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Entrepreneurism and Innovation in SMEs inPortugal: the COTEC SME Network

Gustavo Cardoso, Victor Roldo, Rita Espanha and David Castro

LINI WORKING PAPERS N4


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Contents

1 - Introduction ................................................................................................. 2

2 COTEC Portugal: The Innovative SME Network Programme ................. 52.1 The Innovative SME Network Initiative. ..................................................... 6

3 The Entrepreneur and Entrepreneurism in the COTEC SME NetworkCompanies........................................................................................................ 73.1 Profile of the Entrepreneur: Who Are the Entrepreneurs in the COTECSME Network? ................................................................................................... 73.2 The Entrepreneurial Context: What Determines Success in Starting up aCompany?..................................................................................................................................................................................................................................... 123.3 Profile of Entrepreneurs Thinking of Founding a New Company............. 18

3.4 Executive Summary The Entrepreneur and the Entrepreneurial Culturein the COTEC SME Network ............................................................................ 25

4 Characterisation of Companies in the COTEC SME NetworkProgramme ..................................................................................................... 274.1 Profile of the Company in the COTEC SME Network.............................. 284.2 Financing instruments and effects on companies.................................... 344.3 Competition and Reference Market......................................................... 374.4 Organisation............................................................................................ 424.5 Location................................................................................................... 444.6 Strategic Orientation................................................................................ 464.7 Use of the Internet and E-Commerce...................................................... 504.8 Executive Summary Characterisation of Companies in the COTEC SMENetwork ......................................................................................................................................................................................................................................... 53

5 Analysis of Environment of Innovation and Benefits of COTEC SMENetwork Membership .................................................................................... 575.1 Innovative Dynamism and Use of ICT ..................................................... 575.2 Benefits of Belonging to the COTEC SME Network ................................ 635.3 Executive Summary Analysis of Environment of Innovation and Benefits

of COTEC SME Network Membership ............................................................. 686 Proposals for Further Development ....................................................... 70

7 Annexes .................................................................................................... 717.1 Catalonian Case The Context of Innovation for Companies Affiliated inthe Barcelona Activa Organisation ................................................................... 727.2 Companies in the COTEC SME Network (data: May 2007) .................... 74

8 Table of Contents..................................................................................... 79


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1 Introduction

This study conducted by LINI (Lisbon Internet and Networks Intl. Research

Programme) set out to examine the phenomenon of Entrepreneurism and

Innovation in Portuguese Small and Medium-sized Entrepreises (SMEs)on

the basis of a questionnaire survey of 30 companies in the network of SMEs

created by COTEC Portugal Associao Empresarial para a Inovao.

For the study, the opinions of the managers and leaders of Portuguese

companies identified as innovative and entrepreneurial were gathered and

systematised, using a sample selected from the companies that are members inthe SME Network created by COTEC PORTUGAL Associao Empresarial

para a Inovao as a guarantee of that specificity (N = 54).

The questionnaire-based survey (an online application) was carried out

between December 2007 and May 2008. A total of 30 responses were received,

making 56% of the total of potential interviewees contacted.

This analysis begins with a brief characterisation of COTEC and its SME

Innovation Network programme before going on to examine the study topic in

the following three groups:

The entrepreneur and entrepreneurism in the companies belonging to

the COTEC SME Network;

Analysis and characterisation of the companies in the COTEC SME

Network programme; Analysis of the innovative environment and perception of the benefits of

a company belonging to the COTEC SME Network.

In each group the data obtained through the survey are described on the basis

of the trends and some analyses of individualisable situations within the

universe studied.


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There is also a contextualising summary at the end of each chapter highlighting

the most important conclusions in that chapter.

The report also takes into account a study conducted by the University of

Catalonia (UOC Universidade Oberta de Catalunya) on the context of

innovation in micro-enterprises and local development (Entorn innovador,

microempreses i desenvolupament local - Una anlisi de les empreses creades

amb el suport de Barcelona Activa Barcelona 2006), with the aim of comparing

the benefits of belonging to a business network in the area of innovation in the

two regions.

The report ends with thoughts on Entrepreneurism and Innovation in the more

innovative SMEs in the Portuguese entreprenuerial spectrum, with the aim of

extrapolating some of the trends to the wider universe and making the invitation

to repeat this study in other domestic realities for the purpose of verifying the

reach of the conclusions presented herein.

The Research Team

Gustavo Cardoso, Vtor Roldo, Rita Espanha, Pedro Puga and David Castro


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2 COTEC Portugal: The Innovative SME Network Programme

COTEC Portugal - Associao Empresarial para a Inovao is a not-for-profit

organisation founded in 2003 through an association of Portuguese companies

and organisations in the National Innovation System (SNI). Its object is to

promote the competitiveness of companies based in Portugal through the

development and diffusion of a culture and practice of innovation as well as of

knowledge, especially that generated in Portugal.

Its various lines of action are aimed at promoting innovation, fostering a culture

of innovation and influencing the strategic orientations of the European and

national innovation systems (EIS and SNI).

2.1 The Innovative SME Network Initiative

The Innovative Small and Medium-sized Enterprise (SME) Networkis a COTEC

initiative aimed at furthering the development of competencies within SMEs

through support to companies, which, on the basis of their business approach

and activity, are recognised as success and innovation factors in Portugal.

The goal of this support is to establish a network of cooperation between the

COTEC Portugal and the SME Network associated members and to provide

specific support in internationalisation phases, particularly in efforts to attract

the investment necessary for internationalisation.


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3 The Entrepreneur and Entrepreneurism in COTEC SME Network

Member Companies

This section will examine the type of entrepreneur in the SMEs. The first point

will focus on the personal characteristics (point 3.1), before going on to analyse

the entrepreneurial culture (point 3.2). The final point (3.3) will look outline the

profile of entrepreneurs thinking of establishing a new company.

3.1 Entrepreneur Profile: Who Are the Entrepreneurs in the COTEC SME

Network?

Gender of entrepreneurs and founding partners

The great majority (90%) of entrepreneurs are male. This situation is confirmed

when one looks at the founding partners of companies. Here the male majority

is even greater 91.3%. The cases of female entrepreneurs in the COTEC

SME Network are very rare.

3.1.1 Gender of entrepreneurs

90.0%

10.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Men Women

Men Women No response (N.R) = 0 ; 0%


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3.1.2 Gender of founding partners

Age of entrepreneurs

Age when company was founded

The average age of the entrepreneurs is 42.3 years. The majority (68%) are in

the 31 to 45 age group. There are few entrepreneurs under the age of 31

(7.1%).

3.1.3 Age groups of entrepreneurs

91.3%

8.7%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Men WomenMen Women N.R = 0.0%


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The great majority of the entrepreneurs (77.8%) founded their company when

they were between 25 and 35 years of age. The average age at the time of

establishment of the company is 30.5.

This group is followed at quite some distance by those who founded their

company aged between 36 and 40 (14.8%). The foundation of companies at an

age of 25 or less is not very common (7.4%).

3.1.4 Age of entrepreneurs at company foundation

N.R = 2 ; 6.7%

7.1%

67.9%

25.0%

0.0%

20.0%

40.0%60.0%

80.0%

100.0%

< 31 years 31-45 years 36-40 years

< 31 yrs 31-45 yrs 36-40 yrs


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Education Level

The most entrepreneurial people are those with education qualifications at the

licentiate and bachelors degree level or with a higher education diploma

(51.7%). Just over one fifth (20.7%) of the entrepreneurs have a post-graduate

qualification and more than one quarter (26.7%) have Masters or Doctoral level

qualification. In this study no entrepreneurs with qualifications lower than the

aforementioned were detected.

