An Overview of the State of Competitiveness of SMEs in ... · 0-4 workers 5-9 workers 10-19 workers...
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An Overview of the State of Competitiveness of SMEs in Lebanon and their Interface with the Intellectual
Property System
The Role of Intellectual Property Rights in Enhancing Competitiveness of Businesses and Industries
Beirut
January 28, 2013
Zeina El Khoury
Head of Enterprise Team
Ministry of Economy and Trade
Table of Contents:
Lebanese SMEs: Situational Analysis Snapshot of Key Competitiveness and Innovation Indicators SMEs’ interface with IPRs
Cost Benefit Analysis for registering IPRs Conclusion
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SMEs are the driving force in the Lebanese economy. They account for 97 % of total enterprises in Lebanon and estimates reveal that they employ more than 51% of the working population. The retail trade sector hosts alone around 44%.
Source: Census of Buildings Dwellings and Establishments 2004, CAS
There is no formal
definition of SMEs in
Lebanon. The typically
used is less than 50 based
on census of
establishments data
90.7%
3.8% 1.5% 0.7% 0.2% 0.1%
3.0%
0-4 workers 5-9 workers 10-19
workers
20-49
workers
50-99
workers
100 workers
and more
Unspecified
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5%
2% 3%
11%
4%
44%
4%
4%
5%
5%
13%
Agroalimentary and drinks
Metal products
Furnishing
Sale and maintenance of
vehicles, machines and motorbicycles
Wholesale
Retail sale
Hotels and restaurants
Other trade activities
Health and Social action
Services to individuals
Others
Top 3 sectors are Retail Sale 44%, Sale and maintenance of
vehicles, machines and motor bicycles 11% and Services to
individuals 5.5%
Others include: sectors such as textiles & leathers, paper & paper
board, printing & editing, non metal products, tools & equipment,
water electricity & gas and others…
97% of the total companies
The Lebanese government has been very active in the past few years in developing and implementing measures to address a wide range of economic and business issues facing SMEs. Despite these efforts, SMEs still face challenges.
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Introduced Interest rates subsidies
Established the loan guarantee agency Kafalat
Attracted International Donor such as IFC, EIB, AFD, AFSED
that provide cheap and long term financing for SME
Established a unit to improve the business environment of
Lebanon “IBEL”
Established an investment authority IDAL that not only
promotes investment but also offers export supporting service
Created 3 business development centers that offer different
support services such as incubating, consulting, mentorship,
hosting, business space, financial expertise, advice, network
etc…Berytech, BIAT, South BIC
Established units to support SMEs, improve the quality of
their goods though quality control and standardization, and
modernization of their production (SME Support
Unit/Enterprise Team, Qualeb, LIBNOR, ELCIM etc…)
Increased access to market through the signature of many
trade agreements and partnerships
Created platforms for networking among entrepreneurs
Ongoing
Formulating an exhaustive support strategy for SMEs
Committing to adopt an ambitious legislative and regulatory
reform to improve the business environment in Lebanon
Negotiating an agreement with the World Bank and Kafalat
to provide early stage financing and concept development
grants
Developing economic zones
Political and security issues
Macroeconomic uncertainty and increasing production
costs
Legal, regulatory and administrative inefficiencies
Weak rule and enforcement of law
Limited access to finance particularly equity financing and
high levels of collateral
Limited levels of compliance with international standards,
limiting access to markets
Weak research and development on the public and private
levels
Unreliable Infrastructure
Persistent mismatch between the skills acquired at
university and the requirements of business
Limited amount of data and research
Initiatives Challenges
In today’s globalized and knowledge driven world, it is imperative for Lebanese SMEs to be more competitive. What is competitiveness and what are the factors affecting it?
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"
Political
stability
Rule of law &
enforcement
Access to
finance Strong
supportive
institutions
Reliable
infrastructure
Skilled human
capital
Entrepreneurial
culture
Sound & coherent policies:
fiscal, trade, & industrial
Access to
information
Awareness,
promotion,
success
stories
Business friendly
legislation, regulation,
& administration
Macroeconomic
stability
Enablers/Drivers for
Competitiveness
Technology &
Innovation
Competitiveness is the set of institutions, policies, and factors that determine the level of productivity.
