What types of innovation are we talking about in Africa?

Vanessa Casadella – Talking about innovation in Africa is first and foremost about interpersonal trust between stakeholders (Kuada 2003). Social ties, through trust, empathy and emotional relationships, are qualities that allow for the rapid acquisition of knowledge and the promotion of innovation. In African industrial clusters, the cluster effect, linked to geographical proximity and strong social capital, encourages the sharing of innovation and opportunities to learn new techniques.

Innovation is then represented by low and medium technology sectors without being limited to high-tech sectors and R&D (Johnson and Lundvall 2003).

While innovations in high-tech sectors are sophisticated and based on science and radical innovation, innovation in Africa reflects routine learning opportunities within small traditional structures. Innovation is, in fact, mainly conducted informally through practice, use and interaction. R&D activities are not clearly and formally linked to enterprise strategy.

Moreover, the types of innovation can only be understood by taking into consideration the context of innovation in Africa, which is often complex. Economies are unstable and vulnerable, and innovation strategies are linked to their macroeconomic, political, institutional and financial environments (Cassiolato et al. 2014). Understanding the history and functioning of these economies is crucial. The heterogeneity of development trajectories should be considered, as should the dynamics of adjustment through the development of technological capacities.

Moreover, we note that African innovation dynamics are interpreted through their construction and not their technological result. It is not possible to mention the a priori (ex-post) nature of innovation, which describes the innovation processes of industrialized countries with a strong institutional base and advanced infrastructure. Innovation in Africa, as more generally in developing economies, is a posteriori (ex-ante), so that analysis on innovation processes moves further upstream, on its emergence and development conditions (Lundvall et al. 2002).

The last aspect of the type of innovation in Africa is related to inclusion and development strategies; the literature approaches this from the perspective of “innovation in the South” (Cozzens and Sutz 2014): it is innovation in development and poverty reduction strategies. The unequal treatment of minorities and poor local governance, through problems of corruption, divert the real construction of innovation capacities. The supported system and clientelism do not favor the creation of knowledge, nor do the government strategies of poorly trained elites, often based on personal ambitions.

Innovation is generally associated with entrepreneurship. What about Africa?

Innovation and entrepreneurship are indeed linked to the same concern for creativity, whether in developing new products, services, processes or organizations. In this sense, entrepreneurship in Africa has played an important role in the development of territories at different levels: local, regional and national. Enterprises contribute to development in a variety of ways: they generate a large share of the government’s tax revenues, they enhance and improve human capital, productivity and income. By improving product quality and lowering prices, they increase the purchasing power of consumers, including the poorest. In a context of persistent unemployment and demographic explosion, entrepreneurship is even becoming the main mechanism for the social integration of young populations into the economic sphere.

Nevertheless, economic instability is a barrier to entrepreneurial growth. It is complicated to undertake when actors lack trust around local institutions or when production systems are unbalanced in the sense that some aspects of them are inefficient or simply non-existent.

More generally, small businesses face an external environment that is not conducive to their development: price instability that is unfavorable to the setting of expectations, difficulties in accessing financing, etc. The result is a choice for informal activities, with very low capital intensity and a growing domestic market. This development of the informal sector accentuates the independence of these production units from national markets and, consequently, increases their vulnerability.

In addition, in Africa, a large proportion of enterprises are foreign-owned. Indeed, it must be acknowledged that this continent lacks the potential for quality entrepreneurs, which sometimes explains the delay in some economies. Although some efforts have been made to stimulate the private sector (corporate tax cuts in Ethiopia or a wave of corporate privatizations in Senegal), their impacts still seem small (Gad 2012). And even today, young graduates prefer large enterprises that are more secure than the risks of starting a business. Others are part of entrepreneurial nomadism as a solution to their social condition (poverty, exclusion). This nomadism is mentioned for three main reasons: the importance of household budgets, limited production capacities and the entrepreneurial spirit (Doumbouya 2011).