3.1.5 Education level of entrepreneurs

7.4%

77.8%

14.8%

0.0%

20.0%

40.0%60.0%

80.0%

100.0%


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Situation before founding the company

Complementary activities carried out

Before establishing their current company, the majority of the entrepreneurs

worked in the employment of others (75%), while only 7.1% had owned another

company beforehand. One should also highlight that 14.3% of the

entrepreneurs were students before they started up their businesses (see figure

3.1.6).

3.1.6 Situation of entrepreneurs before founding current company

N.R = 2; 6.7%

7.1%

75.0%

14.3%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Boss Employee Student

Boss Employee Student

51.7%

20.7%26.7%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Bach./ Diploma/Licentiate

Post-grad. Masters/ Doctors

N.R = 0; 0%


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Almost one half of the respondents (53.3%) carry out other paid activities

complementary to their business. Of these, the majority provide services to a

private company (52.6%), while 15.8% also work for an educational institution.

There are also 37.5% of the entrepreneurs providing services in activities other

those of their companies (see figures 3.1.7 and 3.1.8).

3.1.7 Complementary paid activity

3.1.8 Type of complementary paid activity

53.3%46.7%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Yes No

Yes No N.R = 0; 0%

N.R = 0; 0%

52.6%

15.8%

37.5%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

In a privatecompany

In an educationinstitution

Other

In a private company In an education institution Other


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3.2 The Entrepreneurial Culture: What Determines Success in Starting

up a Company?

Reasons for founding the company

Personal realisation (76.7%) was very much consensual amongst the

respondents when asked to name what drove them to set up their company.

However, one should also note that almost one half of the respondents created

their company due to either the potentials provided by the new technologies

(46.7%) or to make use of a business opportunity (43.3%).

Desire for independence is the 4th most popular reason (40%) for the creation

of the companies (see figure 3.3.1).

The success factor in creating a company is the capacity to create an

organisation that finds acceptance in the market. On the basis of the answers

given by the respondents one can distinguish two decisive groups of factors in

establishing a company:

Factors related with the intrinsic motivation of the entrepreneur and

have to do with the initiative and capacity for action (in this case,

personal realization and the desire for independence);

Exogenous factors, i.e. the conditions provided by the market when

conjugated with technological opportunities (for example, the potential

of the new technologies and business opportunities).

In this sense, it is worthwhile asking the question whether or not the exploiting

of a business opportunity is directly associated with the potential of the newtechnologies.

The reality (see figure 3.2.2) is that there does not seem a direct or strong

correlation. Of the respondents in the survey who considered the potential

provided by the technologies as being a central motive in establishing the new

company, only 35.7% were of the opinion that the creation of the company was

also linked to a business opportunity.


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As for the reasons for success, the analysis would indicate that success in

setting up a company is related to the propensity for innovation and the

conditions of the individuals involved, combined with the opportunities provided

by the market and the technologies.

3.2.1 Motives for establishing company

Main reasons for setting up current companyAbsolutefrequency %

Self-realisation 23 76.7%Exploiting advantages of new technologies 14 46.7%

Making use of a business opportunity 13 43.3%Desire for independence 12 40.0%

Economic reasons 7 23.3%Spin-off from existing company 5 16.7%

Institutional stimulus 4 13.3%Knowledge of other successful examples 3 10.0%

Reaction to market 3 10.0%Encouragement from family and friends 2 6.7%

Desire for career reorientation 2 6.7%Desire for career betterment 2 6.7%

Greater social prestige 1 3.3%Need to get out of unemployment 0 0.0%

Valid observations (=30); N.R = 0; 0%

3.2.2 Entrepreneurs who took the potential of the new technologies into

consideration but also had other motives for founding their company

Other MotivesAbsolutefrequency %

Self-realisation 11 78.6%Desire for independence 6 42.9%

Making use of a business opportunity 5 35.7%Economic reasons 3 21.4%

Institutional stimulus 3 21.4%Spin-off from another existing company 2 14.3%

Knowledge of other successful examples 2 14.3%Reaction to market 2 14.3%

Encouragement from family and friends 0 0.0%Desire for career reorientation 1 7.1%Desire for career betterment 1 7.1%

Greater social prestige 1 7.1%Need to get out of unemployment 0 0.0%

Valid observations (=14)11Individuals who took the potential of the new technologies into

consideration


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The entrepreneur that achieves success is one who meets the conditions in

terms of the motivational and exogenous factors. The existence of a good

market/technology opportunity will not necessarily result in the creation of a

good company. Likewise, an individual with entrepreneurial spirit will not create

a successful company without a good market opportunity.

Year of foundation of the company

The year in which the companies were founded can also help to explain the

reasons for their creation (through external/institutional, market or technological

opportunities).

A large number of the companies currently associated in the COTEC SME

Network were founded between 1998 and 2002 (44.8%). Up until 2002 there

was a growing trend in the creation of innovative companies. However, from

2002 to 2007 there has been a decrease in the number of companies in the

sample, with only 6.7% of the companies founded in this period.

3.2.3 Year the company was founded

Is there any particular factor that can explain the creation of more companies in

the 1998 2002 period?

N.R = 1; 3.3%

3.4%10.3% 13.8%

20.7%

44.8%

6.9%0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

78-82 83-87 88-92 93-97 98-02 03-07

78-82 83-87 88-92 93-97 98-02 03-07


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Although this is a question beyond the scope of this report, one can offer some

contextualisation information here. Between 1998 and 2003, the Portuguese

GDP went into a downward trend. There was also a drop in the number of

companies incorporated in this period (see figure 3.2.4).

The period coincided with the dot.com wave between 1995 and 2001 a

period in which many companies in the new technologies field were created

(many of which went bankrupt after the dot.com bubble burst in 2001).

Taking into consideration the data in the Expresso do Sector TIC na

Economia Portuguesa 1996-2002 report by the Information and Knowledge

Society Observatory of the Portuguese Knowledge Society Agency (UMIC), the

rate of growth in the number of companies in the Information and

Communication Technologies sector (ICT) was 5.54% between 1996 and 2002,

as opposed to 1.41% in the remaining sectors (see figure 3.2.5).

Indeed, the majority of the companies in the sample belong to the ICT sector

a total of 63.3%. Of the remaining companies, 20% operate in the industrial

production sector and the remaining 16.7% in the other economic sectors (see

figure 3.2.6).

Other than the dot.com phenomenon there does not seem to be any other

plausible explanation for this trend, given that at the governmental policy level

there was also no significant alterations to the incentives for the creation of

companies.

3.2.4 Foundation of companies as a % of the universe of active

companies


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Source:Gabinete de Estratgia e Estudos (GEE) Temas econmicos -Empreendorismo.

3.2.5 Development in the no. of ICT sector companies

Total companies ICT companies ICT/Total (%)

Note: AAGR = Average Annual Growth RateSource:Importance of the ICT Sector in the Portuguese Economy 1996-2002,- Information and Knowledge Society Observatory - Knowledge Society Agency

3.2.6 Companys business/industry sector


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Family context can the family context explain the entrepreneurism?

Do the entrepreneurs want their children to follow their example?

Do the entrepreneurs have family members in the same situation?

The majority of the respondents (78.3%) would prefer their children to follow

their example and set up their own company. Relatively few of them wouldprefer their children worked in a family company (17.4%) or in the employment

of others (4.3%) (figure 3.2.7).

The existence of family members in the sector in which the company operates

cannot explain why the companies were set up, given that 96.6% of the

entrepreneurs do not have family members in their respective branch (see

figure 3.2.8).

3.2.7 Professional situation entrepreneurs prefer for their children

63.3%

20.0% 16.7%

0.0%

20.0%

40.0%60.0%

80.0%

100.0%

ICT sector Industrial production Other

ICT sector Industrial prod. Other N.R = 0 ; 0%


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3.2.8 Percentage of entrepreneurs with family members in the same

branch

Given this scenario, in the specific case of the companies in the COTEC SME

Network, there is no family context that could explain the entrepreneurism

phenomenon. The factors that explain it have more to do with individual

characteristics and the existence of market opportunities and the technology

than with the entrepreneurs family situation.

