The EU and Small Businesses
Small and medium-sized enterprises (SMEs) are companies with less than 250 employees, which operate independently from larger companies. To be classified as an SME, a company should have an annual turnover of maximum €50 million or an annual balance sheet of maximum €43 million. There are three types of SMEs: micro-SMEs with less than 10 employees, small SMEs with 10 to 49 employees and medium SMEs with 50 to 249 employees.
Currently, there are approximately 23 million small and medium-sized SMEs in the EU which play a major role in the European economy. According to the European Small Business Portal, SMES account for over 98% of business in the EU, have provided for 67% of the total private employment and have contributed to the creation of nearly 80% of new jobs over the past 5 years. However, due to the recent and long-standing economic downturn that the European economy goes through, the SMEs face tough times and often experience liquidity problems.
How does the EU help small businesses?
The EU is determined to support small and medium-sized enterprises. As the Vice President of the European Commission, responsible for Industry and Entrepreneurship, Antonio Tajani states "SMEs are key in ensuring the economic recovery of the European Union. This is why they should be encouraged wherever possible."
In June 2008, the European Commission introduced the Small Business Act for Europe (SBA), a comprehensive set of tangible and influential measures to establish the framework of all actions towards the support of SMEs. SBA features ten principles for the implementation of administrative and legal policies in order to enable SMEs to generate growth and create more positions within the EU. With an aim to improve the entire way the EU views entrepreneurship, SBA primarily features the "Think Small First" principle to promote SMEs' growth. In this context, SBA launches four legislative proposals to turn suggested principles into actions.
More specifically, the ten principles featured in the SBA are:
1. Create an environment in which family business can prosper.
2. Abide by the "Think Small First" principle.
3. Guarantee that candid entrepreneurs who have filed for bankruptcy are quickly entitled to a second chance.
4. Make public administrations responsive to SMEs' requirements.
5. Support SMEs' participation in public procurement and effectively practice State Aid possibilities for small and medium-sized enterprises.
6. Enable SMEs' access to finance and cultivate a legal framework to support timely payments in commercial transactions.
7. Assist SMEs to capitalize on the opportunities offered by the Single Market.
8. Promote innovation through SMEs.
9. Facilitate SMEs to translate environmental challenges into opportunities.
10. Support SMEs to capitalize on market growth.
"Think Small First" principle
The "Think Small First" principle puts SMEs on the focus of attention by investigating their needs before introducing new laws and legislations that may have a major impact on their operations. By moving SMEs to centre stage, the "Think Smart First" principle enables national governments to introduce effective legislation and customized rules that benefit the SMEs. In addition, since July 2010, the principle launched simplified VAT invoicing rules by capitalizing on e-invoicing technology, thus reducing cash flow drawbacks faced by certain small and medium-sized enterprises.
Easier access to financing
Even before the EU economic crisis, it wasn't easy for the SMEs to get financial assistance for growth or innovation. Currently, with the introduction of SBA, SMEs have easier access to loans and venture capital from EU financial institutions through loan guarantees. In addition, between 2008 and 2011, the European Investment Bank (EIB) has reserved €30 billion to be granted to SMEs and has allocated €1 billion for equity and mezzanine finance to be implemented by the European Investment Fund (EIF).
Promoting innovation through SMEs
Innovation is a great way for small and medium-sized enterprises to expand within the EU or enter the emerging markets through cutting-edge branding strategies. In October 2010, the EU launched the "Innovation Union" plan with a focus on innovation strategies to anticipate major challenges of our era, including climate change and energy efficiency, and alter the way enterprises develop and assimilate solutions for these challenges into our lives. In addition, the "Innovation Union" plan seeks to eliminate any barriers related to limited venture capital and market fragmentation.
Capitalize on market growth
The European market is actually big with over half a billion consumers. Yet, the SMEs seem to lack the motivation to expand their marketing focus beyond their national borders. In October 2010, the EU launched the Single Market Act, which aims to remove limitations to business transactions between member states across the EU. The set of featured measures under the Single Market Act allow member states to resolve any national differences in the way of doing business and to bridge the gap on market opportunities by capitalizing on new business models and a less bureaucratic environment that leaves more room for potential growth.
In conclusion, small firms are governed by individuals who are willing to take the extra step and all the necessary risks to promote entrepreneurship. Through the launch of the Small Business Act for Europe (SBA), the EU has managed to distribute billions of euro to finance SMEs and help smaller firms to have easier access to EU funding. The SBA definitely makes the EU more entrepreneurial and creates new opportunities for expansion beyond the national borders.