2. The activities of research-development in Romanian economy still far from EU standards

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1 INNOVATION, RESEARCH AND DEVELOPMENT IN ROMANIAN SME s SORICI Costin Octavian¹, DOBRE I. Claudia², POCIOVALISTEANU Diana-Mihaela³ ¹Assistant professor PhD, ²associate professor PhD, Faculty of Economic Sciences, Ovidius University, ³associate professor PhD, Faculty of Economic Sciences Constantin Brancusi University Tirgu-Jiu, Romania, costin.sorici@pms.ro Abstract: The SME sector represents one of the important actors in the dynamic development of the economy and export, and also in what is part of the GDP. However, the SME sector is limited when it comes to technical development or science because it cannot play alone and isolated neither from a capital nor a human point of view, but only in collaboration with other subjects (including state or local). The major problem which SME s face are connected to the insufficient liquidity and own funds for development and also to a more difficult access to credits. The paper aims to offer a presentation of the overall situation n the research-development and innovation sector, with an overriding focus on aspects like hampering factors, sources of financing and sources of information in the sector. The result should be reconsidering the position of the R&D activities in Romanian economies in order to cope with the European trends and with the need of competitiveness in global economy. Key words: research, development, innovation, competitiveness, SME s JEL classification: D21, D23, D24 1. Introduction The SME sector represents one of the important actors in the dynamic development of the economy and export, and also in what is part of the GDP. However, the SME sector is limited when it comes to technical development or science because it cannot play alone and isolated neither from a capital nor a human point of view, but only in collaboration with other subjects (including state or local). The major problem which SME s face are connected to the insufficient liquidity and own funds for development and also to a more difficult access to credits. 2. The activities of research-development in Romanian economy still far from EU standards In 28 and 29, Romania allocated for Research and Development (R&D) the equivalent to.54% of GDP, less than.1% more than in previous years. The 3% stipulated in the Treaty of Lisbon is still a long road ahead. Figure 1: Percentage of GDP allocated to R&D by Romania,7,6,5,4,3,2,1 year 26 year 27 year 28 Source: NIS According to Eurostat statistics Romania ranked one place before last in Europe during the period with expenses dedicated for R&D of only,46%-.54% of its GDP. According to the same statistics, EU states have spent an average of 1,85% of their GDP for R&D activities, with values varying between,42% in Cyprus and 3,82% in Sweden. According to Eurostat only 2 EU member states 591

2 (Sweden and Finland) are above the target of 3%, Germany being the third main investor in the field. In the last places of the score board we find Cyprus, Romania, Bulgaria dn Slovakia (around.5% of their GDP). Germany, France and Great Britain have spent together Figure 2: % of GDP allocated within the EU for Research Development, 28 Source: Eurostat The Eurostat study also reveals that in % of the total labour force at EU level was made up from scientist and engineers. Belgium (7.9%), Ireland (6.8%) and Finland (6.7%) are in the top of this score board while the last places are held by Portugal (2.7%), Bulgaria, Austria and Slovakia (3%). Romania is situated in the middle of this ranking board with 4%. Figure 3 : % of the labour force in Research Development, 28 Source: Eurostat At the end of 28, the private sector had 544 units with research-development activity employing 13, 41 people (representing 61.5% of the total number of units and 22.5% of the total number of employees in R&D filed). The total expenditure of the private sector for the research and development activity at current prices amounted 446,6 million RON in

