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Enterprise & Industry Magazine

A first class act fostering the competitiveness of small businesses

Photo: All rights reserved © Jesus Conde, Nicole Waring, Jacob Wackerhausen, Alexander Bryljaev, Wibofoto

The Small Business Act (SBA) was launched in 2008 to ensure that European small and medium-sized enterprises have access to finance and markets and can thrive in a regulatory environment conducive to growth. A recent European Commission review reveals that progress in implementing the SBA’s measures has been made, while indicating further actions needed to respond to the new challenges that have emerged in the meantime.

Small and medium-sized enterprises (SMEs) are the engines of Europe’s economic growth, providing jobs and driving innovation. Supporting Europe’s 23 million SMEs, which employ 67% Choose translations of the previous link  of the private sector workforce, has become especially vital in today’s tough economic climate where nearly 10% of the EU’s labour force is out of work. Fresh ideas are needed. Providing the conditions within which SMEs can flourish – such as access to finance and markets - is therefore a priority for the European Union.

Where do we stand?

The EU has a strong track record in supporting business. The 2008 Small Business Act (SBA)pdf put in place a comprehensive SME policy framework for the EU and its Member States, while strengthening its links with all relevant policy areas through the “think small first” principle. The SBA addresses the needs of companies which are independent and have fewer than 250 employees.

Given the priority attached to SMEs by the European Commission, a regular assessment of progress made in implementing the SBA is crucial in order to identify new needs under changing circumstances. To this end, the Commission has recently presented a Review of the SBA.

Between 2008 and 2010, numerous actions set out in the SBA Action Plan have been implemented. To alleviate administrative burdens, for example, the European Directive on e-invoicing has helped small businesses by making e-invoices equal to paper ones, and businesses with a turnover of less than €2 million can now benefit from an optional cash accounting scheme, making it possible for them to delay accounting for VAT until they receive payment. In addition, thanks to the Directive on late payments, public authorities are now required to pay within 30 days, which should enhance the cash flow of SMEs.

A number of initiatives have also been introduced specifically to improve access to finance. Some 100 000 SMEs have so far benefited from Competitiveness and Innovation Framework Programme (CIP) financial instruments, while a further 200 000 SMEs are expected to benefit by 2013. Furthermore, the vast majority of Member States have adopted measures to facilitate SME access to finance through public support to guarantee schemes. On average, each SME that is granted a guaranteed loan creates 1.2 jobs. Several Member States also provide funding to innovative young companies through seed capital and venture capital, while others provide financial support to competitiveness poles that link universities, research centres and businesses.

Strengthening Europe’s economic engine

Although progress has been made in improving access to finance and markets and creating a better regulatory environment for SMEs, implementation of the SBA has varied between Member States. The Review of the SBA stresses that all Member States must now step up their efforts to support SMEs in what is still a very challenging economic climate. Some 3.25 million jobs in SMEs have been lost, which further underlines the need to restore the job-creating capacity of SMEs.

"SMEs represent more than 99% of all businesses and employ more than 90 million in Europe. They are the engine behind our economy and must be kept strong, competitive and innovative,” says Antonio Tajani, European Commission Vice-President in charge of industry and entrepreneurship. “Member States must act quickly to ensure that the Small Business Act is fully implemented."

The SBA review sets out new actions needed to respond to challenges resulting from the economic crisis and to align the SBA with the priorities of the Europe 2020 strategy, the EU's growth strategy for the coming decade. Key areas for action include access to finance, smart regulation to reduce administrative burden, helping SMEs benefit fully from the Single Market and tackle the challenges of globalisation and climate change.

Paying specific attention to SMEs’ financing needs

An SME Finance Forum has now been established to monitor the market situation and to encourage new approaches to improve access to finance for SMEs. The second high-level SME Finance Forum meeting, chaired by Vice-President Antonio Tajani, took place on 15 March 2011.

Within an enhanced set of financial instruments, the European Commission aims at helping a higher number of SMEs through strengthened loan guarantee schemes and will present an action plan including access to venture capital and targeted measures to make investors more aware of the opportunities offered by SMEs. In addition, the Commission intends to explore options for setting up an intellectual property rights valorisation instrument at the European level, in particular to ease SMEs' access to the knowledge market.

Making Smart Regulation a reality for SMEs

In order to lighten the administrative burden, the European Commission will make sure that impacts on SMEs are thoroughly analysed and taken into account by using a so-called ‘SME Test’ when proposing new legislation or major new policies.  Member States are invited to do the same.

The Commission also plans to promote the application of the ‘only once’ principle whereby public authorities and administrative bodies should refrain from requesting the same information, data, documents or certificates which have already been made available to them in the context of other procedures. Member States will also be asked to simplify further the regulatory and administrative environment in which SMEs operate.

Helping SMEs to take full benefit of the Single Market

Helping SMEs benefit from the single market is another continued priority. Making cross-border payments is still perceived as costly and burdensome, as are the instruments available to resolve possible conflicts with customers, in particular in e-commerce. In order to encourage cross-border activity, the European Commission will carry out an in-depth analysis of unfair commercial practices in the EU and, if needed, table a legislative proposal. Furthermore, the Commission put forward in March 2011 a legislative proposal for a Common Consolidated Corporate Tax Base (CCCTB) to reduce tax obstacles and administrative burdens for SMEs in the single market.

The SBA Review underlines again the importance placed on the role of SMEs in Europe’s economy, and also an understanding that their needs must be taken into account if Europe is to prosper. The proposals and initiatives contained in the review should help ensure that SMEs are empowered to flourish despite trying economic circumstances.

Stronger governance for a speedy implementation

The Commission proposes to speed up implementation of the updated SBA by proposing a set of measures which  give Member States and SME stakeholders  a key role in evaluating and reporting on the uptake of the SBA. Member States are invited to appoint a national ‘SME Envoy’, or a "Mr or Mrs SME" who would ensure, in close contact with SME stakeholders, that national legislation is SME-friendly. The national SME Envoys would also be part of the new SBA Advisory Group alongside representatives of governments and business organisations in order to evaluate the uptake of the SBA and to promote the exchange of good practices.

Expert export advice

Internationalisation is crucial to SME success. Although some 25% of SMEs export or have exported at some point during the last three years, they are often less well-equipped than large enterprises to deal with different legal environments, standards and risks.

Exports represent a huge untapped market potential, in particular in the BRIC (Brazil, Russia, India and China) countries which  at present are only served by 7% to 10% of exporting EU SMEs. This is why the European Commission opened an EU SME Centre in China in November 2010 in order to facilitate SME access to this significant market and help them overcome challenges they face. A new strategy planned for the adoption by end 2011 will present some key principles on the support of EU SMEs in markets outside the EU.

Encouraging entrepreneurship

Some interesting initiatives put forward in the Small Business Act Review also focus on promoting entrepreneurship. Member States are invited to reduce the start-up time for new enterprises to 3 working days and the cost to €100.

The Commission is keen on creating mentoring schemes for female entrepreneurs in at least 10 EU countries to provide advice and support with the start up, functioning and growth of their enterprises. And by the end of this year, a Social Business Initiative focusing on enterprises pursuing social objectives will be adopted.

Looking forward, the Commission also wants Member States to reduce the amount of time it takes to get licences and permits - including environmental permits – to one month by the end of 2013. It would also like governments to give honest entrepreneurs a second chance by limiting the discharge time and debt settlement after bankruptcy to a maximum of three years by 2013.

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