A policy perspective on incremental innovation in small and medium sized enterprises

The increased importance of small and medium sized enterprises (SMEs) in industrial economies is explained and the very large variance in their degree of participation in the innovation process is established. Evidence from Canadian research clarifies the difficulties that smidl and medium sized firms, even in technology intensive industries, experience in developing new products and implementing new designs. Innovation theory is reviewed and the importance of inputs from specialist consultants is established for SMEs undertaking incremental innovation. Transaction costs concepts are then used to explain the difficulties SMEs encounter in arranging these linkages. A recommended form of policy to help to correct this type of market imperfection is derived and used to describe a gap in Canadian policies and to evaluate initiatives in Australia and UK.