In this perspective, the mode of governance and collective mechanisms for conflict resolution through structural policies will be decisive. The current urgency for Africa is therefore to be able to both regulate the country via the development of innovation policies (by fighting clientelism and corruption) and to integrate African countries into the global system (Casadella and Uzunidis 2017). It is well known how the difficulties of national regulation limit the diffusion of innovation capacities and the resolution of problems related to the interconnection of innovation actors (in particular the lack of links between production systems and academic and research systems). In any case, local policy solutions should be sought in entrepreneurial levers far from the standardized trajectories of westernized economies. In conclusion, we can conclude that the SME environment in Africa is currently proving to be a constraint, even an obstacle, to the development of innovation, which makes it difficult to develop new ideas. And yet, there are real challenges in innovating in this region of the world, hence the relevance of the frugal innovation approach.

When it comes to talking about innovation, China is often known for issues related to counterfeiting. However, there are innovative SMEs. Who are they?

Zeting Liu – To understand the role of innovative SMEs in China, it is first necessary to establish the framework for reflection. Indeed, the current Chinese economic system is the result of structural reforms implemented since 1978. Although the market is an increasingly powerful regulatory force, planning plays an important role in Chinese economic life as it is both the main tool of the Chinese government to mobilize resources to achieve economic and social objectives, as well as the basis for evaluation by local authorities. This system relies heavily on State-Owned Enterprises (SOE) to achieve the socio-economic objectives set at the various horizontal (ministerial/sectoral) and vertical (central government and territorial authorities) levels (Liu 2016).

On the eve of the 1978 economic reforms, all enterprises, regardless of size or sector, were public. During the first phase of structural enterprise reforms, the emergence and expansion of Township and Village Enterprises (TVEs) contributed to the formation of the non-public economic sector and the development of the economic structure of SMEs (including sole proprietorships and self-employed workers). After the consolidation phase between 1992 and 2002, public SMEs were either privatized, sold to their managers or employees or closed. After a timid start in the niches neglected by the public sector, the private sector, composed mainly of SMEs, saw its expansion accelerate after 1992 (Liu 2014). The number of private enteprises increased from 140,000 in 1992 to 2.4 million in 2002, an annual growth rate of 33.1% (Huang 2012). Further strong growth was recorded after the inauguration of the Law on the Promotion of Small and Medium Enterprises in 2002.

Today, SMEs are mainly part of the private sector of the Chinese economy. By 2013, micro, small and medium-sized enterprises (SMEs) represented 97% of the total business population and contributed to 80% of urban employment and 60% of GDP in China. In addition, 60.2% of small businesses operated in the service sector, 18.5% in manufacturing and processing, 5% in construction and 3.2% in agriculture-related industries (OCED 2016).

However, the SME category includes a very exogenous population of enterprises whose differences in terms of number of employees and turnover can vary widely between sectors. Indeed, the definition of SMEs in China is very complex and differs from the main international statistical standards (OCED, Eurostat). Article 2 of the 2002 Law on the Promotion of Small and Medium Enterprises includes in the category of Small and Medium Enterprises (SMEs) “different forms of enterprises at the scale of small and medium production and operation, under different ownership regimes, established in the territory of the People’s Republic of China, which meet social needs and create employment opportunities, and which comply with the State’s industrial policies”.

The definition of SMEs is formulated according to “the number of employees, total assets, turnover, etc., associated with the characteristics of the sector”. The law was amended in 2017 by adding microenterprises to the SME family.

According to the most recent definition, we find that the size of a medium-sized enterprise varies from one industry to another. For example, in the field of information transmission, there are on average between 100 and 2,000 employees in a unit, which generates between 10 million and 1 billion yuan in turnover. In the computer industry (software and computer technologies), these are enterprises with an average of 100 and 300 employees and generate between 10 million and 100 million yuan in turnover.

This complex system of definition creates confusion, makes it difficult to use statistical figures, in turn making it difficult to have a global overview of Chinese SMEs.

With these benchmarks in mind, what are the areas in which Chinese SMEs are innovating most?

