Innovations and Financing of SMEs Part II: Case Study of German SMEs in 2010

Innovations and Financing of SMEs Part II: Case Study of German SMEs in 2010

David S. Walker (The University of Birmingham, UK) and Horst-Hendrik Scholz (The University of Birmingham, UK)
DOI: 10.4018/978-1-61350-165-8.ch031
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Financing is one of the most critical boundaries for the establishment and growth of a Small and Medium-sized Enterprise: SME (Moore, 1993). This chapter describes traditional and non-traditional financing opportunities for SMEs in Germany by focusing on its applicability. The disclosure of financial business information and giving a say to an equity financier is a difficult topic for owners of Small and Medium-sized Enterprises (SMEs), because these companies are often run as a ‘one-man-show’ (by a single manager) and this person identifies itself with the company. The request for external funds is in that perspective still regarded as a disability of a business to be self-financed. A comparison of the organisational structure of a SME and that of a Large Scale Enterprise (LSE) reveals the structural weaknesses in terms of research and development (R&D) activities. While LSE have an extra department, budget and procedures to develop product and process innovations similarly to a knowledge push, in SMEs, innovations are often originated from customers—similarly to a need pull process (Tidd & Bessant, 2009). Furthermore, CEOs and customer contribute to a great extend to innovations in SMEs (BDI, 2010). The results of an online-based survey presented in the BDI-Mittelstandspanel 2010, show that less than 13% of innovations are originated by external scientists, R&D organisations and consultants. This proofs that external R&D sources (to compensate missing internal resources and structures) are rarely employed; impeding or slowing down the development of innovations.
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The financing sector in Germany is highly competitive with the three types of banks (private banks, banks governed by public law and cooperative banks) trying to maintain and gain market share and the non-traditional financiers (private equity and debt financiers). Therefore, the credit conditions have been favourable in Germany during the last decades. CEOs of SMEs tend to have a conservative attitude concerning additional shareholders and financial independence. Therefore, medium- and long-term bank financing has been in Europe (especially in Germany and France) a major financing option for SMEs. However, with respect to the financial crisis of 2008/2009, the credit conditions (especially risk premium) changed, impeding the availability of loans. While financiers accuse SMEs for having a weak financial structure, SMEs representatives accuse the financiers (especially banks) for the so called ‘credit crunch’ with unacceptable credit conditions.

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