Chapter 5 The case of Norway by Beate Rotefoss 1,2, Eirik Pedersen 2, Svenn Are Jenssen 1,2 and Lars Kolvereid 1 1 Bodø Graduate School of Business 2 Kunnskapsparken Bodø AS
Chapter 5 The case of Norway 5.1 Introduction Norway is situated in the northern part of Europe, and the country consists of 19 counties and 435 municipalities. The area of Norway is 385,155 sq. km, including the Svalbard and Jan Mayen territories. The total population is approximately 4.5 million inhabitants. The capital city is Oslo, where about half a million people live. This is by far the largest city. Only three other cities have more than 100,000 inhabitants: Bergen, Trondheim and Stavanger. These four cities amount to 0.33% of the total area of the country, and 27.3% of the population. Thus, most Norwegians live in small towns or communities with relatively well-developed road, air and ferry communications. In 2000 Norway s GDP was USD 158.2 billion and increased at an annual rate of 6.6% between 1995 and 2000. The Norwegian gross national product (GNP) per capita ranks among the world s highest. Per capita GDP was USD 35,200 in 2000. Service sector output to GDP is 40%. North Sea oil and gas fields provide one of the main contributions to the Norwegian economy. In 1998, the oil and gas industry represented more than one fifth of the total Norwegian GDP. Other major industries in Norway are fishery, pulp and paper, forestry, mining, manufacturing and shipping. The labour force in 2000 reached 2.36 million, a labour force participation rate of 74%; 78% among men and 69% among women. Unemployment is low at 3.4% (2000) and the self-employment rate is estimated at 6.7%. Approximately 29% of the self-employed are women. In 2002, there were about 436,000 enterprises in the country. Norway ranked 14 out of 37 countries on the Global Entrepreneurship Monitor Total Entrepreneurial Activity in 2002. The proportion of the adult population involved in entrepreneurial activity in Norway (8.7%) remains relatively high compared with other European countries. 177
5.2 The Norwegian context The purpose of this chapter is to provide background information on the Norwegian context related to essential factors expected to influence entrepreneurship. The adopted approach to entrepreneurship focuses on environmental (or regional) characteristics. This approach explores factors in the environment, either sociological or economical, that are expected to influence entrepreneurship in regions or countries. 1 Interest in this approach was raised when studies indicated that higher firm birth rates were found to precede regional economic growth (e.g. by creating job opportunities). 2 In this report, the environmental factors are divided into three categories: (1) outcomes, (2) structures and (3) entrepreneurial vitality and performance of the SME sector. These three categories include environmental characteristics that can be supportive for entrepreneurship, but also factors that can provide obstacles for entrepreneurship. In this chapter, each of the three categories will be briefly discussed. Different measures of these three categories are presented in Table 5.1 located at the end of this chapter. The statistical sources are presented in Appendix 1. Outcomes In this report, outcomes are associated with GDP per capita, labour force participation rate and unemployment. Norwegian Gross Domestic Product (GDP) increased by 80-90% through the 80s and 90s. This growth is strongly related to the development of the oil industry after the initial findings of oil on the Norwegian shelf at the end of the 1960s. From 1980 to 2000, oil production has increased by over 300% and Norway is now the world s second largest exporter of oil. In 2000, Norway s GDP was USD 158.2 billion and increased at an annual rate of 6.6% in the period 1995-2000. The Norwegian GDP per capita was approximately USD 35,200 in 2000. The vigorous growth in the Norwegian economy during the 1990s is associated with both the historically and internationally record-sized labour participation. Employment in Norway rose annually by about 1.2 % from 1993 to 2000. Compared with the EU average, Norway has a far higher rate of employment in all age groups. Here one should be aware that the number of 1 Rotefoss (2001) 2 Reynolds et al. (1994) 178
part-time employed is relatively high in Norway compared with many other countries. In 2001, the total labour force participation rate was 74%; 69% among women and 78% among men. In entrepreneurship studies, there is a rather convoluted relationship between unemployment and new firm formation. It is argued that the relationship between unemployment and business founding may be non-linear. 3 When the unemployment level is low, an increase in unemployment will lead to increases in new firm formation. However, as unemployment reaches a critical threshold, further increases in unemployment result in a reduction of new firms. Unemployment in Norway was substantially reduced in the 1990s. For the years 1997-2000 the total unemployment rate was 4.0, 3.2, 3.2 and 3.4% respectively. The corresponding numbers for female unemployment was 4.2, 3.3, 3.0 and 3.2%, and 3.9, 3.2, 3.4 and 3.6% unemployment among men. However, Norway experienced a minor increase in unemployment. This trend seems to continue in 2003. Structures In this report, structure measures are related to total population, population growth, net immigration rate, age difference, government revenue, service sector output and public sector employment. Different measures of urbanisation/agglomeration are included in most recent regional studies of entrepreneurship. The regional demand for entrepreneurship is often linked to population growth and population density. 4 Population growth and high population density undoubtedly also affect the number of entrepreneurs. Urban areas tend to attract younger, better-educated adults, thereby increasing the local pool of potential entrepreneurs. Related to the age of the population, the age difference was 5.0% in 2000 and 2001. The total population in Norway was approximately 4.5 million in 2000. The population increased by 0.8% from 1999 to 2000 and another 0.6% the following year. The net immigration rate in 2000 was 0.2%. Regarding sector output to GDP, the four main contributors in 2000 were the service sector (37%), followed by oil industry (23%), public sector (15%), and other industry (14%). The corresponding numbers for 1999 were 40%, 16%, 14% and 17%, respectively. In 2000, public sector employment was 33%, 21% among men and 46% among women. 3 Hamilton (1989) 4 See e.g. Bartik, (1989), Audretsch and Fritsch (1994), Keeble and Walker (1994), Reynolds (1994), Reynolds et al. (1994, 1999) and Delmar and Davidsson (2000) 179