3 Number of units with research development activity (at the end of the year) Table 1: Main indicators of the research-development activity Out of which: private sector % No. of employees in the units with research-development activity No of people of the end of the year 76,744 62,572 58,453 58,81 57,297 57,725 57,915 59,491 Out of which: private sector 14,285 1,1 1,267 1,198 1,668 1,592 14,315 13,41 % No. of employees in the research development activity Number of people (at the end of the year) 48,113 37, ,433 39,985 4,725 41,35 42,22 Out of which : private sector 1,687 7,676 7,764 7,31 7,758 7,889 1,774 9,395 % Total expenses of research-development activity units (million RON at current prices) ,26 1,272 1,538 1,71 2,155 2,828 Out of which: private sector % Source: NIS: Evolution of the Romanian private sector 29 Romania is still far away from an economy based on knowledge and innovation. The causes of this situations are partially explained by the fact that SME s and especially small companies have a large proportion in the economy. A closer look to the innovative behaviour of SME s in Romania may reveal the barriers to innovation. 3. Innovation in the Romanian SME s Small enterprises (with less than 49 employees) represents almost 9% of the SME s sector. According to the official statistics, only 18% of the small enterprises make innovation while the percentage raise to around 25% for the medium-sized companies and to 44% for large organizations. No significant differences between industry and services were observed. Figure 4: The share of innovative enterprises by size classifications and activities in the period industry services The analyses below is trying to offer an overall image of the innovation in Romanian economy, with focus on four aspects: types of innovations, barriers for innovation sources of financing and sources of financing for innovation Unlike the large companies, SME s are generally innovating their processes rather than introducing new innovative products, especially due to costs, as shown in the figures below. 593

4 Figure 5: Typology of innovators by type of innovation in the processing industry, % 8% 6% 4% 2% % product and process innovation process only innovation product only innovation Figure 6: The typology of innovators by type of innovation in the period in services 1% 8% 6% 4% 2% % product and process innovation process only innovation product only innovation Regarding the type of innovative processes introduced in the companies, it worth to be mentioned that organizational innovations are most commonly realized those in marketing. This can represent a barrier in the development of the company on EU and international markets which requires competitive marketing instruments. The lack of marketing knowledge and skills of the managers and of the staff as well as the lack of marketing consultants, stop the innovative process of Romanian SME s. Figure 7: The share of innovative companies in the industry that have adopted organisational and marketing innovations, innovatives-organisational innovations innovatives -innovations in marketing 594

5 Figure 8: The share of innovative companies in the services witch have adopted organisational and marketing innovations, innovatives-organisational innovations innovatives -innovations in marketing The surveys conducted by the national Institute of Statistics and by the Romanian Association of Management Consulting Companies (AMCOR) during the period revealed the main factors which hamper innovation within SME s. They can be classified according to the innovative status of the companies and reveal the differences in size when the company has already implemented an innovation. Table 2: Barriers for innovation by size class Barriers for innovation/ Size class Small enterprises Medium and large enterprises Barriers for innovation in noninnovative firms Market domination by solid firms Lack of qualified personnel High cost of external consulting Lack of external financing High costs of innovation Sources: NIS Survey on Innovation in economy AMCOR Survey on Consulting market 25 and 27 Barriers for innovation in innovative firms Lack of own funds Lack of external financing High costs of innovation Market domination by solid firms Lack of external financing Market domination by solid firms Lack of qualified personnel In order to improve their innovation policies small companies should focus on acquiring financing and facilitating access to qualified human resources or external consulting. Successful experiences should be tested such as promoting the creation professional networks, in order to split innovation costs, human resources costs, etc. 595

6 Figure 9: Hampering factors with high level of importance by size classes within innovative entreprises, lack of funds from inside the enterprise or from the group of enterprises lack of funds from sources outside the enterprise innovation costs too high market dominated by consacrated enterprises difficulty regarding finding co-op partners lack of qualified personnel uncertain demand of goods and innovative services lack of information regarding the technology lack of information regarding the markets large innovatives medium innovatives small innovatives Source: NIS Survey on Innovation in economy AMCOR Survey on Consulting market 25 and 27 Figure 1: Hampering factors with high level of importance by size classes in non- innovative entreprises, market dominated by consacrated enterprises lack of qualified personnel lack of funds from sources outside the enterprise innovation costs too high difficulty regarding finding co-op partners lack of information regarding the technology uncertain demand of goods and innovative services lack of information regarding the markets lack of funds from inside the the enterprise or from the gropu of enterprises large innovatives medium innovatives small innovatives Source: NIS Survey on Innovation in economy AMCOR Survey on Consulting market 25 and 27 The expenditure for innovation represents only 1,4% of the turnover of the SME s and the share of SME s with only organizational innovations is 21.5%. Sales of new products for the market represent 4.9% and those of new products for the company represents 13.7% in the total turnover. 596

