Opinion of the European Economic and Social Committee on the Proposal for a Decision of the European Parliament and of the Council on the participation by the Community in a research and development programme aimed at supporting research and development performing SMEs undertaken by several Member States COM(2007) 514 final — 2007/0188 (COD)
Date: 2008-05-29
Institutions: European Economic and Social Committee
Subjects: EU Member State, EU aid, EU programme, EU research policy, cooperation policy, financial aid, research and development, research programme, small and medium-sized enterprises

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Official Journal of the European Union

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Opinion of the European Economic and Social Committee on the Proposal for a Decision of the
European Parliament and of the Council on the participation by the Community in a research and
development programme aimed at supporting research and development performing SMEs under-
taken by several Member States

COM(2007) 514 final — 2007/0188 (COD)

(2008/C 224/04)

On 11 October 2007 the Council decided to consult the European Economic and Social Committee, under
Article 172 of the Treaty establishing the European Community, on the

Proposal for a Decision of the European Parliament and of the Council on the participation by the Community in a
research and development programme aimed at supporting research and development performing SMEs undertaken by
several Member States

On 25 September 2007 the Committee Bureau instructed the Section for Single Market, Production and
Consumption to prepare the Committee's work on the subject.

Given the urgent nature of the work, the European Economic and Social Committee appointed Mr Cappellini
as rapporteur-general at its 445th plenary session, held on 28 and 29 May 2008 (meeting of 29 May 2008),
and adopted the following opinion unanimously.

1. Conclusions and recommendation

highly innovative processes are strongly characterised by ‘tacit
knowledge’ (3).

1.1
The European Economic and Social Committee (EESC),
which supports the objectives of the Eurostars Joint Programme,
stresses the need to take account of the different categories,
sizes and sectors of SMEs when adopting new EU Research &
Development and Innovation policies and programmes geared
and reoriented towards SMEs' real innovation needs.

1.2
The EESC welcomes the Member States' proposal for the
adoption of the Eurostars Joint Programme to support the so
called ‘R&D performing SMEs’ and notes that it should be open
to all SMEs from the countries joining the program and willing
to participate in innovation processes.

1.3
The EESC underlines the necessity to identify tools in
order to involve in the programme all EUREKA Member States
not included in the Eurostars Joint Programme.

1.5
Therefore, the EESC reaffirms the principle that for a fair
competition on project proposals the projects should be selected
on the basis of excellence of their content, managerial expertise
on R&D and coherence with the goals of
the programme,
without excluding a large proportion of the innovative SMEs
willing to apply to the Eurostars programme. Furthermore,
funding should be allowed for training programs aiming to
prepare expert managers dealing on effective technologies
transfer from research into marketable products.

1.6
In this regard, the EESC requests that, in accordance with
the appropriate procedures of the Eurostars Joint Programme, a
specific budget line be established for trans-national initiatives
conducted by Member States in collaboration with SME organi-
sations willing to support the dissemination of SME-friendly
information on the results of Eurostars projects to a wider audi-
ence of SMEs. Another way of giving all SMEs interested in the
success of the Eurostars programme more ‘ownership’ would be
for a common data base and multilingual sector web platforms
to be set up and promoted by SME organisations and the social
partners.

1.4
The EESC has concerns in relation to the Eurostars Joint
Programme eligibility criterion, (1) which limits participation to
R&D performing SMEs that,
‘invest 10 % or more of full-time
equivalent or annual turnover in research activities’. Even if the
limitation is applied only to the R&D performing SME that
proposes the project (project leader), this definition for R&D-
performing SME, is based on codified indicators, ignoring all the
‘non-codified knowledge’ (2), whilst often,
various kinds of

1.7
The EESC highlights its concern regarding the criteria for
setting SMEs' contribution to the total project costs related to
R&D activities. It is important to clarify that, as things stand,
under the Eurostars Joint Programme, SMEs would be required
to contribute, collectively, at least 50 % of the R&D related
project costs. Since this criterion will exclude many market-
based SMEs, consideration should be given to the possibility of
lowering this barrier to 25 % during the interim evaluation of
the Eurostars programme (4).

(1) http://www.eurostars-eureka.eu/.
(2) Hartmut Hirsch-Kreinsen, ‘Low-Tech’ Innovations, Industry and Inno-

(3) Pilot Project: http://www.pilot-project.org.
(4) A6-0064/2008 (amendment to the proposal), European Parliament,

vation, 2.2008.

Committee on Industry, Research and Energy, 2008.

