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  The belief that the Spanish economy needs a change in model is widely shared. The current economic crisis has highlighted the need to move quickly towards activities of greater added value, improve the country's competitiveness, focus more on international markets, etc. and innovation has a key role to play in all of this. So are we in any position to rely on our capacity to innovate? We know that our country is one of small and medium-sized enterprises (SMEs). We also assume this trait to be a weakness in terms of innovation, whose development depends critically on size, being an activity subject to evident economies of scale. If we think of the stereotypical innovative tasks, what springs to mind is huge investment in research and development, without doubt carried out in laboratories and specific units, perhaps at the company itself, where product innovations are produced. All this appears to be beyond the scope of SMEs.

  Fortunately, in the area of innovation the stereotypes are not altogether true. The kind of innovation we have just mentioned is the most classic type, clearly oriented towards technology and science. It's usually closed in nature, i.e. knowledge is generated within the firm or within an exclusive relationship with a group of external researchers (for example, from academia). And although it's often incremental (improvements are gradually introduced in products and business practices), there's also a high degree of radical, disruptive innovation.(1) Seen in this way, innovation is primarily the business of large firms.

  However, the world, and innovation along with it, is constantly changing. Breaking with the past, other forms of innovation are becoming increasingly more common. Together with the already mentioned innovation of science and technology, a wide range of non-technological innovation activities is also appearing that are particularly relevant to the service industry. Many of these activities are not created in a laboratory but result from demand, from contact with users, learning from the day to day work. They're not nourished by the exclusive knowledge generated by a firm but also from the flow of ideas and people that circulate freely within their circle (known as open innovation). Finally, and in line with this open, client or user-based innovation, incremental innovation takes on an even greater role, although radical innovation may still occur.

  As we were saying, these new ways of innovating are related to economic changes, ones in which SMEs have a lot more to say. SMEs are the great beneficiaries in a world with a growing standard of living and where consumers are developing a preference for variety, leading to many different market niches that responsive, swift, user-oriented innovation can exploit. The quickening of product life cycles, big changes in the competitive environment, the emergence of technologies (such as information technologies) that alter a wide range of activities (including reducing efficiencies of scale in many sectors) - all these provide opportunities for smaller, more flexible companies.(2)

  (1) The development of disruptive innovation has been dealt with particularly by Clayton Christensen (see, specifically, Christensen, C., 1997, The innovator's dilemma: when new technologies cause great firms to fail, Harvard Business School Press, Boston). Concerning the kind of firms that carry out each type of innovation, and although authors such as Baumol (see, in particular, Baumol, W., 2002, The Free-Market Innovation Machine: Analyzing the Growth Miracle of Capitalism, Princeton University Press, Princeton) associate large firms with incremental innovation and new firms, many of them small at the beginning, with radical innovation, the fact is that the evidence available is not clear-cut and big differences can be identified between different sectors. By way of example, we should note that almost all radical pharmaceutical innovation has been generated in large firms.

  So, the innovative outlook for SMEs is now better than it was decades ago, provided these SMEs are good enough to take advantage of these opportunities. On comparing the innovative performance of Spanish SMEs with those of a group of advanced European countries, we can see that their results are far from those of the best SMEs in terms of product and process innovation (see the diagram below). Neither do Spanish SMEs exhibit high levels of cooperation in innovation. However, and this is an indicator that is of great importance per se, their share of turnover resulting from product innovations is slightly higher than in the case of European SMEs. So although Spanish SMEs are not extraordinarily innovative, they are capable of taking advantage of innovation in terms of billing. This is a critical feature that is often highlighted as essential in assessing the quality of innovative activity in terms of the economic value it creates.

  (2) Thurik calls these changes the shift from the managed to the entrepreneurial economy (see Thurik, R., 2009, «Entreprenomics: Entrepreneurship, Economic Growth, and Policy», in Z. Acs, D. Audretsch and R. Strom (eds.), Entrepreneurship, Growth, and Public Policy, Cambridge University Press, Cambridge).

  In spite of the favourable prospects offered by the new kinds of innovation, Spanish SMEs are facing notable difficulties in stepping up such activities. The factors mentioned by SMEs in surveys on this issue chiefly mention the lack of financial resources, both those generated by the firms themselves and those available externally.(3) This problem is also common to other countries. However, and without underestimating its importance, particularly at a time when access to funding is even more difficult, we should acknowledge that this problem has been perfectly well pinpointed in the innovation policies of the European Union and Spain. Moreover, it's also a problem that occurs particularly in the area of «classic» innovation (technological and closed), presented above. When we move towards the new innovation, open in nature and with non-technological aspects playing a greater part, the fundamental restriction becomes the absence of suitably qualified human resources. The new generations of innovation policies being promoted in advanced countries tend to increasingly attack this problem, although the idea that this is a key limitation has yet to become firmly established.

  Spanish SMEs also point to the presence of dominant firms in the market as one of the barriers to innovation and this does not tend to occur equally in other countries. What is common, however, is the belief that the uncertainty surrounding the demand for innovative services and products is an additional barrier. Unfortunately, this feature is inherent in innovating and, in any case, is slightly less important than the problems of financing, human resources and established firms that Spanish SMEs claim to be fundamental.

  In short, innovating is difficult, uncertain and requires talent. In spite of these difficulties, however, innovation is an inescapable challenge for our economy and, given their large share in Spanish production, SMEs have a role to play in this area. The comparison with other countries reminds us that the main challenge will be to increase the outcomes from innovation in the form of new products, processes and organisational changes. Once this has been done, the capacity to turn innovation into business, something Spanish SMEs are not so bad at compared with other countries, will probably be a major incentive to firmly establish our firms' commitment to innovation once and for all.

  (3) Community Innovation Survey by Eurostat (2006).

  This box was prepared by ?lex Ruiz

  International Unit, Research Department, "la Caixa"

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