The role of small and medium-sized enterprises (SMEs) in Europe's economy

Business in Europe

Essay

“What role do small and medium-sized enterprises (SMEs) play in Europe’s economy?

Assess whether the EU’s main market integration initiatives (e.g. the Single European Market and European and Monetary Union) address the needs of the Europe’s SMEs.”

Tutor: Linda Harrison Seminar group:

Name: Svetlana Shirobakina Number of words: 2.729

B.A. European Business

038040790

The Lisbon European Council of March 2000 set the European Union a new strategic objective for the coming years: to become the most competitive and dynamic knowledge-based economy in the world, capable of sustained economic growth with more and better jobs and greater social cohesion.^[1] It is considered that Europe’s competitiveness and economic progress is strong dependent on its small and medium-sized enterprises, which are the key-source for job creating as well as for searching for new business ideas and innovative solutions, its main driver for entrepreneurship. For this reason, the European Council endorsed the “think small first”^[2] principle as one way to progress towards the Lisbon objectives. The idea of the small business has captured the imagination of the public and politicians over past years. They agree in the point that to meet the challenge of new integrated Europe requires a better business environment within the Internal Market, including the lightest possible administrative and regulatory burdens for small businesses and a better access to finance resources as well as creating of simple and effective legislation. It also requires a revolution in attitudes to entrepreneurship and to risk-taking processes, which will allow viewing failure as a part of experience, as an “opportunity to learn”^[3] from mistakes. They also emphasise the fact that small enterprises are normally more sensitive to changes in the business environment than large firms. They are the first to suffer if weighed down with excessive bureaucracy and creating new administrative burdens. And they are the first to flourish from initiatives such as decrease in taxation rate and promotion.

My essay aims to answer the question to what extent the EU’s main market integration initiatives address the needs of SME’s and what should be done on the way to developing strong, competitive SMEs which would use all benefits from the Single European Market.

It is important to define what we mean by SMEs before proceeding to answer these questions. For the purpose of this essay, SMEs are defined as non-subsidiary, independent firms, which employ less than 250 employees. We have to take into account the fact that this number may vary across national statistical systems. The small firm provides diversity in the economy through supply of a wide range of goods and services, which would be uneconomic for large corporations to provide. They allow full reign to the owner’s desire for independence, which is perhaps the main driving force for the competition.

To proceed analysing the role of the SMEs for the European economy we have to point out the contribution they make to its sustainable growth. In order to do it, it is necessary to define what we mean by ‘economic success’ and how we can measure it. The economic success of the EU is reflected in terms of economic growth in % of GDP, employment rate as well as the level of competitiveness and balance of payment. It is necessary to take into account the fact that small businesses represent the vast majority of businesses in Europe. Over 99.8 % of all enterprises of OECD area are small and medium-sized enterprises, which account for 66% of total employment and for 55% of total turnover in the EU. They are often claimed to be the major source of new jobs, new innovations and new markets. They are seen as a symbol of ‘enterprise’, which is viewed by many economists as the key causal factor in the process of economic growth as well as of social cohesion and economic mobility. They employ in average more young people, women and part-timers than large firms and consequently offer opportunities for job sharing. Besides that, SMEs promote productivity and consequently economic growth through high job turnover rates, which is an important part of the competitive process and structural change within the EU. The government realises the increasing weight of SMEs in the European economy and the pressing need to “reform policies and framework conditions that have bearing on firm creation and expansion, with a view to optimising the contributions that these firms can make to growth”.^[4]

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^[1] Creating an entrepreneurial Europe: The activities of the European Union for small and medium-sized enterprises, pg. 12

http://www.europa.eu.int/comm/enterprise/entrepreneurship/promoting_entrepreneurship/doc/2003sec58_en.pdf

^[2] European Chapter for small enterprises: Feira European Council on 19-20 June 2000

http://www.europa.eu.int/comm/enterprise/enterprise_policy/charter/charter_en.pdf

^[3] Hauser, H. Entrepreneurship in Europe, Business Strategy Review, March 2000; Volume 11, Issue 1; pg.1-9

^[4] OECD Small and Medium-sized Enterprises: Local Strength, Global Reach, Policy Brief, June 2000: http://www.oecd.org/dataoecd/3/30/1918307.pdf