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1.8
Later on, the concerns expressed by EU and national
SME organisations and other research stakeholders should be
taken into consideration by the interested member States and
EU National Authorities during the different phases of impact
monitoring and result dissemination. A regular check by the
EU's Advisory Group on SMEs and R&D could become a
permanent tool of technical consultation for the Member States
and other authorities at EU/national
level. In this regard, the
EESC's Internal Market Observatory in collaboration with SMEs
Category could also serve as a consultative member on the
Advisory Group during the monitoring,
implementation and
dissemination phases.

1.9
The EESC underlines that the Eurostars Joint Programme
should be implemented in a transparent and non bureaucratic
way, so as to make it easier for SMEs to receive information,
take part and, in particular, get involved in follow-up activities
with related,
the
projects funding should be made by lump sum payments and
where a lump sum payment is not compatible with the national
programmes, there should be a flat rate payment.

interested R&D institutions. Accordingly,

1.14
The EESC stresses that, in order to improve and increase
SMEs' take up of R&D funding, the EC needs to explore the
possibility of shifting the unused resources available for SMEs
under the ‘Cooperation’ chapter of FP7 (representing 15 % of
the ‘Thematic Priority’ budget
to the ‘Capacities’
Programme (CRAFT, etc.) which targets SMEs more effectively.

in PF6)

1.15
The EESC asks that more attention be given to the
disproportionate regulatory burden on SMEs, which can be up
to ten times higher than the burden on large companies (6). A
reduction of management costs and a simplification of submis-
sion procedures for SMEs that venture into R&D programmes
with other European and international partners are also desir-
able. The EESC would also like to see a solution to the issue of
(IPR) and European Patents (7),
Intellectual Property Rights
where the current situation hinders competitiveness and innova-
tion in Europe. Furthermore, accessible patenting and IPR (8)
may also count as important non-monetary assets when it
comes to consolidating partnerships between enterprises partici-
pating in international projects.

regional

the specific

innovation networks

1.10 With a view to effective implementation of the Euro-
stars programme,
should be
strengthened to enable them to provide one-stop-shop services
in support of innovative SMEs, giving them effective access to
to increase
European R&D funding. For instance,
awareness of
for R&D
performing SMEs, the links between EUREKA networks, other
existing public/private bodies and EU/national/regional SME
organisations should be tightened and better coordinated. A set
of events through SMEs representative organisations should be
funded in order to make aware the SMEs and the interested
organisations of the meaning and importance of innovation and
the role that innovation will play in the future of EU.

funding programmes

in order

The outcome of the project selection by SME sectors in
1.11
the framework of the Eurostars programme (5) should be made
public in the Internet by the Eureka network. Furthermore, a
short list of eligible projects with a high innovative content but
which have not been funded should be made available. This list
further
would indicate national public/private investors
funding would be necessary to the programme.

if

Effective coordination between the national authorities
1.12
in charge of SMEs and R&D policies and EUREKA must be
consistent and must match the needs expressed by SME organi-
sations and wider stakeholders (including, amongst others,
private and public research bodies). The EESC calls upon inter-
ested European Institutions, the Member States and the Slove-
nian and French EU Presidencies to ensure that coordination is
conducted
and
programme objectives.

in accordance with SMEs'

expectations

1.13
The EESC urges that, in connection with SMEs' partici-
pation in R&D funding programmes and the Eurostars Joint
Programme, the long period from submission of a proposal to
approval by the EU be shortened, so as to encourage SMEs to
submit projects.

2. Background to the opinion

2.1
In the European Charter for Small Enterprises approved
by EU leaders in 2000, it was agreed that small enterprises must
be considered as a main driver for innovation, and employment
as well as for social and local integration in Europe (9). In addi-
tion, in October 2007, the EC announced the preparation of a
‘Small Business Act for Europe’ (SBA) (10), which will define a
set of measures aimed at promoting entrepreneurship, a culture
of enterprise and access to competences (11). In the course of
2008, the Commission will also examine a range of initiatives
with regard to SMEs (12) in order to increase their participation
in EU programmes.

2.2
for a
From these foundations has come a proposal
specific Eurostars Joint Programme. The programme, which
comes under Article 169 of the EC Treaty and is designed to
complement and target the ‘Research for the benefit of SMEs’
activity under the Seventh Research Framework Programme
(FP7),
is managed by EUREKA and was initiated jointly by
22 Member States and five other EUREKA countries (Iceland,
Israel, Norway, Switzerland and Turkey). Currently the Eurostars

(6) Models to reduce the disproportionate regulatory burden on SMEs,

European Commission, May 2007, DG Enterprise and Industry.

