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Lack of finance is 'crippling' UK innovation

13 June 2013

Financial constraints are crippling new product development by the UK’s SME base with engineering and technology companies particularly badly hit.

The first annual Research Monitor from product development contractor, Pera Technology does not make for happy reading. It shows that a massive 91 percent of SMEs are failing to innovate via new product development (NPD) or commercial research, which potentially has severe implications for the UK’s economic recovery and competitiveness.

The research reveals that only 8 percent of SMEs overall - and only 2 percent of manufacturing and technology SMEs - are doing any product development or research, with lack of finance (31 percent) being cited as the main reason.

Lack lustre?
Other reasons given include a lack of in-house resources (22 percent), lack of time (21 percent), lack of knowledge (10 percent), lack of skills (10 percent) and lastly, a lack of ideas (8 percent).

Pera’s commercial director, Mark Wareing says the research paints a very worrying picture of a key sector of the economy failing to innovate because of outside pressures, such as finance, and believes the implications for UK competitiveness are profound.

“This is bad news if we are hoping that small businesses and in particular manufacturing and engineering companies will lead the economic recovery and genuinely rebalance the economy," says Dr Wareing. "If businesses fail to innovate then the UK will become less competitive in the long term.

"It is clear that the squeeze on lending is having an effect beyond day to day operations and beginning to impact on longer term strategy.  NPD can be risky and expensive and it is clear that the UK’s SME base is not being given the support it needs.”

The good news, according to Dr Wareing, is that the barriers to new product development are, in his words, easy to overcome. "We know that all sorts of funding for research can be come by if only SMEs know where to look," he says.

"Traditional bank finance is not the only option. Also, harnessing external intellectual resources can wipe out many of the other barriers to research at minimal cost if available grant schemes are properly harnessed.”

Pera's survey also asked where companies would get advice on new product development. Some 40 percent of them said they would look to internet forums to get ideas, with 37 percent generating ideas internally.

New product development companies would be the first port of call for 20 percent of respondents, with management consults attracting 13 percent.  Only 11 percent would contact their local university. Dr Wareing again:

“I wasn’t surprised that there seemed to be a lot of confusion about where to go to get advice on NPD.  But as not many are actually undertaking any research at the moment, the methods of getting advice are obviously failing. 

"What Pera Technology will be doing is reaching out to SMEs and educating them about all the possibilities for reducing the barriers to innovation and help them secure both finance and ideas for the future.”

The Pera Technology Research Monitor will be conducted annually to map new product develop and research intentions of SMES. For more information about Pera's services for SMEs click here

Meanwhile, the Confederation of British Industry (CBI) has also put its weight behind the argument for more support for UK innovation by pressing the government to allocate more funding for the UK’s innovation agency – the Technology Strategy Board.

The CBI has called on the Chancellor to seriously consider where cuts are being made as part of the £11.5bn savings round. It proposes a number of recommendations, including supporting the Technology Strategy Board, which it claims (in a press statement) has been“underfunded to date and is crucial to successfully protect innovation in the UK.”

David Bott, director of Innovation Programmes at the Technology Strategy Board, welcomed the CBI's support: “We use our funding to help businesses prosper and grow so that they can compete in a fast-paced global marketplace," he said. "Increased support from government would mean that we can continue to keep the heart of innovation beating through even more of the best British businesses in the country today.”

Les Hunt

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