Strengthening Local Companies: Localized SME Support

Why would one limit considerations regarding support for local companies to SMEs? Are there no LED instruments which are oriented at large firms? Actually, there are. Incentives and subsidies are often, and sometimes overwhelmingly, directed at large firms. We deal with this issue under the heading of investment promotion. But looking at other instruments of business promotion, empirical observation shows that the main target group are SME. This is mostly due to the fact that they are, by and large, more dependent on their location than large firms. Large firms are mostly multi-locality operations. They are involved with local initiatives, in particular in terms of community development and sponsoring activities. But they are rarely part of local economic development initiatives. Often cited examples such as Volkswagen’s strong involvement with the development of the Wolfsburg region are rare exemptions. Big multi-locality firms do not perceive the local level as a high-priority level of action. If they deal with the public sector, they usually deal directly with national governments, since this is the level where decisions are taken which are strategically important for large firms. If a given location does not offer satisfactory conditions, it is not rare that a large firms swiftly closes down its operation and moves elsewhere rather than getting involved in the cumbersome effort of getting involved in a local policy network to negotiate local upgrading initiatives.

The mobility of SMEs is much more limited. For them, the trade-off between the cost of changing location and the cost of participating in a local policy network tends to be solved in the favor of the latter – they sometimes get actively involved in LED efforts, and they certainly are an important target group for LED initiatives.

Now, in many countries SME promotion is a well-established policy field that has been shaped by central government for quite some time. What is the difference between SME promotion at large and SME promotion at the local level? Is there any difference at all? One can convincingly argue that there is. There are certain SME promotion activities which are genuinely national level activities, just as some other are genuinely local level. By the same token, there are LED activities which are generic, whereas others specifically target SMEs. The following matrix summarizes important examples for each point.

SME Promotion, LED and Local SME Promotion
	Generic economic promotion	SME promotion
National	Efficient legal framework Cutting red tape / reducing bureaucracy Labor law Regional policy Technology policy Control of subsidies	Specific legal framework conditions (e.g. simplified tax reporting) Credit programs Export promotion Information programs (e.g. Y2K) Training (including environmental management, innovation management, design, energy efficiency) Innovation promotion Competition policy
Local	Real estate development Location marketing /  investment promotion Improving the infrastructure Communication with public administration Skills development	Specialized real estate, e.g. craft condominiums Specific skills development Promotion of start-ups Coaching Networking, business contacts Fairs, information systems

An example of national SME-Promotion: SME Promotion in Germany - An overview - (Download, word-document, 156 kb, 25 S.)

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SME support
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