Chinese SMEs have been developing on the fringes of state intervention and in niche markets since the reforms. While this distance has allowed them to expand rapidly for 30 years, it also removes them from the colossal resources allocated by the State for building the technological and innovation capacity of public enterprises. We can say that SMEs are subject to unfair market treatment in terms of access to public procurement, financing, skilled personnel and technology; they are also subject to disadvantageous taxation. State-owned enterprises that are predominant in the economic system have greater access to finance and technology through their proximity to the banking and scientific systems, which are also controlled by the State. SMEs therefore lack the financial, human and technological resources to develop their innovativeness.

However, since the 2000s, China has been implementing measures to promote SME innovation.

The national orientation of SME innovation policies is based on three components:

• – creating an environment favorable to SMEs, particularly microenterprises;
• – improving the public services system to support SMEs;
• – facilitating access to loans and reducing the burden on SMEs.

The main measures resulting from these policies are as follows:

• – support for gazelle enterprises¹ through direct financing (Innofund), tax credits, facilitation of procedures, opening up to public procurement;
• – encouraging research institutes to create spin-offs;
• – the creation of a favorable legislative environment (in particular by strengthening intellectual property);
• – the integration of SMEs into the national innovation system;
• – the development of the venture capital industry (Liu 2014).

In 2016, SMEs (micro, small and medium-sized enterprises according to the 2017 definition) represented 94.8% of all enterprises in this industry. They contributed 55.3% of jobs, 43.7% of total turnover, and 48.4% of industrial production. Medium-sized enterprises were the main contributors in this category (Torch Program 2017).

However, this example should not hide the fact that the innovative capacity of SMEs in general is still lagging behind. The study by the Chinese Ministry of Science and Technology recalled, in its call for innovation projects in 2018, that only 36% of micro and small manufacturing enterprisses carried out innovation activities in 2016, compared to 79.3% of large enterprises and 58.4% of medium-sized enterprises (MOST 2018). The result of this study is certainly biased by the sector studied, with SMEs, especially micro and small enterprises, being mainly present in the service sector.

On the other hand, it identifies the main problems faced by SMEs outside high-tech enterprises:

• – ignorance of the importance of innovation;
• – the use of ageing production methods;
• – non-participation in the local, regional or global value chain (Zhang and Xia 2014; Lin et al. 2016).

In conclusion, I would like to recall that, since 2014, Chinese economic development has entered a phase of a “new normal” with an annual growth rate considered modest: 6/7% instead of 10% (Chen and Groenewold 2018). In this context, the contribution of SMEs to the dynamics of the economy and job creation is attracting the attention of the Chinese government. Indeed, despite efforts made since the 2000s, obstacles to innovation for SMEs persist. And the objective is to reduce or even eliminate them. To this end, new measures, the latest of which is the amendment of the law on the promotion of small and medium-sized enterprises in 2017, are being put in place to accelerate business transformation, promote innovative entrepreneurship and create start-ups in promising sectors such as information technology, e-commerce and the Internet economy. These measures aim firstly to facilitate access to financial, human and technological resources for SMEs, secondly, to simplify the tax system and reduce the tax burden on SMEs, and thirdly, to facilitate the integration of SMEs into the innovation networks of large enterprises (Lin et al. 2016). The economic, social and political environment therefore plays a major role in the development of innovation by Chinese SMEs.

Introduction

Being Argentina’s second largest employer, their SMEs represent 99% of local production². They are also responsible for 40% of GDP (CAME 2017). These figures conceal a contrasting reality, as the integration of SMEs into value-producing channels remains limited. For example, they represent only 10% of total exports (Bekerman et al. 2014). In an Argentinean context characterized by inequalities, a number of enterprises, particularly SMEs, nevertheless succeed in innovating.