Entrepreneurial vitality and performance of SME sector Several measures are related to this subject. In this report, these are associated with self-employment, firm structure and entrepreneurial activity. In 2000, the self-employment rate was 7.0%; 4.4% among women and 9.3% among men. There are only minor changes in these numbers for 2001. Studies have found that approximately 25% of the Norwegian population prefer selfemployment to organisational employment. 5 Moreover, in 2002 8.7% are involved in business start-up attempts. 6 In Norway, 82.5% of the firms are considered micro firms (less than five employees), while 90.3% of the firms have less then ten employees. When defining SMEs as firms with less than 100 employees, they constitute 99.4% of the total firm population. In 2000 and 2001, such SMEs employed approximately 66% of the total employment. There were 95.5 SMEs per 1,000 inhabitants. 36.0% of all firms were sole firms. Firms with more than 100 employees, constituted 0.6% of the total business population, and employed about one third of total employment in Norway. The entrepreneurial activity can be measured by start-up and exit rates. In 2001 the start-up rate was 7.9%, while the exit rate was 4.8%. Hence, the net start-up rate was 3.1%. 5 Rotefoss (2001). The question asked was Imagine you could choose between being self-employed or organisationally employed. Which would you prefer? 6 Kolvereid and Oftedal (2002). TEA index, including individuals trying to start a business and those who have started a business during the last 42 months. 180
Table 5.1: Measures of outcomes, structures and entrepreneurial vitality and performance of the SME sector. Outcomes GDP per capita, 2000 (in USD) a 35,200 Average growth GDP per capita, 1995-1999 6.6% Unemployment rate, 2000 (percentage of labour force) 3.4% Female unemployment rate, 2000 3.2% Male unemployment rate, 2000 3.4% Labour force participation rate, 2001 74.0% Women labour force participation rate, 2001 69.0% Male labour force participation rate, 2001 78.0% Structure Total population, 2002 (in 1,000) 4,524 Population growth, 1999-2000 0.8% Population growth, 2000-2001 0.6% Net immigration rate, 2000 0.2% National income per GDP, 1999 0.8 National income per capita, 1999 (in USD) 29,167 Service sector output to GDP, 1999 40.2% Age difference, 2000 5.02% Age difference, 2001 5.03% Public sector employment 51.0% Public sector in % of GDP 14.5% Entrepreneurial vitality and performance of the SME sector Self-employment rate, 2000 6.7% Female self-employment rate, 2000 4.4% Male self-employment rate, 2000 9.3% SMEs per 1,000 inhabitants b 95.5 Percentage sole firms of all firms 35.7% SME (less than ten employees) share of total employment, 2001 19.2% SME (less than 100 employees) share of total employment, 2001 66.0% Percentage of firms with less than 10 employees 90.3% Percentage of firms with more than 100 employees 0.6% Percentage of employment in micro firms (0-4 employees) 82.5% Annual growth in number of SMEs (less than 10 employees), 3.9% 2000-2001 Annual growth in number of SMEs (less than 100 employees), 3.6% 2000-2001 Annual growth in SME employment (less than 10 employees), -2.1% 2000-2001 Annual growth in SME employment (less than 100 employees), -0.01% 2000-2001 Net start-up rate, 2001 3.1% Start-up rate, 2001 7.9% Exit rate, 2001 4.8% TEA-index, 2002 8.7% a 1 USD = 7.60 NOK 181
5.3 Policy measures We are currently experiencing rapid changes in the international economy as well as the industrial structure. We see that products are being manufactured in integrated value chains, whose different parts are located in various countries. Not only does this make countries more dependent on each other, but also renders them more vulnerable. The deregulation and increasing integration of the markets in Europe and other regions will probably lead to a greater geographical concentration of industries (industry clusters). The location of companies will to an increasing extent depend on transport costs, access to competent labour and the stability of the financial framework conditions. Since Norway is located on the outskirts of the major markets, this provides especially great challenges for the country. This chapter provides a brief presentation of some of the trends in Norway s industrial policy development, SME policy development and the existing SME/ entrepreneurship policy programme structure. The presentation is not intended to be complete, and we have as a consequence made choices of what aspects we include in the presentation and discussion. Norway s industrial policy 7 The prime responsibility of the Ministry of Trade and Industry is to create a proper framework for Norwegian industry, the business community and the SMEs, in order to be innovative and competitive within the global knowledge economy. The Ministry of Trade and Industry has four main objectives: (1) to establish a competitive framework for long-term value creation, (2) to promote Norway as a leading nation in the development of profitable industries based on new technology and knowledge, (3) to make the most effective use of resources in the development of a well-functioning market in both private and public sectors, and (4) to coordinate government policy on information technology (IT), producing strong IT growth in both industry and society in general. One of Norway s major long-term challenges is the expected fall in its oil and gas revenues. To maintain Norway s welfare developments the value creation from industries other than oil will probably have to more than double over the next 10-20 years. With a shortage of labour, the efficient use of resources in the private and public sectors will be crucial to the country s future welfare levels. Forecasts indicate that the proportion of elderly in the population will increase, leading to a marginal increase in the labour force. In order to avoid a 7 Ministry of Trade and Industry 182
