Small, High Tech Companies and Their Role in the Economy: Issues in the Reauthorization of the Small Business Innovation Research (SBIR) Program

Small, High Tech Companies and Their Role in the Economy: Issues in the Reauthorization of the Small Business Innovation Research (SBIR) Program

Order Code RL30216
CRS Report for Congress
Received through the CRS Web
Small, High Tech Companies and Their Role in
the Economy: Issues in the Reauthorization of the
Small Business Innovation Research (SBIR)
Program
May 28, 1999
Wendy H. Schacht
Specialist in Science and Technology
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

ABSTRACT
The Small Business Innovation Research (SBIR) program is a government-wide effort to
increase that portion of the federal research and development budget provided to small firms
for work associated with the mission responsibilities of federal departments and agencies.
This activity is due to sunset on October 1, 2000. In anticipation of expected congressional
efforts to reauthorize the SBIR program, this paper focuses on the role small high tech
enterprises — those that provide high value added goods, services, and jobs — play in the
nation's economic growth. It provides background on related legislative initiatives to facilitate
innovation and explores issues associated with achieving the goals of the SBIR activity within
the context of other federal technology development endeavors. The report will be updated
if events warrant such action.

Small, High Tech Companies and Their Role in the
Economy: Issues in the Reauthorization of the Small
Business Innovation Research (SBIR) Program
Summary
Congress has demonstrated an on-going interest in the small business sector.
Addressing issues related to economic growth and competitiveness, special
consideration has been given to small, high tech firms for several reasons including
data that indicate such companies tend to be highly innovative, play an important role
in technological advancement, and contribute to the high standard of living in the
United States. Such was the rationale behind legislation creating the Small Business
Innovation Research (SBIR) program, an effort to increase that portion of the federal
research and development (R&D) budget provided to small enterprises for work
associated with the mission responsibilities of government departments and agencies.
This activity is due to sunset on October 1, 2000.
Technological advancement is a key element of economic growth.
Entrepreneurial small firms often are important to technological progress because of
their role in the commercialization of R&D results. They also are instrumental in
allowing economic benefits to remain within a region. Such companies create wealth
through value added jobs that are long-term and require highly skilled employees that
subsequently generate additional income, spending, and growth, as well as more jobs.
However, it appears that the ability of small firms to be innovative varies by
industry and is dependent on the relationship between small and large companies in
each industrial sector. Access to information sources also affects the contribution of
these small businesses to technological progress. Despite little or no R&D, small
firms can generate new products and processes by relying on work performed
elsewhere. The importance of shared information is evident in the expansion of
cooperative R&D among small enterprises and between small and large companies.
A review of legislative initiatives over the past 20 years indicates the
implementation of programs and policies to provide both direct and indirect incentives
for increased private sector investments in innovation. While not specifically targeted
to small business, these efforts promote cooperative work among industry,
universities, and government or between companies; provide intellectual property
rights as an incentive to commercialization; and/or mandate a set percentage of federal
R&D funding be awarded to small high tech firms. This has significantly affected the
context within which these companies operate. Since many of these activities did not
exist when the SBIR program was created, questions have been raised as to the
validity of SBIR goals within this new environment and whether or not the program
should be altered to reflect other on-going federal endeavors relevant to technological
advancement.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Entrepreneurial Firms and Economic Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Legislative Initiatives to Assist Small, High Tech Firms . . . . . . . . . . . . . . . . . . . 6
Issues and Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Small, High Tech Companies and Their Role in
the Economy: Issues in the Reauthorization of
the Small Business Innovation (SBIR) Program
Introduction
Congress has demonstrated an on-going interest in the small business sector.
There are many reasons for this approach including data indicating that small firms
represent over 99% of all employers and employ 52% of all private workers. Certain
1
studies, while the subject of professional disagreement, purport to show that these
establishments are responsible for the majority of new jobs created in the United
States. In addition, it has also been argued that small businesses are more innovative
than large firms. Such claims have led to various legislative initiatives intended to
address the needs of the small business sector.
Among the legislatively mandated activities in this arena is a program designed
to insure that small, high technology firms receive a specified share of federal research
and development (R&D) funding. The Small Business Innovation Research (SBIR)
program requires that each federal department with a R&D budget of $100 million
or more set aside a prescribed percentage of the extramural portion of this budget to
support mission-related work in small companies. This activity is due to sunset on
October 1, 2000. In anticipation of expected efforts to reauthorize the SBIR
program, this paper focuses on the role small high tech enterprises — those that
provide high value added goods, services, and jobs — play in the nation’s economic
growth.
Entrepreneurial Firms and Economic Growth
Technological advancement is a key element of economic growth. Experts
widely accept that technical progress is responsible for up to one-half the growth of
the U.S. economy and is one principal driving force for increases in our standard of
living. Historically, industrial expansion was based on the use of technology to
exploit natural resources and early federal support of those fledgling industries was
extensive. Today, such growth tends to be founded on scientific discoveries and
engineering knowledge (e.g. electronics, biomedical applications), and is even more
dependent than before on the development and use of technology. Technological
advance can drive the economy because it contributes to the creation of new goods
and services, new industries, new jobs, and new capital. It can expand the range of
services offered and extend the geographic distribution of those services. The
A small business typically is defined as a firm with under 500 employees.
1

