Entrepreneurs and SMEs in Europe

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Entrepreneurs and SMEs in Europe

• Jarna Heinonen
• Acting Professor
• Director of the Small Business Institute
• Turku School of Economics and Business
  Administration

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Contents

• ENSR-network conducting entrepreneurship and SME
  research
• Observatory of European SMEs
• Main results from the previous (2002) and ongoing
  (2003-2004) Observatory of European SMEs

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• 1.
• ENSR-network conducting entrepreneurship and SME
  research

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ENSR -network

• European Network for Social and Economic
  Research
• A network of member-organisations in 31 countries
• Finland Small Business Institute within Turku
  School of Economics and Business Administration
• Specialized in applied social and economic
  research with a special focus on small and
  medium-sized enterprises (SME) and
  entrepreneurship
• Covers EU and EEA countries as well as the
  Candidate Countries
• All members are independent and follow a
  scientific approach to research
• In total, more than 600 highly qualified
  researchers co-operate in the Network
• Main clients include the European Commission,
  national governments, business associations, and
  the like

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Evolution and current geographical coverage

• Co-ordinated and founded by EIM Business Policy
  Research in The Netherlands in 1990
• In the beginning the Network had 12 members in
  the then 12 Member States of the European
  Community
• Over the years the Network was extended with new
  members
• Nowadays there are members in 31 countries the
  25 EU Member States, the EEA countries and the
  Candidate Countries Bulgaria, Romania and Turkey.
  An institute in Switzerland is a member-at-large.

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Fields of work

• For many years the ENSR focused mainly on SME
  research and this was expressed in the original
  name European Network for SME Research. The ENSR
  is now able to cover all kind of issues that are
  related to the business sector, e.g.
• Entrepreneurship and enterprise development
• SME policy development
• Management
• Training and competence development
• Innovation and technology
• Export and internationalisation
• Capital and finance
• Regional aspects
• Sectoral studies
• Labour market
• Evaluation, monitoring, benchmarking
• Regulatory review and administrative burden
• Energy, environment and CSR.
• Most research on a commercial basis, but the
  cooperation between members in academic research
  projects (subsidized or financed on a
  non-commercial basis, e.g. under national or EU
  research programmes) are of increasing interest
  among some members

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Examples of the studies in the field of SMEs and
entrepreneurship

• www.ensr-net.com
• projects list of the projects carried out by the
  ENSR

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• 2.
• Observatory of European SMEs

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Observatory of European SMEs

• Objective
• to monitor and analyse the performance of SMEs in
  their business environment
• to provide information on SMEs to policy-makers,
  researchers, economists and SMEs themselves
• Client EC/DG Enterprise
• The First Observatory report in 1993 covered 12
  EU countries
• the 3rd Observatory in 1995 covered 15 countries
• the 6th Observatory in 1999-2000 covered 19
  countries
• Currently finalising the 8th Observatory covering
  altogether 32 countries

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Current (8th Observatory) format

• Monitors and analyses the performance of SMEs in
  their (national and supranational) business
  environment and assesses the impact of the
  Internal Market
• Covers all countries of the European Economic
  Area including Switzerland
• Apart from quantitative information on the role
  of SMEs, the project deals with many relevant
  aspects for SME development
• EU enlargement
• co-operation
• internationalisation
• liberalisation of Network industries (telecom.
  electricity)
• access to finance
• competence development
• To obtain more insight in the behaviour of SMEs a
  telephonic survey is held among about 7,800
  enterprises in 19 countries.
• Consists of a series of reports on SME-related
  issues that are published on a non-regular basis
• The Annual Reports of the SME Observatory appear
  to fulfill the needs of policy makers and the
  business community. They are distributed, studied
  and used in numerous policy-making circles all
  over Europe and beyond.

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• 3.
• Main results from the previous and ongoing
  Observatory of European SMEs

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SMEs the giants of the European economy 1(3)
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SMEs the giants of the European economy 2(3)

• 93 of all European enterprises have less than 10
  employees
• The average European enterprise employs 6 persons
• Most jobs in Europe are created by micro
  enterprises
• In Europe enterprises are smaller than in the US
  and Japan
• One third of SMEs strive to grow
• SMEs also play a crucial role in the Candidate
  Countries (incl. new members)
• The average enterprise in the Candidate Countries
  is smaller

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SMEs the giants of the European economy 3(3)

• The average new entrepreneur is 35 years old
• Well educated starters use more support services
• One out of five SMEs is run by a woman
• The majority of SMEs get the bank loans they need

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SMEs drivers of competitiveness

• More competition leads to more international
  contacts
• Customer service and quality are the major
  competitive factors
• Lack of skilled labour is the main obstacle for
  SMEs
• SMEs are important contributors to European
  competitiveness
• University-business interaction is only
  successful when based on personal relationships
• Networks are indispensable for innovation
• Difficult for high-tech enterprises to find
  financial sources
• The number of SMEs with access to the Internet
  has grown rapidly
• One out of four SMEs use the Internet to get
  information from government

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Competence development in SMEs 1(2)

• 80 of European SMEs follow formal and non-formal
  methods for improving the competence base
• formal courses, seminars, conferences
• non-formal learning from others, on-the-job
• expos, trade fairs, meetings, discussions,
  reading
• Differences at European level
• Nordic and Central Europe high involvement and
  wide selection of methods
• Southern Europe lowest involvement
• Rest something in-between

