Encouraging entrepreneurship with innovation vouchers I #stratups #invest #entrepreneur

Innovation Voucher

Innovation vouchers are widely used internationally by governments to support emerging small business. Traditionally, vouchers were used to subsidize social benefits such as food, education or health services, but are increasingly used to stimulate entrepreneurial effort. Innovation vouchers are usually given to small firms to subsidize the cost of business or technical services from external providers. This enables the company to have more control over their development activities, while sustaining the external service providers. International and Canadian experience suggests considerable congruence in program design but, in some settings, special features have been devised to address local business needs and development priorities. A largely untapped body of evidence could be used to assess the impact of this tool and opportunities for refinement and application.

In Canada, and elsewhere, many national and regional programs have been set up to support company creation and growth. Various programs are intended to help generate new knowledge, enrich human talent, and create research facilities, share expertise, or aid business financing. Support can involve some mix of direct mechanisms (that is, grants, loans, procurement) targeted at specific entities, and indirect approaches (that is, tax credits, regulatory incentives, infrastructure) aspiring toward more general outcomes. Governments can emphasize supply-side or demand-side interventions, and pursue overall systemic enhancements, or focus on mission-oriented priorities. Finding the right tools and policy mix can be a complex, ever-shifting challenge. A more novel approach in recent times involves the use of government funded innovation vouchers, given to small firms toward payment of external expertise or support services. This policy tool has been widely embraced and could play a greater role once the strategic value is further appreciated. The purpose of this research note is to introduce and call more attention to vouchers as a policy instrument, review the origins and adoption of the voucher concept, including international and Canadian experience, and consider lessons learned and design implications for achieving desired policy outcomes. This research note seeks to encourage additional, more systematic research on vouchers used in Canada and internationally.

Vouchers have emerged as a popular type of financial support for start-ups and small business inside and outside Canada. They are not a tax credit, a contract, a grant, a loan, or any form of direct ownership or investment more common forms of government involvement. Innovation vouchers are essentially a credit note that covers full or partial payment of external services for companies. However, vouchers do introduce some novel and noteworthy aspects in terms of encouraging the collective dynamics of entrepreneurship.

New entrepreneurs and emerging firms are by nature very resource constrained. They lack many or all of the requirements to create and grow a business. Small size alone means little time or attention for getting anything done. Even if needs are well understood, there may be limited awareness of where and how to get external help. And service providers may be reluctant to deal with unknown or not-yet-credible entities. For the majority of start-ups, money is the most constant and pressing issue: personal drive and commitment are the most vital and vulnerable resources available at the early stage.

Historically, the voucher concept has been a common mechanism to provide social benefits for disadvantaged groups. Vouchers have often provided full or partial subsidy for obtaining food, housing, education or other public assistance. Using vouchers to support entrepreneurship has emerged out of efforts to assist developing countries. In 1993 vouchers were used in Peru to finance training for microenterprises, although results were not very positive because of flaws in design and implementation. In 1994 the World Bank launched a voucher program for training established small to Medium Enterprises (SMEs) in Kenya; it included setting aside 20% of awards for women entrepreneurs. After piloting a program in Paraguay in 1995, the Inter-American Development Bank replicated the effort in many other countries throughout Latin America. USAID ran a pilot voucher program in Ukraine in 1999; turning again to vouchers in 2011 with a reincarnated program to aid “last-step-to-market” activities of local SMEs

Over the last decade, innovation vouchers have gradually become a small business support mechanism used by regional and national governments almost worldwide. Limited pilot programs in the Netherlands during 1997 and 2004 evolved into a national offering for all SMEs, soon emulated throughout many European regions (Koskenlinna et al. 2007). A 2009 European Union survey of 23 programs used in 21 different administrative jurisdictions found significant differences in process and principles, yet also identified a core of common practices (Schade and

Grigore 2009). Among overall benefits, the innovation voucher is appreciated as an effective method for breaking down barriers to cooperation between small firms and large research institutions, often causing first time contact. A UK study observed that vouchers can encourage creativity and overcome the perceived “risk aversion, status quo bias, and myopia” characteristic of many smaller firms (Potts and Morrison 2009: 3-5). Several past program evaluations (for example, Netherlands, UK) concluded that vouchers can induce incremental job creation, revenue growth, product development and interaction between industry and academia; making good returns on government investment. Innovation vouchers have now spread widely with programs introduced in Singapore (2009), New Zealand (2010), Australia (2011), and several US states, adding to growing recognition as global good practice.

Vouchers are now widely understood. For example, a broad assessment undertaken by the European Commission’s Enterprise and Industry Directorate in 2010 culminated in the Riga Declaration of principles for the design and management of innovation voucher programs. This report strongly advocated broader dissemination and continued experimental adaptation. Although voucher programs everywhere share some common elements, there is also evidence of unique variations corresponding to local setting or policy priorities.

Vouchers clearly have a role to play as a policy mechanism. They may have some potential drawbacks, but they can also avoid deficiencies in other types of support programs. Tax incentives, grant programs and subsidized loans can directly impact business, although benefits may be offset by resultant costs of government bureaucracy and business compliance. With proper consideration, vouchers can be deployed to target support to different industry sectors, varying stages of company growth, and for a range of development activities. They can deliver complimentary add-on support to other major programs or project initiatives. Or they can be offered in more general fashion. Significantly, voucher schemes reflect the development process they are intended to support, encouraging entrepreneurs to take initiative in bottom-up fashion, rather than being subservient to top-down institutional directive. So far, vouchers have been used primarily to encourage knowledge sharing, networking and collaboration; building positive social capital not only for individual firms, but also in forming successful economic clusters integral to most regional and national innovation policies.

Reference:

CANADIAN PUBLIC ADMINISTRATION / ADMINISTRATION PUBLIQUE DU CANADA VOLUME 57, NO. 2 (JUNE/JUIN 2014), PP. 318–326

About the Author:

Dr.Hisham M Safadi (Hisham Safadi ) BDS & MSc Leadership and Management in Health Care Practice from the University of Salford where his Master dissertation subject is the effect of Emotional Intelligence on improving Dentistry care in Middle East. Born and raised in the Emirates of Ras Al Khaimah, United Arab Emirates. Dr.Safadi had start his professional career as a dentist then turn to the field of managing medical facilities and reforming delivery of health care services. His main interest is business consultancy, leadership and entrepreneurship.

Twitter: @hishamsafadi

 

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