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SMEs developed in Central Europe ?
How have SMEs developed in
Central Europe ?
Have 10 years of transition led to the birth of
an enterprise culture in the candidate countries? Not really. And yet the
maturity of those economies, together with their ability to withstand the
shock of EU membership, will henceforth be dependent on the development of
their SMEs. The aims of the Ljubljana conference, held last June jointly by
the DREE-Enlargement network, the CFA and IFRI, were to take stock of
the situation and the challenges to be overcome. Four of its
contributors have kindly agreed to formulate their own analysis for this special
edition of the Newsletter.
1- SMEs in Greater Europe
The choice of conference venue was in no way
haphazard. Slovenia is in the vanguard of the candidate countries, since its
living standard per capita stands at around 75% of the average GDP in the EU of
15. However, it is worried about its performance in terms of SME
development (cf. p2). Opened by Madame Tea PETRIN, the Slovenian Minister of
Economy, the conference addressed not only the various aspects of SME
strategy in Eastern Europe, but also the support and funding necessary for these
SMEs.
Within the European Commission’s definition of SMEs, distinction must be made between the following : firstly,
micro-businesses which are those which employ less than 10 people and whose annual
turnover is below 2 M €; secondly, small businesses employing less than
50 people and whose turnover is below 10 M€ ; and finally medium-sized
enterprises, employing between 50 and 249 people and having an annual turnover
somewhere between 10 and 50 M €. In the European Union of 19 (including
Iceland, Liechtenstein, Norway and Sweden), SMEs account for 20 million
businesses, employing more than 117 million people: they contribute 16% of the
exports and provide two-thirds of the jobs. It is precisely because of their
important place in our economies that the Commission has just drawn up a European
Charter for SMEs.
In Eastern Europe, the fall of the Berlin Wall
has, since 1989, brought about an explosion in the numbers of SMEs, the
linchpin of these new economies and therefore also of the accession
negotiations. By June 2001, all the candidate countries had closed the chapter on
SMEs and had thus, to a greater or lesser extent, accepted the European
definition of SMEs. According to UN figures, SMEs now provide work for 35% of the
active population in Slovenia. In Hungary, they number 800 000,
employ 2.5 million people and are responsible for a third of the country’s
exports.
Whether it was a question of Western European SME’s investing in Eastern Europe or Eastern European SME’s contributing to
their home market, the seminar provided an occasion to highlight not
only their important role, but also their fragility :
The setting up of Western European SMEs in the
candidate countries constitutes an important vector for know-how,
although these SMEs are sometimes fragile by reason of their size. In
such cases, the support of a large international group enables them to benefit from
the logistics which they would otherwise lack.
Creators of jobs and the motive force behind
new market economies, the development of SMEs in CEECs will, in years to
come, make it possible to lay the foundations of a solid economic
framework in this region, even within the context of a Europe stretching from the
Atlantic to the Urals.
2- The development of SMEs in the EU accession
countries
The core of the political and economic
transformation of any country in transition (CIT) is the creation of the private
sector, the development of entrepreneurship and creation of SMEs.
Analysing the process of development in the
SME sector in the Countries In Transition (CIT) the following characteristics
can be observed:
The development of entrepreneurship in CITs
may be classified into three major groups: (i) Countries making rapid
progress including the V4 (Visegrád Group the Czech Republic, Hungary, Poland and
Slovakia -), Croatia, Estonia and Slovenia; (ii) Countries at an
intermediate stage of transition like Bulgaria, Latvia, Lithuania, Romania; (iii)
Countries making slow progress with less commitment from their Governments
towards SME sector development, like Albania, Bosnia and
Herzegovina, Federal Republic of Yugoslavia and Macedonia.
Financing SMEs in CITs is still one of the
major burdens of entrepreneurship development especially for
start ups and beginner enterprises. Credit banking institutions and
international financial institutions are reluctant to provide adequate support for
start ups. Personal resources such as family savings and loans from friends
provide the principal source of start up capital. In the advanced CEECs special
financial intermediaries have been created in order to provide microcredit
schemes and credit guarantee facilities. Governments are encouraged to
establish appropriate alternative financial schemes such as credit guarantee
schemes, leasing, start up credit schemes and equity facilitation.
Entrepreneurs in most CITs commonly identify
heavy and frequently changing tax burdens on SMEs as one of the most
important impediments to their operation and success. Many entrepreneurs
escape into the shadow economy, which is estimated at between 20 to 40
per cent of GDP in CITs.
In 1999, the UNECE introduces a new
terminology called as Index of SME Development. It is a complex economic indicator,
which incorporates the share of the whole SME sector in the overall
performance of the national economy based on : (i) Share of private
ownership; (ii) Share of SMEs in GDP, and (iii) Share of the labor force of SMEs
in the total labor force of a country. Index of SME Development can be
expressed in terms of percentage and/or GDP per capita.
It is difficult to state that a country with
the highest Index has the most entrepreneurial culture or the SME sector is the
most developed and advanced one. However, it provides a good tool for
comparative analysis and highlight the trend in changing the SME environment
enabling or hindering and depressing the entrepreneurs. The current
evaluation is based on the statistics at the end of 1998. During 2000-2002 the SME-sector
in these countries went through a significant development, so the
current situation seems to be more advanced. However that main features remain very
similar.
As the table indicates, concerning the Index
of SME Development Estonia leads the progress of SME development taking
into account the highest share of the private sector in all economies followed
by the Czech Republic, Hungary and Slovenia and finally Poland. The
situation of Slovenia might be surprising. However, it comes out unanimously
from the relative low share of the SME sector in the total economy. From
Quality of Life point of view Slovenia inherited the highest GDP per capita.
