The upgrading of workforce skills is key to the competitiveness of SMEs. In today’s business environment there is a premium on innovation that enables firms to develop new products and services, new production processes and new business models. This requires both in-house innovation and the ability to absorb knowledge from other firms and organisations, both of which call for a skilled labour force. Skills are also a critical but understated resource for entrepreneurship seen in the sense of business creation. Similarly to workforce skills, entrepreneurship skills will boost the competitiveness of local businesses thanks to the improved strategic and management competences of the entrepreneur.

1. International Workshop
‘Skills Development for SMEs and Entrepreneurship’
Upgrading Workforce Skills in Small
Businesses: Reviewing International
Policy and Experience
Professor Ian Stone
DUBS
i.e.stone@durham.ac.uk

2. Context for study
Learning/skill levels
Workplace is where most adults learn
Most workplace are small firms
Large firms contribute less to skills pool
Ageing workforce
Demographics and pensions - lengthening careers
Economy/firm perspective
Small firms and dynamism
Training linked to firm survival and growth
Government
Financial constraint – spend, effectiveness, efficiency
Rethinking role, targets etc.

3. Small firms and training – identikit profile
Inverse and disproportionate relationship between firm size
and training investment
Significant proportion do no training (formal); even allowing
for formal/informal difference, still a large gap
Even more pronounced for education investment vs
vocational training
Training typically not measured for effects, incorporated in
strategies, or allocated a budget
Most perceive no need for it (‘have all the skills we need’)
Absence of appreciation of ‘latent’ skills needs
Yet… some small firms have training profiles nearer to medium
and large firms

4. Objectives of study
Consider barriers to expanding small employer
investment in training
Review the range/nature of national and local policies
that have addressed the issue
Identify effective approaches/mechanisms of potential
interest to policy-makers
… Remembering to set the review and its findings in context of
different policy traditions, institutional structures and
business cultures, and evolved rather than strategically
designed systems

5. Definitions, scope, sources
‘SME’ category too broad; focus here is on small/micro, <100
employees
Management training excluded
Focus on demand – but recognition of supply issues as linked
CVT rather than initial training (apprentices etc.)
Not focused on training of unemployed/vulnerable workers
Report based on extant policy reviews, national studies,
interviews, desk search etc; builds on previous work for
SSSDA/UKCES in UK, incl. recent Employers Collective
Measures programme

6. Barriers to small firm training
(1) Information/ Lack of HR functions; analytical constraints; limited
knowledge management capability; training perceived as a ‘cost’
(2) Scale/resources Risk aversion; survival goals; shorter time horizons; higher
opportunity costs for formal training; higher notional
discount rates for training investments
Access issues; type/quality/scheduling; lack of customisation;
(3) Training supply very significantly higher fee costs
Spillovers; ‘poaching’; division of benefits from training;
(4) Externalities patterns of training determined by risk reduction/loss
minimisation
(5) Capital market High financial costs combined with mobility of direct
imperfections collateral (the employee); current accounting systems fail to
measure skill investment as asset creation
(6) Dynamic system ‘Low skills equilibrium’; (sectoral) cumulative process; low
effects spec products/services; path dependency of low
skills/unambitious production methods
Contrast of high V-A production strategies (HPW etc.) with
positive reinforcement cycles

7. Areas for policy action
1 Influence… perceptions/culture/ambition
2 Address… outreach/information/employer enactment capacity
3 Achieve… demand-supply system convergence
4 Integrate… different forms of training (formal and informal/OJT)
5 Refocus… the supply-demand relationship
6 Address… cost/affordability issues (tax breaks, subsidies)
7 Develop… collaboration and resource pooling
8 Build… training partnerships, including with large firms
*Development of NVCER (2007)

9. A. Employer outlook
 Direct focused approaches (compulsory framework in France vs
voluntary frameworks (UK ‘pledges’; ‘intrusive’ competitions
Canada; creation of change agents, Portugal)
 Adjuncts to training funding systems (Netherlands Levy system
found to encourage a training culture)
 Indirect expansive approaches (New Workplace Development
Programme, Finland; Competence Reform, Norway)
Problems in reaching smaller/less ambitious firms
Wider system/culture plays significant role e.g. Finland, France
formally required worker representation and training
consultation/plans

10. B. Information and guidance
Public funded provision for individual small employers:
‘Training conversations’ Sector Council training advisors,
Canada
Industry Training Officers, New Zealand
As part of more integrated training approaches:
S Africa’s national levy allows micro/small firms to claim from
funds only if have appointed (internal or external) Skills
Development Facilitator (for skills plans, accreditation etc.)
Netherlands’ levy scheme incorporates advisory support for
identifying training needs

11. C. Forms of training
Design of flexible and ‘bite sized’ units…
Belgium (F+W) voucher system – targeted on small/micro
firms; eligible for firm specific and general training; encourages
course design initiatives by providers; on-line purchase/low cost
Swedish Lifelong Learning Project integrates CTV within a
continuous learning framework – aims to meet skill
requirements rather than formal qualification targets
NZ Qualifications Framework - designed to facilitate flexible
combinations of course units, tailored to small firms/sectors

12. D. Tax incentives
General encouragement to investment; potential for targeting
(Malta!)… both increasing training and restricting deadweight
can target small firms, e.g. with low previous training spending
(Netherlands)
tax credits for small firms with >certain level of spending
(France)
Belgium’s (F) Vlamivorm project - property tax reductions for
training spending; targeted low training sectors + firms
previously increasing training (73% <10 employees)
Problems: formal rather than informal training; small firms
need far higher concessions than large (S Korea); large firms
better able to benefit; small firms uncertain in dealing with tax
authorities