N.R = 7; 23.3%

4.3%

78.3%

17.4%

0.0%

20.0%

40.0%60.0%

80.0%

100.0%

Employee Own company Family company

3.4%

96.6%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Yes No

Yes No N.R = 1 ; 3.3%


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3.3 Profile of Entrepreneurs Thinking of Founding a New Company

Entrepreneurs who want to create a new company

There are a large proportion of the entrepreneurs thinking of creating a new

company. Indeed, 46.7% of the respondents answered in the affirmative to this

question, as opposed to 40% who do not believe they will set up another

company in the future (see figure 3.3.1).

3.3.1 Entrepreneurs thinking of creating a new company

When do they think they will set up the new company?

Type of financing

Will the new company be in the COTEC Network?

46.7%40.0%

13.3%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Yes No Dont know/ Noresponse

Yes No Dont know/no response N.R1= 0; 0%


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Of those respondents who expect to create a new company the majority

expected to start up within the next 4 to 7 months (57.1%), with 43.3% thought

that they would use own capital for the financing. The other most relevant

financing sources were bank loans (23.3%) and private investors (20%).

3.3.2 Time period for the creation of the new company

3.3.3 Type of financing for the new company

43.3%

23.3% 20.0% 16.7% 13.3%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Own capitalBank loan

Private investorsRisk capital

Public subsidy

N.R = 0; 0%

20.0%

57.1%

21.4%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Up to 3 mths 4 to 6 months 7 to 12 months

Up to 3 mths4 to 6 mths 7 to 12 months N.R = 0; 0%


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One should emphasis that all of the respondents intending to create new

companies expected to do so within less than one year.

The majority of the respondents (64.3%) also expected that their new company

would join the COTEC Network. Only 7.1% stated that it may not be a member

of the network (see figure 3.3.4).

3.3.4 Entrepreneurs who expect to affiliate their new company in the

COTEC Network

Profile of the entrepreneur thinking of creating a new company

What does the profile of the entrepreneur thinking of setting up a new company

look like? We analysed the creation of new companies according to age group,

education level and individual motives.

Age group vs. creation of new company

Is there a relationship between age grope and the intention to create a new

company?

When we combined the two variables (see figure 3.3.5),we ascertained that,

statistically, there was no relationship between age group and the intention to

64.3%

7.1%

28.6%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Yes No DK/NR

Yes No DK/NR N.R = 0; 0%


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set up a new company. (Significance of the K-S test between the two variables

is 0.690. The variables are independent of each other.)

Education level1vs. creation of new company

In point 3.1 we confirmed that there is a relationship between higher education

levels and the establishment of innovative companies. Here we wanted to test

the relationship between the three highest education levels

(Licentiate/Bachelors degree; post-graduate level, and Masters or Doctoral

Degree) in setting up a new company proceeding from the innovative

companies such as those in the COTEC SME Network.

The conclusion reached was that there is no differentiated relationship betweenthe creation of new companies and these three education levels (see figure

3.3.6).

Individual motives vs. creation of new company

We also analysed whether there was a relationship between the motives for

creating the current company and the creation of a new company.

On the basis of figure3.2.1 Motives for founding a company, we constructed

an indicator for the number of motives taken into consideration in creating the

current company. (Please note that here we only took the 4 most frequent

motives stated by the entrepreneurs into account: personal realisation;

exploitation of new technologies; business opportunity; and desire for

independence).

The aim was to see if the entrepreneurs that give the greatest number of

motives are the same as those intending to create new companies.

An analysis of figures3.3.7 and 3.3.8shows that there is a positive relationship

with the number of motives. Of those entrepreneurs intending to set up a new

company the majority (77%) gave 2 or 3 motives for creating their current

company.

1 Three higher education levels were considered: Licenciate/Bachelors; Post-graduate; Masters/Doctors


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An analysis of the entrepreneurs who do not intend to set upa new company

shows that the majority (83.4%) gave 1 or 2 motives.

There would thus seem to be a positive relationship between motives and the

will to create a new company. However, this relationship is not statistically

confirmed when one applies the K-S statistical test to see if the two variables

are independent (see figure 3.3.9).

3.3.5 Statistical assumptions (relationship between age groups andestablishment of new companies). Tests of normality

Kolmogorov-Smirnov(a) Shapiro-WilkNewcompan

y Statistic df Sig. Statistic Df Sig.1 .163 11 .200(*) .902 11 .198Age2 .272 12 .015 .843 12 .030

* This is a lower bound of the true significance.a Lilliefors Significance Correction

Conclusion ages are distributed normally in the two groups, with p=0.01.

Given level of sign. of K-S TEST, 0,690. There is no relationship between creation of a newcompany and age.

3.3.6 Statistical assumptions (relationship between education level andestablishment of new companies). Tests of normality

Kolmogorov-Smirnov(a) Shapiro-WilkNewcompany Statistic df Sig. Statistic df Sig.

1 .194 13 .195 .935 13 .390Educationlevel 2 .261 12 .023 .845 12 .032

a Lilliefors Significance Correction

Conclusion The education levels are distributed normally in the two groups, with p=0.01.

Test Statisticsa

.288

.288

-.091

.690

.728

Absolute

Positive

Negative

Most ExtremeDifferences

Kolmogorov-Smirnov ZAsymp. Sig. (2-tailed)

Scale

Grouping Variable: New companya.


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Given level of sign. of K-S TEST, 0,448. There is no relationship between the creation of a newcompany and the education level.

3.3.7 Entrepreneurs thinking of establishing a new company vs. no. ofmotives for original company 1

1 Only the 4 most frequently mentioned motives were taken into consideration (personal

realisation; exploiting new technologies; business opportunity; and desire for independence).

Test Statisticsa

.179

.179

.000

.448

.988

AbsolutePositive

Negative


Kolmogorov-Smirnov Z

Asymp. Sig. (2-tailed)

Educationlevel


15.4%

38.5% 38.5%

7.7%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

One Two Three Four

One Two Three Four N.R = 1; 7.1%


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3.3.8 Entrepreneurs not thinking of establishing a new company vs. no.of motives for original company 1

1 Only the 4 most frequently mentioned motives were taken into consideration (personal

realisation; exploiting new technologies; business opportunity; and desire for independence).

3.3.9 Statistical assumptions (relationship between motives groups andestablishment of new companies)

Conclusion The no. of motives are distributed normally in the two groups, with p=0.01.

41.7% 41.7%

8.3% 8.3%

0.0%

20.0%

40.0%60.0%

80.0%

100.0%

One Two Three Four

One Two Three Four N.R = 0; 0%

Tests of Normality

.237 13 .044 .844 13 .024

.263 12 .022 .807 12 .011

New company1

2

No. of motivesStatistic df Sig. Statistic df Sig.

Kolmogorov-Smirnova

Shapiro-Wilk

Lilliefors Significance Correctiona.


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Given level of sign. of K-S TEST, 0,612. There is no relationship between the establishment ofa new company and a larger number of motives.

3.4Executive Summary

The Entrepreneur and the Entrepreneurial Culture in the COTEC SME

Network

Test Statisticsa

.250

.000

-.250

.612

.847

Absolute

Positive

Negative


Kolmogorov-Smirnov Z

Asymp. Sig. (2-tailed)

Motv2



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Entrepreneur Profile

Almost all entrepreneurs and founding partners are male, accounting for almost 90% of the total

numbr of companies in the network.

The most common age for setting up a company is 25 to 35 years. Almost 80% of the

entrepreneurs were in this age group when they established their company.

All the entrepreneurs have higher education qualifications. One half have Bachelors

Degree/Diploma/Licentiate Degree qualification. This group is followed by those with higher

qualifications (Post-graduate, Masters, Doctors), accounting for 47.2%.

