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A local Mittelstand?

Saturday, February 10, 2018

Many years ago we launched the VCIP (Venture Capital Incentive Programme) with the hope that it would provide support for emerging SMEs. Nothing happened and it collapsed. The PP Government also launched its “i2i” programme, again to encourage ideas from the general public which could spark new companies, SMEs. Nothing of significance happened. The current government is talking about affording help to SMEs who export via the Ex Im Bank and NEDCO is there to support SMEs.

Cariri has its Business Hatchery which is again focussed on startup SMES. All of these seem to suggest that the diversification thrust which we have been talking about for decades is now expected to be driven by SMEs, based on ideas from the general public. Many justify this approach to our diversification by referring to the place SMEs have in Germany, the Mittelstand—there are 344,855 exporting SMEs compared with 8,404 large exporting companies, the former earns 186 billion Euros and the latter 778 billion. Hence only 2.4 per cent of Germany’s exporting companies are large scale though they export, earn four times as much as the SME sector.

What many ignore is that in Germany there is a national innovation system. Though the individual SMEs are challenged for human resources, they spend a substantial amount on R&D and hence innovation drives their global competitiveness.

Further, there are clusters of companies that utilise similar technologies that are developed by government funded research and there is a university-based outreach programme to support the SMEs’ move into the digital age. Also, the German SMEs focus on very narrow niche markets, products. For example, as the emerging countries expand into manufacturing the Germans produce the specialised machine tools they require. These companies are family owned and tend to use capital either from their own resources or bank loans. Hence their vision tends to be long-term as opposed to satisfying the immediate/short term financial requirements of shareholders.

Given that the German R&D system is not starved for highly skilled manpower it is easy to see the R&D sector as a service that is being used by the human-resource-constrained SMEs in their chase for highly specialised export markets wherein the competition is limited.

Recently we saw the New Jersey Technology Institute of the US introducing an innovation thrust based on setting up teams to address the needs of industries and governments as opposed to basic research funded by government; a model that the German SMEs have been using to compete in their narrow niche export markets.

The economic environment of T&T differs from that of Germany. First there is no national innovation system in T&T that provides the finance for innovation, nor a formal stream of ideas based on existing industry or even from ensuing R&D, nor government’s help in developing technology that can encourage industrial clusters. There is a critical shortage of the human resource that can support the necessary research and development across many areas as exist in Germany; ie there is a shortage of the various teams of researchers that can be deployed to the many and varied areas of innovative endeavour.

This is the challenge that we face in T&T where an export facility has to be created that earns foreign exchange needed so as to import most of what we consume. Even the little we produce for local use has to be globally competitive since as an open economy we can import most things also.

The fact that global competitiveness today is based on knowledge, its application and its creation, innovation, coupled to the limited R&D resource locally, dictates that our export activity cannot be broad based and has to be in selected clusters. Hence we cannot leave the creation of an export industry to serendipity, where the diversification policy is to give general support to the public for any idea, with the hope that globally competitive companies will be formed.

The imperative then is the construction of a national innovation system wherein the government plays an important part in financing the traditional Triple Helix triad. The first task then is to choose the industries/technologies of relevance to the global market current and foreseeable demands, in which we wish to become competitive, say, via a foresighting exercise. This will allow us to establish with the R&D community the related centres of excellence that could produce the ideas and hence the startups in the chosen areas of economic activity.

The German SMEs are now about incremental innovation to maintain their competitiveness. One of our eminent academics, Prof Anthony Clayton of UWI (Mona) recommends, however, that we go for disruptive innovation that can quickly cement our place in the global market. Still, it is unfortunate that recent governments, particularly the current one, are more so concerned with the resurgence of the energy sector and maintaining the status quo of the plantation.



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