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application of technology also can contribute to the resolution of those national
problems that are amenable to technological solutions.
Technological progress is achieved through innovation, the process that provides
new and improved products, manufacturing processes, and services. It is an activity
that may involve, among other things, idea origination, research, development,
engineering, commercialization, and diffusion throughout the marketplace. A concept
can become an innovation without evolving through those separate steps. An
invention becomes an innovation when it has been integrated into the economy such
that the knowledge created is applied in production to increase productivity and
quality, or results in a new or improved product or service that can be sold in the
marketplace. It is only then that a significant stimulus to economic growth occurs.
Small, entrepreneurial firms have a role in technological advancement and
economic growth. However, there is on-going debate over the parameters of this
contribution and the extent to which small companies innovate relative to larger
businesses. Studies supported by several federal agencies conclude that small, high
technology companies are the source of significant innovation. An often cited 1982
study done for the Small Business Administration (SBA) determined that small firms
are 2.4 times as innovative per employee as large companies. More recen
2
t
information provided by SBA on its web cite claims that 55% of the country’s
innovations originated in small firms.3 Roland Tibbets, while at the National Science
Foundation, found that such companies generate six times more net new products
than larger businesses for every $1 million spent on R&D. According to the SBA,
4
innovations made by small firms include the “. . . audio tape recorder, double-knit
fabric, fiber optic examining equipment, heart valve, optical scanner, pacemaker,
personal computer, soft contact lenses, and the zipper.”5
Additional evidence of the part small firms play in technological progress is
provided by SBA data describing the concentration of small companies in high tech
industries. According to this material, 94% of high tech companies have under 500
employees and 73% have less than 20 workers. These small firms account for 18%
of the total receipts generated by high tech industries.6 In 1996, 37.9% of workers
in private sector, high technology businesses7 were employed by small firms; 22.2%
in companies under 100 persons. High tech employees comprises 3.1% of the total
National
2
Science Board, Science and Engineering Indicators, 1993, December 8, 1993, 185.
http://www.sba.gov/ADVO/stats/fact1.html
3
Anne
4
Anderson, “Small Businesses Make it Big in the SBIR Program,” New Technology
Week, June 6, 1988, 2.
http://www.sba.gov/ADVO/stats/fact1.html
5
Ibid
6
7For the purposes of these data provided by the Small Business Administration, high
technology employment is defined as “. . .engineering, science, and computer occupations
(excluding technicians, manufacturers, and teachers).”

