WORKING PAPER 01 - Cologne Business School

Transcription

Development Studies and
Management
COLOGNE BUSINESS SCHOOL
European Approaches to SME Support in
Comparison to Practices in Developing
Countries
Searching for lessons learned from practices in France,
Germany, Italy and the UK
WORKING PAPER 01
Siegfried Jenders
2014
CBS Working Paper Series, ISSN 2195-6618
Editor: Cologne Business School
E-Mail: wps@cbs.de
Copyright:
Text, tables and figures of this paper are the intellectual property of the author. They may be
copied, distributed or displayed on the condition that they are attributed to him and to this
publication.
Cologne Business School
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ii
Table of Contents
Table of Figures ............................................................................................................ iii
About the Author........................................................................................................... iv
Acknowledgments ...........................................................................................................v
Summary .........................................................................................................................1
1
Introduction............................................................................................................7
2
SMEs in Europe .....................................................................................................8
2.1 Economic weight of SMEs in Europe ...................................................................8
2.2 SME development systems ....................................................................................9
2.3 SME growth .........................................................................................................11
3
SME Support Systems in Europe ........................................................................12
3.1 UK........................................................................................................................12
3.1.1
How today’s structures developed .................................................................12
3.1.2
Main actors .....................................................................................................15
3.1.3
Support offered ...............................................................................................17
3.1.4
Observations from a distance .........................................................................21
3.2 Germany ..............................................................................................................23
3.2.1
Roots and rationale of SME support ..............................................................23
3.2.2
Main actors .....................................................................................................24
3.2.3
Support offered ...............................................................................................29
3.2.4
3.3 France ..................................................................................................................34
3.3.1
History of SME policies .................................................................................34
3.3.2
Main actors .....................................................................................................37
3.3.3. Support offered ...............................................................................................40
3.3.4
3.4 Italy ......................................................................................................................46
3.4.1
Specific characteristics of Italian SMEs.........................................................46
3.4.2
Main actors .....................................................................................................48
3.4.3
Support offered ...............................................................................................52
3.4.4
i
3.5
4
5
5.1
5.2
5.3
6
Summary: Characteristics of the SME support systems in the UK, Germany,
France and Italy ...................................................................................................58
Concluding: What is best practice in SME development in Europe? ..................61
SME development approaches applied in developing countries .........................67
Increasingly deviating approaches .......................................................................67
Observations on common approaches .................................................................68
Trying to compare................................................................................................76
Some recommendations for SME approaches in developing countries ..............80
Annex 1:
Short description of the Small Business Administration (SBA) of the USA ................83
Annex 2:
Correlation between “doing business“ ranking and FDI...............................................85
Literature .......................................................................................................................86
Endnotes ........................................................................................................................92
ii
Table of Figures
Figures:
Figure 1:
Share of value added and employment by type of enterprise
Figure 2:
Share of numbers of enterprises by type and numbers per 1000 people
Figure 3:
Percentage of SMEs exporting and state aid to SMEs
Figure 4:
Development of SME support system from 1980 to 2010
Figure 5:
Chamber and association system in Germany
Figure 6:
SME support instruments in developing and industrialised countries
Figure 7:
Different capacity levels within a value chain
Tables:
Table 1:
Characteristics of approaches to SME development in industrialised and
developing countries
iii
About the Author
Siegfried Jenders is a freelance consultant specialised in private sector development.
After completing his M.Sc. degree at the Technical University of Darmstadt he was employed
in German industry. He then worked for 12 years in East Africa as technical and industrial
adviser, devising and implementing SME support concepts. In the 90s he also designed private
sector development approaches and managed large economic reform programmes in Eastern
Europe and countries of the former Soviet Union.