(7) The Cost Factor in Patent Systems, Université Libre de Bruxelles

Working Paper WP-CEB 06-002, Brussels 2006, see from p. 17.

(8) Enhancing the patent system in Europe: COM(2007) 165.
(9) European Charter for Small Enterprises, Feira European Council on 19-

20 June 2000.

(10) Small and medium-sized enterprises — Key for delivering more
growth and jobs. A midterm review of Modern SME policy. COM
(2007) 592 final, 4.10.2007.

(11) Luc Hendrickx, ‘UEAPME expectations on the proposal for a European

Small Business Act’, 14.12.2007.

(5) http://ec.europa.eu/research/sme-techweb/index_en.cfm?pg=results.

(12) http://ec.europa.eu/enterprise/entrepreneurship/sba_en.htm.

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programme counts 30 member sates: Austria, Belgium, Cyprus,
Czech Republic, Denmark, Estonia, Finland, France, Germany,
Greece, Hungary, Iceland, Ireland, Israel, Italy, Latvia, Lithuania,
the Netherlands, Norway, Poland, Portugal,
Luxembourg,
Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland,
Turkey, United Kingdom.

2.3
FP 7 adopts many of the measures suggested during the
review of FP6 (13) with a view to bridging the gap in policies in
favour of SMEs. FP7 includes a strategy towards SMEs, incorpor-
ating both qualitative and quantitative measures to stimulate
action at both national and regional levels. Its aim is to create
clusters and networks of businesses, to improve pan-European
cooperation between small enterprises using information tech-
nology, to disseminate best practices on cooperation agreements
and to support cooperation between small businesses (14).

2.4
The 23 million SMEs registered in the EU account for
99 % of all enterprises and for two thirds of Europe's turnover
and they are also which supports the key players in sustainable
development (15). Yet, to become more competitive, these enter-
prises need to be rationalised and regrouped to form a coherent
whole with a critical mass, so that they can take advantage of
the development of specific risk-capital funds, science parks,
incubators and regional innovation policies (16).

2.5 Moreover,
the ‘Flash Eurobarometer report’ underlines
that SMEs' growth may be hindered by the risk-averse nature of
Europeans, who lack entrepreneurial spirit (17). It is therefore
particularly important to take action to enhance the professional
image of entrepreneurs and to raise public awareness of their
key role in innovation, economic progress and prosperity in
general. The Lisbon goals can be achieved only through respon-
sible, energetic and imaginative entrepreneurship that is able to
develop freely (18).

However,

the specific measures which Member States
2.6
adopt to support SMEs do not always encourage and support
trans-national research cooperation and technology transfer. In
view of the changes in markets and the internationalisation of
value-chains, European SMEs now have to adapt
to strong
innovative
global competition by engaging in permanent
processes in an even broader international context. The Euro-
stars Joint Programme should reward those SMEs and public

(13) OJ C 234 of 22.9.2005, p. 14, UEAPME Position Paper on a successor

to the 6th Framework Programme for R&D, 01/2005.

(14) A midterm review of Modern SME policy, COM(2007) 592,

4.10.2007.

(15) Implementing the Community Lisbon Programme: Financing SME

growth adding European Value, COM(2006) 349, 29.6.2006.

(16) Science and technology, the key to Europe's future, COM(2004) 353,

16.06.2004.

(17) Observatory of European SMEs, Flash Eurobarometer 196, May 2007.
(18) Investment in Knowledge and Innovation, OJ C 256 of 27.10.2007,

p. 8

and/or private research institutions which make specific efforts
to support R&D projects, disseminate their results, and transfer
and help to give access to knowledge. In particular, it should
reward projects involving institutions and groups and/or single
SMEs which normally participate less in or have difficulty in
accessing such programmes. The EESC emphasises the impor-
tance of the enlargement of the contribution to the Eurostars
joint programme to all the EUREKA Member States, especially
for those that recently joined the EU and that can benefit of the
trans-national approach.

2.7
The Eurostars Joint Programme targets R&D performing
SMEs, with an emphasis on market-oriented R&D projects and
multi-partner trans-national projects (with at least two indepen-
dent participants from different participating States). An impor-
tant aspect of the programme is the bottom-up approach, which
empowers ‘R&D performing SMEs’ for ownership and strategic
business innovation. In such circumstances, SMEs are in control
and able to influence the outcomes of ongoing research in line
with commercial opportunities.