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number of workers in the small business community compared to 4.6% for the
number of high tech employees in all companies regardless of size.8
Despite these data, there is on-going disagreement over how small firms
contribute to the process of economic growth and industrial competitiveness. There
are experts who subscribe to the idea that “[m]ost successful innovations are born,
bred and brought to market entirely within well-established organisations [sic], mainly
large companies.” Two prominent analysts in this area, Zoltan Acs and Davi
9
d
Audretsch, argue that the relationship between company size and innovation capacity
varies by industry. They note
10
that “the evidence also suggests that there tends to be
more innovative activity in industries consisting of larger and not smaller firms.”
11
Others maintain that there is no conclusive evidence that firm size affects the
“success” of R&D.
12
What appears to be an important factor affecting the ability of small companies
to effect technological advance is the relationship between these firms and large
corporations. The globalization of the economy has changed the business
environment such that operating in large foreign markets may be necessary for firms
to remain competitive. Big corporations have an advantage in delivering and
marketing innovations in the international marketplace. While small companies may
serve as the source of new products and processes, they often “. . .cannot take
advantage of their initial technological lead to establish a secure foothold in the key
markets [and] they will inevitably be ground down as the technology is diffused and
the importance of scale grows.”
13
To meet the global challenge, many large companies are merging with other
firms and concentrating financial, manufacturing, and marketing resources. At the
same time, they are decentralizing their research and development activities as well
as their manufacturing operations, thereby creating external technological
relationships with suppliers and outsourcing work to small companies. Larger
corporations spend one-half of each sales dollar on purchases from suppliers, often
small firms. While possibly lacking the “. . .critical mass needed to move from hot
14
boutique to major international force,” small firms can provide the innovatio
15
n
Draft
8
material provided by the Small Business Administration, Office of Advocacy, March
24, 1999.
“Innovation in Industry Survey,”
9
The Economist, February 20, 1999, 14.
Zoltan
10
J. Acs and David B. Audretsch, Innovation and Small Firms (Cambridge: The MIT
Press, 1990), 50-51.
Ibid., 147.
11
12Charles Brown, James Hamilton, and James Medoff, Employers Large and Small
(Cambridge: Harvard University Press, 1990), 10.
Clyde V. Prestowitz, Jr., “Big Versus Little,”
13
Business Month, April 1989, 60.
14Robert Howard, “Can Small Business Help Countries Compete?” Harvard Business
Review, November-December 1990, 88.
Prestowitz,
15
Big Versus Little, 60.

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embodied in new products and processes for the marketplace. This might account for
the conclusions made by Acs and Audretsch that small companies tend to be more
innovative in industries which evidence a strong concentration of large firms. Thus,
16
argues Bennett Harrison of Carnegie Mellon University, “[b]ig firms and their partner
companies — not small, stand-alone businesses, per se — account for most of the
U.S. industrial jobs, sales, and output per year in and year out, in both mature and
high-tech sectors.
17
However, it appears evident that “. . .small high-tech companies play a critical
and diverse role in creating new products and services, in developing new industries,
and in driving technological change and growth in the U.S. economy,” as concluded
by a study conducted under the auspices of the National Academy of Engineering.18
The reasons for this include the ability of these firms to rapidly develop markets,
generate new goods and services, and offer product diversity. Small businesses tend
to be willing to take technological risks that may not be amenable to large, established
corporations. They also may be in a position to quickly exploit market opportunities;
opportunities that may be determined by large companies as a result of spin-off from
corporate R&D or by university research. As a result, small businesses, which are
often start up firms, tend to generate incremental innovations that respond to market
needs rather than produce breakthrough innovations that develop entirely new
markets.19
Small, technically-oriented companies are found more commonly and in greater
numbers in industries that have fragmented, fast growing, and technologically
changing markets; offer few obstacles to entry; and have a history and culture of
entrepreneurship. In addition, the availability of venture capital, customer access, and
a developed technical and business infrastructure provide an environment conducive
to the establishment of such firms. Thus, according to the National Academy o
20
f
Engineering, “. . .the specific contributions of small technically oriented companies in
an industry depend on the following factors:
! The size of markets, current and prospective, that make up the industry.
! The degree of technical uncertainty in current or prospective markets.
! The economies of scale and scope in production for a market.
! The dominance (or lack thereof) of larger companies in both final and
intermediate markets in the industry.”21
Acs and Audretsch,
16
Innovation and Small Firms, 147.
Bennett
17
Harrison, “The Dark Side of Flexible Production,” Technology Review, Many/June
1994, 40.
Nationa
18
l Academy of Engineering, Risk & Innovation, The Role and Importance of Small
High-Tech Companies in the U.S. Economy (Washington: National Academy Press, 1995),
37.
Ibid., 5, 18.
19
Ibid., 5.
20
Ibid., 38.
21