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Competence development in SMEs 2(2)

• Positive relationship between the skill content
  and the involvement in competence development
  activities
• in very small enterprises activities concentrated
  within directors group
• For half of the SMEs competence development
  activities are a key part of their general
  business strategy
• four out of ten suggest uppgrading the competence
  base
• percentages increase with the size of the
  enterprise
• Smallest ones suffer from certain obstacles
• cost issues, short term business pressures,
  negative attitude to change, limited ability to
  diagnose the need, limited contact with sources
  of competence, reluctancy to invest in people,
  and fear to loose skilled labour to competitors

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SMEs and Access to Finance 1(2)

• Majority of European SMEs dependant on bank now
  and in the near future
• stable relationship with just one bank covering
  relatively small credit (lt 100 000 )
• 2/3 are satisfied with the service, 12
  dissatisfied
• 76 of SMEs received the loan applied
• Reason for not obtaining financing
• lack of collateral (micro and small enterprises)
• poor business performance and insufficient
  information (medium-sized enterprises)
• Need for short-term financing higher for SMEs
  than for LSEs
• need for working capital
• main source of financing trade credit
• huge differences in effective payment periods
  between countries

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SMEs and Access to Finance 2(2)

• Leasing
• more expensive than bank loan, but no need for
  capital and collateral
• important in some countries
• Factoring
• nowadays a more acceptable way of external
  financing
• considerable differences between countries
• Cost of financing
• SMEs disadvantaged compeared to LSEs
• Basel Accord likely to tighten up procedures and
  conditions
• Increasing transparency urgently needed
• SMEs quality of information, on regular basis
• balance sheets, profit and loss statements
• budget, financial plans
• banks rating and risk assessment

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Internationalisation of SMEs 1(2)

• Forms of internationalisation
• 30 of SMEs internationalise by foreign supply
  relationship
• 18 of SMEs internationalise by exporting,
  usually combined with the former
• 3 have collaborative relationships with foreign
  SMEs
• 3 established foreign subsidiary or branch
• Smaller countries with small domestic markets
  more internationalised
• increasing specialisation globally pushes SMEs
  into international business
• Likeliness to find an exporting SME increases
  with the company s size, but the export share of
  the turnover does not correlate with size
• 51 of medium-sized enterprises exporters
• 17 of micro enterprises exporters
• Internationalisation, and especially co-operation
  increase company competitiveness

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Internationalisation of SMEs 2(2)

• Few SMEs perceive internal or external barriers
  to internationalise
• 1/3 no internal barriers at all
• high cost
• complexity of activities
• external barriers also relatively infrequent
• existing laws and regulations
• Awareness raising about the opportunities of the
  internationalisation needed
• covering different approaches to
  internationalisation, not just exporting

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SMEs and co-operation 1(2)

• Most frequent motives
• access to new and larger markets (smaller
  enterprises)
• borader supply of products
• access to know-how and technology
• additional production capacity
• reduced costs (larger enterprises)
• The size of the enterprise influences the form
  and purpose of SME co-operation
• medium-sized strategic reasons and long-term
  benefits
• micro and small operational purposes and shorter
  term benefits
• Nature of co-operation
• stable over time, with same partners, relatively
  frequently

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SMEs and co-operation 2(2)

• Three out of four see some barriers, two equally
  important groups of barriers can be identified
• maintaining independence
• institutional issues (language, culture, lack of
  information, legal restrictions)
• Managers in eight out of ten consider that
  co-operation strenghtens the competitive position
  of the company
• companies co-operating perform higher turnover
  growth
• a matter of match between resources and
  competences of the company gt not necessarily
  beneficial to all of SMEs

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The impact of EU enlargement on European SMEs 1(2)

• Overall impact of the enlargement process on SMEs
  in the new member countries much stronger than on
  SMEs in E-19
• nature of impact competition and demand
• the impact on SMEs significantly greater in
  regions bordering the new member countries
• SMEs in manufacturing, wholesale and transport
  are affected to the greatest extent
• General effects
• increasing flow of foreign direct investments
• take-over of the acquis
• improvement of the business environment
• compliance burden (waste management, product
  safety)
• indirect tax rates
• Financial aid and EU programmes
• Labour market effects

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The impact of EU enlargement on European SMEs 2(2)

• In new member countries SMEs seem to take
  strategic measures to seize opportunities and
  avoid risks associated with the enlargement
  process
• in new member countries companies better prepared
  than in E-19
• in new member countries the expectations
  generally optimistic and positive about joining
  the Union
• attempts to foster the international
  competitiveness of the companies

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Conclusions

• Despite great efforts hard to find harmonious and
  comparable data in EU level, not to think about
  US, Japan, China
• Attempts to compare European experiences offer
  great possibilities for learning among
• policy makers (national and supranational)
• researchers
• consultants
• SMEs by themselves
• Calls for persistent and systematic approach
  among European wide research groups over longer
  period of time
• ENSR-network has devoted its skills and resources
  to this kind of policy-, and in the future also
  more academic oriented, European wide research on
  entrepreneurship and SMEs