further shortage of labour, there is a need for an efficient and mobile labour market to cover the existing and new industrial needs. At the same time, increased international competition, rapid changes in consumers needs and technological innovations create a demand for education and improvement of expertise. Innovations, research and knowledge are important for the creation of competitive advantages for Norwegian companies in established industries as well as new companies and sectors. Development of a fruitful collaboration between education, research and industry, and making conditions suitable for new companies to be formed are of great importance. As a small country with an open economy, developments in the international framework conditions for trade across national boundaries are important for Norway s industry. An orientation towards international markets and the development of competitive ability are of importance for future value creation in Norway. However, at the end of the long period of growth, imbalances appeared in the Norwegian economy in the shape of increased wage growth. In 1998 this was about twice as much as the wage growth among our most important trading partners. Wage growth has since been gradually reduced but still exceeds that of the countries we compete with. Inflation has also risen somewhat during recent years and is now higher than it is among our main trading partners. Hence, Norwegian industries have experienced a decrease in their competitive ability. The EU is the dominant market for Norwegian exports and the establishment of companies abroad. Through the EEA Agreement, Norway and Norwegian industry are integrated into the common European internal market. This has contributed to stable development in the Norwegian economy over the past few years. An important part of the framework conditions for much of Norway s industry is comprised of environmental and energy policy regulations. One of the challenges for companies in all industries will be to develop businesses that operate in a more environmentally friendly manner. The industrial policy instruments in Norway are designed to encourage profitable, adaptable companies. Increased value creation is the primary goal of Norway s industrial policy. To be effective, it is important for all the policy areas that affect companies value-creation abilities to mutually support each other. Business development and value creation are affected by all the policy areas that together comprise the companies framework conditions. These policy areas include for example general economic policy, regional policy, fiscal policy, competition policy, labour market policy and research and educational policy. 183
Small business policy development As presented earlier, the firm population in Norway mainly consists of SMEs. Less than 1% of the firms have more than 100 employees. Hence, it is of great importance to pay attention to the development of small business policy. The small business policy focuses on conditions for the existing firms as well as business start-ups. As presented later, there are several governmental bodies that provide help and services aimed at SMEs and entrepreneurs. Research such as for example, the GEM projects has argued that SME policies should focus on individual traits as well as environmental conditions. The existing SME/ entrepreneurship policy programme structure The most common argument in support of government encouragement of entrepreneurial activity is that new and often small firms create wealth and employment. Unemployment rates in Norway are currently low, although increasing. Some industries are experiencing labour shortages and workers often have to be imported from other countries. Hence, new job creation is not the most critical result of entrepreneurship in the Norwegian economy, although it is appreciated particularly in rural areas. However, it is widely acknowledged that in the future the petroleum industry, which contributes most significantly to Norway s GNP, will experience a decline. 8 The Ministry also states that strong growth in other industries, both through expansion of existing businesses and by new firm formation, is the single most important way to ensure sufficient, longterm growth of the Norwegian economy. Research indicates that a country without a high business start-up rate is in risk of economic stagnation. 9 In Norway, government policies and programmes for SMEs and entrepreneurship are aimed at three different targets: (1) initiatives to motivate and mobilise entrepreneurship, (2) initiatives in the organising and establishing phases of the business start-up process, and (3) initiatives directed at established businesses. 10 This is in line with the suggestions from international research. For instance, it is argued that government policies and programmes may influence the entrepreneurship and SMEs in several ways. 11 Reynolds et al. divide the purposes of the policies and programmes into four groups: (1) encouraging the conception of new firms, (2) facilitating the gestation of new firms, indirectly, 8 Ministry of Industry and Petroleum (1996) 9 Reynolds et al. (1999) 10 Bolkesjø (1998) 11 Reynolds et al. (1994) 184
