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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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4

5

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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2

4

5

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3

7

8

9

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)

1

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

33

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

Thank you for your attention!

Enterprise Team

Ministry of Economy and Trade

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