Europe Reports

SMEs look for support from EU

By Sean Milmo | August 2, 2010

In a post recession environment, SMEs struggle to find investment dollars.

Europe’s sluggish recovery from the recession has put pressure on coatings companies and their suppliers to find and develop technologies that will enable them to launch innovative products to boost their sales revenues.
For larger companies this can be done through mergers and acquisitions (M&As), through product development partnerships with their customers and suppliers, as well as through the efforts of their own R&D departments.
For small and medium enterprises (SMEs) the options are more limited. Already struggling with the effects of the economic downturn, many of them cannot afford to finance their own R&D programs let alone make acquisitions. Instead they have to rely on partnerships, either with other companies or increasingly through links with research institutes and other organizations in the public sector.
They can approach banks and venture capitalists for funds but with many of these sources money is scarce and expensive after the financial crisis.
Although European governments are cutting their own budgets to reduce their debts following the recession, they seem determined to maintain expenditure on R&D in the belief that innovation is a major stimulus to growth and creation of jobs.
The European Union in particular continues to be a major spender on R&D projects, many of which have been specifically tailored to help SMEs. It is currently in the midst of a seven-year €32 billion ($41 billion) research program that is continuing to launch new R&D schemes.
The European Commission, the EU executive, has already started work on preparing for another seven-year program starting in 2013, which should at least have a similar if not a bigger budget to that of the existing one. It will channel resources into bringing  new technologies, such as new coatings concepts, from the discovery stage through to commercialization in as many downstream sectors as possible.
The EU’s research schemes also include, in addition to SMEs, large multinational players. But they have opportunities to make much bolder moves of their own to increase their knowledge base.
The recent €3.1 billion takeover by BASF of Cognis AG, a German-based producer of oleochemical specialties, was seen as a move by a large company, which is both a supplier of coatings ingredients and a coatings producer, to acquire biomaterial technologies. In addition to being a manufacturer of biochemicals and biomaterials for nutrition and personal health care products, Cognis is also a leading producer of biomaterials and additives for coatings, particularly waterborne ones.
BASF regards the acquisition as an opportunity to expand its activities in the joint development of products. “(By purchasing Cognis) a broader and more attractive offering of products and services, combined with out R&D expertise, will allow us to become an even more important partner for joint development projects with our customers,” said John Feldmann, BASF board member responsible for performance products.
One of Cognis’ biggest customers is Henkel KGaA of Dusseldorf, its former parent which sold it to private equity investors nine years ago and whose businesses include surface treatments, coatings and adhesives.
Soon after the announcement of the takeover,  BASF Coatings and Henkel agreed to set up a joint venture in the development of innovative corrosion protection solutions in the automotive industry. “Pooling the experience and expertise (of the two companies in automotive corrosion protection) offers a solid basis for research into a new and efficient technology,” said Rainer Jahn, head of BASF Coatings.
Large producers of coatings and their raw materials tend not to set up joint development alliances with SMEs. “It makes sense only to do joint development with key account holders who are big volume purchasers of our products,” said a senior executive at one leading coatings raw materials supplier.
SMEs need partners for innovation work in order to share costs and spread risks. Often their only choice is to seek collaboration with one or more companies of a similar size.
“We developed a nano-based antimicrobial coating to proof of concept, but to take it through the remaining stages to commercialization would have cost us at least £2 million ($3 million), mainly because of the expense of conducting safety tests,” said a managing director of one UK-based SME. “We had to abandon the idea because we could not find partners who could afford the sharing of that high cost.”
EU and national public sector funded schemes, however, offer SMEs the opportunity to participate in joint R&D projects with universities, research institutes and other large companies and to exploit the technologies emerging from them. The EU has allocated €6 billion to help SMEs take part in its present seven-year program.
A current €6.9 million project, for example, on the development of high temperature-resistant coatings involves SMEs from the Czech Republic, Greece, Spain, Italy and Germany. Another scheme just started for developing wood coatings and adhesives with improved durability and UV-properties has Italian, UK, German and Swedish SMEs participating with bigger players like AkzoNobel and Altana of Germany.
One of the largest recently completed EU-funded coatings projects which focused on anti-fouling coatings had 31 partners, including SMEs, from industries along the supply chain, as well as from universities and research organizations. The scheme, called AMBIO, yielded patent applications for five novel coating technologies, 70 scientific papers and “fundamental advances” in the understanding of the influence of surface nanostructures on the adhesion of fouling organisms.
Teer Coatings Ltd (TCL), Droitwich, England, which was an SME participant in the project, has as a result of it developed fouling-resistant coatings which have been extensively tested by AMBIO partners. The company, a specialist in vacuum coatings, which invests heavily in R&D, has developed a number of corrosion and scratch resistant and other innovative coatings in recent years through development partnerships, some funded by the UK government.
“We would not have been able to maintain our high level of R&D without the support of collaborations, which has given us access to other people’s expertise and to specialist equipment and services,” said Kevin Cooke, TCL’s collaborative research coordinator.
In fact TCL, originally a family-owned company, has built up such a strong base of technological knowledge that earlier this year it ceased to be an SME. It was taken over by Miba Group, an Austrian engineering company with a high tech coatings business mainly serving the automobile industry.

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