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Economic benefits remain within a region through the creation of new firms.22
Half of the economic growth in the U.S. is generated by industries that were just
forming a decade ago. These companies create wealth through value added job
23
s
that are long term and require highly skilled employees who generate additional
income, spending, and growth, as well as more jobs. The regions that display an
active entrepreneurial environment embody distinctive, and similar, characteristics.
These areas typically have a knowledge source, generally a university that can provide
a supply of ideas and employees, and on-going R&D. Venture capital is available as
is skilled labor. There are clusters (or agglomerations) of similar entrepreneurial firms
and opportunities for generating new businesses through science parks or incubators.
Good transportation and a high standard of living are also complementary to
entrepreneurial activity.
A critical mass of high technology companies is necessary to sustain indigenous
economic growth. “An existing agglomeration of firms in similar or related sectors
is a principal determinant of both birth rates and the distribution of small technology-
based firms.” Clusters are groups of interrelated companies and institution
24
s
(including suppliers, service providers, universities, and trade associations, etc.)
located in a specific area that cooperate as well as compete. As such, cluster
25
s
provide the opportunity for on-going innovation to meet new demands for products
and processes generated by the dynamic relationships among the players. Diversity
within the types and sizes of businesses contributes to a good entrepreneurial
environment. A varied, educated, and skilled workforce also facilitate
26
s
technological advancement in and around the cluster.
Clusters are important not primarily because of production but because of the
opportunities for knowledge spillovers. “[I]nnovative activity is more likely t
27
o
occur within close geographic proximity to the source of . . . knowledge, be it a
university research laboratory, the research and development department of a
corporation, or exposure to the knowledge embodied in a skilled worker.”28
Innovation tends to cluster around industries where knowledge plays an important
Edwar
22
d J. Malecki, “Technological Innovation and Paths to Regional Economic Growth,”
in Growth Policy in the Age of High Technology, The Role of Regions and States, ed. Jurgen
Schmandt and Robert Wilson (Boston: Unwin Hyman, 1990), 99.
“Innovation in Industry Survey,” 6.
23
Patricia
24
M. Flynn, “Technology Life Cycles and State Economic Development Strategies,”
Federal Reserve Bank of Boston, New England Economic Review, May/June 1994, 24.
Michael
25
E. Porter, “Clusters and Competition: New Agendas for Companies, Governments,
and Institutions,” Harvard Business School, Division of Research Working Paper, September
1997 (revised 25 March, 1998), 1.
2 Edward J. Malecki,
6
“Entrepreneurs, Networks, and Economic Development: A Review of
Recent Research,” Advances in Entrepreneurship, Firm Emergence and Growth (1997): 68.
27David B. Audretsch and Maryann P. Feldman, “R&D Spillovers and the Geography of
Innovation and Production,” American Economic Review, June 1996, 631.
Ibid., 638.
28

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role29 as evidenced by the biotechnology, computer, advanced materials, and
telecommunications sectors, among others.
Access to information sources affects the ability of small firms to innovate.
Despite little or no R&D, small businesses can generate new products and processes
by relying on work performed elsewhere. Research has shown that firms with a large
number of sources for information about markets, competitors, and new technologies
generate a larger number of new goods and services. The importance of share
30
d
information is evident in the expansion of cooperative R&D activities, particularly
among small firms and between small and large companies. Such activities have been
promoted by several laws including P.L. 96-480, the Stevenson-Wydler National
Technology Innovation Act of 1980, as amended; P.L. 96-517, the Bayh-Dole Act
(addressing dispensation of patent rights arising from federally funded R&D); P.L. 98-
462, the National Cooperative Research Act; P.L. 103-42, the National Cooperative
Production Act; P.L. 97-219, the Small Business Innovation Research Act; and P.L.
100-418, the Omnibus Trade and Competitiveness Act. In response t
31
o
congressional legislation, over 700 joint R&D projects have registered under the
National Cooperative Research Act and the National Cooperative Production Act.
Over 5,000 cooperative research and development agreements (CRADAs) have been
signed with federal laboratories. One-third of the awards for R&D made by the
Advanced Technology Program went to joint R&D ventures, 48 of which were led
by small companies.
Legislative Initiatives to Assist Small, High Tech Firms
The small business sector is often given particular consideration in addressing
policy issues related to economic growth and competitiveness. A review of legislative
initiatives over the past 20 years indicates the implementation of programs and
policies providing both direct and indirect incentives to encourage increased private
sector investments in innovation.32 While not all specifically targeted to small
businesses, many of these efforts promote cooperative work among industry,
universities, and government or between companies; provide intellectual property
rights as an incentive to commercialization; and/or mandate a set percentage of federal
R&D funding be awarded to small, high tech firms.
Traditionally, the federal government has supported basic research and other
R&D to meet the mission requirements of the departments and agencies. In the late
1980s, this role expanded toward advancing the development of technology to meet
Ibid., 635, 637.
29
30Edward J. Malecki and Marlies E. Veldhoen, “Network Activities, Information and
Competitiveness in Small Firms,” Geografiska Annaler, 1993, 138.
31For additional information on these programs see: Congressional Research Service,
Industrial Competitiveness and Technological Advancement: Debate Over Government
Policy, by Wendy H. Schacht, CRS Issue Brief 91132, updated regularly.
For
32
a more detailed discussion see: Congressional Research Service, The Federal Role in
Technology Development, by Wendy H. Schacht, CRS Report 95-50, October 6, 1998.