3. Objectives of the Eurostars Joint Programme

in

and

The

research

participation

3.1
development
programmes pursuant to Article 169 of the Treaty implies that
the participating EU Member States integrate their national
research programmes by committing themselves to a joint
research programme. The Commission, under the legal basis of
Article 169, has identified four potential
initiatives. One of
those is Eurostars, a joint research programme for SMEs and
their partners.

3.2
The Eurostars programme consists of projects proposed
by one or more SMEs that are established in the participating
States and are actively involved in R&D. Projects can be imple-
mented in any field of science and technology (but must have a
civilian purpose). Projects must be collaborative, and must
involve at least two participants from two different Eurostars
participating countries which are involved in various activities
in connection with research, technological development, demon-
stration, training and the dissemination of related information.
In line with the nature of SMEs, the project life cycle is a short
one. A project must have a maximum duration of three years,
and within two years of project completion, the product of the
research should be ready for launch onto the market.

3.3
The Eurostars Joint Programme can provide significant
leverage for Community funding: the Member States and five
other EUREKA countries (Iceland, Israel, Norway, Switzerland
and Turkey) will contribute with EUR 300 million. The Com-
munity will top up with further one third of the Member States
contribution, resulting in a programme budget of EUR 400
million of public funding. Assuming project funding rates in the

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range of 50 %-75 %,
‘EUROSTARS’ could mobilise between
EUR 133 and 400 million of additional private funding for the
duration of the Programme (leverage effect). The expected parti-
cipation is calculated assuming an average cost of EUR 1.4
million for each Eurostars project. With an average funding rate
of 50 %, a public funding rate of EUR 0.7 per project and an
overall programme budget of about EUR 400 million, 565
projects can be funded.

3.4
The Community contribution therefore fills a gap in
funding at an early stage of R&D when innovative activities are
relatively high risk and may fail to attract solely private inves-
tors (19). The Community's intervention with public investment
in favour of
the Eurostars programme will encourage more
R&D performing SMEs to seek private investment to develop
innovative products or services.

In relation to funding, consideration should be given to
3.5
establishing tax breaks for R&D investments in member States
which would be attractive to investors even in a worst case
scenario, as at the very least they could benefit from these
relieves. The benefit
to the SME is an alternative form of
funding.

However, there are concerns that a large proportion of
3.6
SMEs may be prevented from participating in the EU's initiative
for competitive innovation. Under the Eurostars programme, the
eligibility criterion for research-performing SMEs is that the SME
proposing the project dedicates at least 10 % of their turnover
or full-time equivalent to research activities. Even if this limita-
tion is applied to the pilot partner of the project, this still may
prevent many small enterprises from proposing innovative
projects. As a result, the programme may only attract already
consolidated high-tech enterprises that could access other more
appropriate forms of financing.

Furthermore, in some EU countries, R&D costs are very
3.7
often integrated with other operational costs and can therefore
not be identified separately (20). Therefore the definition of R&D
indicators used by the OECD shows some inadequacies when
applied to innovative small enterprises, because they fail
to
account for the part of activities characterised as non-codified
knowledge, which is difficult to quantify (21).

Also according to the OECD, the ‘High-Tech Sector’

3.8
is
defined as industries with an R&D share in turnover of more
than 4 %. This sector accounts, even in highly developed econo-
mies, for about 3 % of GDP, meaning that 97 % of all economic
activities and most of the innovative processes happened in

(19) ‘Annual Survey of Pan-European Private Equity & Venture Capital

Activity’ 2004.

(20) The 2007 EU R&D Investment Scoreboard p. 20, by the Joint Research

Centre (JRC) and Directorate General Research (DG RTD).

(21) H. Hirsch-Kreinsen, ‘Low-Technology’: A forgotten sector in innova-
tion policy, Faculty for Economics and Social Sciences, University of
Dortmund, 15.03.2006; UAPME, ‘Towards an Innovation Policy for
Crafts, Trades and SMEs’, 27.10.04.

sectors defined by the OECD as ‘Mid-Tech’ or ‘Low-Tech’ (22).
The figures indicate that a large proportion of innovating enter-
prises would be excluded if
funding
programme is limited by a 10 % R&D threshold, failing to
trigger a positive attitude for innovation at the base of the Euro-
pean initiative.

the access

to the

3.9
Therefore the EESC's view is that the projects should be
selected on the basis of excellence and compliance with the
the 10 % R&D threshold
programme's objectives and that
should be removed.