Self-employed from 1995 onwards, he has carried out assignments relating to the development
of SMEs, regional and rural economy, trade as well as technology in Asia, North Africa and the
Near East, Sub-Saharan Africa, the Caribbean and Eastern Europe. His main focus is on
evaluating, conceptualising and planning projects on behalf of various international
development agencies.
www.siegfried-jenders.de
Corrigendum:
Since finalisation of this paper, OSEO, the French development bank for SME, has now become
the BPI (Banque Publique d’Investissement), with an identical mandate, but an increased range
of products at its disposal, including risk capital.
iv
Acknowledgments
Claudio Della Valle, formerly of CNA Veneto, a highly experienced international SME expert,
provided thorough insights into the history and workings of the Italian system. In France, Pascal
Vigoureux of OSEO in Dijon, Anne Faucher of the Bourgogne Regional Council, Pierre Olivier
Ghintran of the Chamber of Commerce and Industry of Bourgogne, Valérie Merle of
UbiFrance, Bourgogne and Nicolas Meuret of the Chamber of Crafts and Artisans informed
about the French SME development and financing system and explained the strategies of the
new French institutional set up and its interactions. In Britain, Monica Wharton of the former
BusinessLink West Midlands informed about British SME support. She also arranged
interviews with Douglas Laird of Business Insight at the Birmingham Central Library, Daniel
Walsh, business development consultant, and Debra Blisson of Advantage West Midlands. The
discussions, which took place at the time when the Regional Development Agencies were just
being dissolved, helped to understand the specificities of British SME development and the way
how the private sector is being involved in support. In Germany, Rolf Weidmann and Peter
Rechmann of the Koblenz Chamber of Crafts contributed experiences and opinions about the
German support system and how it has been developing. All interlocutors gave valuable hints
where to find more information. This opportunity is taken to thank them all for their time and
patience to put up with all the questions.
v
European Approaches to SME Support
in Comparison to Practices in Developing Countries
Searching for lessons learned from practices in France, Germany, Italy and the UK
Summary
Developing and emerging economies are interested in effective concepts to develop SMEs, but
it is not clear what best practice is about. This paper analyses how the approaches of the
different SME support systems in Europe emerged and how they work in France, Germany,
Italy and the UK. It then looks at the SME development approaches practiced in developing
countries, suggesting areas where their systems could benefit from experience gained in
industrialised economies.
The paper is not meant to be an academic one. Adressing practitioners in SME development, it
is based on interested following of news, articles and discussions among collegues over
decades, interviews with managers of SME support organisations in the four European
countries, extensive literature review as well as many years of consultancy and evaluation of
SME support approaches practised in Africa, Asia, the near East and Eastern Europe.
Beyond 99 per cent of all enterprises in Europe are SMEs, and more than 8 out of 10 are micro
enterprises. Italy’s population of SMEs, the share of micro SMEs and the exports they achieve
are particularly high. Governments in all surveyed countries provide subsidies to develop
SMEs. Different in extent, they amount to only a small fraction of the taxes that SMEs pay.
SME development in Europe is in principle a shared task between the private and the public
sectors. The roles and mandates of players as well as SME policies differ substantially from
country to country.
The number of SMEs has not grown very much in Europe over the last decades, except in the
UK. Very little transition from micro to small or from small to medium is taking place. SMEs
do create employment, in particular micro enterprises in the service sector, but they cannot be
regarded as “engines” of job creation. The rationale for supporting SMEs lies in their flexibility
and the speed at which they are able to pick up new opportunities during periods of economic
change.
UK
SME development in the UK is a recent occurrence, pegged to the advent of the Thatcher
government, which responded to the decline of heavy industries by promoting entrepreneurship
and job creation through small enterprises. Since then, the number of SMEs in the UK has more
than doubled. The British SME support system is characterised by radical changes from first
quite decentralised structures towards regional approaches relating to small, then much larger
and recently again smaller geographical areas.
Only about six percent of British SMEs are organised in chambers and about eleven percent are
members of a national SME federation. The implementation of publicly financed SME support
programmes is always tendered.
1
There are no SME development banks in the UK. Community Development Finance
Institutions supply part of the credit that micro businesses need. Venture capital is on offer and
popular, though take-up has recently receeded. Innovation support for SMEs is relatively new,
featuring innovative approaches including generous tax credits, voucher systems and capital
made available through public and private funding.
Improving skill development is high on the agenda in the UK. The system has gone through
substantial changes in terms of supervision and responsibilities. Vocational training is offered
at secondary schools and further education colleges, and free. Apprenticeships are becoming
increasingly popular, in particular in the service sector.
Perpetual change appears to be part of the British SME support system. The private sector is
the most important actor, albeit within a public sector controlled framework. Volunteerism is
an important pillar of the system.