Before setting up their company, most entrepreneurs (75%) worked in other peoples employment.

Only a few of them started up their company straight after their studies (14.3%) or had owned

another company beforehand (7.1%).

One half of the entrepreneurs carry out a complementary activity. Of these, one half holds a

position in other private enterprise and 15% works in an educational institution.

Entrepreneurial Culture

There are two groups that stand out as determining the creation of the company by the

entrepreneur:

The intrinsic motive group (mainly personal realisation and the desire for independence) relating

to individual initiative and capacity to act;

The marked-related factor group, i.e. the conditions provided by the market combined with the

technological opportunities (mainly the potential of the new technologies and business

opportunities).

Some 30% of the companies in the network were founded in the 1990s, with particular emphasis

on the 1998-2002 period (44.8%). After the latter year up to 2007 only 6.9% of the companies in

the network were founded.


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The large concentration in the 1998-2002 period can be explained by the dot.com phenomenon

between 1995 and 2001, a period in which the growth rate for ICT companies, which is the most

important sector in the network (making up 63.3% of the total), was very high. (This is a market-

related factor in the creation of companies.)

The family context is not a determinant factor in founding the companies in the network.

Practically none of the entrepreneurs have family members in the same branch.

Profile of Entrepreneus Thinking of Creating a New Company

Almost one half of the entrepreneurs are thinking of setting up a new company within one year.

One should also highlight that 70% of the same entrepreneurs think that they may set up their new

company within 6 months.

The financing for the new company will mostly (60%) come from loans or third party financing

(bank loans, private investment and risk credit), while 43.3% are prepare to risk own capital

financing.

What is the profile of the entrepreneur intending to create a new company?

We correlated the following variables: age group, education level and number of motives given for

founding the first company. (We did not include gender as no female entrepreneurs were to be

expected).

As far as age group and education level are concerned, there was not observable or statistically

significant relationship to explain the creation of new companies.

As for the number of motives given for creating the first company, we ascertained that of theentrepreneurs not planning to set up a new company, 83.4% gave 1 or 2 motives for creating their

company, whereas 77% of those thinking of creating a new company gave 2 or three reasons for

the first company.

There would seem to be a relationship between more motives for creating the current company

and setting up a new one. However, this relationship cannot be corroborated statistically.


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4 Characterisation of Companies in the COTEC SME Network

This section will feature a characterisation of the type of company that is a

member of the COTEC SME Network based on the following aspects:

4.1Company profile: sector; stakeholders; workforce, performance and

development of business activity;

4.2Financing instruments and effects on the company: types and

sources of financing for the foundation and growth of the company;

financial profile;

4.3Competition and market: type of competition; reference market;

4.4Organisation: organisational characteristics; equipment and use of

ICT; integration and externalisation of activities; strategic alliances and

cooperation;

4.5 Location: location of the companies by district in Portugal; main

benefits of location;

4.6Strategic orientations: competitive and organisational advantages;

marketing and advertising orientations; business growth strategies;

4.7Use of the Internet and e-commerce: Internet connection; e-

commerce; advertising on the Internet.


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4.1 Profile of The COTEC Network Member Company

Company age

The companies in the COTEC Network have been in existence for an average

of 12.4 years. The majority of them (44.8%) are between 6 and 10 years old.

Only 6.9% of the companies are 5 years old or younger.

4.1.1 Company age

.

Business sector

In terms of the business activity carried out by the companies in the sample, the

most represented sector is the ICT sector. Indeed, 63.3% operate in that sector.

The second most representative sector is industrial production, with 20%. The

other less significant sectors (16.7%) include transportation, communications,

pharmaceuticals and the construction industry.

6.9%

44.8%

20.7%13.8% 13.8%

0.0%

20.0%

40.0%

60.0%

80.0%

< 5 yrs 6 - 10 11 - 15 16 - 20 > 20 yrs

< 5 yrs 6 - 10 11 - 15 16 - 20 > 20 yrs N.R = 1; 3.3%


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The sample is representative for the universe of companies studied (see Annex

figure 7.1. COTEC SME Network Member Companies, data from May 2007).

4.1.2 Company business sector

Stakeholders

The average number of partners in a company is 3.7. The majority of the

companies have between 0 and 5 partners (86.6%), while 43.3% have 1 or 2

partners.

In comparison to the number of founding partners the number of partners has

increased by some 10% (average number of founding partners: 3.4).

4.1.3 Number of founding partners and current partners

63.3%

20.0% 16.7%

0.0%

20.0%40.0%

60.0%

80.0%

100.0%

ICT sector Industrial production Other

ICT sector Ind. production Other N.R = 0; 0%


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When one looks at the gender of the founding partners, the picture is similar tothat for the current partners. However, there is a greater probability of there

being female partners after the company has been founded. On average there

are fewer female founding partners (8.7%) than there are current female

partners in a company (17.0%).

4.1.4 Partners/stakeholders by gender

Company workforce

91.3%

8.7%

83.0%

17.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Men Women

Founders Current N.R = 0; 0%

40.0% 50.0%

10.0%

43.3% 43.3%

13.3%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

0 - 2 3 - 5 >5

Founders Current N.R = 0; 0%


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More than 80% of the companies have less than 100 employees. The most

common workforce size is the 10 to 25 employee group (34.5%). However,

there is quite a sizeable number of companies have 26 to 50 workers (24.1%).

4.1.5 Size of company workforce

Men make up the majority of employees, with 70%.

4.1.6 Workforce by gender

34.5%24.1% 24.1%

17.2%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

10 - 25 26 - 50 51 - 100 > 100

10 - 25 26 - 50 51 - 100 > 100 N.R = 1; 3.3%

69.6%

30.4%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Men Women

Men Women N.R = 1; 3.3%


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As far as education qualifications of the workforce are concerned, the majority

of the workers in the sample companies have higher education qualifications.

Some 57% of the employees have an education qualification equal to or higher

than the Licentiate degree.

There are only few workers with primary education (3.57%).

4.1.7 Personnel education levels

In terms of earnings, the sample company employees are concentrated

primarily in the EUR 18,000 to EUR 24,000 income group (annual grossincome).

4.1.8 Gross annual salary of company workers (EUR thousands)

3.57%19.82%

8.64%

56.92%

11.04%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

Primary or no education

Secondary education

Bachelors or diploma

Post-grad and higher

DK/NR


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A similar number (36%) earns between EUR 14,000 and EUR 18,000.

Approximately one fifth (20%) of the workers earns more than EUR 24,000 a

year. The group with a gross annual income of less than EUR 14,000 accounts,

on average, for less than 4% of the total workforce covered by the study.

Company performance and development

The greater part the companies (46.2%) stated that their annual turnover is less

than EUR 3 million. Just under one third of them (30.8%) have a turnover of

between EUR 3 million and EUR 6 million. Another third (33%) has a turnover of

more than EUR 9 million.

In terms of recent performance, the survey showed that the majority of the

companies have been performing well. In 80% of the companies the number of

employees rose in comparison to the preceding year. In only 3.3% of cases was

there a decrease in the workforce.

In terms of turnover, 83.3% of the companies improved their performance and

almost all of them expected to make a profit in 2007/2008 (96.7%).

4.1.9 Company average annual turnover (EUR thousands)

4.0%

36.0% 40.0%

20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

24 k

24 k N.R = 5; 16.7%


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4.1.10 Development in turnover and workforce over year 2006

4.1.11 Outlook for profit in 2007-2008

46.2%

30.8%

0.0%

15.4%7.7%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

12000

N.R = 4; 13.3%

83.3%

16.7%

0.0%

80.0%

16.7%

3.3%0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Increased Remainedsame

Decreased

Turnover Workforce N.R = 0; 0%


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4.2 Financing instruments and effects on the companies

In the context of the financing activity carried out by the companies weconsidered, on the one hand, the financing sources for establishing the

company and, on the other, the financing forms used for company growth.