(3) facilitating the gestation of new firms, directly, and (4) facilitating the growth/survival. The next chapter will comment on some of the programmes aiming at encouraging entrepreneurship and survival/growth of SMEs. 5.4 Existing programmes and services This chapter will focus on programmes and services developed to stimulate entrepreneurship and SME growth. As mentioned in the previous section, such programmes focus at one or more of the following targets: (1) initiatives to motivate and mobilise entrepreneurship, (2) initiatives in the organising and establishing phases of the business start-up process, and (3) initiatives directed at established businesses. This indicates that the programmes are aimed at three different stages in a business life cycle. The first one refers to entrepreneurial intentions, while the second refers to the entrepreneurial process. Finally, the third relates to the development and growth of established businesses. In this section, we will present programmes associated with the stages mentioned above. We will discuss different programmes within entrepreneurial training and education as means to motivate and mobilise entrepreneurship. As means to stimulate both the entrepreneurial process as well as the development of SMEs, we will focus on different services related to financial support and knowledge transfer. Entrepreneurial education and training Some individuals do not choose an entrepreneurial career simply because the possibility has never occurred to them, and the first step towards increasing the number of business start-ups may simply be to raise the level of awareness of entrepreneurship and its potential benefits. 12 One way of providing individuals with knowledge of and a positive attitude towards entrepreneurship is, for example, to introduce entrepreneurial training in schools. Since attitude building is a time-consuming process, such training should be offered early, definitely to adolescents, and perhaps even at the primary school level. In Norway, encouraging entrepreneurial skills are emphasised even towards children in kindergarten. OECD (1998) stresses the importance of introducing the option of entrepreneurship through the education system. Researchers argue developing 12 Bridge et al. (1998) 185
the skills and capabilities required to start a business should be integrated into educational and vocational training programmes at all levels. 13 A promising project with Norwegian participants is Young Enterprise Europe, which operates in both primary schools and high schools. The Ministry of Education, Research and Church Affairs initiated this project, to teach pupils how to establish and run a real business as part of their school curriculum. Exchange programmes between universities and SMEs may allow students to work in small businesses and gain entrepreneurial experience. 14 An example of such programmes is the SME project (SMB-Kompetanse). Furthermore, universities and colleges should teach entrepreneurship to enable graduates to undertake careers in independent business management and not only traditional employee careers within large organisations. 15 The following sections include examples of Norwegian programmes associated with entrepreneurial training and education. Resource centre in secondary education A high competence level is a substantial factor in the development of the Norwegian economy. It is also important to strengthen the competitive edge in the international market where the use of more direct means of control has been limited. The schools in secondary education can contribute in two ways to these challenges: (1) by securing a qualitatively good basic education for youth and adults that can provide the competence necessary for a career or further studies in higher education to achieve continued learning. (2) by utilising the significant professional and pedagogical competence that exists in a strongly decentralised secondary educational system, to assist public and private enterprises with necessary competence development that will contribute to maintaining and creating jobs and thereby possibly strengthening rural development and settlement. Active resource centres in secondary education contribute to the development of school's contact with local businesses and provide further competence development among teachers. 13 Reynolds et al. (1999: 41) 14 Alsos et al. (2000) 15 OECD (1998) 186
The Development Initiative Dynamic Local School (Distriktsaktiv skole) 16 Dynamic Local School emphasises, in addition to business development, the social and cultural aspects of community development. Experiences from this approach to development indicate that the work to promote entrepreneurship helps promote gender equality and an ecological sustainable resource understanding. There are five ministries behind the national development initiative, Dynamic Local School, which has operated across sectors since its beginning in 1990. The work has consisted of developing the college course working-life knowledge with focus on entrepreneurship and resource understanding as part of local and regional community development. The course also includes professional development of student enterprise as a learning environment, and establishing information exchanges and communication networks. Both the intentions behind the development initiative Dynamic Local School and its practice have spread to many municipalities and regions. The main office for Dynamic Local School is located at the College of Stavanger. The Confederation of Norwegian Business and Industry (NHO) Partnership In this partnership, businesses and schools commit in a mutually beneficial cooperation with the purpose of giving students greater insights into the world of work and business. The aim is to contribute to the realisation of the intentions in the Core Curriculum (L97) where it states that education shall provide learners with awareness of the variety and scope of the world of work, and that the world of work is part of the school's broader learning environment. The arrangement involves elementary education, secondary education, and higher education. The project (partnership) contributes to making the world of business a significant part of the learning environments in schools. The collaboration may entail students visiting businesses, businesses visiting schools (e.g. guest lecturers), businesses adopting a class, work in projects around themes connected to the business life, and business leaders functioning as consultants to student enterprises. A consultant is hired full-time or part-time in all regions of the country as part of the NHO Partnership. 16 Spilling et al. (1998) 187