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other national needs, including the economic growth that flows from the
commercialization and use of new products and production processes. This approach
involves creation of an environment within which collaborative efforts among
industry, government, and academia can be fostered. The idea of such partnerships
reflects the thesis that while commercialization is the responsibility of the private
sector, the different communities often have complementary functions and can
contribute to the goals of generating new goods and services for the marketplace.
Joint projects allow for the sharing of costs, risks, facilities, and expertise.

A bipartisan legislative approach has evolved that is intended to foster
innovation. This includes the creation and support of various programs that offer
direct federal funding, often on a cost-shared basis with the private sector, for
government-industry efforts. The Small Business Innovation Development Act
(P.L.97-219, as amended) established Small Business Innovation Research programs
within the major federal research and development agencies. The intent of th
33
e
activity was to increase government funding of small, high technology companies for
the performance of R&D relevant to agency missions and with commercial potential.
Each federal department with an R&D budget of $100 million or more is required to
set aside part of this amount to finance the SBIR effort. From its inception in FY1983
through FY1997, approximately $7.6 billion in awards have been made for 46,126
projects. The original program has been extended several times. The Small Business
Technology Transfer pilot program, implemented in FY1994, provides federal support
for research proposals that are developed and executed cooperatively between a small
company and a scientist in a university, government laboratory, or non-profit
institution. Through FY1997, $186.2 million has been awarded for 1,133 projects.

Created by the Omnibus Trade and Competitiveness Act of 1988 (P.L. 100-418),
the Advanced Technology Program (ATP) of the National Institute of Standards and
Technology (NIST), Department of Commerce, provides federal seed financing,
matched by private sector investment, to companies or consortia of universities,
businesses, and government laboratories for development of pre-competitive, generic
technologies that have potential application within a range of industries. Awards are
made on technical, scientific, and business merit. Over half of the awardees (including
68% in the latest round) are small businesses or cooperative efforts led by such firms.
New selection requirements encourage joint ventures that include both small and large
firms. Also managed by NIST, the Manufacturing Extension Partnership (MEP) is
a program of regional centers designed to facilitate the movement to the private
sector, particularly to small and medium-sized firms, of knowledge and technologies
developed under the auspices of NIST and other federal agencies in pursuit of mission
requirements. The centers receive at least half their funding from U.S.-based, non-
profit institutions or organizations.
In addition, Congress has enacted various laws that offer indirect measures to
encourage activities leading to technology commercialization. Included in this is the
research and experimentation tax credit which provides a credit for incremental
For
33
more information see: Congressional Research Service, Small Business Innovation
Research Program, by Wendy H. Schacht, CRS Report 96-402, September 11, 1998.

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increases in a company’s R&D expenditures as well as for payments to universities
for basic research. Changes to the antitrust laws made by the National Cooperative
Research Act (P.L. 98-462) and the National Cooperative Manufacturing Act (P.L.
103-42) are designed to clarify their application in regard to collaborative research
and manufacturing ventures thereby removing certain barriers to such activities.
Other laws, including the Stevenson-Wydler Technology Innovation Act (P.L. 96-
480) and the Federal Technology Transfer Act (P.L. 99-502), facilitating technology
transfer and establishing patent ownership incentives, were enacted to stimulate
private sector use of the results of federally-funded R&D. Preference for entering
into cooperative research and development agreements is given to small companies
and consortia involving small firms. Similarly, the Bayh-Dole Act (P.L. 96-517) has
been of major significance to the evolution of R&D in small, high tech companies and
academia. Providing title to inventions made under federal financing to small
business, university, or non-profit contractors has encouraged efforts to further
develop products and processes based on these patents and bring them to the
marketplace.
34
Issues and Implications
Given past congressional interest in the small business sector, it might be
expected that the 106 Congress will explore the reauthorization of the SBI
th
R
program now scheduled to sunset on October 1, 2000. Future discussion could
involve identification of program goals and examination of their relevance within the
broad context of federal efforts to promote technology development. The following
issues might be reviewed and considered.
The Small Business Innovation Research program was originally mandated to
increase the participation of small, high technology firms in the federal R&D
endeavor. Congressional support was predicated upon several conclusions. While
technology-based companies under 500 employees tend to be highly innovative, and
innovation is essential to the economic well-being of the United States, sponsors of
the original legislation believed these businesses were not receiving a sufficient share
of government research support. It was necessary, therefore, to guarantee this sector
a predetermined portion of the federal budget. To achieve this, each applicable
agency was instructed to create an SBIR program to ensure expanded research and
development funding for small businesses and to facilitate commercialization of new
products and processes by these firms. The efforts are financed by a mandatory set-
aside, a provision considered necessary due to what was viewed as a federal
preference for financing R&D in large corporations.
The legislatively mandated goals of the SBIR program include stimulation of
technological innovation in the small business sector, increased use of this community
to meet the R&D needs of the government, and expanded commercialization of the
results of federally funded R&D. These objectives were developed at a time when
34See: Congressional Research Service, R&D Partnerships and Intellectual Property:
Implications for U.S. Policy, by Wendy H. Schacht, CRS Report 98-862.

