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

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 21 st 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

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Considering quantitative definitions

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.

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.

In comparison to that The Committee for Economic Development in the US defined a small business as an organisation that must have at least two of the following features:

• Independent Management as usually the manager owns the business

• Capital is supplied and ownership is held by one or a few individuals

• The operation´ s area is primarily local, although the market is not necessarily local

• The business is small in corporation with the larger competitors in the industry

In 2001 Hauser made up his qualitative factors that define small businesses:

• The identity of ownership and personal responsibility for the enterprises activities

• The identity of ownership and personal liability for the entrepreneur´ s and the enterprise´ s financial situation

• The personal responsibility for the enterprises´ s success or failure

• The personal relationship between employer and employees

(Source: Bolton report 1971)

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Why is it so important to support SMEs?

SMEs are considered to be one of the driving forces in economic development.

• They stimulate private ownership and entrepreneurial skills.

• They form the backbone of the market economy and provide seventy-nine million jobs in Europe

• As there are small, they are very flexible and can act faster to changing market demand and supply than larger firms (this is one competitive advantage of SMEs)

• They help diversify economic activity and make a significant contribution to trade and exports

• They contribute to the regional and local development

• With taking part in cross-border-co-operations they contribute to the development of the border areas and facilitate to understand cross-cultural differences in the neighbour countries

• Considering that large enterprises had to shed jobs during the last decade in the UNECE (United Nations Economic Commission for Europe) region, employment in the SME sector increased steadily

• Majority jobs were created by micro enterprises

• As a consequence of the collapse in former state-owned enterprises especially individual entrepreneurs have been created in countries in transition (CITs)

What are the differences between SMEs in advanced market economies and SMEs in emerging market economies and countries in transition?

SMEs in advanced market economies:

They already exist for many years. Some of them have been passed from generation to generation. The entrepreneurs were born in market economic environment and that is why they have entrepreneurial knowledge as well. The majority of the SMEs have well-defined markets, a profile with brand name and long-term of operation. They have the opportunity to gain support of several institutions and credit guarantee schemes exist for them too. They need regional and local government support in terms to keep pace with the internationalisation and fierce competitiveness nowadays.

SMEs in emerging market economies and countries in transition:

They are like newcomers and are taking the first steps in the formulating market economic environment. They just try to survive on the market with finding customers and market niches for themselves. SME support institutions are just about to be created, which means that they are not that professional and strong like they are, where they have been existed for a long period. They need a lot of support to make it possible to start-up a business. Credit schemes are very weak. As a result of this is much harder to start your own SME in a transition country.

(Source: Homepage of UNECE)

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