Young Enterprise (Ungt Entreprenørskap) 17 The aims of the Young Enterprise Association are to provide youngsters with an understanding of the importance of value creation and innovation in business, as well as providing insight into the conditions of business and labour markets. To achieve this, businesses and schools work in close collaboration to stimulate youngsters creativity and their desire to start their own business, by providing knowledge on good business values in accordance with ethical principles. Today there are approximately 7,000 youngsters who are running 700 miniature companies in Norway. The Association is organised as a nationwide association with local divisions in each county. There is an arrangement with external young enterprise advisors for each enterprise that is utilised. Collaborations with the Confederation of Norwegian Business and Industry (NHO) and the Confederation of Trade Unions (LO) provide close contact between the establishment and the world of business. The establishment Young Enterprise Norway has, as a member of Young Enterprise Europe, a well-developed network of similar establishments in other European countries. Entrepreneurship education at the university level A number of Norwegian universities offer courses in various aspects of SMEs and entrepreneurship. In this report, we would like to focus on practical approaches to entrepreneurship and SME management at the university level. Recently, a new programme started in Norway: Venture Cup. 18 Venture Cup is a competition for individuals with good business ideas. The participants get an opportunity to develop their business idea into a business plan. Experienced entrepreneurs, managers, professional investors as well as consultants supervise the process of developing the business plan. Venture Cup is more than a competition, and the participants achieve valuable experience by learning and building networks. The competition is free of charge and open to everyone. However, students at the university level are particularly encouraged to participate. The Venture Cup consists of four main elements: (1) education; focusing on the elements in a business plan, (2) guidance; using the professional network related to the Venture Cup, (3) inspiration; utilising experienced entrepreneurs as role models, and (4) competition; awarding the best business ideas and plans. 17 See www.ungdomsbedrift.no 18 See www.norge.venturecup.org 188
Europrise Norway Europrise Norway is part of the international Europrise project. 19 The aim of this project is to encourage young people, particularly those from rural areas, to become entrepreneurs and set up their own businesses. The project has developed a Europrise model, using experience gathered from existing enterprises and educational institutions. This model is implemented as part of the project to encourage and motivate young entrepreneurs in pursuing a business start-up. The companies and organisations recruited will also be encouraged to support these individuals to achieve their business goals. The Europrise project was piloted in Norway with positive results. Due to this success, the project is being expanded and run on a larger scale. It now involves many transnational partners from across Europe. Knowledge transfer and financing Both during the entrepreneurial process and in established SMEs, the entrepreneurs/managers often need to gain access to external resources. The resource dependence theory sees the business/entrepreneur as active in attempting to adapt to the environment. This theory further views the environment as a pool of resources including customers, suppliers, finance, land, property, machinery, technical information, knowledge, etc. 20 The degree of resource dependence on the environment is determined by the need for external resources. 21 Research has indicated that organisations enter into transactional relationships with environmental factors because they cannot generate all necessary resources internally. 22 It seems logical to apply the same reasoning to entrepreneurs they too would need to complement their own resources with those available in the environment. In this report, we focus on programmes providing entrepreneurs/businesses with external knowledge and finance. Some services combine knowledge and finance, for example Skattefunn and some of SND s (the Norwegian Industrial and Regional Development Fund) programmes. 19 See www.europrise.com 20 Moyes and Westhead (1990) and Specht (1993) 21 Boyd (1990) 22 Westhead and Wright (2000) 189
Telephone service for entrepreneurs In 1992, VINN, 23 Narvik started with a free national telephone service for entrepreneurs. The entrepreneurs can ask questions related to a business start-up and get answers from a consultant with special competence within the particular area. Examples of areas are formal requirements when establishing/expanding a business, how to register a business, local, regional and national programmes that support start-ups financially, and international standards and regulations within the EU/EEA. Each year they answer approximately 15,000 phone calls from entrepreneurs and managers. SND (The Norwegian Industrial and Regional Development Fund) 24 Since it was established in January 1993, SND has been an important source of financing for entrepreneurs and SMEs. The SND is the authorities key body in the field of industrial and regional development, and focuses on small and medium-sized companies, new companies, competence-increasing measures and female participation in industry, among other things. The main objectives of SND are: 1) to contribute to the development of the Norwegian industry in general, and 2) to contribute to profitable and sustainable employment in peripheral regions experiencing difficulties in terms of industrial development. SND is funded by the Norwegian government through a budget put together by several ministries. 25 In the following, some of the programmes and services from SND are briefly presented. Etablererstipend is a programme with the purpose of providing economic support for individuals who are trying to establish a business (hence, the target group is nascent entrepreneurs). Individuals can apply for this economic support twice during the process of establishing the business; once when in the development phase, and once when in the actual phase of establishing the business. There is a limit of NOK 400,000 for both phases. The money should be spent on development activities (for example, market surveys) as well as investment for equipment needed to start the business. The entrepreneur may also cover some of his/her costs of living during the development and start-up phases. Parts of this programme are targeted towards women and youths. 23 See www.vinn.no 24 See www.snd.no 25 Alsos et al. (2000) 190
