In a recent cover story of fDi Magazine, David Hickey, H&A’s Senior Director, Europe, was quoted on the global recruitment and attraction of small and medium-sized enterprises (SMEs). Hickey discusses the need to provide direct assistance to SMEs as they enter the critical process of site selection. Further in the article, Hickey talks about the need to recruit and attract SMEs, as they may not seem like a major victory at first, but may become a key player in the local economy down the road.
fDi Magazine is an international publication specializing in reporting foreign direct investment trends and activities. On a bimonthly basis, the magazine is circulated to senior-level executives from corporations around the world.
The full article is below. To view the article on the fDi Magazine website, please click the following link: SME Attraction: turning the newfound love of SMEs into a lasting relationship.
SME Attraction: turning the newfound love of SMEs into a lasting relationship
By: Michal Kaczmarski
With locations around the world falling for the charms of SMEs, Michal Kaczmarski looks at the innovative ways in which IPAs are attracting and nurturing smaller business, and assesses benefits they receive as the SMEs blossom into something much more lucrative.
When Daniel Day, founder and CEO of Invisible Artists, a fast-growing interactive agency headquartered in Sydney, started scouting locations for his overseas expansion, he did not hesitate long. Brimming with creative talent, full of potential clients and well connected to other business destinations, London seemed the perfect location for his fledgling company. Indeed, Mr Day opened an office in London in 2013, but also launched operations in Birmingham, the UK’s second largest city, which is largely associated with heavy industry.
So why did Mr Day choose Birmingham, a city not exactly renowned for its creative capabilities? “It is a huge decision for an SME to expand its operations overseas. When making these kind of decisions it is vital to get the best possible support from local experts,” says Mr Day.
And although he did not know anyone in Birmingham prior to starting the site-selection process, Mr Day took advantage of the help provided by Business Birmingham, the city’s inward investment entity.
“[Business Birmingham has] helped us secure quality premises, hire the staff we need, and given us insightful advice at every stage of the process,” says Mr Day.
Cutting to fit
Invisible Artists is one of 160 companies with which Business Birmingham works through its ‘Fast Track’ initiative, an SME-support programme launched in April 2013. The programme, which was recognised by fDi in its inaugural IPA Innovation Awards in October last year, focuses on both SME attraction and investment facilitation to ensure a soft landing.
How does such help look in practice? Business Birmingham might help supplying information on potential clients and can even go as far as facilitating meetings with them. It can also help with conducting property viewings, as well as with providing free-of-charge office space in the early days of the move. However, there is not one standardised ‘help package’ for SMEs and Business Birmingham adjusts its strategy around the requirements of individual companies.
Altering a strategy to fit in with the needs of each SME might seem like a daunting task, but it pays off, according to Jan Vermuelen, an analyst at Ecorys, a Rotterdam-based consultancy which in 2013 worked on an EU-commissioned study on services available for SMEs operating in an international environment.
“We generally find that targeted and tailor-made support services are the most effective ways to assist SMEs, as the needs of companies vary according to their size, experience and sector,” says Mr Vermuelen.
And while such help might often come from publicly funded entities, it does not mean it has to be free. In fact, according to Ecorys’ study, charging companies for services provided to them helps to keep SMEs engaged.
“It seems to be a good practice to make SMEs pay for at least a part of the total cost of the support services, in order to guarantee commitment and a higher ‘uptake’ of the delivered services,” says Mr Vermuelen.
The study conducted by Ecorys also found that apart from providing tailor-made services for SMEs, economic developers should consider stepping up their game when it comes to business lending.
“[Existing financial support services on offer] are actually frequently used by EU SMEs, which indicates that demand for services in this area seems to be high,” says Mr Vermuelen.
Although Ecorys’ study focuses on SMEs operating in the EU, it is hard to imagine that the rest of the world operates along different lines given that entrepreneurs are unlikely to dismiss an opportunity to expand their business, provided the growth capital is easily obtainable.
Yet it is not enough just to hand money over to SMEs. The German city of Leipzig runs a microcredit programme in partnership with Sparkasse Leipzig, a local bank, and KIZ, an employment consultancy. The programme centres around small but easily accessible loans being made to both SMEs and self-employed individuals. Additionally, the city’s economic developers educate entrepreneurs about additional sources of funding and walk them through application processes.
“When it comes to financial help, we think that the most effective way to help SMEs is by providing consulting services for their subsidy and loan applications as well as informing them about research and development grants,” says Michael Schimansky, head of Leipzig’s economic development office.
Knowledge is power
Such help, although it may not immediately translate into financial gains for SMEs, is crucial, according to Toby Lanyon, chief operating officer at TradeRiver, an online platform providing trade finance for SMEs.
“The major initial hurdle for SME support programmes is information and knowledge of the myriad options which are available,” says Mr Lanyon.
“This knowledge needs to be more easily available, as does the advice as to the suitability of the wide range of options available to any particular business.”
Handing out informational leaflets and leading entrepreneurs through the maze of ever-changing governmental initiatives and regulations may not sound like a ground-breaking economic development strategy. However, according to David Hickey, a senior director for Europe at site-selection advisory Hickey & Associates, it should be the cornerstone of any SME assistance activity.
“SMEs often simply look to communities they may be familiar with, instead of conducting market and location analyses to truly determine where may be the best place for their specific business. A major challenge for many IPAs is making SMEs aware of the support programmes that may be available and the overall opportunities their communities may offer new businesses,” says Mr Hickey.
In Hamilton, a city in Ontario, Canada, information does takes centre stage when it comes to small business assistance activities. In 2013 alone, Hamilton’s Small Business Enterprise Centre (SBEC) facilitated more than 64,000 contacts, 800 business-to-business meetings and conducted more than 80 mentoring sessions to support SMEs and start-ups.
And although Hamilton’s SBEC helps both SMEs and start-ups, their needs differ. According to Kristin Huigenbos, a coordinator at SBEC, this is something that economic developers have to keep in mind if they want to meet the needs of their clients.
“Start-ups often ‘do not know what they do not know’, while SMEs seek detailed and specific information,” Start-ups often need more intensive support and often with more basic services such as help with creating business plans.” says Ms Huigenbos.
Leipzig’s Mr Schimansky agrees, saying: “Start-ups often need more intensive support and often with more basic services such as help with creating business plans.”
Luckily for IPAs, many solutions tested when working with large companies pass the test when helping SMEs. “The main difference is in scale,” says Mr Schimansky, who adds that larger scale projects require more help when it comes to commercial properties, recruitment and infrastructure.
But larger scale also means employing more people, which brings into play the question of whether chasing SMEs brings enough value given the time and resources that tailored, on-demand services might require. Mr Hickey admits that SME wins are not seen as being as important as landing a megaproject funded by a big corporate player, but believes there is a strong rationale for IPAs jumping on the SME attraction bandwagon.
“When it comes to FDI, SMEs entering a new market are often not seeking a short- term venture, but a real opportunity for growth and expansion. What may seem like a minor investment upfront could prove to be a key part of the local economy for years to come,” he says.