Type of financing for establishing the company

In overall terms the analysis showed that approximately 3 out of 4 persons

(70%) risked using their own capital to found their company. This is indeed themost common form of financing used by the entrepreneurs in the COTEC SME

Network.

4.2.1 Type of financing for company start-up

96.7%

3.3%0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Yes No

Yes No N.R = 0; 0%


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The other most common financing sources are conventional bank loans (23.3%)

and the help of friends and family members (20%).

One should note the low presence of micro-credit (3.3%) and the fact that only 1

in every 10 entrepreneurs uses risk capital programmes in financing their

company.

The same trend was confirmed when one looks at the business activity sectors.

In the two most common sectors for companies in the network ICT and

Industrial Production (83.3%) almost 70% of the companies used own capital

to finance the company set-up. This is also confirmed in the other sectors, for

example in the Industrial Production sector, 66.7% have also used own capital

to finance their activity.

4.2.2 Own capital financing for company start-up by activity sector1

70,0%

23,3% 23,3% 20,0% 10,0% 6,7%

0,0%

20,0%

40,0%

60,0%

80,0%

100,0%

Own capital Bank loan Other Help offamily/friends

Riskcapital

N.R = 0; 0%

PublicSubsidies


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Type of financing for company growth

When we looked at the financing sources for the purpose of company growth

we found that entrepreneur (and company)-own capital was the preferred

source for the respondents. Indeed, 83.3% of the entrepreneurs planned to

finance their companys growth thus.

4.2.3 Type of financing for company growth

83,3%

33,3% 33,3% 33,3%

10,0%

0,0%

20,0%

40,0%

60,0%

100,0%

OwnResources

N.R = 0; 0%

PublicSubsidies

Contributionsfrom newpartners

TraditionalDebt

DK/NR

73,7%66,7%

100,0% 100,0%

0,0%

20,0%

40,0%

60,0%

80,0%

100,0%

ICT IndustrialProduction

Transport andCommunication

Construction

N.R = 0; 0%


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Contributions from new stakeholders (33.3%), public subsidies (33.3%) and

traditional debt (33.3%) follow own capital at a large distance, even though they

are considered by a sizeable proportion of the entrepreneurs.

4.2.1 Financial profiles

For the purpose of characterising the financial profile of the entrepreneurs we

defined and took into consideration 4 distinct profiles:

1) Self-sufficient entrepreneur an entrepreneur who finances the

foundation of a company with own capital and/or the help of capital from family

members or friends and also uses own resources to finance the growth of the

company;

2) Entrepreneur with propensity for debt an entrepreneur who uses

bank loans and/or micro-credit to finance the set-up of the company and plans

to use conventional debt to finance growth;

3) Grant-seeker entrepreneur an entrepreneur who used public subsidies

to set up the company and also uses this source to finance company growth;

4) Entrepreneur with external risk assumption an entrepreneur who

relies on the support of private investors or risk capital to create a company

and, when it comes to financing growth of that company, opts for attracting new

stakeholders.

The most common profile in the COTEC SME Network is that of the self-

sufficient entrepreneur. Two out of three entrepreneurs (66.7%) has this

profile. It is followed by the entrepreneur with propensity for debt and the grant-

seeker entrepreneur, though both these have relatively moderate values (13.3%

and 10% respectively). One should highlight the fact that none of theentrepreneurs in the sample had the entrepreneur with external risk assumption

profile.


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4.2.4 Financial profile of entrepreneurs

4.3 Competition and Reference Market

Competition level

The great majority of the companies in the COTEC SME Innovation Network

are of the opinion that they face intense competitive pressure.4.3.1 Competition from rival companies

7.4%

63.0%

29.6%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Weak Strong Very strong

N.R = 3; 10%

66.7%

13.3% 10.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Self-sufficient Tendency for debt Grant seekerN.R = 0; 0%


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Of the entrepreneurs interviewed, 63% believed that their company has to face

a high level of competition, while 29.6% answered that they were subject to very

high competitive pressure. Relatively few of them (6.4%) are of the opinion that

the competition they face is low.

Some 50% of the companies that are of the opinion they have to face very

high competition are from the ICT sector. One quarter (25%) are from the

industrial production sector, with the rest of the sectors also making up one

quarter.

The situation is similar for high level of competition. Most of the companies

(71%) are from the ICT sector and approximately one quarter from the industrial

production sector.

4.3.2 Strong and very strong competition by activity sector

Reference market

Most of the companies are active to a high degree in foreign markets.

Approximately 86.7% of the SME Network companies operate both in the

domestic and foreign markets, having at least one customer outside Portugal.

71%

24%

6%

50%

25% 25%

0%

20%40%

60%

80%

100%

ICT Industrial prod. Other

Strong Very strong N.R = 0; 0%


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4.3.3 Markets in which the companies operate

In terms of customer numbers, approximately 90% of the total clients are from

the domestic market. The average number of domestic customers per companyis 704; the average number of foreign customers is 76. However, when one

looks at the companies business volume we see that foreign sales are higher

per customer than in the domestic market. Indeed, the domestic customers,

90% of the total, account for only 62.3% of the sale volume, while the 10%

foreign customers are responsible for 37.7% of the volume (see figure 4.3.4).

4.3.4 Percentage of customers and sales volume by market

86.7%

13.3%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Domestic & others Domestic

Domestic & others Domestic N.R = 0; 0%


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Analysis of the volume of sales to foreign markets in greater detail shows that

more than 55.6% of the companies with business abroad have a sales volume

to foreign markets of more than 25% of their total volume.

One should also highlight that almost one fifth (18.3%) of the companies has a

business volume of between 76% and 100% in markets outside Portugal (see

figure 4.3.5).4.3.5 Sales volume in other markets (percentage scale)

44.4%

22.2%14.8% 18.5%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

0-25% 26-50% 51-75% 76-100%

0-25% 26-50% 51-75% 76-100% N.R = 3; 10%

90.2%

9.8%

62.3%

37.7%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Domestic market Other markets

Cust. N. Sales volume N.R = 3; 10%


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What proportion of the companies has better sales abroad than in the domestic

market?

In the preceding analysis figures 4.3.3 and 4.3.4 show the general findings in

terms of customers and business volume. Within these areas there are

companies that perform better in the domestic market and others whose

relevant markets are abroad.

Figure 4.3.6 presents the markets in which the companies have their largest

sales volumes. The domestic market, at 51.9%, is where the companies have

the greatest sales volumes. However, for many of the companies foreign

markets are the relevant markets: 37% of them have larger sales there than in

the domestic market. One should also point out that almost 10% of the

companies have similar sales levels abroad and in the Portuguese market.

4.3.6 Reference market 1

1

Based on where the largest sales volumes are achieved.

In which foreign markets do the companies have the strongest presence?

Finally, in the concrete case of the companies operating in the international

market, the analysis showed that Spain is the market in which most of the

51.9%

37.0%

11.1%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Domestic ForeignDomestic/foreign

N.R = 3; 10%


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companies operate (84.0% of them are active in the Spanish market), followed

by the other European markets (80%).

The Brazilian market (46.2%) and the Portuguese-speaking countries in Africa

(38.5%) also present significant figures in terms of the presence of Portuguese

companies in the COTEC SME Network in foreign markets.

4.3.7 Foreign markets in which the company operates

Foreign markets in which the company operatesAbsolutefrequency %

Spain 21 84.0%Rest of Europe 20 80.0%Brazil 12 48.0%Portuguese speaking countries in Africa 10 40.0%Asia (excluding China) 7 28.0%

Rest of Africa 5 20.0%South America 6 24.0%North America 6 24.0%

Valid observations (n=30); N.R = 5; 16.6% 254.4 Organisation

In this section the aim is to profile the companies in the COTEC SME Network

in terms of organisational characteristics and relations with customers.