The FRAM programme is a programme for managers in SMEs. During this programme, the managers develop strategy and management systems for their businesses. The programme is scheduled for 15 months, including six workshops where relevant theory is presented. There are normally 8 12 businesses working together, and each business is given an adviser who helps them with their work. 135 advisors are included among the FRAM consultants. There are approximately 500 participants each year. The businesses pay between NOK 14,000 and 29,000 to participate, the rest of the participant fee is sponsored by SND. Of the 510 managers that participated in this programme in 2000, 82% of them managed to improve the profitability in their companies by at least 5%. 26 The NT programme is a programme for stimulating innovation and development of new technology in businesses in North Norway (Nordland, Troms and Finnmark counties). This programme provides both counselling and capital to businesses dealing with projects or business ideas including new technology. The programme may enter the process at the idea stage and follow it through the market launch. For 2002, the programme is granted NOK 24 million from the Ministry of Local Government and Regional Development. Pure financial services. Loans from SND can be used to finance parts of the investment capital needed. Furthermore, SND also offers Funds for Investments. The purpose of these funds is to provide innovation projects at an early stage with capital, competence and network. The level of support available to the companies is determined by the location of the company, where separate funds are allocated to designated support areas, and by characteristics of the project proposal put forward to SND. SND accepts a higher level of risk compared to private financial institutions as means to overcome market imperfections in the regions where SND is active. 27 The Research Council of Norway (NFR) NFR administrates almost NOK 3 billion for research purposes, provides advice on research policy questions and creates meeting places for researchers and users of research. The objectives of the Research Council are to promote basic 26 www.snd.no/kompetanse 27 Ibid. 191
and applied research in all professional fields, increase society s level of knowledge and promote creativity in all sectors and industries. Some of the programmes within NFR are briefly presented in the following. SMB Kompetanse. The aims of the programme are: (1) to provide the SMEs with new knowledge and competence that will increase their competitiveness, and (2) to give the colleges a chance to be more active and cooperate with the local industry. The target groups for this programme are businesses within all industries with less than 100 employees, and who need external knowledge/ competence to accomplish a development project. By cooperating with a college or university, the SME will get access to external knowledge through this programme. In cooperation with a public college, the SME hires a newly graduated candidate with higher education for one year. The candidate is closely connected to the college by an adviser who helps him/her with the work. During this year, the business will carry out a development project (for example new products, new technology, entering new markets and so on). A part of the programme includes a course in project management. The SME gets a contribution of NOK 80,000 to hire the candidate. The SME has to contribute at the college with teaching, cases etc. The SIVA network 28 SIVA (The Industrial Development Corporation of Norway) is a state-owned but independently operated organisation. SIVA builds networks between regional, national and international R&D (research and development) environments. Such networks are acknowledged to be of utmost importance for a country's ability to innovate. The SIVA network consists of several groups of institutions for example, science parks (forskningsparker), innovation centres (kunnskapsparker), incubators and business gardens (næringshager). A science park is defined as a property-based initiative that: 29 Has operational links with universities, research centres and/or other institutions of higher education. 28 See www.siva.no 29 See www.fin.no 192
Is designed to encourage the formation and growth of knowledge-based new industries and other organisations, normally located close to universities and R&D institutions. Has a management team actively engaged in fostering the transfer of technology and business skills to tenant organisations. The main objective of the science parks is to develop links with their associated educational institutions or research centres in order to strengthen the transfer of technology and business skills that can foster the formation and growth of business enterprises, and to encourage students and researchers to convert their knowledge into commercial activity. An innovation centre has become a common term for a knowledge/innovation institution that is closely related to one of the regional colleges. The intentions are: (1) to develop the production of knowledge within the colleges and research institutes, and (2) to combine the knowledge in the R&D institutions with the knowledge in the industry in order to increase the innovation capacity of the industry. The innovation centre concept is similar to the science park concept, but the cooperation with regional industry is more emphasised in innovation centres. An incubator is an environment that supports the establishment of new businesses. It provides entrepreneurs with resources such as expertise, business experience, consultants and capital. The government encourages the establishing of incubators throughout Norway. The incubators are mainly located on university campuses, science parks or innovation centres in both small and large communities. A business garden co-locates knowledge-based companies in smaller communities. Business gardens are established in local communities that have actively promoted business development. Nearly 70% of equity capital in these business gardens is private capital. 30 Business gardens have provided positive impacts on business development in many regions. For example, women hold almost 40% of the jobs in the companies in the business gardens. Financing cooperation between R&D and industry There are several opportunities available for financing development projects in a business. Some programmes focus on projects where the business cooperates with one or more R&D institutions, while others target their programmes 30 Ibid 193
