Competitive Advantage of SMEs in Manufacturing Industries

• INTRODUCTION A common theme in many industrialised countries has been the recognition of the contribution of small and medium sized enterprises (SMEs) to the performance of local and national economies, both in terms of creating new jobs and stimulating the competitiveness of their economies. Innovation is particularly important if traditional industries in industrialised countries are to compete with industries in emerging nations which have significant low-cost production advantages. This has led to the need for industrialised economies to develop high value-added processes to retain their competitive advantage. However, with a few notable exceptions (eg Rothwell, 1993; Oakey et al, 1988), there is a lack of research in relation to the key value-adding process of R&D in the SME context. While the diverse nature of innovation is recognised by policy documents they still rely on macro-economic indicators such as the level of R&D expenditure for international comparisons. Drawing on primary research of SMEs in the UK and Japan, this paper seeks to address the extent to which the huge differences in the competitiveness of the UK and Japanese economies are reflected in the innovation factors and competitive advantages of SMEs. This article briefly outlines the macro-economic context comparing manufacturing in the UK and Japan. It indicates the differences in definition and the role of SMEs in innovation, before reporting the key research findings associated with the innovation factors and competitive advantage of SMEs in the UK and Japan. The paper concludes with a summary of the SME policy focus in the two countries and outlines some policy implications for R&D in SMEs in the UK. David Devins is at Leeds Metropolitan University. Professor Tatsuo Kimbara is at Hiroshima University.