Organisational characteristics

A large majority of the companies in the COTEC SME Network (some 60%)

consider their organisaiton to be product, service or project-based. Many think

they are organised by processes (56.7%) and by functional areas (53.3%)

4.4.1 Companys form of organisation

Form of organisationAbsolutefrequency %

By product or service 19 63.3%By project 18 60.0%By process 17 56.7%By functional area 16 53.3%By geographic area 8 26.7%Integration in supply chain networks 2 6.7%

Valid observations/observations considered (n=30)


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One should point out that only 26.7% of the respondents thought that their

companies were organised by geographic area, and only a small number of

them (6.7%) are integrated in supply chains.

One can find flexible work teams in almost all the companies (90%). Four out of

five companies favour objective and result-oriented work and also are of the

opinion that they can adapt the technology in line with the demand.

4.4.2 Organisational characteristics

The companyAbsolutefrequency %

Has flexible work teams 27 90.0%Promotes objective/result-based work 25 83.3%

Can quickly adapt technology to the demands 24 80.0%Subcontracts some operations 18 60.0%Is subcontracted by other companies 12 40.0%Has economic operations with rival companies 6 20.0%Has tele-working operations 6 20.0%


The entrepreneurs stated that their companies are intensely involved in

subcontracting services. Some 60% subcontract some of their operations and40% of the firms are subcontracted by other companies.

Customer relations

As far as customer approach and customer loyalty are concerned, four out of

five of the companies (80%) are of the opinion that they have an individualised

relationship with customers, offering them personalised products and services.Of those that do not have an individual, customised offer, 53.3% stated that

they offered their customers a segmented range.

4.4.3 Characteristics of customer relations

The companyAbsolutefrequency %

Has an individualised relationship with each of its customers 24 80.0%


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Offers products and services adapted to each customer 23 76.7%Has a segmented customer base 16 53.3%Carries out market studies to understand customer needs 13 40.0%Differentiates the prices of its products and services for differentcustomer groups 10 33.3%


Characteristics in terms of use of ICT

As far as the use of the Information and Communication Technologies (ICT)

within the organisations is concerned, the data shows that the information

systems most used by the companies are the accounting and billing systems

(76.7%).

A large majority (66.7%) also have a system that manages customer

information and more than half have ERP (Enterprise Resource Planning) and

Service Management systems.

4.4.4 Information technologies used in the company

Information technologies used in the companyAbsolutefrequency %

Accounting and invoicing information systems 23 76.7%Customer information management systems 20 66.7%ERP (Enterprise Resource Planning) 17 56.7%Service management or offer information systems 15 50.0%Data management information systems 13 43.3%Stocks or distribution management systems 9 30.0%


Only 30% of the companies indicated that they have a stocks or distribution

management system. This result was to be expected, given the large number of

ICT sector companies in the sample (63%), where services have more

importance over products.

4.5 Location


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District in which the company is based

Almost one half (47%) of the companies are based in the district of Lisbon,

followed by the districts of Braga, Porto and Leiria, which each have 10% of the

companies in the SME Network.

4.5.1 Company location (by district)

If we look at location per sector, then Lisbon is the preferred area for the ICT

companies (47.4%) and for the companies in Other Sectors (100%), i.e. sectors

other than Industrial Production (Construction, Transport and Communications,

Pharmaceuticals).

As far as the second most representative sector in the network is concerned,

Industrial Production, the companies are more dispersed throughout thedistricts (Porto, Braga, Leiria, Coimbra, Faro and Castelo Branco).

4.5.2 Location of company headquarters (activity sector)

District ICTIndustrial

production Other sectorsLisbon 47.4% 0.0% 100.0%Braga 15.8% 16.7% 0.0%

47%

13% 10% 10% 7%13%

0%

20%

40%

60%

80%

100%

Lisbon Braga Porto Leiria Coimbra Other

N.R = 0; 0%


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Porto 10.5% 16.7% 0.0%Leiria 10.5% 16.7% 0.0%Coimbra 5.3% 16.7% 0.0%Faro 0.0% 16.7% 0.0%Aveiro 5.3% 0.0% 0.0%CasteloBranco 0.0% 16.7% 0.0%Setbal 5.3% 0.0% 0.0%

Benefits of location

As a rule, the greatest benefits were mentioned by companies in terms of

location have to do with proximity to the market, to the technologies and to

information.

4.5.3 Main advantages of company location

Main advantages of company locationAbsolutefrequency %

Other1 17 56.7%Proximity to suppliers and/or customers 10 33.3%Better access to technological innovations 9 30.0%Proximity to information resources 7 23.3%Institutional promotion and better access to communicationchannels 7 23.3%Proximity to quality services 6 20.0%Proximity to other companies (relational network) 6 20.0%Rental costs 5 16.7%Proximity to information sources 5 16.7%

Valid observations/observations considered (n=30) 30

Almost one third of the companies were of the opinion that the main advantages

of their location derive from their proximity to customers/suppliers or better

access to technological innovations. Two out of five companies thought that

proximity to information resources, communication channels and other

companies were other benefits of their location.The benefits differ a lot when one looks at the respective sectors. In the ICT

sector, the main benefits mentioned by the entrepreneurs have to do with

proximity to information resources, institutional promotion and better access to

communication channels and better access to technological innovations.

1Other advantages specific to each company.


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In the Industrial Production sector, however, the greatest benefits have to do

with proximity to customers and suppliers.

4.6 Strategic Orientation

This section looks at how the companies are positioned in terms of competitive

and organisational advantages, market strategy and growth strategy.

Competitive advantages

As far as competitive advantages are concerned, practically all the companies

(93.3%) were of the opinion that their advantages derive from a specialised

product or service.

Four out of five companies (80%) went further and stated that technological

differentiation is also a competitive advantage. A similar number believe in

quality as a factor that distinguishes them from rival companies.

Well over half of the companies (63.3%) mentioned advantages of flexibility and

rapid adaptation.

4.6.1 Predominant competitiveness strategies in companies

Predominant competitiveness strategies in companiesAbsolutefrequency %

Specialised product or service offer 28 93.3%Technological differentiation 24 80.0%Quality 24 80.0%Flexibility and rapid response 19 63.3%Brand differentiation 9 30.0%Costs 5 16.7%


Cost-based differentiation would seem to be relatively unimportant for the

companies (16.7%), emphasising even more the orientation of these companies

on a specialised and differentiated product that favours productivity over low

costs.

Marketing strategy (investment in advertising and customer loyalty)


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When asked about investment in advertising, 60% of the respondents stated

that their companies spent less than EUR 50,000 on advertising in 2007-2008,

and 44% had an advertising budget of less than EUR 25,000.

4.6.2 Advertising spending in 2007 (EUR thousands)

Almost one quarter of the companies (24%) stated that they had channelled

more than EUR 100,000 into advertising in 2007-2008. (These are the ICT and

Industrial Production sector companies which also have higher turnovers andgreater investment in R&D.)

As far as customer loyalty and marketing strategies are concerned, one can

conclude that the companies have well-defined strategies. In section 4.4

Organisation we saw that most of the companies are customer-oriented, be it

based on product differentiation per client or segmented products. One should

also point out that almost 7 out of every 10 companies have a customer

management information system.

Growth strategy

With a view to growth of their companies the entrepreneurs were mostly of the

opinion that the best way was the development of new products and services

(83.3%).

44.0%

16.0% 8.0% 8.0%

24.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

< 25 25 - 50 50 - 75 75 - 100 >100

< 25 25 - 50 50 - 75 75 - 100 >100 N.R = 5; 16.7%


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A large majority (76.7%) also hope to extend their products or services to new

markets and 73.3% hope to increase their market share with their current

products.

