Large firms innovate more than small firms

Studying a sample of seven European countries, including the five largest economies of the continent, the firm size appears as a determinant of firm’s capacity to innovate, in terms of product, process and organizational innovation. This correlation between firm size and propensity to innovate holds even controlling for the different distributions of firm size across countries and across productive sectors. Some other factors appear as key determinants of innovation, like the expenditure in R&D, the “human capital” of the workforce (formal instruction and training programs), the professionalism of the management (if external to the family that owns or controls the firm). Such factors are disproportionally distributed across firm size (when the dimension increases, the quantity of such factors increases), and it is essentially this different amount of key resources for innovation to explain the lower innovative performance of small firms, not some “intrinsic” or “black box” motivations linked to the limited size. Only in process innovation small firms seem to have a disadvantage respect to medium firms not explained by such factors. As concerns Italy, we must premise that this study does not consider the micro firms, from 1 to 9 employees, which are particularly abundant in Italy (Onida, 2004); therefore the relative position in innovative performance emerging from this study is likely a bit shifted to a more favourable position respect to a framework which considers all the kinds of firms. Besides, innovation is measured through a survey, not with measures like patents or publications, which generally indicate a more radical innovation and where Italy is notoriously weak (Istituto Guglielmo Tagliacarne-Focus PMI, 204). Therefore, when positive signals emerge about Italian innovative performances, they should be taken cum grano salis. The descriptive statistics indicate for Italy, if compared with the other countries, a large presence of medium firms and a shortage of large firms. The innovative performance, measured as the percentage of firms who introduced in a three-year period at least one product, process and organisational innovation, is in line with the average of the sample in product and process innovation and below such average in organisational innovation. The international framework appears quite articulated: the multivariate analysis allows to do a “ranking” of the innovative performance of the countries, even excluding the effect of different distributions of productive sectors and of firm size; such ranking results different in different types of innovation; in the tree types of innovation, Italy occupies intermediate places. Comparing Italy with the whole sample, the statistically significant results are that medium Italian firms have an higher propensity to process innovation than the medium firms of the whole sample, while all firm sizes have a disadvantage in organisation innovation. Even in Italy, small firms have a disadvantage respect to medium and large firms in all three types of innovation. The amount of this disadvantage does not seem significantly different in Italy respect to the other countries. Trying to verify if the disadvantage of small firms in the innovative capacity is due to a different allocation of crucial resources, we discovered that there is a shortage, if compared with the other countries, of human capital (graduated workers and workers who participate to training programs) and of non-familiar management. This is probably the reason why in many cases the human capital and the management do not appear in Italy as key determinant of innovation. A more educated and trained workforce, a more professional management seem therefore the way for Italy to close the innovative gaps or to reinforce its strengths. This results goes together with another policy conclusion of our study: we unequivocally find an advantage given by a larger firm size in every kind of innovation; being the Italian industrial characterised by an average small dimension of firms, this suggests to implement policies aiming at increasing the firm size. Actually, looking closely, these two conclusions go together: the size of a firm increases if it is successful; but, a firm’s workforce becomes more trained, its management more professional, it certainly becomes more innovative, therefore more successful; in this way the firm grows. Becoming larger, it has more resources to undertake innovative projects, to hire more qualified personnel and management; the public intervention should operate to trigger such virtuous circle