towards the development project, regardless of whether or who the business cooperates with. FORNY is a programme run by SND in cooperation with NFR, which aims to encourage innovation and commercialisation from R&D institutions. The overall purpose is to stimulate increased innovation ability based on research results. To achieve this, the amount of commercial business ideas from the R&D institutions will have to increase. Moreover, the creation of professional networks, efficient learning processes and networks towards the industry must be encouraged. The target group for this programme is employees and students in scientific institutions who have access to commercial business ideas. Scientific institutions include universities, colleges and research institutes. The goal of SkatteFUNN 31 is to increase innovation and value creation in trade and industry, and to improve research and development (R&D) efforts in Norwegian industry. SkatteFUNN is a scheme for tax deduction of R&D expenses in small and medium-sized enterprises, which are eligible for Norwegian taxation. For smaller enterprises, tax deduction is possible if the following conditions are being fulfilled: 1. They do not have more than 250 employees 2. They do not have an annual turnover exceeding EUR 40 million or an annual balance sheet total exceeding EUR 27 million 3. They are owned by a large enterprise with less than 25%. 20% of the expenses related to approved R&D projects may be deducted in income tax, wealth tax and national insurance tax to the state. The maximum sum of R&D projects conducted by the enterprise itself is NOK 4 million. Where an enterprise collaborates with an approved R&D institution, the maximum sum is NOK 8 million. The eligible R&D projects are defined as: a limited, focused project aiming at bringing forward new knowledge, information or experience that should be of use for the enterprise in developing new or improved products, services or manufacturing/processing. All application procedures take place electronically using e-mail and the Internet. The business applying for funding is promised a response within two weeks. 32 31 www.skattefunn.no 32 Ibid. 194
5.5 Experiences/evaluation In this section, some of the programmes mentioned in the previous section are discussed. The evaluation of the more overall entrepreneurship policy is discussed in the next section. In general, great effort has been undertaken to evaluate policies and policy implementation in the SME and entrepreneurship areas. While we write this report, the organisation of policy development associated with the Ministry of Trade and Industry and the different organisations owned by the government reporting to this ministry, such as The Norwegian Industrial and Regional Development Fund, the Export Council and SIVA, are being looked into. These evaluations are not yet reported in writing, but already some organisational adjustments have been made as a consequence of this work. There may be more changes in the organisation within policy making and policy implementation in the coming months. However, the evaluations we base this chapter on, are fully completed and published. We first look at evaluations related to programmes focusing on entrepreneurial training, followed by some programmes associated with knowledge transfer and financing. Entrepreneurial training Spilling et al. (2000) argue that the concept of entrepreneurship has been included in the Norwegian school since the 90s. They claim that there are two main principles behind the inclusion of entrepreneurship in schools: 1) to include the pupils, and 2) the teaching must be based on practice and practical examples. The schools themselves often focusing on stimulating the pupils entrepreneurial behaviour and qualifications, in addition to focus on establishing and running miniature companies (ungdomsbedrifter). Spilling et al. maintain that the concept of entrepreneurship has a broad interpretation in the schools; from focusing on culture, society and local environment to the economic dimension of the term. Because of this wide definition, they argue that politicians should be clearer on what aspects of entrepreneurship they refer to when discussing this topic. Karlsen (2001a) has evaluated a project related to entrepreneurship in the Nordic schools. The purpose of the project was to investigate the different national initiatives to promote entrepreneurship in schools and to clarify the formal status entrepreneurship education has in the Nordic countries. He suggests that entrepreneurship is associated to activities that may be divided into two categories: (1) teachers undertaking pedagogical innovations, 195
and (2)alternative ways of working in schools that require more pupil participation. The conclusion of the report is that all countries carry out projects with entrepreneurship as the theme and where national school authorities are involved either directly or indirectly. Solstad (2000) concludes in his report on entrepreneurship education, that primary school and high school levels should focus on training and encouraging general entrepreneurial knowledge and competence. One successful way of doing this is to have the students run their own businesses. In a Norwegian study, Karlsen (2001b) concludes that for most schools participating in the project Entreprenørskap på timelplanen (entrepreneurship on the timetable) entrepreneurship is closely connected to the start-up of businesses. Trengereid (2002) focused on entrepreneurship in five schools in the Bodø region in order to study the schools intentions to participate in the project Entrepreneurship in School. She found that the principals intentions were to create a stimulating learning environment where