Since the GDP per capita of these countries
are scattered, as well as the share of the hidden economies are different, it
would be unwise to rank the first wave of enlargement group of countries. In
the advanced emerging market economies one entrepreneur contributes
between US$ 500 1350 to GPD, while in the less developed countries in
transition this amounts less that US$ 100. It is remarkable that Bulgaria and
Romania in South-Eastern Europe, as well as Latvia and Lithuania in the
Baltic region show modest Index of SME Development express in US$/capita,
which highlight what the responsible governments should to improve the
SME sector in their countries.
3- A survey on the French SMEs in Central Europe
France’s trade with CEE has increased by 15%
per annum since 1991. But France’s market share falls short of its
economic weight in the EU (6% against 16%). However, this is compensated for
by a much better position in terms of direct inward investment (3rd place).
How have French SME’s (less than 250 employees) positioned themselves during
this period ?
As regards trade, SMEs account for 77% of the
number of French exporters to CEE countries and 35% in terms of
export value, as against 89% and 39% respectively to the world as a whole.
Country by country, their weight in terms of numbers swings from 83%
(Poland) to 68% (Slovakia), and in terms of value from 55% (Lithuania) to 16%
(Slovenia).
As regards setting up, ten large groups
account for roughly 80% of the value of French investments in these countries,
but SMEs account for 72% of the businesses which are present. They are quite
evenly distributed between industry, services and trade, after the manner
of the Czech Republic (40%,30% and 30%). One major fact which emerges
is that SMEs which are subsidiaries of large groups account on average
for 40% of the SMEs established in Central and Eastern European
countries, of which 50% are in Hungary and as many as 70% in the Czech
Republic.
How do these SMEs which have set up in them
view the CEECs and above all what the future holds in these countries? A
survey carried out by the French commercial posts in the region provides a
few precious informations:
Among the reasons for satisfaction, two supply
criteria head the list: a qualified labour force and competitive
production costs. These are followed by two demand criteria: good market access and
weak local competition. The quality of the trading partners is fourth on the
list.
The difficulties mentioned confirm the
importance of the costs to SMEs of approaching the Central and Eastern European
countries: corruption, bureaucratic barriers/red tape. But access to
credit is nevertheless at the top of the list of difficulties. Unlike the
attractiveness factors, which are fairly similar in nature throughout the area, the
difficulties encountered seem much more unequal between countries and so require
very specific advice from good teams on the spot.
The main intelligence to be drawn from this
survey is that there is in the air a strong feeling of optimism for the next few
years. The vast majority of SMEs established in those countries view the
future as promising (52%) or very promising (38%), in spite of cyclical
difficulties such as those experienced by Poland at present, or more
structural difficulties such as in Romania and Bulgaria. After the first wave of
the transition, which was orientated more towards large companies, the
second wave, with has to do with membership of the EU, should involve many
more French SMEs.
4- Programs and activities of the Enterprise
unit of the EU Commission
SMEs are vital in the process of creating a
Europe and of EU Enlargement. In Lisbon, two years ago, the European Union set
itself a new strategic goal for the coming decade: to become the world's most
competitive and dynamic knowledge-based economy within ten years,
capable of sustainable economic growth, with more and better jobs and greater
social cohesion.
To this end, the Council approved
the Multiannual Programme for Enterprise and Entrepreneurship (MAP 2001-2005)
in December 2000. With a budget of € 450 million, this Programme,
a framework plan mainly for small and medium-sized enterprises, focuses on:
enhancing growth and competitiveness of business in a knowledge-based
internationalised economy; promoting entrepreneurship; simplifying
administrative and regulatory framework; improving financial environment;
giving business easier access to Community support services and networks
In managing the Programme, the Commission is
assisted by the Enterprise Programme Management Committee (EPMC),
assembling representatives of the Member States. As EFTA/EEA and Candidate
Countries participate in the activities of the programme, their
representatives also take part in the Committee’s meetings.
The European Charter for Small Enterprises,
approved by EU leaders at the Feira European Council on 19-20 June 2000,
fully recognises that small enterprises are the real backbone of our
economy. It calls upon Member States and the Commission to take action and support
small enterprises in ten key areas: education and training for
entrepreneurship; cheaper and faster start-up; better legislation and regulation; availability
of skills; improving online access; getting more out of the Single Market;
taxation and financial matters; strengthening the technological capacity of
small enterprises; making use of successful e-business models and developing
top-class small business support; developing stronger, more effective
representation of small enterprises’ interests at Union and national level.
Meanwhile all the candidate countries, have
endorsed the recommendations of the European Charter for Small Enterprises.
The "Go Digital" initiative, aimed at helping SMEs to make better use of the Internet and e-Business, was launched in
March 2001. This awareness campaign aims at sharing best business practice,
as presented by SMEs to SMEs, not by IT experts.
Our first indications highlight that good
progress is being made in the main areas, namely: raising awareness about the
potential opportunities in e- Business for SMEs; benchmarking national and
regional policies in support of e-Business; launching pilot projects to test new
technologies and business models; promoting the development of ICT skills.
As to the competitiveness activity and
objectives of the Enterprise Policy, The Entrepreneurship and innovation concern has
been materialised in The Charter on small enterprises, The Green Paper on
Entrepreneurship (for the end 2002) and Scoreboards (for Innovation and
Enterprise Policy).
Effectiveness in measures is a must. Step by
step, we are: increasing recognition of the role of entrepreneurship in
society and schools; reaching equal consideration of such an economic pillar
in sustainable development; reaping full benefits from ICT; reducing red
tape (business impact assessment); involving SMEs in policy making;
developing top class support.