Why are intellectual property rights IPRs and enforcement inseparable factors to competitiveness and innovation? In other words, how can IPR enhance competitiveness and innovation?
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Increase the market value of the company
Protection
Increase access to finance
Reduce branding and marketing costs
Increase commercialization: license-franchise
Increase access to markets
Help identify possible competitors
Increase innovation and know technological inventions
Help avoiding wasteful investment in research and
development (R&D) and marketing
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Factors why IPRs increase competitiveness and innovation
International competitiveness and innovation indices highlight our standing in this respect.
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Snapshot of Key Competitiveness and Innovation Indicators
Ease of Doing Business,
International Finance Corporation
(185 country)
Index of Economic Freedom,
Heritage Foundation
(177 country)
2013
91
115
2012
90
112
89
2011
89
2010
Global Competitiveness Indicator
World Economic Forum
(144 country)
N/A 91 89 92
Not
Comparable
Global Innovation Index
INSEAD/World Intellectual Property
Organization
(141 country)
N/A 61 59 N/A
Lebanon ranks 115th globally in the Ease of Doing Business Indicator implying that business regulations are somewhat burdensome, timely and costly, limiting business development.
Source: Ease of Doing Business 2013, IFC
1
22
26
40
42
47
50
82
97
106
109
115
118
135
144
145
152
165
185
Singapore
Saudi Arabia
United Arab Emirates
Qatar
Bahrain
Oman
Tunisia
Kuwait
Morocco
Jordan
Egypt, Arab Rep.
Lebanon
Yemen, Rep.
West Bank and Gaza
Syrian Arab Republic
Iran, Islamic Rep.
Algeria
Iraq
Central African Republic 172
131 121
114 108 104 100
95
47 37
Dea
lin
g w
ith
Co
nst
ruct
ion
Per
mit
s
Res
olv
ing I
nso
lven
cy
Enfo
rcin
g C
on
trac
ts
Sta
rtin
g a
Bu
sines
s
Reg
iste
ring
Pro
per
ty
Get
ting
Cre
dit
Pro
tect
ing I
nv
esto
rs
Tra
din
g A
cross
Bo
rder
s
Get
ting
Ele
ctri
city
Pay
ing T
axes
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Doing Business 2013, Ranking
(1-185)
Doing Business 2012-2013, Topics
(1-185)
116
66
81
Ba
sic
Req
uir
emen
ts
Eff
icen
cy E
nh
an
cers
Inn
ovati
on
an
d
Sop
his
tica
tion
fact
ors
According to the Global Competitiveness Index, Lebanon ranks 91th among 144 countries. In terms of innovation and sophistication Lebanon ranks 81st, higher than the total score.
Source: Global Competitiveness Index, 2012-2013, World Economic Forum 2/5/2013
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Global Competitiveness Index 2012, 3 Groups
(1-144)
144
140
110
107
91
66
64
37
35
32
24
18
11
1
Burundi
Yemen
Algeria
Egypt
Lebanon
Iran, Islamic Rep.
Jordan
Kuwait
Bahrain
Oman
United Arab Emirates
Saudi Arabia
Qatar
Switzerland
Global Competitiveness Index 2012, Ranking
(1-144)
20
25
50.3
60 60 57.2
74.6 76.5
80.4
90.8
1.5
43.2
49.6
53.9
55.9
57
59.5
59.6
63.1
60.6
68.1
70.4
71.1
71.3
89.3
North Korea
Iran
Algeria
Egypt
Yemen
Tunisia
Lebanon
Morocco
Kuwait
Saudi Arabia
Oman
Jordan
United Arab Emirates
Qatar
Hong Kong
Lebanon’s economy is the 91st freest globally according to the 2012 Index of Economic Freedom, with a low score attributed to the rule of law pillar.
Source: Index of Economic Freedom 2013, Heritage Foundation
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Index of Economic Freedom 2013, Score
(0-100)
Rule of Law
Index of Economic Freedom 2013, Freedoms’ Score
(0-100)
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33
37
41
47
48
55
56
59
61
88
103
104
124
132
138
141
Switzerland
Qatar
United Arab Emirates
Bahrain
Oman
Saudi Arabia
Kuwait
Jordan
Tunisia
Lebanon
Morocco
Egypt, Arab Rep.
Iran, Islamic Rep.