A contrasting Argentine economic context

In recent years, the recession, the country’s economic disarticulation and the sharp devaluation of the currency in 2018 have weighed heavily on the manufacturing structure. The economic difficulties are all the more significant because SMEs have a vast social inclusion function. Poor domestic market forecasts and an aggressive Argentine policy towards medium and small industries have serious consequences for employment. Argentine SMEs are currently shrinking and reducing the costs associated with their current operations and investments. More specifically, it is estimated that 68% (Gallo 2018) of SMEs slow down their innovation investments due to cash flow difficulties, as customers are finding it increasingly difficult to pay their debts. In addition, the recent tremors in the Argentine market have brought the ghosts of the 2001 crisis to the country. The memory of unemployment and the difficult years is still alive. In response and because of a fear of bankruptcy or loss of employment, many workers are occupying their factories. This is not a new observation. Between 2001 and 2004, 120 enterprises were bought by their own employees and then managed as a cooperative (Ruggeri et al. 2010). Far from being afraid of it, Néstor Kirchner’s government accompanied this dynamic, during the 2003–2015 period, with the aim of protecting national industry and encouraging R&D. In the mid-2000s, a campaign to promote and support scientific research and innovation was launched. As a result, various public investment funds and new government agencies have been created to facilitate Public-Private Partnerships (PPPs). For example, an ICT support policy has fostered the development of the software industry. In addition, this sector has benefited from numerous tax exemptions and a wide range of financing. By this we can say that the State has renewed itself by actively supporting both innovative and traditional enterprises (for example in the agri-food sector). However, the impact of such a policy was limited by the duration of the experiment. In 2015, the retraction of the market, the increase in fixed costs (linked in particular to the increase in the prices of public services) and raw materials caused the number of bankruptcies to explode. At the same time, the experiences of employees of private enterprises taking over in a self-managed form (management and production) have accelerated at an unprecedented rate.

Profiles and trajectories of innovative industrial SMEs

Once reduced to the volume of investments on direct benefits, industrial SMEs are the ones that devote the major part of their resources to innovation(s) (INDEC 2008)³. However, SMEs investing in innovation are diverse, both in their profiles and in their enterprise policy. Therefore, a real innovation policy is only perceptible in half of SMEs. We distinguish four profiles of innovative enterprises:

• – most innovations are non-technological and more organizational and commercial. They are generally enterprises dependent on natural resources whose investments depend on access to bank credit. They are also often in close contact with consulting firms, public bodies and chambers of commerce;
• – next come innovations focused on technological products and production methods (factories, robots, etc.). This characterizes enterprises with intensive production that is often supported by equity capital;
• – they also innovate product design and research and development enterprises;
• – enterprises combining technological innovations, production mode innovations and design are in the category of innovative sectors (Mancini 2016).

The last two types owe a great deal to the public technical-scientific system; they have benefited from PPP policies designed to encourage innovation that is now obsolete. Most of these enterprises specialize in information technology (software or machines). In fact, in terms of information technology, Argentina oscillates between an “intermediate” and “advanced” level compared to the rest of the world (according to an ICT index developed by the Union internationale des télécommunications (UIT) – and the United Nations). These same indicators estimate that 99% (CESSI 2016) of IT enterprises are SMEs (Guercio et al. 2016). Until mid-2018, these types of SMEs were in better financial health than the rest of the industries with positive annual growth and job retention. In short, it is a dynamic and growth-generating sector, despite a decline in the local market. However, they also face the same challenge as other enterprises: access to finance is the major obstacle to development in the internal market (Estayno et al. 2009). Currently, self-financing seems to be the main development lever for small enterprises. Finally, we note that the enterprises most likely to adopt an innovation policy are those that manage to maintain business relations with the global economy. More concretely, the most successful enterprises are those that maintain international markets and export local products in particular. Their strength is to be able to index themselves on the international market, which is what ICT SMEs are able to do. At present, this dynamic is driven by the healthy IT market, which remains R&Doriented (Mancini 2016).

Conclusion

In addition to the economic and political reality mentioned above, it should be stressed that, following the recent devaluation of the peso, the Argentine economy is now facing two challenges:

• – on the one hand, the country could protect its local industry from the pressure of low-cost imports;
• – on the other hand, this devaluation has led to a surge in international or national commodity prices when they are indexed to international prices.

In short, the difficulties faced by Argentine SMEs testify to the major structural bottlenecks in the local production apparatus. They hinder the development of a sustainable innovation strategy, which can only take place in the medium/long term. We can then say that, in Argentina, the SME environment is more of a constraint to be curbed than a resource to be exploited.