Germany
SME policies are directed at enhancing economic stability, which is to a large degree based on
the characteristic behaviour of family owned SMEs, the “Mittelstand” (literally middle class):
performing well, avoiding debts and being loyal to employees. SMEs are seen as flexible, being
able to find new markets during economic slumps. Innovation support is regarded as essential
to support this function.
The German public sector has traditionally advised and encouraged the private sector to
organise its own development. Examples are private sector owned consultancy services, credit
guarantee systems and the organisation of chambers, which have important public mandates,
overseeing vocational training and in part also ensuring industrial peace. They are not
subsidised, but earn income from training and examination fees that are partly re-financed
through public scholarships. Advisory services offered by chambers are regarded as a joint
public-private task and subsidised.
Innovation support for SMEs started during the 70s. Since 2006, a “pact for research and
innovation” has ensured that innovation support budgets keep increasing.
Regional development agencies have developed from managing industrial sites towards cluster
development, integrated location development and the shaping of regional identity. Some
clusters have become success stories, though the approach has of recent also been viewed with
scepticism.
Community owned savings and loans banks as well as cooperative banks have an 80 percent
market share in credits for SMEs. SME credit lines are made available through federal and
state-owned development banks. Equity participation and venture capital are available, but not
very common.
The dual system of vocational training by a master of trade, who is typically the firm’s owner,
is meant to let apprentices feel right from the start that they are part of a profession and a firm.
Concerted public-private action is part of the tradition of the German system and regarded as
one of its strengths. German SME support structures appear almost permanent. Their traditions
may constrain modernisation but Germany has significantly increased its international
competitiveness over the last two decades. The latter is partly also due to declining real wages.
France
Achieving technology advancement and “critical scale” influenced French industrial policy for
a long time; in the meantime, the social status of an owner of a small enterprise remained low.
2
Decentralisation during the 80s started setting a stronger focus on SMEs. Concerned about the
“missing middle” and the low export performance of French SMEs, government launched a
series of initiatives, establishing new institutions during the first decade of the new millennium
in order to facilitate SME growth.
Regional councils are at the core of the French SME development system. Working closely
with chambers, they oversee and direct economic development, making choices for preferred
subsectors. The Chambers of Commerce and Industry in France operate close to the public
sector and have particularly important official mandates. They are the second largest education
provider and are entrusted with the management of airports, ports and other large public
installations. Associations of Artisans were banned during the French Revolution; the
Chambers of Artisans were only formed in the 1920s.
Innovation support for SMEs is provided through competitiveness clusters (pôles de
compétitivité), launched in 2004, which issue calls for proposals around pre-defined terms of
reference and assist SMEs with regard to finance, counselling as well as finding markets.
Innovation is also supported through OSEO, a new development bank that has introduced
dynamism into SME finance, combining it with advice. OSEO works with SMEs directly as
well as through commercial banks. Exports of SMEs are supported by UbiFrance, also a new
institution earning the greater part of its budget through own activities; SME exports tripled
within the first three years of its operations.
The challenge of the French skill development system is to reduce high youth unemployment
connected to lack of training. Training takes place in secondary schools as well as in training
centres; only 25 percent of youths opt for apprenticeships. The system is undergoing reform
following the “yellow book” for skill development published in 2008.
Having neglected SME development for a long time, France is making a dynamic turnaround.
The staff of the new institutions are committed to tackle the substantial tasks set out in strategic
plans. “Gazelles” - innovative high growth SMEs - are the new hope.
Italy
Owners of SMEs in Italy do not count on the state very much. Their focus of trust is on their
own associations. Cohesion based on family ownership is a strong economic factor and pillar
of the industrial districts in Italy’s North. Per capita income in the South is 40 percent lower
than in the North. Subsidies are directed towards the South in order to facilitate SME growth.
SME policies are the responsibility of Regions and differ accordingly. SME associations,
competing with each other, deliver comprehensive services and advice to SMEs. They advise
regions and lobby them, expecting support and cooperation in return. The establishment of loan
guarantee cooperatives is one example of SME associations’ achievements. Chambers operate
close to the public sector. Workers’ unions and consumer associations take part in chamber
decision.
Science and technology parks stimulate and manage the transfer of knowledge between SMEs
and universities/R&D centres; Italy has 40 of such parks, established mainly over the last
decade, which offer complete support to SMEs from innovative ideas to marketing.
Universities, chambers, associations, banks and private investors are shareholders.
