[Publication] SMEs in Critical Technologies: Enhancing Competitiveness. Through Cohesion Policy Funds

Strengthening the European Union’s capacity to develop, scale and retain critical technologies has become a central policy concern because of intensifying geopolitical competition, fragile supply chains and the accelerating twin green and digital transitions. Small and medium-sized enterprises (SMEs) play a key role, both as sources of technological innovation and as vehicles for diffusion and industrial renewal. Overall, the EU’s performance in critical and emerging technologies is strong with a large and active sector, including a high number of companies and start-ups. However, the EU is comparatively weaker in profitability and broader commercialisation outcomes. Overall, the EU lags behind leading competitors (such as the United States, China, Japan, and South Korea)[1] in the scale-up and commercial performance of several capital-intensive critical technologies, notably advanced semiconductors and clean and renewable energy. This gap reflects constraints related to scaling capacity, profitability, and market uptake.

Study aim

This study examines how EU Cohesion Policy contributes to strengthening the competitiveness of SMEs operating in critical technologies. The analysis focuses on the 2014–2020 and 2021–2027 programming periods and considers the role of the Strategic Technologies for Europe Platform (STEP).[2] The European Commission’s 2023 Recommendation on Critical Technology Areas[3] outlines a risk-based framework and identifies ten ‘critical’ strategic domains (see Figure 1) essential for economic resilience, security, and technological sovereignty. Note, however, that the definition of critical technologies evolves over time, shaped by new risks, dependencies, and innovations.

Accordingly, the study anchors its definition of critical technologies in the 2023 Recommendation, while treating STEP as the policy mechanism through which support is channelled. In line with the STEP scope and data availability, the empirical analysis examines four critical technology areas in greater depth: artificial intelligence, biotechnology, advanced connectivity and digital technologies, and energy technologies.

Barriers faced by SMEs operating in critical technologies

SMEs active in critical technologies face a set of interrelated structural barriers that limit their ability to scale up, commercialise innovations and compete internationally. These barriers are:

• Access to finance;
• Regulatory and administrative complexity;
• Skills shortages;
• Uneven access to specialised infrastructure; and
• Exposure to global competition and strategic dependencies.

See Figure 2 for an overview of these barriers with examples.

Conclusions

The study’s findings point to a nuanced picture of Cohesion Policy support for SMEs active in critical technologies, highlighting both areas of strength and limitations:

• Cohesion Policy plays an enabling role for SMEs in critical technologies by supporting early-stage innovation activities.
• Support remains concentrated at early stages of the innovation cycle, while financing gaps persist for later-stage activities related to scale-up and market deployment.
• Structural barriers constrain SME scale-up across all critical technology domains, including limited access to late-stage and risk-tolerant finance, administrative and regulatory burdens, skills shortages and uneven access to specialised infrastructure.
• The statistical analysis shows heterogeneous and often weak short-term firm-level effects,[4] especially in biotechnology and artificial intelligence, varying across technology domains and firm performance indicators.
• Cohesion Policy and centrally managed EU programmes play distinct but complementary roles.
• STEP represents a policy innovation, strengthening the strategic orientation of Cohesion Policy by enabling reprogramming towards EU-defined critical technologies and facilitating cumulative funding across instruments.
• Defence-related and dual-use investments offer spillovers for SMEs in critical technologies, but their contribution to territorial cohesion is not guaranteed and depends on programme design.

The proposed reconfiguration of the EU funding architecture under the 2028–2034 Multiannual Financial Framework (MFF) heightens the importance of coherence and coordination. Cohesion Policy should ensure inclusivity, while the proposed European Competitiveness Fund and STEP provide scale and strategic focus. Looking ahead, the effectiveness of EU support will depend less on new instruments and more on strategic focus, scale, and coordination.

Policy recommendations

Based on the empirical findings, the study identifies several areas where Cohesion Policy could be more closely aligned with the EU competitiveness and security objectives for SMEs in critical technologies under the next 2028–2034 MFF:

1. Prioritise differentiated and staged SME support for capital-intensive and technologically advanced critical technologies. In the 2028–2034 period, Cohesion Policy could maintain broad early-stage ecosystem-building support, while applying more selective and targeted support at later stages for SME-led demonstration, first industrial deployment and system-integration projects. Such differentiation could be implemented in a territorially balanced manner,[5] including through ring-fenced allocations for less developed and transition regions and through cross-regional partnerships with established European hubs, in order to avoid reinforcing existing regional concentration.
2. Apply more sector-sensitive programme design, particularly for energy technologies, by using longer project durations, higher funding volumes and closer alignment with enabling infrastructure investments to support the transition from demonstration to commercial deployment.
3. Systematise coordination and sequencing between Cohesion Policy and other EU-level instruments, including Horizon Europe, the Innovation Fund and STEP, through structured pathways, bridge funding[6] and cumulative funding approaches that connect regional ecosystem support with excellence-based and scale-up instruments.
4. Reduce administrative and financing barriers for high-risk SMEs with a more consistent use of simplified cost options, advance payments, proportional administrative requirements and higher public funding rates (where justified by technological risk and market failure).
5. Strengthen the strategic use of European Social Fund+ (ESF+) to address skills constraints in critical technologies by supporting sector-specific skills ecosystems aligned with smart specialisation priorities and reinforcing SMEs’ absorptive capacity through targeted technical, regulatory and system-level skills development.

Methodology

The study used a mixed-methods approach combining desk research, quantitative analysis and qualitative case studies to assess how EU Cohesion Policy supports SMEs in critical technologies. Evidence was triangulated to identify patterns in funding allocation, implementation and SME outcomes across technologies and regions.

Desk research covered EU legal and strategic documents, alongside evaluations and thematic studies of EU funding instruments (e.g. Horizon Europe, InvestEU). Comparative indicators from datasets and sector sources were used to situate SME constraints and the EU’s position in critical technologies.

Quantitative analysis drew on the European Commission’s Kohesio database,[7] focusing on the 2014–2020 period, where financial data are more complete. Projects were classified into four technology domains (AI, advanced connectivity/digital, biotechnology and energy) using a two-step process combining keyword screening and AI-assisted validation. A staggered Difference-in-Differences approach was applied to estimate firm-level effects on productivity, turnover and employment.

Qualitative evidence was provided through three case studies (biotechnology, AI and energy), based on 20 semi-structured interviews with 16 SME beneficiaries and four Cohesion Policy managing authorities.

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[1] Based on comparative evidence from EU and international benchmarking. Sources cited in Chapter 1.

[2] European Union, Strategic Technologies for Europe Platform

[3] European Commission, Commission Recommendation of 03 October 2023 on critical technology areas (2023)

[4] Short-term firm level effects refer to impacts on individual firms that occur immediately, including, for example, changes in employment, productivity, or sales.

[5] This means in a way that benefits less developed and transition regions as well as more developed regions.

[6] Bridge funding implies a temporary or transitional financial support to aid in sustaining projects between two funding stages or programmes.

[7] Kohesio is the European Commission’s public database on Cohesion Policy projects and beneficiaries.