3.10
Another requirement of the Eurostars programme is
that the participating R&D performing SMEs should be able to
carry out the major part of the R&D work. Collaboration with
other partners, which can be other SMEs, local clusters, large
enterprises willing to share programme objectives, research insti-
tutions or universities, should not be excluded. Furthermore, the
term cluster should also include the need for locating R&D
based SME's on University/3rd Level
Institutions Campus to
increase the interaction between the two on a mutually benefi-
cial basis.

3.11 With regard to the respective contributions of the inno-
vating SMEs taking part in the Eurostars programme it is impor-
tant to clarify that it is the R&D performing SMEs which must
collectively meet at least 50 % of R&D costs within the project.
Nonetheless, this criterion may still exclude many market-based
SMEs and the possibility of lowering this barrier to 25 % during
the interim evaluation of the Eurostars program should there-
fore be considered (23).

The

financial

relationship with other

3.12
instruments
covered by the CIP (Framework Programme for Competitiveness
and Innovation) still needs further clarification. The funding
programme also needs to be made more flexible and adapted to
the needs of SMEs, while taking into consideration positive
experiences with guarantee funds for research and development,
in order to allow enterprises to take a longer business perspec-
tive.

lower operational costs and risks,

3.13
A better regulatory framework, with the systematic
consultation of representative SME organisations and wider
stakeholders, will
raise
returns, increase the flow of venture capital and improve the
functioning of venture capital markets. This will particularly
benefit
the
public support for the very early (pre-seed) stages of turning
research outputs into a commercial proposition.

innovative SMEs. This funding will complement

(22) Towards an Innovation Policy for Crafts, Trades and SMEs, UEAPME,

27.10.2004.

(23) European Parliament, Committee on Industry, Research and Energy,

A6-0064/2008.

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3.14
The Commission has made a commitment to promote
measures for more cross-border investment by venture capital
funds (24). In Europe, the venture capital market is fragmented,
currently comprising 27 different operating environments. This
adversely affects both fundraising and investing.

3.15
There is therefore a need for a better environment for
risk capital investment and for Member States to create incen-
tives for private investors to engage in collaborative interna-
tional research (25) and to promote the involvement of business
support services for SMEs, aimed at supporting enterprises that
pass successfully through the start-up stage.

4. Improving the coordination of

the Eurostars Joint

Programme

The Eurostars programme aims to help SMEs in any tech-
4.1
nology or industrial, legal and organisational framework neces-
sary for large-scale European cooperation among the Member
States in the field of applied research and innovation. Conse-
quently it will increase the capability of R&D performing SMEs
to bring to market new and competitive products, processes and
services.

The internationalisation of

4.2
the project may avoid the
duplication of efforts towards innovation and should be an
opportunity to adopt common policies and to introduce fast
track action to reduce the administrative burden (26). With the

Brussels, 29 May 2008.

help of the Eurostars programme, many SMEs may be encour-
aged to take advantage of international collaboration, providing
that they are able to propose and directly manage a project.
in integrated projects and the
However,
network of excellence should be carefully planned, in order to
avoid imbalances in project participation.

the involvement

4.3
As well as support for R&D, we must also consider ways
in which governments can support innovation more directly
through the provision of the right infrastructure. There is a very
large community of research ‘institutions’, some of which may
be associations or research companies, whose task is to support
innovation, particularly by SMEs. There are also science parks
incubators, regional and local government
and science shops,
bodies and knowledge transfer organisations. These provide
important support for young high-tech SMEs and even for more
traditional ones that are contemplating transferring to innova-
tion-based strategies. The Slovenian Presidency of the EU and
the following French Presidency should monitor how the coordi-
nation of the Eurostar programme at EU and national
levels
could be deployed, steering it to optimal levels and avoiding any
duplication of functions and risk of confusion among existing
SME agencies.

4.4
The EESC has also recommended on several occasions
that a much greater part of the resources of the EU's Structural
Funds be used for the development of joint scientific infrastruc-
tures and specifically tailor made for SMEs. The use of funding
from the European Investment Bank for this purpose could also
be highly beneficial (27).

The President

of the European Economic and Social Committee

Dimitris DIMITRIADIS

(24) Commission proposes measures for more cross-border investment by

venture capital funds IP/08/15, 7.1.2008.

(25) Financing SME Growth — Adding European Value, COM(2006) 349,

29.6.2006.

(26) European Commission proposals for administrative burden reductions

in 2008, MEMO/08/152 10.03.2008.

(27) (OJ C 65, 17.3.2006), OJ C 256, 27.10.2007, p. 17.