The percentage of Italian SMEs taking up long terms loans is by far the lowest in Europe. The
Italian banking system underwent significant reform. There are no development banks in Italy;
regions ascertain the adequate flow of funds to SMEs, including through guarantees as well as
the granting of grace periods for loans and tax payment.
3
Governance of vocational training differs from region to region. To the greater part,
apprenticeships take place without public sector regulation. The labour market is volatile - the
share of young people working in a job that has little to do with what they trained for is the
highest in Europe.
The North of Italy developed almost without interruption from the 50s onwards. It appears that
poverty was a catalyst for innovation and prosperity that built on intensive interaction between
SMEs, flexibly changing between cooperation and competition. The lack of trust between
public and private sectors, which seems to be a source of initiative in the North, appears to
constrain development in the South.
What is best practice in SME development in Europe?
The different patterns of societal norms - the meta level - have produced country specific
approaches to SME development, which may render them particularly effective. On the other
hand, the European SME support systems may be too country specific, limiting European and
international interaction.
SME policies (the macro level) follow different country specific priorities. Subsidies are offered
by all countries- this may be regarded as best practice. The institutional - or meso-levels show
significant differences between countries, reflecting traditional roots and specific social capital
that limit transferability.
Innovation has become a priority, characterised by close cooperation between SMEs and
universities/R&D institutions. This cooperation, too, can be regarded as best practice.
Innovation systems in Europe are in a developing stage, establishing linkages with each other,
not least because of EU funding.
With regard to finance, it appears that having an SME development banks is advantageous - the
UK is in the process of establishing one, too - and the example of OSEO in France cannot be
overlooked in the search for best practice.
Local and regional development approaches are practiced in all four economies, with
pronounced differences in approach. Market orientation rather than sector based concepts
appear to gain strength. An area with between one and three million inhabitants has shown to
be a suitable size for an economic region. Within such areas, resources are suitably combined
and shared, while beyond such sizes, regions compete with each other.
Skill development is very differently practiced in Europe. Approaches of alternating training
between schools and firms are becoming common, however, and may be regarded as best
practice.
At the enterprise or micro level, best practice is clearly the approach of individual, to a large
degree subsidised counselling by highly experienced professionals. Interactive web-sites for
SME development are becoming best practice, too, outstanding models being available in the
UK and in France.
4
SME support in developing countries
SME development approaches in developing countries have over the last decade developed
away from those applied in industrialised countries. The “blue book” of the Donor Committee
for Enterprise Development (DCED), published in 2000, was a decisive point of change.
BDS (business development services) replaced the counselling approach. BDS came with a
policy of phasing out subsidies and develop markets for service products. This placed burdens
on partner organisations, which often failed maintaining the approach in a sustainable manner.
The term BDS is not really known or used in industrialised countries.
The value chain approach aims at connecting producers to markets and has brought out
numerous success stories. In order to mitigate risks, quantitative analysis of value chains is
essential, so is thorough knowledge of the subsectors being supported. The value chain
approach is not applied in industrialised countries, possibly because of the strength of the
cooperative enterprise approach. The latter failed in many developing countries because
political interference created a negative image of cooperatives.
Entrepreneurship development programmes implemented in developing countries often entail
motivation and creativity training in addition to information supply and business planning
support. Many success cases are known. It was hoped that markets for entrepreneurship
development training could develop, but they did not. Entrepreneurship is promoted in
industrialised countries, but without the motivation and creativity modules.
Local and regional economic development approaches appear to be good examples of
successful exchange of methods and know-how between European and developing countries.
In order to anchor the approach, much emphasis is placed on human capacity development in
support of processes in developing countries, where it is sometimes connected to
decentralisation policies. More emphasis is placed on the achievement of practical results in
industrialised countries, often related to energy saving and green environment themes.
The creation of a business environment conducive to growth is of great concern in developing
countries. Much effort is invested into achieving good “doing business” rankings. It is difficult,
though, to establish a positive correlation between “doing business” rankings and actual
investment flows. The “doing business” rankings of industrialised economies are of little
concern to decision makers there.
M4P (making markets work for the poor) is a more recent approach, directed towards poor
people, supporting them to engage economically. Its establishment is too young for its success
to be critically evaluated.