the pupils felt responsible for their own learning experience and actively participated in learning situations. In these schools, focus was on both stimulating entrepreneurial intentions as well as entrepreneurial behaviour and skills. Knowledge transfer and financing SND (The Norwegian Industrial and Regional Development Fund) Alsos et al. (2000) have evaluated the SND s use of risk loans and grants towards private companies in peripheral areas in the period of 1993 1999. The main questions answered in the evaluation are: 1) how the regional support from SND have influenced the firms receiving the risk loans and grants, 2) whether the priorities set up in policy statements by the ministry and SND are followed in the project allocations, 3) the additionality and net employment effect created by the use of these instruments and 4) how the financial support affects the regional structure and the industry structure in the development regions. The overall finding is that the use of risk loans and grants offered to small and medium-sized firms contribute significantly to growth and innovation. The use of these instruments is in most respects found to be according to the policy set by the funding body. The additionality of these means is considered to be reasonably high. 196
There are, however, areas of improvement. Among others, the large amounts of detailed goals set by the funding ministry may prove dysfunctional. Innovation efforts in the resource-based industries and the manufacturing industries are closely related to investments in machinery. A combination of physical investment support and competence investment support should therefore be emphasised. Efforts downstream in the value chain towards market expansion and strategy development should also be emphasised, as well as projects that create jobs for women. New instruments for proactive, industry development support in regions suffering from high distance costs, lack of variety in the job market, and a fragmented industrial milieu should also be considered. The STEP group has recently conducted two evaluations of The Norwegian Industrial and Regional Development Fund (SND), one focusing on SND and regional development, 33 and the other focusing on SND and business development. 34 Hatling et al. attempted to measure if SND has contributed to creating stable and profitable employment in rural areas. They conclude that SND has fulfilled its role as an active partner in regional development, and that SND often provides financial support to projects that otherwise would not have been carried out. Although the report is generally positive, they have a few suggestions for improvement, for example becoming more proactive in their work with identifying promising development projects in businesses located in rural areas (compared to more urban areas). Hauknes et al. (2000) reached five main conclusions in their evaluation: 1) SND s investment profile is suitable for Norwegian industries and conditions, and the investments are made in a variety of industries and businesses, 2) SND provides support to businesses that show willingness and ability to innovate, 3) the businesses SND are involved in have a high rate of innovations, 4) a considerable share of the financial support is provided to small and newly established businesses. The businesses that receive financial support from SND have a higher survival rate than the rest of the business population, and 5) In the survey conducted in this study, the businesses appreciate the effort and support from SND, although they report some weaknesses at SND. For example, they find SND to be too bureaucratic and not proactive enough. 33 Hatling et al. (2000) 34 Hauknes et al. (2000) 197
The NT programme Isaksen (1996) evaluated the NT programme for the time period 1993-1996, and concluded that: (1) the programme s methods and approach to supporting innovative businesses are well adjusted to the situation for businesses in the northern part of Norway. (2) the programme has identified and reached a group of innovative businesses, and the programme positively affects the results in these businesses, and (3) the programme contributes both knowledge and money to the innovation process in the businesses. Pettersen (2000) evaluated this programme from 1997 to 1999. Also this report concludes that the programme is successful. They suggest that this is due to at least three reasons: (1) the programme is acknowledged for its competence within technology, project management, and its network with other actors within the support and service programmes, (2) the programme s requirements for information in applications (and application schemes) are evaluated as relevant and manageable, and (3) the programme is perceived as having an entrepreneurial spirit and thus being capable of understanding the challenges entrepreneurs are exposed to. The Research Council of Norway (NFR) Following an invitation from Technopolis, the STEP group has, evaluated the user-oriented R&D involvement in the Research Council of Norway. 35 The aim of this involvement is to contribute to wealth creation, profitability and competitiveness in industry. Although the programmes originally focused on financial support for research and technological development only, the activities have gradually absorbed aspects of modern innovation theory, for example networking, general competence building and the businesses ability to learn. This evaluation focused on four areas: 1) allocation of funding; Aslesen et al. reported that there has been an increase in NFR s share of innovation funding, especially for the smallest firms, 2) networks and collaboration; all businesses included in this study report innovation collaboration, i.e. they take part in operative external networks. Furthermore, almost all business contracts involved in the study are considered innovative, 3) company R&D activities; in this study,75% of the businesses engage in external R&D, while almost all of them conduct internal R&D activities, and 4) additionality; 15% of the businesses included in the study reported that they would have dropped the projects entirely with no funding from the NFR, while 30% report the project would have been 35 Aslesen et al. (2001) 198