7 Regarding the financing of innovations, the figures below show that the usage of public funds, either national or European, is fully related with the size of the companies. Small companies manage to access public funds in a proportion of 1% while the middle size companies reach almost 15% and the large companies almost 2%. This situations leads to n even bigger gap in the innovative capacity between large companies and SME s. The funds of the local and regional authorities are addressed to medium-sized companies in a higher proportion. In total, companies which have received public funding for innovation represent almost 3% of the total. Although the EU and Romanian government offer a wide range of financing opportunities (FP&, Eurostars, SOP Competitiveness, etc) the information related to those programmes is not spread among the SME s. Figure11: Share of innovative enterprises which have received public funding by size clases, any public fund from the European Union 1 from the Govermment 5 from the 6th Framework Programme from local and regional autorities Figure 12: Share of innovative enterprises which have received any kind of public funding by sectors, ,3 19,5 17,9 14,6 11,9 9,9 processing industry services The most important sources of information is the company itself or the group of companies to which the firms belongs, suppliers, clients, fairs and exhibitions and also specialized publications. The sources of information with less impact for the SME s are consultants and private R&D institutions, NGOs dedicated to R&D, higher education institutions and professional associations. This shows the existent deficit in the access of information from these sources or a low level of trust of private enterprises in these institutions. Therefore, public policies targeted to increasing access to information about innovation for entrepreneurs and managers should focus on improving the communication about the results of the researches undertaken by universities and public institutions, on creating sectoral bodies to spread the information in each branch. Also, iti is important that the consulting companies should be used more in the fields of innovation (examination in technology, marketing and organizational changes). 597

8 Figure 13: Share of innovative enterprises in the processing industry which have indicated the most important source for information for innovation, ,4 4,8 clients 34 32,2 36,9 31,9 universites or higer education institutions 21 25,8 22,2 2,5 dedicated magazines and publications 18,9 19,1 6,4 5,4 non-profit public and private institutions of R&D 5,7 6 2,9 6 private consultants, commercial labs or institutions of R&D 4,6 2, processing industry services 4. Main conclusions The level of the expenses for research-development-innovation in Romania is still far from the targets set forth in the Lisbon Strategy: with.54% allocated fro RDI in 28 the country is still under the 3% objectives and the EU average of 1.8%. Only 18% of Romanian SME s have been involved in innovation between 25-28, according to some surveys provided by NIS. The innovative processes in the SMEs are generally more concentrated toward organizational aspects of the company, instead of the marketing aspects, this fact leading to a lack of competitiveness of the enterprises on foreign markets. The companies which are not innovative complain about the fact that the market is dominated by large companies that they lack qualified personnel and proper resources and consulting. Innovative companies also indicates that the lack of their own resources and of the ones they could attract is a barrier in the path of innovation. Nevertheless, the usage of governmental and European funds fro the sector is very limited. The R&D sector in Romania is a successful one, being in the highest share integrated in the small companies with a high labour productivity. The specific EU financing programmes (like Eurostars) AND THE Framework Programme 7 should be promoted towards these companies. 598

9 5. References Sorici Costin (29) Internationally financed projects, Ed. Universitaria, Craiova DG Regio. (2-28), Eurostat series DG Regio GIS (27) SFC 27 on the basis of programmes received as of end of April 27, Eurostat 28 Science, technology and innovation in Europe available at 12-EN.PDF E.C (27).Fourth Cohesion report Growing Regions, growing Europe, Ministry of SMEs (27&28) Annual report of the SME sector in Romania NIS (29) Innovation in industry and services in period 599