Microcredit is an example of an approach that has succeeded in developing countries and is
being transferred to industrialised countries. The community development finance institutions
in the UK may have been influenced by the success of micro credit.
Approaches supporting SME development in developing countries are apparently quite
different from those in industrialised countries, for good reasons. Practices must be assessed in
the economic contexts of developing countries, as the DCED does. It might be an interesting
idea, though, for developing countries to form their own “best practice” committee for
enterprise development in order to share their own experiences with those of the DCED.
5
Recommendations with regard to applying some SME best practice in developing countries
should always be based on the specific economic and social contexts. A few general
recommendations are made, referring to:
- SMEs, including micro enterprises, are essential for national competitiveness, but
greater impact of the sector cannot be expected without significant investments into
counselling and innovation;
- Social capital is present in developing economies in many ways. It would be helpful to
explore ways how the social capital available in developing economies could support
SME development;
- Knowledge availabe at public institutions of higher learning and research needs to be
ploughed into the economy; linkages between the academia and SMEs need to be built.
The knowledge potential of the academia in developing countries could be a very
important resource that has hardly been used for SME development. Mobilising it is a
long term process requiring persistence;
- Involvement of the private sector in the conceptualisation and delivery of support
measures (but not through donor induced private sector organisations) would enhance
effectiveness. Competent oversight and steering of SME development at national level
(preferably through public-private means) is required;
- Decision makers in developing countries need to be able to know what economic return
they can expect from the different SME support instruments, and consequently what
amounts could be invested into subsidies in order to reap such economic returns. Sharing
such knowledge and supporting decision makers in acquiring it seems to be an important
task for donors;
- Connected to the above, donors should assist decision makers in developing countries
to arrive at practical performance benchmarks for SME support instruments, making
use of the data and methods they avail of. This would enhance the required sense of
efficiency needed in SME development.
6
European Approaches to SME Support in Comparison
to Practices in Developing Countries
Searching for lessons learned from practices in France, Germany, Italy and the UK
1. Introduction
“Best practice” in SME development is a frequent notion in international private sector
development cooperation. Developing and emerging economies are interested in best practice;
experts are regularly asked to explain how SME support actually works in industrialised
countries. Are best practice approaches those that have been systematically evaluated and
proven to be most effective? Does best practice refer to effective support instruments, to a well
performing institutional set-up or to a regulatory environment conducive to SME growth, or to
the most effective combination of these, if there is one?
This paper is meant to provide an overview of the different SME support systems of France,
Germany, Italy and the UK, analysing them with a view of identifying the causes of success (or
failure) in SME development. It then looks at SME development approaches that international
development cooperation applied in developing countries, comparing these approaches to those
practised in industrialised economies. There is no intention of proposing that European models
should be transferred to other economies, on the contrary, the European experience suggests
that each economy benefits from having its own system; however, the paper discusses in how
far developing countries have been informed of the different experiences in Europe and makes
some recommendations of how approaches could be improved.
The paper is not meant to be an academic one. Adressing practitioners of SME support in
developing and industrialised economies, it is based on decades of interested following of news,
articles and discussions about private sector development with colleagues, interviews with
professionals in SME development and managers of support organisations in the four European
countries during 2010 and 2011 as well as wide-ranging literature review that extended into
2013. The chapter on SME support practices in developing countries is based on many years of
consultancy experience in SME support in Europe, Africa, the near East and Asia and a large
number of review and evaluation missions of SME and private sector development programmes
on behalf of various donors. The numerous reports written during this time belong to the
different beneficiaries and donors. Most of them are not public and can therefore not be quoted,
but findings are reflected in this paper. Discussions with colleagues in private sector
development, both from developing and industrialised countries, in the course of working as a
consultant and writing this paper, enriched it.
2. SMEs in Europe
2.1. Economic weight of SMEs in Europe
Europe is home to large, globally competitive industries, but SMEs 1 play
important roles in these economies. With distinct differences between countries
(we are looking at France, Germany, Italy and the UK) SMEs produce over 50
percent of all value added and provide more than half of all private sector
employment2.
Fig 1: Share of value added and employment by type of enterprise
Source: Author’s compilation based on figures of the SBA (Small Business Act) Facts Sheets 2010/2011,
published by the EU’s Directorate General Enterprise and Industry
Beyond 99 per cent of all enterprises in Europe are SMEs, and more than 8 out
of 10 are micro enterprises. The economic weight of SMEs is particularly great
in Italy, which has a very high population density of 65 SMEs per 1000
inhabitants, the share of micro SMEs being especially large. Germany, where
the share of medium sized firms is comparatively higher, counts only 22 SMEs
for every 1000 inhabitants.
