Technology Strategy in Small and Medium-Sized Firms

There is a wide literature on the role small and medium-sized firms (SMFs) play in technological development. Rothwell (1988) argues that SMFs are increasingly important in the process of technological innovation. Pavitt (1988) also argues that SMFs are significant contributors to innovation. He shows that although business-funded Research and Development (R&D) in most OECD countries is concentrated in a few large firms, SMFs are important innovators. In the U.K. Pavitt found that whereas firms with fewer than 1000 employees account for only 3% of business firms’ R&D expenditure, they are responsible for 30% or more of significant innovations. In certain sectors — machinery, instruments, and R&D laboratories — firms employing below 1000 account for more than 45% of all innovations in the sector. Furthermore, firms employing less than 500 have increased in innovation intensity (innovations/share of employment) between 1956 and 1983 (Pavitt, Robson and Townsend, 1987).