13. E. Training subsidies
 Generally induces increased investment in training
 Potential for small firm targeting in subsidy schemes –
e.g. restricted to small firms or size-based graduated
 Targeting potentially reduces deadweight
 Ireland’s Training Support Scheme (eligibility - business-
related training plan); employers choose training provider;
deadweight half the level for large firms
 Small firms discouraged if targeting leads to
administrative complexity; larger firms have more
administrative capacity
 Mainly relate to formal training

14. E. Subsidies (continued)
 Large subsidy needed to overcome greater costs (incl.
indirect costs) and barriers faced by small firms
 Broader support crucial, especially advice and support:
 e.g. UK piloted Small Firm Development Accounts
(targeted <50 empl.) - funded ‘training champion’, training
plan, 6 mths mentorship, training network membership,
proportion of external costs of training
 UK Employer Training Pilots – subsidies for Level 2
training, information and support, covered indirect costs

15. F. Training Levies
 Different types – mainly compulsory (train-or-pay) or
voluntary/collective sectoral
 Targeting of small firms more feasible where public funds involved
or in compulsory schemes.
 Netherlands’ scheme finances collective training for employers,
including OTJ training, advisors, influences ‘culture’ among members
– but small firms benefit less than large ones
 Can be used to encourage cooperative behavior (Spain – joint plans
from sector/territorial groups of small firms), organise
complementary support (Italy – funds training plans, training via
vouchers for micro firms) and improve quality of training supply
(Denmark – funding development/testing of training programmes)
 Many schemes do not target by firm size; lower rates in France and
Quebec compulsory levies allow firms to opt out

16. G. Rights to training leave
 Focused not upon firms, but employees – more likely to be
targeted on type of worker than firm
 Major problem with cost (direct and indirect); public spending
level in support consequently important
 Compulsory system in France funds replacement staff for firms with
<50 employees; reaches micro/small firms – aided by levy-funded
advice and information to allow firms to support the employee
training requests
H. Job-rotation schemes
 Used in Germany + Denmark for replacement workers and ALP
 Denmark experience suggests mainly relevant to larger SMEs;
Germany local schemes attract small firms - but largely skilled/
management staff and costly

17. I. Employer networks
Pooling resources and cooperation in a variety of ways (GTOs, supply
chains etc.) => small firm benefits [economies of scale, information,
tailoring/quality of training provision, externalities (-)poaching
(+)dynamic effects]
S Korea - levy-supported Training Consortia of SMEs appoint training
managers to liaise with local providers to deliver members’ training needs;
smaller firms benefit in terms of cost and type/quality of training,
including OTJ elements
Ireland – Skillnets - sector/area-based networks helping small firms to
strategically address joint training requirements; supports network and
customisation of training for member firms. Additional support/higher
grants for enterprises most in need of vocational enhancement. Clear
small firm benefits/response (85% participants <50; 40% < 10)
Network principles also in Canada – Workplace Skills Initiative; and UK
new Growth and Innovation Fund (GIF)

18. J. Accounting standards
Accounting approach to change valuation/perspectives w.r.t.
training expenditure
Concept needs further development, but practicality questions for
small firms, who are unlikely to be receptive
K. Pay-back clauses
System for reducing risk relating to training investments -
already utilised in differing degrees, but enforcement problems
particularly for small firms
L. Occupational licensing
Range of occupations/sectors in which this might be expanded as
a compulsory measure to drive up skills level
But - limited number of potential occupations, and significant
costs of administration and training - effect on small firms
depends upon funding support

19. ‘Next practice’
 ‘Best practice’ is highly subjective in relation to engaging small
employers in training, since subject (type of firm) and context (spatial,
cultural, sectoral) vary to such a large extent.
 Issue needs to be addressed with respect to both the static and dynamic
aspects of the problem; sub-optimal small firm investment in skills
emerges from complex situations, made up of multiple behaviors and
processes, and interventions need to acknowledge this.
 Given the context of tighter budgets, policy-makers generally will be
under pressure to move in the direction of (1) reduced public spending,
(2) more precise targeting to ensure value for money, and (3) a switch
from direct subsidies to indirect or facilitation spending.
 Findings of this report can support this process through showing (1)
available types of intervention mechanisms, (2) key principles of their
design, and (3) how different policy formulations affect policy
effectiveness and efficiency.

20.  Holistic approach to determine the balance between skills objectives relating
to small businesses, and individual/group skills objectives affecting social
justice and labour market efficiency.
 Some types of small business are more susceptible to policy measures than
others; offering higher net returns to public expenditure - especially if
support is explicitly linked to business performance improvement. Other
small employers may be more appropriately supported less directly through
targeting of types of employees.
 Important policy issue is how to ensure support is available for those firms
with ambitious production strategies.
 Some measures – tax breaks, and many subsidies – while targetable, address
the issue in a narrow way. Report stresses importance of intervention
mechanisms addressing the range of barriers to small firm engagement in
training. It identifies some broad approaches (e.g. some levies, networks),
amenable to different national contexts, that both address a range of
barriers, and promote commitment (including financial) of small firms.
 Room for more subtlety in policy design/delivery – limited evidence of
entrepreneurial methods, more use of behavioral ‘nudge’ techniques