Lack of finance is crippling the UK innovation, says report

Paul Boughton

Financial constraints are crippling new product development amongst the UK’s small and medium enterprises (SME) base with engineering and technology companies particularly badly affected.

The research, commissioned by new product development contractor, Pera Technology shows that a massive 91 per cent 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 per cent of SMEs and only 2 per cent of manufacturing and technology SMEs, are doing any product development or research, with lack of finance (31 per cent) being cited as the main reason.  Other reasons given include a lack of in-house resources (22 per cent) and then lack of time (21 per cent).

Other reasons innovation has stalled are a lack of knowledge (10 per cent), lack of skills (10 per cent) and lastly, a lack of ideas (8 per cent).

Pera Technology’s commercial director, Dr 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.  The implications for UK competitiveness are profound.”

He continues: “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. 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 is that the barriers to new product development are easy to overcome.  We know that all sorts of funding for research can be come by if only SMEs know where to look. 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.”

The survey also asked where companies would get advice on new product development and 40 per cent of them said they would look to internet forums to get ideas, with 37 per cent generating ideas internally.

New product development companies would be the first port of call for 20 per cent with management consults attracting 13 per cent.  Only 11 per cent would contact their local university.

Dr Wareing continues: “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.”

This is the first Research Monitor from Pera Technology. The Pera Technology Research Monitor will be conducted annually to map new product develop and research intentions of SMES.

The IFF SME Business Omnibus conducts 500 interviews per month with MDs, FDs and owners of businesses employing between 0 and 249 employees.

IFF Research is one of the largest independent research companies in the UK. Established in 1965, IFF conducts high quality strategic research for a wide range of private and public sector clients.

The SME omnibus consists of 500 interviews per month with MDs, FDs and owners of businesses with 0-249 employees.

Approximately 200 have turnover of over £1 million and 300 have turnover of less than £1m. The breakdown of companies contacted is as follows:

• 100 sole traders.
• 150 micros (1-9 employees).
• 150 small businesses (10-49 employees).
• 100 medium (50-249 employees).

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