Joanna Drake: “SMEs still depend largely on their domestic markets despite the opportunities offered by the wider EU single market”

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The Director for Entrepreneurship and SMEs at the European Commission debated with the FBP on the occasion of the III FBP Business Forum.

Joanna Drake, Director for Entrepreneurship and SMEs at the Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs of the European Commission, answered questions from the FBP as guest speaker of the III FBP Business Forum.

  • SMEs represent 99% of all businesses in the EU, create around 85% of new jobs and provide two-thirds of the total private sector employment in the EU. What can we do to improve their situation?

First and foremost, we have to ensure that the Small Business Act for Europe (SBA) is comprehensively implemented at all levels. The SBA is an overarching framework for the EU policy on Small and Medium Enterprises (SMEs). It aims to improve the approach to entrepreneurship in Europe, simplify the regulatory and policy environment for SMEs, and remove the remaining barriers to their development. With our own yearly monitoring through the SBA country fact sheets we have observed that Member States are taking action and that there are tangible improvements, especially in a number of areas, including administrative burden reduction and entrepreneurship.

“Access to finance remains a problem to many SMEs in a large number of Member States”
However, despite this progress, more needs to be done. The Commission carried out a public consultation on the future of the EU SME policy towards the end of last year. We got some 1800 replies – all stakeholders supported the priority areas and actions therein: improving start-up conditions, simplification of licensing and permit procedures, promoting access to finance and skills. In addition, a much more systematic application of the Think Small First principle ensuring that all Government actions take into account the interest of small businesses was requested to achieve a more SME-friendly environment. Last but not least, access to finance remains a problem to many SMEs in a large number of Member States. More dedicated financial support instruments, including venture capital financing and crowd-funding paired with the EU-level programmes under COSME are of key importance in this regard.

  • Late payment is one of the major problems that SMEs are facing. How can the EU reduce this phenomenon?

In order to protect European businesses, in particular SMEs, against late payment and to improve their competitiveness, Directive 2011/7/EU on combating late payment in commercial transactions was adopted on 16 February 2011 and should have been integrated into national law by Member States by 16 March 2013 at the latest. This Directive puts in place strict measures, harmonizing periods for payment by public authorities to businesses for the first time and enabling businesses to automatically claim interest for late payment as well as a fixed sum as compensation for recovery costs. When implemented correctly, this Directive will contribute significantly to the liquidity of enterprises and therefore to employment and growth.

“When implemented correctly, Directive 2011/7/EU on combating late payment in commercial transactions will contribute significantly to the liquidity of enterprises and therefore to employment and growth”
To this end, the Commission closely monitors the correct transposition and implementation of the Directive in all Member States, taking the necessary action, including where appropriate, infringement proceedings.

The Commission has also recently commissioned a study to assess the state of play of the implementation of the Late Payments Directive, with a particular focus on the impact on SMEs. The results of this study will be compiled along with other findings in a report which will be submitted to the European Parliament by 16 March 2016.

  • Internationalisation is a great challenge for medium-sized enterprises. What is the role of intermediaries in this purpose? Should we promote them?

In a globalised world, small and medium-sized enterprises (SMEs) need to be able to withstand increasing competition from developed and emerging economies and to plug into the market opportunities these countries provide. There is a direct link between internationalisation and increased SME performance: being internationally active strongly relates to higher turnover growth; SMEs that are internationally active generally report higher employment growth than non-active SMEs; and the relationship between internationalisation and innovation is strong.

“Public support via intermediaries can play an important role in promoting greater internationalisation”
Yet European SMEs still depend largely on their domestic markets despite the opportunities offered by the wider EU single market and by globalisation at large. Few EU SMEs do business internationally, either inside or beyond the EU. According to a study conducted in 2010, 25 % of EU-based SMEs had been involved in exports (inside Europe and beyond) over the previous three years. Only 13 % of EU SMEs addressed growth markets outside the EU.

Public support via intermediaries can play an important role in promoting greater internationalisation. A Commission study conducted in 2011 showed that, on average, public support programmes for SMEs (financial and non-financial, at national and EU level): increased an SME’s turnover in the target market by 28 %; increased its total firm turnover by 11 %; accounted for three jobs created or saved; and accounted for approximately 12 % of the next year’s turnover.

Although many programmes to support SME internationalisation are already in place, they are largely unknown: the percentage of EU SMEs aware of these opportunities ranges from 15 % for micro-enterprises to 27 % for medium-sized enterprises, and from only 10 % for enterprises that are not internationally active to 22 % of SMEs with international activities (EC study of 2010).

So yes, promotion of the many support services already available should be very high on our agenda!

Last summer, the European Commission has launched the SME Internationalisation Portal, a database that helps SMEs find support services providers for internationalisation at their doorstep, in other EU Member States and in the target markets.

  • The Economist mentioned in an article the difficulties that medium-sized companies in Spain are facing to become medium-to-large firms, such as stronger tax audits and labour laws. Do you think that it is possible to avoid this?

The difficulties that medium-sized companies in Spain are facing to become medium-to-large firms, such as stronger tax audits and labour laws are still being analysed in the Commission. We have identified various possible obstacles, but nothing concrete can be reported so far. DG Growth and DG Ecfin have done a joint analysis in this year’s country report for Spain.

  • How can we solve the unemployment problem in Europe? Do you think that entrepreneurship is part of the solution?

We need to tackle unemployment especially from two sides: increase the relevance of skills that young people acquire in education, and help our entrepreneurs to create more jobs. In education, the acquisition of skills should be accompanied by a strong focus on employment to develop work experience. Apprenticeships have the potential to offer many advantages to both the employer and the apprentice. A well-functioning apprenticeship programme improves the school-to-work transition and significantly raises employability.

However only enhanced entrepreneurial activity will make it possible to create all the new jobs that we need in Europe. We know that entrepreneurs and SMEs are the main drivers of job creation and economic prosperity. At European level we are working with the Entrepreneurship 2020 Action Plan on the cultural aspects connected to entrepreneurship, on the environment where enterprises operate and on mechanisms to support businesses. 

“A well-functioning apprenticeship programme improves the school-to-work transition and significantly raises employability”

Investing in entrepreneurship education is one of the highest return investments that we can make in Europe. A recent study shows that students participating in entrepreneurship education are more likely to start their own business, and that their companies tend to be more ambitious, innovative and successful. Moreover entrepreneurship education alumni are at lower risk of being unemployed.

Entrepreneurs, whether new or already established, need a full range of support: training and mentoring, access to finance, networking with business partners and advice. At European level we created the mobility scheme Erasmus for Yong Entrepreneurs, to give new entrepreneurs training and experience on how to develop their business. This programme is very popular in Spain.

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