An overview and evaluation of government actions on SMEs
in the EU, the UK and specific regions of the UK

by: Nina Rakowski

Introduction

In the EU we have 23 million of small medium-sized enterprises (SMEs) providing 79 millions of jobs. It will be explained shortly by the author what the relevant sizes are of defining an SME correctly. 99 % of all enterprises in the EU are SMEs. This means, that they are the backbone of the European economy, acknowledged as a constant source of ideas, innovation, entrepreneurial skills, the principal providers of existing jobs and the main source of new employment. But as they only have limited human and financial resources, they often are caught in their particular environment and are not able to expand their business to other countries. This means, that they can not act internationally like all the big and global oriented companies. Things like bureaucracy burdens, getting their innovated products duplicated by the big companies, not having the knowledge about opportunities to enter new markets, lack of finance, etc. are making it very hard for them to survive.

And making the step from local to international, national or even regional can turn out in big issues as well. That’s why the European Commission has already done and will do even more in future to protect Europe´ s SME economy and support them to get bigger and prosper. When SMEs are growing they will be able to provide more jobs and therefore our economy will be able to keep pace with the dynamic economy of the 21st century. Policy needs to provide the right business environment. They have to improve the framework in which SMEs operate. The Policy has to focus on helping the different types of small business thrive and prosper, whether they are start-ups, high-growth companies, traditional family firms, artisans or professionals working by their own.

What is the definition of a small or medium-sized business (SME)?

To define the term small business is in fact not that easy as there are too many different factors that can be used to base the analysis. In the past quantitative definitions have been based on number of employees, size of the enterprise, sales turnover and profit. Qualitative definitions have focused on the special characteristics that distinguish small enterprises from larger corporations for example independent management and small market share. Different models can be applied when defining a small business. As you can see in the table on the next page, for different branches, there are different numbers of employees necessary to speak from a small business. In some branches it is better to measure it with turnover than with number of employees. This is the given solution of the Bolton Report. 1971 the Bolton Committee formed a definition that had both a quantitative and a qualitative element, namely the statistical definition and the economic definition

Considering quantitative definitions

[table only in downloadfile]

As you can see in the table above, the Bolton Committee finds it appropriate to measure some branches with number of employees where else other branches are measured by turnover. The Companies Act of 1985 has since stated that for a company to be defined as “small” it must meet at least two of the following criteria:

• a turnover of not more than £2.8 million
• a balance sheet total of not more than £1.4 million
• less than 50 employees

In 1996 the European Commission came up with their own definition for small businesses, which was to be applied across all Community programmes and proposals from 1997 on wards.

[table only in downloadfile]

Considering qualitative definitions

The Bolton Report of 1971 defined a small business with an economic definition.

Regarded as a small business is a business, that:

• Has a relatively small market share

• Is managed by its owners or part owners in a personalised way, not by an organised managerial structure

• Is independent with the owners/managers having control of the business activities. They should only be limited by financial obligation.

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