4.6.3 - Growth strategies entrepreneurs plan to implement

Growth strategies entrepreneurs plan to implementAbsolutefrequency %

Developing new products or services 25 83.3%Opening new markets with current products/services 23 76.7%Increasing market share of current product/services 22 73.3%Developing strategic alliances with other companies 17 56.7%Opening new markets through product/service diversification 15 50.0%Developing a group through the creation of new companies 5 16.7%Dont know yet 0 0.0%None (want to maintain current situation) 0 0.0%


Roughly one half of the entrepreneurs consider developing strategies with other

companies and the diversification of products/services for new consumers as a

further option for achieving growth of the organisation.

Flexibility was considered to be the most important characteristic for stimulating

company growth by almost one half of the entrepreneurs. The other half

consider size to be the crucial factor (see figure 4.6.4).

These options are also somewhat related to the opinions on growth stated

before (see figures 4.6.1 and 4.6.3). Indeed, the strategies reflect both the

needs in terms of entering new markets as well as flexibility and quick

adaptation to the environment.

Could it be that this perception also depends on the age of the company?

Common sense could also lead the younger companies to invest in dimension

as a growth factor, while the older firms tend more towards flexibilisation.

However, this segmentation does not seem to be related to the companys age.

In the companies that are less than 10 years old (53.8%), half of the

entrepreneurs placed equal importance on these two factors. The same is the

case for companies that have been in existence for more than 10 years (see

figure 4.6.5).


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Here we looked at use of the Internet to secure supplies and display and market

goods and services in the context of the companys business activity.

Internet connection

Almost all of the companies are connected to the Internet: 93.3% have a cable,

DSL or other type of broadband connection; 26.7% have another type of

connection other than broadband.

4.7.1 Type of Internet connection

Internet marketing

As far as commercial activity via the Internet is concerned, we observed that a

large majority of the companies in the sample do not carry out any type of

commercial activity through this channel (either sales or purchases).

Indeed, just over one quarter of the companies (approx. 26.7%) use the Internet

for buying and/or selling goods and services. One should also note that only

one half of the companies that use the Internet for purchases also use it for

sales purposes.

93.3%

26.7%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Cable/DSL/broadband Other accessN.R = 0; 0%


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4.7.2 Internet marketing

The majority of the companies with commercial activity on the Internet belong to

the ICT sector (62.5%), followed at quite some distance by the Industrial

Production sector (25%).

These data underline the fact that we are dealing largely with service providers

and it is difficult to sell services via the Internet (with the exception of technical

assistance and customer advice services).

Investment in Internet advertising

Compared to the use of electronic commerce, investment in online advertising

is rather more significant in the networks companies.

More than three quarters (76.9%) of the companies in the sample stated that

they advertised on the Internet. In terms of importance as an advertising

medium, 62.5% of the companies devote less than 25% of their advertising

budget to the Internet. One quarter stated that the Internet had a share of 25%to 50% of advertising spending.

Only 12.4% of the companies investment more in the Internet than in other

advertising forms.

26.7%

73.3%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Yes No

N.R = 0; 0%


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4.7.3 Internet advertising

4.7.4 Internet advertising as a proportion of total advertising

76.9%

23.1%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Yes No

N.R = 4; 13.3%

62.5%

25.0%

6.3% 6.3%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

< 25% 25-50% 51-75% >75%

N.R = 4; 13.3%


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4.8 Executive Summary Characterisation of Companies in the COTEC

SME Network

Network Company Profile

Approximately 45% of the companies are between 6 and 10 years of age. Only a few have been

in existence for less than 5 years. There are also only a few that are older than 20 years (13.8%).

The most representative business sector is ICT (63.3%), followed by Industrial Production (20%).

The other sectors are only of residual importance (Construction, Transport and Communications,

Pharmaceuticals).

Nine out of ten companies were founded with less than 5 partners. One half of the companies

currently have 3 to 5 partners.

The large majority of the companies (81.8%) have less than 100 employees, while 34.5% have

been 10 and 25 employees.

Men make up the majority (69.6%) of the total number of employees. The majority of the workers

(56.9%) also have higher education qualifications.

As far as salaries are concerned, 76% of the workers have a gross annual income of between

EUR 14,000 and 24,000. There are no workers with incomes of less than EUR 14,000 in the

companies.

As far as economic performance is concerned, approximately 67% of the companies have an

annual turnover of less than EUR 6 million. Almost one half of them have a turnover of less than

EUR 3 million per year. Practically all of the companies (96.7%) expects to make a profit this year

and four out of five companies increased both their turnover and the size of their workforce in

relation to 2007.

Financing Instruments

Almost 3 out of 4 entrepreneurs (70%) financed the setting up of their company with own capital.

The other financing sources most frequently iused were conventional bank loans (23.3%) and the

help of family and friends.


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As far as growth of the company is concerned, once more the large majority of the entrepreneurs

chose own capital as a financing basis (83.3%). This was followed by a third (33.3%) who used

partner financial contributions, public subsidies and traditional debt instruments.

The most common entrepreneur financial profile is that of the self-sufficient entrepreneur, which

accounts for 66.7%. These are entrepreneurs who set up their company with their own capitaland/or help from family/friends and who also plan to use own resources in financing company

growth.

Competition and Reference Market

Most of the companies describe the competition they face as strong (63%) and 29.6% consider it

to be very strong.

Of those that describe the competition as very strong, 71% are from the ICT sector. This figure

drops to 50% for those companies facing strong competition.

There is a high degree of internationalisation amongst the companies in the network. Almost 90%

of them are present in the domestic and international markets.

In terms of customer numbers, the domestic market accounts for 90.2% of the total clientele, but

when one considers the sales figures that percentage drops to 62.3%.

The sales volume per customer in foreign markets is much higher than in the domestic market.

For one half of the companies in the network the reference market (defined on the basis of which

markets they have their highest sales volumes in) is the domestic one. However, one should note

that for 37% of the companies the international markets are more important and for a little more

than 10% of them both markets are more or less equally important.

Of the foreign markets, Spain is the one in which most of the companies are active (84%),

followed by the other EU Member States (80%). The former Portuguese colonies Brazil (48%)

and the Portuguese-speaking countries in Africa (40%) bring up the rear in terms of markets

where the companies have a significant presence.


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Organisation

The great majority of the companies (more than 80%) describes its organisation and product and

service based, or based on projects, processes or functional areas. Only a few consider

themselves to be geographically integrated.In almost all of the companies flexible work teams, result-oriented working and rapidity of

adaptation to the market are predominant features.

There are also 60% of the companies subcontracting some services to other companies.

Customer relations are very much on a customer-to-customer basis.

The large majority of the companies (almost 80%) have an individualised relationship with each

customer. Almost the same number also have products and services specifically tailored to each

customer.

Most of the companies have various IT systems integrated in their organisation: accounting and

invoicing information systems (76.6%); customer information management systems (66.7%); and

ERP systems (56.7%).

Location

Almost one half of the companies (47%) are based in the district of Lisbon. The district of Lisbon

has a high concentration of ICT companies (48% of the total) and the remaining companies from

the other sectors (excluding Industrial Production).

As for the second most representative sector in the network, Industrial Production, the companies

are distribted more homogeneously throughout the country (Porto, Braga, Leiria, Coimbra, Faro

and Castelo Branco).

The greatest benefits of the locations mentioned by the companies have to do with proximity to

the market, technologies and information.

In the ICT sector the main advantages given have to do with proximity to information resources,

communication channels and technological innovation.In the Industrial Production sector the benefits are related with proximity to customers and

suppliers.


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Strategic Orientation

Almost all the companies (between 80% and 90%) were of the opinion that their competitive edge

comes from a specialised, technologically unique, quality product or service.

Very few of the companies (15.6%) base their competitive advantage on cost.

The majority of the companies (60%) invest less than EUR 50,000 per annum in advertising.

In terms of growth strategy, the companies considered the best way was the development of new

products and services (innovation), as well as the opening of new markets with the current

products (internationalisation).