Algeria
Syrian Arab Republic
Yemen, Rep.
Sudan
Looking at the comprehensive Global Innovation Index, Lebanon ranks 61st among 141 countries. Rankings show that Lebanese businesses are innovative and sophisticated enough particularly in terms of knowledge workers and innovation linkages.
Source: Global Innovation Index 2012, INSEAD/WIPO
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48
57
72 75
90 93
Business
sophistication
Knowledge &
technology
outputs
Human
Capital and
Research
Infrastructure Institutions Market
Sophistication
Creative
outputs
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Global Innovation Index 2012, Ranking
(1-141)
Global Innovation Index 2012, Pillars
(1-141)
In short, Lebanese SMEs are innovative thus have a great potential to become more competitive. Lebanese law provides protection for intellectual property rights but the enforcement area needs to be improved. Knowing that, the government embarked on an ambitious plan to strengthen it.
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Initiatives to improve the rule of law and enforcement
• Work in progress on speeding up commercial and civil
proceedings and ensure faster trials when enforcing
contracts
• Promulgate law for faster proceedings for small
trials (less than LL15mill)
• Work in progress to review the fee structure and
introduce improvements to reduce the costs
• Work in progress on improving the efficiency of
judicial system through automation and upgrade, and
though training and specializing the judicial
capabilities
• Work in progress to institutionalize alternative dispute
resolution practices to become an efficient alternative
to courts and to enact a law on mediation
Source: Improving the Business Environment in Lebanon, IBEL, 2012
By simply comparing the number of SMEs and the number of IPRs registered each year in Lebanon, we deduce that a large number of SMEs do not apply for IP protection.
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Perception that acquiring and maintaining
to be too costly and burdensome
Unawareness of the intellectual value of
their ideas or products and
underestimation of the benefits of
registered rights
High costs for monitoring and enforcing
IP rights
Lack of trust in the enforcement of rights
and in the legal system
Reliance on informal methods instead
such as trust and limited information
Lack of creativity in the production due to
limited innovative capacity
High levels of informal enterprises
Possible Factors
Patent
Trademark
Industrial
Design
7350
291
132
170,000
Estimated
Number of
SMEs
Source: Census of Buildings Dwellings and Establishments 2004, CAS
7129
304
108
2012 2011
A large number
of these SMEs
may not need to
have an IP
Source: IP Unit, 2012 Ministry of Economy and Trade
In order to strengthen their competitiveness, SMEs need to integrate the different intellectual property rights during the stages of development of their product or service and understand the benefits vs. the costs to their business.
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An SME or an
Entrepreneur
created a new
product
Invention Financing Design &
Brand Marketing License
Sell /
Export
Stages of
Product
Development
Types of IP,
contractual
IP
Cost
Benefits
Needs
financing to
produce it and
market it
Needs to create
an innovative
design for the
product & an
attractive brand
name
Needs to
advertise the
product
through media,
website etc…
Patent
Trade
Secret
Industrial
design
Trademark
Copyright License Franchise
Legal advice
Registration fees (local and international)
Time spent to learn the procedure and effectively registering
Protection against copying
the invention and
infringements
Exclusive right to
commercialize the product
Avoiding large costs and long
duration of litigations
Using the patent as a
business asset to obtain
financing
Increasing the market value of
the business
Selling the IP
Protection against any use of the design
and brand name
Preventing third parties from using
confusingly similar trademarks
Supporting the marketing strategy for the
differentiated product
Avoiding significant loss of revenue and
goodwill
Possible exploit of product
locally and internationally
Obtaining access to new
markets
Possible joint ventures with
another firm
Immediate cash flow from
licensing
Exploit the product
Producing
Needs to
produce the
product
To conclude, Lebanese SMEs have a great potential to achieve rapid growth and expansion. Smart utilization of their IPRs is key in this path!
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SMEs are innovative and have a growth potential
Lebanese enjoy a high entrepreneurial spirit
Lebanese Law offers protection for IPRs
IPR and appropriate enforcement are enablers for
competitiveness
SMEs’ interface with IP is further developing and
improving due to improved efficiency in the regulation
and administration and due to increased formality among
SMEs
Lebanon is actively working and determined to improve
significantly enforcement
SMEs should take advantage of the IP system and
understand that the benefits exceed the costs
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Conclusion