He says SMEs plays a big role in the country's innovation
Small and medium enterprises (SMEs) play an important role within the Australian economy, according to Reserve Bank of Australia assistant governor (financial system) Brad Jones.
In a speech for the Council of Small Business Organisations Australia (COSBOA) during its National Small Business Summit, Jones (pictured above) spoke about how the importance of such firms had been reflected in the reserve bank’s analytical research agenda and its liaison program.
Jones said that SMEs help the economy as well as the society through their central role in the daily life of communities as well as their potential in driving innovation and dynamism. However, Jones noted that the latter has received less recognition throughout history.
“While the Australian financial system and policy settings have interacted to lend more support to innovation-focused SMEs over the past decade, there is more to be done if the next generation of innovative Australian firms are to have the wind at their back,” said Jones.
Jones said that as research and development is an integral feature in economies that aspire innovations, SMEs spent 25% more on it compared to large firms in Australia.
“SMEs are almost twice as likely to have introduced new-to-world innovations compared with large firms. These types of innovations are harder to produce and so are typically riskier to finance. But they are also likely to generate large positive externalities for the economy and society,” he said.
“Australian SMEs that sell into global markets and that collaborate on innovation, particularly in the manufacturing and PST sectors, are among the most likely to innovate.”
However, the RBA found that a lack of financing was one of the biggest hurdles to innovation when it came to smaller firms as they were riskier propositions for suppliers of capital.
“Survey data suggest that banks are much less likely to finance the innovation-based investments of SMEs compared with large firms. SMEs are therefore more likely than large firms to fund innovation-based investments from family and friends, and non-bank institutions like venture capital (VC) and private equity (PE) funds who are better placed to bear such risk,” said Jones.
Jones emphasized that there were signs that showed how the contribution of SMEs when it comes to innovation within the economy has been rising. While large firms also needed to do their part in order to contribute to the challenges within innovation and productivity that the country is facing, the importance of SMEs could not be downplayed, he said.
“Given the overwhelming majority of firms in Australia are SMEs, it would only take only a small increase in the share of these businesses to successfully innovate to have a material impact on the Australian economy,” said Jones.
“It is therefore in our collective interest for the financial system and policy settings to interact in ways that continue to support innovative Australian entrepreneurs.”
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