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many of the current government policies and programs to assist small, high tech
companies in pursuit of innovation were not available. This raises questions as to
whether or not the goals of the SBIR program remain valid. Is the rationale behind
the effort still sound given other, on-going federal activities? Should the SBIR
program be continued and/or expanded? Should changes be made in the activity to
reflect the changes brought about by other congressional initiatives in the technology
development arena?
There is agreement among experts that small, high tech companies play an
important role in innovation and economic growth. One issue is whether or not the
SBIR program, as presently constituted, contributes to the creation of an environment
conducive to the formation and advancement of high value added entrepreneurial
firms. As discussed previously, these types of businesses flourish in areas that have
certain characteristics including a knowledge source, access to capital, skilled labor,
and a critical mass of similar firms that both cooperate and compete. Federal
initiatives to facilitate technology transfer, collaborative R&D, and technical
assistance, as well as to provide matched government funding, can be seen as
supportive of technology development. Promoting this environment, the Small
Business Innovation Research program offers financial support while the associated
Small Business Technology Transfer program encourages joint R&D activities with
government laboratories or universities. Within the context of on-going federal
efforts, is this sufficient to achieve the program’s goals? If not, are there changes that
can and should be made to build upon other government activities and further
strengthen the impact of the SBIR program on technological advancement?
Several studies indicate that the ability of small firms to be innovative varies by
industry and is dependent on the relationship between small and large firms in each
industrial sector. Thus, a question may be raised as to whether or not the SBIR
activity, as it now operates, promotes the development of productive interactions
between companies of different sizes. Is the structure of the agency-wide SBIR effort
reflective of the current knowledge on the interaction between small and large firms
in the development of new products and processes and their commercialization and
marketing? Might alterations be made to the current SBIR program to augment
opportunities for increased innovation? If this is considered desirable, how might it
best be achieved recognizing that each agency operates an SBIR program consistent
with its operating procedures and mission requirements?
Legislation promoting innovation often includes a statement of preferential
consideration for small companies; however, these laws, for the most part, also apply
to large firms. Thus, concerns have been expressed as to whether or not these
initiatives provide the small business community with extra assistance or in effect
increase competitive pressures with respect to larger domestic firms. If large
companies are also encouraged to undertake research, development, and
commercialization of the results, questions may be raised as to the role and position
of small firms; will they be hampered in R&D activities due to their size and resource
constraints?
In evaluating the possible reauthorization of the SBIR program, an
understanding of the role of small firms in economic growth can provide information
on which to decide whether or not continued special consideration of these companies

CRS-10
is warranted. However, it remains difficult to determine how current legislative
initiatives affect the competitiveness of small firms both in terms of comparisons to
larger companies and in international activities. Limited measures of innovation and
competitiveness impede assessment of such efforts. Research and development are
often but two activities in a generally long and costly process of bringing a product,
process, or service to the marketplace. Recent efforts to increase R&D in small firms
will not necessarily show commercial results, if any, for many years. In many cases,
a lag time of 5 to 15 years between idea and marketable good is commonplace,
although this is beginning to decrease and, in some cases, particularly biotechnology,
tends to be less. While the majority of federal programs to facilitate increased private
sector investments in R&D leading to economic growth were not in existence when
the SBIR activity was initiated, some analysts believe that an assessment of the total
environment within which small, high tech firms operate might be the most effective
means to insure that congressional action achieves its intended objectives.