper levels of collaboration like joint research activities for value creation. Even fewer (10%) undertake mergers and acquisitions or participate in corporate and venture capital activity to acquire new innovations.

In contrast, a similar survey conducted by the Electronics and Telecommunications Research Institute (ETRI) of South Korea on their ICT SMEs highlighted that joint research and research contracts were among the more popular OI activities in Korea.

The relatively high level of engagement between ETRI and Korean SMEs in research collaboration may be attributed to the longer establishment period of the Korean RI, which was founded in 1976. On the other hand, the Singapore public RIs in ICT were only established towards the end of 1990s. Many Singapore ICT SMEs are therefore still not familiar with the role and capabilities of the local RIs in supporting their product development strategies.

Many SMEs face challenges in converting and bringing their ideas to market. In general, the firms were found to have relatively weaker capabilities in idea conversion to products and their diffusion to the market Organisations also struggle internally to garner support for ideas that are not “invented here”.

The two studies, however, share a common thread - both show that SMEs face difficulties in areas such as finding a qualified workforce, uncertainty of getting a positive return on their investments and shortage of funds.

Speeding up OI adoption

The path towards innovation will not be easy and requires continued collaboration amongst SMEs, government and trade associations. SMEs need to build a stronger innovation mindset and be willing to invest in their OI capabilities.

In the 2016 budget, the government has made available new or improved schemes such as the SME Mezzanine Growth Fund and M&A allowance to accelerate SME growth. This is a promising development for the industry. Public sector agencies in charge of innovation can review funding and talent support to address the economic and management obstacles to OI. Funding from government can be given for innovation purposes if companies can show that what they do will improve productivity and lead to a multiplier impact on the economy.

Organisations such as the Exploit Technologies (ETPL), an A*Star innovation partner for the commercialisation of technology, and Intellectual Property Intermediary (IPI) were both set up by the government to assist in in and outbound OI. ETPL partners with companies to create new products and services. IPI is a one-to-one intermediary who has a team of technical and IP experts to assess technology requests of SMEs and who can help source and match them with technology partners both in Singapore and overseas.

Although there is existing collaboration amongst government, trade associations and ICT firms in OI space, SMEs are still relatively conservative.

In a separate focus group study involving more than 15 local ICT firms to understand the current state of OI, the clarity of the roles and expectations of RI was found to vary across the potential adopters and the institutes. This collaboration between SMEs and RIs can therefore be further enhanced.

Some SMEs had likened RIs to outsourced software development houses and felt that the scientists working on their projects seem interested in deploying more leading-edge technologies that may be potentially game-changing but involve greater investment and risks. Other SMEs were apprehensive about sharing their roadmap and plans with third parties.

To succeed, SMEs need to be bolder in leveraging the resources that RI can offer and make more concerted efforts in OI adoption. The survey has shown that engaging in OI has positively benefitted SMEs in their understanding of customers’ needs, expansion of development ideas, acquisition of new technology or know-how and increase in their market share.

With the current talent crunch and the speed of technology change, SMEs may want to be more pro-active in shaping the working relationship with RI that will in turn help them to accelerate their product / solutions development.

More can be done to align the expectations and to allay the fears of SMEs. SMEs need to take the first step to embrace OI. Like all dances, taking the first step is important and one does not expect the first dance to be perfect.

For more information about the survey >> click here

Dr Sarah Cheah is an Associate Professor at the NUS Business School and Ms Ho SeMun is the executive director of SiTF.