Innovation and New Technology in Rural Small and Medium-Sized Enterprises: Some Policy Issues

Abstract

The authors are concerned with innovation in rural small and medium-sized enterprises (SMEs), their support needs, and the types of policies required to encourage and support innovation; the authors draw on a national study of innovation and the use of new technology in rural firms. Their aims are to present recent evidence of the nature and extent of innovative activity in rural SMEs; to identify barriers to innovation in rural SMEs, together with any weaknesses with respect to their innovative performance that may affect their future competitiveness; and to contribute to the development of a policy agenda designed to support and strengthen the innovative performance of rural SMEs. Using a broadly based definition of innovation (including product, process, marketing, and new-market development) the authors demonstrate considerable sectoral variations in the nature and extent of innovative activity in rural SMEs. This is explained in terms of sectoral differences in the ways in which SMEs seek competitiveness and of the role of innovation in this process. Nevertheless, the authors demonstrate a strong correlation between the level of innovation shown by firms and their performance, in terms both of sales and of employment growth. With the exception of marketing and new-market development, only a minority of managers perceived their rural environment to be a constraint on their ability to innovate, although more detailed analysis showed SMEs in the more technology-based sectors to be disadvantaged in a number of respects. Support needs are identified in relation to marketing, the use of the Internet, process innovation, and access to specialised training. Emphasising the distinctive characteristics of the rural environment, the authors describe a policy agenda for the encouragement and support of innovation in rural SMEs which includes a recognition of the so-called ‘rural premium’.