Use of the Internet and E-Commerce

All of the companies have an Internet connection, with 93.3% of them having a cable, DSL or

other type of broadband connection.

Only 26.7% stated that they use the Internet for commercial activities (purchases and sales). The

data underline the fact that most of the companies are ICT service providers; it is difficult to sell

such as service via the Internet.

Almost 4 out of 5 companies advertise on the Internet. Most of these 87.5% - channel less than

have of their annual advertising budget to the Internet and 62.5% of them spend between 0 and

25% of that annual budget on online advertising.


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5 Analysis of Environment of Innovation and Benefits of the COTEC

SME Network

In this section we looked at the innovation within the companies. The section

begins (5.1) with a description of the innovation (types, origins and benefits).

The section closes (5.2) with an analysis of the relationship between innovation

and the benefits of belonging to the COTEC SME Network.

5.1 Innovation Dynamism and Use of ICT

Intensity of innovation

Some 8 out of 10 companies (80%) stated that they introduced informationtechnologies for processes and products or services over the last few years.

The figure decreases when one looks at innovations implemented at the

organisational level. Here, only 67% of the companies made any ICT-related

changes.

5.1.1 Types of innovations introduced in recent years

83.3% 80.0%66.7%

0.0%0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Processes

Products or

services

OrganisationalNone

N.R = 0; 0%


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The capacity for innovation is more visible when one looks at the registration of

patents by the companies. As far as patents for innovative ideas (design,

processes, products) are concerned, just over one half of the entrepreneurs

stated that they had already registered at least one patent since their company

was founded.

5.1.2 Companies that have registered at least one patent

Origin of innovations

The innovations originate almost always within the companies. Only a small

number of the innovations (6.7%) are achieved through outsourcing to

specialised companies.

5.1.3 Origin of innovations

51.9%48.1%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Yes No

N.R = 3; 10%


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Nine out of ten innovations are introduced by a specific department within the

company (the design or R&D department).

One should highlight the role of the remaining company workforce in innovation,

as 6 out of 10 companies stated that employees outside the specific innovation

departments also contributed at least once to the innovations achieved.

Investment in R&D

When asked about the amount they invest in research and development (R&D)

more than one half of the companies (53.6%) stated they spent more than EUR

250,000 per annum. One quarter spends between EUR 100,000 and EUR

250,000.

Only few of the companies spend more than EUR 100,000 per annum (21.4%).

5.1.4 Annual R&D budget(EUR thousands)

90.0%

60.0%

6.7%

0.0%

20.0%40.0%

60.0%

80.0%

100.0%

Company designand/or R&D

department

Othercompany workers

Specialisedcompanies orexternal personnel

N.R = 0; 0%


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The companies in the ICT and Industrial Production sectors are those that

invest most in R&D. The services provided by companies in these sectors are

also more technology intensive than in other areas.

Thus, one should highlight that almost all of the companies in the ICT invest

between EUR 100,000 and EUR 250,000 per annum in R&D.

5.1.5 Companies with an annual R&D investment > 100,000 by sector

7.1%14.3%

25.0%

53.6%

0.0%

20.0%

40.0%60.0%

80.0%

100.0%

< 30 k 30 - 100 k

100-250 k

> 250 k

N.R = 2; 6.7%


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When we looked at the relative weight of R&D in relation to total investment, we

found that is as very high in almost all companies.

5.1.6 R&D investment as a percentage of total investment

Almost 60% of the companies dedicate between 40% and 60% of their total

investment to R&D. Nevertheless, there is quite a high proportion (37.9%) of

companies whose investment in R&D is less than 40% of total investment.

37.9%31.0% 27.6%

3.4%0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

< 40% 40% to 70% 70,1% to 90% >90%

N.R = 1; 3%

72.7%

18.2%9.1%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

ICT Industrial prod. Other

N.R = 0; 0%


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R&D vs. advertising spending

Compared to the advertising budgets, more money is spent on R&D activity.

One half of the companies spend less than EUR 30,000 per annum in

advertising, as compared to the more than EUR 250,000 half of the companies

spend on R&D.

5.1.7 Annual R&D spending vs. advertising spending (scaled)

Is there a relationship between the advertising budget and the R&D spending?

Do companies that invest little in advertising also limit their spending on R&D?

In order to test for such a relationship we divided the R&D spending into two

groups: Low Level (up to EUR 250,000 per annum), and High Level (EUR

250,000 and above).

The relationship between the two variables is stronger in the low spending

levels. Nine out of ten companies (90%) that spend less than EUR 250,000 on

R&D also invest less than that amount in advertising (see figure 5.1.8).

52.0%

12.0%

53.6%

7.1%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

< 30 k 30 - 100 k

100 - 250 k

> 250 k

Advertising R&D N.R (R&D) = 2; 6.7%N.R (Pub) = 4; 13.4%


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As far as the companies that invest more than EUR 250,000 in R&D are

concerned, we found that just over one half of these also spend more than that

amount on advertising (see figure 5.1.9).

5.1.8 - Companies with annual R&D investment below 250,000

5.1.9 - Companies with annual R&D investment above 250,000

Results of innovations

92.3%

7.7%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Low adv. High adv.

Low adv. High adv. N.R = 0; 0%

45.5%54.5%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Low adv. High adv.

Low adv. High adv. N.R = 4; 26.7%


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According to the entrepreneurs surveyed, the main benefits from innovations

have to do with being able to offer a wider range of services and products

(mentioned by 76.7%) and responding more quickly to the market (70%). A

substantial number of entrepreneurs (66.7%) also think that there are benefits

from having an automated internal management system.

5.1.10 Main results of innovations implemented

Main results of innovations implemented in the companysince the start-up

Absolutefrequency

%

A wider range of products and services 23 76.7%More rapid response to market demands 21 70.0%Automated internal management system 20 66.7%

More flexible production process 16 53.3%New organisational structure 15 50.0%New marketing channels 10 33.3%More agile logistics management 9 30.0%Other 1 3.3%


One half of the companies stated that they had a more flexible production

process and a new organisational structure thanks to innovations.

Again, due to the fact that the sample contained a high percentage of ICT

sector companies, only approximately one third of the entrepreneurs mentioned

the new marketing channels and more agile logistical management as effects of

innovation.

One should emphasise that the results of innovation confirmed by the

entrepreneurs have much to do with the growth strategies they wish to

implement (see section 4.5, figure 4.5.3 Growth Strategies).

5.2 Benefits of Belonging to the COTEC SME Network

Advantages of belonging to the network


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The main advantages listed by the entrepreneurs to membership of the COTEC

SME Network are innovation stimulation (66.7%) and access to pertinent

information (66.7%).

Many entrepreneurs also list greater social recognition and promotion of the

company (63.3%) as one of the main benefits of network membership.

Access to new knowledge and to training networks is mentioned by almost one

half of the companies (43.3%).

5.2.1 Advantages of membership in the COTEC SME Network

Direct or indirect advantages of membership in the COTEC

SME Network

Absolute

frequency %Innovation stimulus 20 66.7%Access to pertinent information 20 66.7%Greater social recognition and promotion for the company 19 63.3%Access to new knowledge 13 43.3%Easier access to training networks, new qualifications andcompetencies 8 26.7%Contact with ideas on new products or creation of new companies 7 23.3%Possibility of developing a business project 7 23.3%Support for information, presentation and management of projectsand public invites to tender 6 20.0%Access to new partners and new companies 4 13.3%Economic advantages 2 6.7%Easier access to financial resources 2 6.7%Easier access to human resources 1 3.3%


Only a few of the companies mentioned economic advantages (6.7%) or access

to financial and human resources (10%) as benefits.

One half of the companies considered that belonging to the SME Network

brought them into closer contact with other start-ups and spin-offs and 43.3%

agreed that the contact to innovations within their own business sector was

better.

5.2.2 Advantages of Membership in the COTEC SME Network in terms of

public recognition


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