Small and Medium-Sized Enterprises and IT Diffusion Policies in Europe: Lessons for Developing Countries

The information and communications technologies industry (IT) has been growing in Europe, as a result of more favorable economic conditions since 1993. While the telecommunications industry is dominated by large companies, 89% of firms in the IT sector have up to 19 employees. The most dynamic sectors are software development and IT services (training, maintenance and outsourcing). In telecommunications, the most dynamic sector is voice and data networks (EITO 1995). Small and medium-sized enterprises (SMEs) have several possibilities of development in the sectors mentioned above, therefore the prospects for their growth are positive. In software, demand is growing due to increased use of distributed systems, growing penetration of Unix platforms and applications to automate work flows, increased access to information and multimedia development. In services, demand is growing for consultancy in new IT systems, business process re-engineering software maintenance and outrsourcing. Even in the data networks sector, dominated by large tele-communications operators, SMEs have opportunities in network management and applications development. However, Europe still has several problems concerning IT diffusion. The first is that IT penetration and lines per inhabitant rates vary widely across European countries (see tables 1 and 2). The second is that both software and IT services are sectors that are going through a concentration process that may hinder SMEs entry in the market, especially in software. (EITO 1995)

The European Union has been trying to solve the disparities shown by the tables by setting up several action programs. While in the 80's and early 90's most of these programs were supply-oriented, more recently the EU has also been giving attention to demand policies. The IT Work Programme 1994 changed the focus from supply to demand issues. The goal of the program is to 'contribute to the healthy growth of the information infrastructure so as to improve the competitiveness of all industry in Europe and help enhance the quality of life'. The program aims to involve users in all its areas of implementation, which are: software, technologies for components and subsystems, multimedia systems, long term research, open microprocessor systems, high performance computing and networking, technologies for business processes and integration in manufacturing. User participation is stimulated by networks of excellence, that gather centres of excellence across Europe, and by user-supplier collaborations. Finally, the program also aims to stimulate SMEs to participate, giving them exploratory awards to cover the costs of preparing proposals for the program. The Fourth Framework Programme will invest a total of 3,405 million ECU in research, technological development and demonstration in the ICT area. The framework program encompasses several other programs. Some of these started several years ago, and the present programs are continuing earlier efforts.

Despite the variety of programs offered and the positive prospects of the industry, SMEs still face several obstacles to use and produce IT in Europe. Some of them are related to these firms' characteristics: lack of resources, lack of information about IT commercial possibilities and lack of an IT culture. Even simple applications like e-mail have a low rate of use (see table 3).

Therefore, it is not sufficient to implement support programs to stimulate SMEs participation in the IT sector. On the contrary, too many support programs may have an adverse effect on SMEs, by increasing the cost for the firm to locate the appropriate program. In addition, most policies for SME support are implemented ad-hoc, which adds to difficulties concerning information (Storey 1994). Information about support opportunities must be provided at a local level. The locality is essential in the building of trust relationships, much valued by SMEs (OECD 1993), and to build the learning system that determines SMEs' IT needs (Camagni 1991).

The challenges for developing countries are increased due to their precarious telecommunications infrastructure. Besides, as Correa (1994) observes, IT diffusion patterns vary not only according to revenue per capita, but also according to organizational and social factors. IT diffusion in developing countries is lower than in developed ones due to the smaller average size of firms, higher relative cost of equipment lack of sound user-provider relationships and lower competitive advantages related to IT adoption. Empirical studies on SMEs in developing countries show that usually these firms do not have the means to assess costs and benefits linked to IT and do not trust providers. They also show that, the more intense the IT use, the more the firm is aware of the possibilities of applications in production and management.

The difficulties that developing countries' SMEs have in adopting IT suggest that a policy for IT diffusion should be centered in several actions. On the supply side, measures to improve the telecommunications infrastructure, special financing conditions, and training the work force. On the demand side, measures to widen the access to information about IT and offer consulting services to develop IT-based solutions for the firms (Correa 1994). In addition, user-producer links should be stimulated, as well as links with local cooperatives and universities and development of firm networks. Finally, the European experience suggests that policies should be implemented at a local level, in order to attain more SMEs.

References

Correa, C., Diffusion y Politicas de Tecnologias de la Informacion para Pequenas y Medianas Empresas en America Latina y el Caribe, mimeo, Buenos Aires, March 1994.

EITO (1995) European Information Technology Observatory.

OECD (1993) Les Petites et Moyennes Entreprises: Technologie et Competitivite.

OECD (1995) IT Diffusion Policies for Small and medium enterprises.

Storey, D.J. Understanding the Small Business Sector Routledge, London, 1994.

Work supported by CNPq, Brazil.

• WG9.4: IT in Developing Countries
  • Volume 6, No. 2, April 1996

Converted to HTML by Dr. David R. Newman, Queen's University Belfast.