Enterprise & Industry
SMEs and Entrepreneurship
SMEs and EntrepreneurshipEnterprise & Industry
ore than 75 million Europeans work in small andmedium-sized enterprises (SMEs), accounting forsome three-fifths of industrial jobs in the EuropeanUnion. The 23 million SMEs in the EU – in comparison thereare just 41 000 large firms – are of great importance for theeconomy and society, but even more significant today is theirrole in creating new jobs: two in three new jobs are in SMEs.As Europe’s economy continues to shift towards one basedon the knowledge and skills of its people, SMEs are the mainsource of high-quality jobs, in which such skills are best used.
In any organism, the acility or renewal is vital, and SMEs play thatrole in the economy. At whatever level we look – rom Europe as awhole to small towns and villages – lourishing societies in whichpeople are happy to live require a steady supply o entrepreneurswilling to create and grow small enterprises. Continually launchingnew irms, and bringing new blood to boost existing irms,is essential to ensure that we have suicient good-quality jobs orthose who want them and that the standard o living continues toimprove across society.
The importance o SMEs has long been recognised by the EuropeanCommission, and a wide range o policies and support instrumentshave been developed and implemented over many years.With the “modern SME policy”, in 2005, the Commission underlinedthe need to coordinate eorts across all policy-making ields better.SME policy could no longer be seen as a distinct area, but shouldbe integral to all policies, rom transport and environment to
SMALL BUSINESS ACT:
MAKING LIFE EASIERFOR
Small and medium-sized enterprises (SMEs) are at the heart of Europe’s economy. Creating more new firmsand nurturing them is essential if Europe is to maintain its competitive position in the global economy,and continue to make sure that its citizens benefit from an ever-improving quality of life. The EuropeanCommission has adopted the Small Business Act, with the aim of ensuring that public authorities – fromthe Union down to regional and local government across Europe – redouble their efforts to build a society in which small enterprises can thrive.
employment or health. Introducing the “think small irst”principle,the Commission sought to encourage all policy-makers to considerthe impact o their activities on SMEs rom the outset.But more needs to be done to deliver a business environment inwhich SMEs can lourish. The Small Business Act (SBA), adoptedin June by the European Commission, ater a wide-ranging publicconsultation, has two elements: a package o legislative proposalsand initiatives at EU level, several o which are set out in more detailon the ollowing pages; and a set o principles which need also toorm the basis o action by policy-makers at national, regional andlocal level across Europe.“With the Small Business Act, we are taking SME policy severalsteps orward,”says Mechthild Woersdoerer, head o the SME PolicyDevelopment Unit in the Commission’s Directorate-General orEnterprise and Industry. “It is certainly the case that there is greaterpolitical attention on SME policy than ever beore, with the March2008 European Council calling or swit adoption o the SBA, and wewant to use that political support to make real improvements in thebusiness environment or SMEs.”
The burden o administration and regulation – dealing with red tape– is the biggest complaint o SMEs when it comes to hindrances totheir business. Many believe that policy-makers should dierentiatebetween large and small enterprises in their initiatives andlegislation. They could, or example, ensure that SMEs need onlyulil a simpler set o procedures and requirements than their largercounterparts. The Commission avours the use o speciic measuresor small and micro-enterprises, which make it easier or them toulil statutory requirements without compromising the aims o legislation. One example would be to exempt micro-enterprisesrom the need to ollow EU accounting rules, drawn up largely orbigger irms which trade extensively in the Single Market.Legislation aecting SMEs needs not only to be ramed takingaccount o their needs, but should also be easily understood andapplied. The principle o common commencement dates, alreadyused in some Member States, would enable SMEs to organisethemselves better to respect changes in regulation, knowing thatsuch changes would only be applied rom a couple o ixed dateseach year. Governments need also to stop dierent arms o publicadministrations making repeated requests or the same inormationrom enterprises.
Any successul enterprise is only so because o the eorts o thepeople within it. For many small irms, particularly start-ups,the ounders literally are the enterprise, but too oten they receivescant recognition or their eorts. Europeans are less likely toconsider setting up their own businesses than are, or example,Americans. More widely, much o European society – includingthe politicians and media whose opinions are heard most loudly –currently seems reluctant to recognise the contribution business,and entrepreneurs in particular, makes to the economy and thus toquality o lie in general.
“We need to find ways to improve the image of entrepreneursand business in Europe,”underlines Woersdoerfer. “Througheducation and the media, we can encourage more people to startup businesses. In particular, we want to encourage more women, aswell as people from ethnic minorities and migrant groups – currentlyunderrepresented in business – to consider selfemployment.”
More effective tools to get clients to pay on time
For many small firms, delays by their clients in paying for work that has already been done, or for goods already supplied, cause massivecash-flow problems. When customers do not pay on time, SMEs find it impossible to pay staff and suppliers, as well as overheads like rent or electricity.Surveys show that a majority of late payments to small firms are either deliberate or the result of administrative failings. Moreover, late payers are more likely to be large firms or public authorities, rather than fellow SMEs. This means, in effect, that small firms are providingtheir customers with interest-free credit worth more than €20 billion in aggregate. Difficulty in recovering debts outside their home country is cited by many small firms as a disincentive to trade in the Single Market.In force since 2002, EU legislation means that penalty interest should automatically be imposed whenever payments are delayed beyond 30 days (unless both parties agreed to different terms). However, the rules have not been as effective as desired in reducing late payments,and so the Commission is currently consulting the public on possible revisions to this legislation. Amongst ideas being considered are whether a higher rate of punitive interest would encourage prompter payment, what mechanisms are needed to enforce the rules and ensure interest due is paid, and whether specific mechanisms are needed to help micro-enterprises get paid on time.
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