Notes

and better target firms, investing in adequate human and financial resources to implement the programs, and implementing good evaluation mechanisms are necessary conditions.

The chapter also has reviewed some of the key policy instruments to support technology upgrading. While there is some evidence that some instruments are effective in some contexts and countries, there are still large gaps in the evidence, and positive results are very specific to a particular context, which makes it difficult to guide the choice of instrument. A critical objective of direct support instruments is to address information and capability failures. The design and implementation of this type of policy instrument increase in complexity when moving from general to sector-specific business functions, as these require more specialized knowledge support.

A critical type of support is related to the financing of technology upgrading projects, given that financial markets in many developing countries suffer from large market imperfections. Working with commercial banks to address this lack of finance can help facilitate technology upgrading, especially for firms that have higher capabilities to adopt but are financially constrained. However, these finance instruments may not work in cases of firms with very low capabilities.

Finally, the COVID-19 crisis has been a wake-up call for many businesses around the world about the need to upgrade their technologies, digital and nondigital. The pandemic has increased the incentives of businesses to upgrade, reducing some of the earlier overconfidence about their technological capabilities and making it more likely that they will undertake upgrading programs. Policy makers should seize this opportunity to minimize the risk of an increase in the technological divide across countries and firms, and bring more sustained growth and prosperity to their economies.

Notes

1. In the context of financing a technology project, adverse selection is related to the difficulties the financier faces in screening and identifying good projects, while moral hazard is associated with the difficulties in monitoring the implementation of the technology upgrading project, thus transferring the risk of failure to the financier (Cirera et al. 2020). 2. Cruz, Bussolo, and Iacovone (2018) examine an exporting program in Brazil that advances funds to a business based on historic orders from buyers. They find that the program, which provided a detailed diagnostic and consulting services, had a positive impact on the reorganization of participating firms. This program was designed in response to the fact that many SMEs were not ready to benefit from more traditional export promotion instruments. 3. Targeting has been an important challenge for government programs supporting businesses during the pandemic. Emerging evidence highlights two main factors associated with mistargeting: (1) barriers to access to policy support, such as information and application costs, which are particularly large for smaller firms; and (2) the inability of public agencies to target the right beneficiaries (Cirera et al. 2021). This difficulty in targeting and the urgency to provide rapid support resulted in universal targeting. 4. This section draws heavily on Cirera et al. (2020); for a full description of these activities, readers should refer to that publication.

5. Some BAS are oriented to the adoption of digital technologies in key management functions. TCs can be entirely dedicated to facilitating adoption of technologies in production and tend to be sector based. These and other technology-generation instruments are described in detail in Cirera et al. (2020). On the technology transfer side, science and technology parks aim at attracting technology-intensive firms with the objective of generating spillovers with local universities and industries. Technology transfer offices support the generation and commercialization of technologies from universities and public research institutions. In some cases, they are used to help entrepreneurs address knowledge gaps in the commercialization process. In other cases, they target established SMEs so these firms can enter a market and then start climbing the capabilities escalator, as discussed Cirera and

Maloney (2017). 6. Programs targeting technology upgrading in GBFs can apply to all firms, but are especially common supporting micro, small and medium enterprises. These instruments involve upgrading the methods applied to perform functions that are common across all firms, such as business administration, planning, sourcing, marketing, sales, or payment. Rather than differentiating by sector, these interventions can be customized by the level of overall capability, including management practices, firm size, or formal status. 7. The provision of BAS should be considered carefully to avoid distorting the existing advisory market. For example, there are plenty of private providers to support implementation of enterprise resource planning and other digital solutions. 8. In some cases having a mandatory assessment as an entry criterion can be counterproductive because SMEs can be suspicious of external advisers until they experience tangible benefits from interacting with them (particularly when the service is perceived to be linked to the government). Given these circumstances, a holistic assessment should be implemented once SMEs have engaged and are more trusting. 9. The digital upgrading programs reviewed are available in Spain, Denmark, Chile, the Republic of Korea, Malaysia, Singapore, and the United Kingdom. They are (in order by countries listed):

Acelera pyme, cloud Computing, Digital Advisors, SMV:Digital, Sprint:Digital, Digitalization

Boost, Digitaliza tu Pyme, Smart Factory Korea, Support for Remote Work within SMEs, SME

Business Digitalization Grant, SMART Automation Grant, Global Tech Fund, Industry4WRD

Readiness Assessment, SMEs Go Digital, A*STAR Collaborative Commerce Marketplace, Tech

Access, Made Smarter, konfer, SPRINT SPace Research and Innovation Network for Technology,

Gigabit Broadband Voucher Scheme, Business Growth Hub, and Global Business Innovation

Programme (GBIP). 10. Some of the most common TES services include: quality management and process efficiency (such as lean manufacturing); management of environmental impacts and energy use; advice on the purchase and installation of new technologies; advice on optimizing the use of existing technologies; development of new business models; R&D and commercialization; accreditation for

International Organization for Standardization (ISO) and technical standards; and more generally, digitalization. TES can also involve longer-term and more systematic engagements with

SMEs, such as through formal continuous improvement programs. Given this focus, they are typically delivered by technical experts. 11. For more details on Fraunhofer Institutes, see box 7.6. 12. These advisers generally need to have a business background and be recruited and remunerated accordingly. This is sometimes a challenge for government organizations. 13. This government delivery business model may also restrict the potential growth of the private market given that supply is limited to the amount of program funding. Ideally, a program outcome is that SMEs continue to utilize BAS, in which case having a viable private BAS market is important. The optimal delivery model will involve private sector providers and may also involve capacity building (such as training) for those consultants if capability gaps are identified.