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Assessing the performance of European SMEs

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Small and medium-sized enterprises (SMEs) not only make up the vast majority of companies in the European Union, but they are also Europe's main job-creation engine. The annual report on European SMEs reveals that the economic crisis has caused this motor to stall temporarily, despite the fact that the EU and its Member States have improved the policy environment for SMEs.

The 20.7 million SMEs in the EU make up 99.8% of European enterprises and are a key driver of economic growth and employment. According to the annual report of the 'SME performance reviewpdf [745 KB] ', SMEs in the EU's 27 Member States created 9.4 million jobs between 2002 and 2008. This represented an annual increase of 1.9%, as opposed to a rise of only 0.8% in larger firms. This is partly due to the more rapid growth in the number of SMEs: during the period in question, the number of SMEs increased by 2.4 million, or 13%, while the number of large firms rose by 2 000, or 5%.

Moreover, this growth dynamic was not limited to particular regions of Europe, but was spread rather evenly between the 15 countries which were members of the EU prior to 2004, and the 12 which have joined since then. Any striking discrepancies which existed were between Member States in each of the two groups and no longer between the groups themselves.

This stresses the importance of the EU's and Member States' drive to place SMEs at the heart of enterprise policy, under the auspices of the 'Think Small First' principle which is used to revise existing legislation and to formulate new laws and regulations. This pillar is enshrined in the 2008 Small Business Act which seeks to improve the Union's overall approach to entrepreneurship and to promote SME growth by helping them tackle the obstacles which may hamper their development.

A bump in the road

In 2008, the financial crisis which began in America crossed the Atlantic to infect Europe, too. Soon after, the turbulence in the financial sector spilled over into the 'real' economy, plunging the EU into a period of recession.

Although this economic crisis has hurt companies of all sizes, its effects on smaller enterprises have taken slightly longer to materialise. In addition, it has had certain specific impacts on SMEs. In many ways, SMEs can be more vulnerable to economic downturns than larger firms, because they may lack the deep pockets needed to weather the storm or are too specialised to fall back on alternative business streams. In addition, in the wake of the crisis, SMEs had more trouble than large firms in accessing finance.

Unsurprisingly, given this worsening economic outlook, the SME growth momentum began to stall. According to the study, a slowdown occurred in 2008, followed by a halt the following year. In 2009, the number of European SMEs stagnated, while their economic output declined by 5.5% compared with the previous year. The knock-on effect of this on SME employment is projected to continue into 2010, even though production levels are expected to begin to recover. In 2009 and 2010, European SMEs are expected to shed 3.25 million jobs. A similar situation has occurred across the Atlantic and in other countries, although European SMEs have proven more resilient, the study reveals.

To help SMEs turn the corner and ride the wave of recovery, creating new jobs and growth, requires concerted action at the European, national and regional levels. "In light of the rather testing times ahead, an effective policy response is crucial in helping SMEs to be successful," said Antonio Tajani, European Commission Vice-President in charge of Entrepreneurship and Industry. "Member States should step up actions that give a boost to SMEs. For SMEs to thrive, they need a more business-friendly environment across Europe."

National snapshots of small businesses

In recognition of the central role of small and medium-sized enterprises in the European economy, the Small Business Act (SBA) puts in place a comprehensive policy framework for the EU and its Member States in dealing with SMEs. The SBA outlines a set of ten principles which should guide the conception and implementation of policies both at EU and national level.

Since the SBA focuses not only on creating an SME-friendly environment at the EU level but also at the national level, the SME performance review, in addition to its annual report, has also produced national fact sheets for some 37 countries, including the Union's 27 Member States.

These fact sheets, structured around the ten principles of the SBA, provide a synopsis of the SME policy environment at country level. They are important tools for monitoring the implementation of the Small Business Act and permit inter-country comparisons, while also relating the country's individual performance to the EU average.

Altogether, the fact sheets reveal that, from 2006 to 2009, the Member States were active in implementing the SME support measures prescribed in the SBA, having adopted or already put into effect more than 500 policy measures. However, they also reveal that most countries have chosen to focus their policies on a few areas, and only eight of them have been active across the entire range of SBA principles.

Fact sheets are available for 2009 and 2008. They can be accessed here.

Contact

'SME Policy Development and Crafts' Unit,
Directorate-General for Enterprise and Industry

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