The high share of exports achieved by small Italian SMEs suggests that small
firm size and global competitiveness do not exclude each other. SMEs in
Germany are strong exporters as well. International exposure of SMEs in the UK
and in France is comparatively less pronounced, but still significant.
Fig 2: Share of numbers of enterprises by type and numbers per 1000 people
Source: Author’s compilation based on figures of the SBA (Small Business Act) Facts Sheets 2010/2011,
published by the EU’s Directorate General Enterprise and Industry
8
SMEs, in
particular micro
businesses, play
important
economic roles in
Europe
SME development in Europe is being subsidised through different channels and
bodies. The EU competition law requires that subsidies are annually reported3.
The graph below is based on such reports. It indicates that the UK provides far
fewer subsidies than the other economies.
Fig.3: Percentage of SMEs exporting and state aid to SMEs
Source: Author’s compilation based on EIM, Internationalisation of European SMEs, 2010 and European
Commission, DG Competition, Annual Report 2009
Subsidies are highest in absolute terms in Italy, though the much larger SME
population must be taken into account. Germany provides the highest subsidies
in relation to the number of SMEs, reaching € 502 per firm, which compares to
€ 160 in the UK. Subsidies amount to a tiny fraction of the taxes that SMEs pay,
though.
2.2. SME development systems
SME development in European countries is in principle a shared task between
the private sector and its organisations, the public sector and its agencies as well
as public or private institutions that exist rather independently of governments
(banks, research institutions, universities, etc.). The roles and mandates of these
players, the support instruments they apply, the tasks they take responsibility for
and the intensity and manner in which they interact - the SME development
systems - vary significantly from country to country.
The history of industrialisation, societal patterns, the perception of the role of
the state and government policies have all contributed towards how the SME
development systems evolved in different ways in Europe.
As will be explained in more detail in the following chapters, the impressive
growth of the SME sector in the UK over the last 30 years (albeit from a low
basis), has been facilitated by the public sector, which leveraged strong private
sector participation. In Italy (despite the high level of public subsidies) there is
little trust between government and the SME sector, which devises its own
development schemes managed by SME associations. German SMEs are
organised in chambers and associations, which take care of development
programmes, interacting closely with the public sector and heeding its advice,
whereas France has a strong public sector presence in SME development, in
particular through regional authorities, with which private sector representative
organisations closely cooperate.
9
SME development
in Europe is in
principle
a shared task
between the
private and the
public sector;
the roles and
mandates of
players differ
substantially from
country to country
The SME sectors of Italy and Germany are maintaining their governance of firmbased vocational training and skill development, while vocational training
organised by the public education system is continuing its lead over firm based
training in France and the UK. Training and skills development in the UK is
governed by public bodies and delivered by both public and private institutions;
firm-based apprenticeships have recently gained importance.
Some general aspects appear important to understand SME development
systems in Europe:
- Chambers are playing important roles, but they are differently organised
in Europe. While chambers in the UK, Sweden as well as many of the
Eastern European countries have voluntary membership, France,
Germany and Italy (as many other EU countries) apply compulsory
membership, chambers being based on specific chamber laws. These
require chambers to carry out public mandates (partly also providing
them with monopolies for selected services); such mandates vary from
country to country. Chambers are leading players in SME development
in Germany and in France. In the UK, they participate in government
initiated SME programmes;
- SME associations in the EU all have voluntary membership.
Associations may be organised along professions, regions, groups of
SMEs or representing the whole SME sector, pursuing complementary
(sometimes overlapping) objectives. SMEs are often members of several
associations. Cross-sector associations - in competition with each other are the leading actors of SME development in Italy. Associations in
Germany and the UK have taken on distinct roles for SME development
as lobbyists and/or information and service providers;
- Public sector borne regional agencies, in cooperation with chambers and
other public organisations, are key actors for SME development in
France, providing many of their services directly. Regional and local
economic development agencies in the UK are government-initiated
public-private partnerships driving SME development. They tender and
sub-contract the larger parts of their support programmes to NGOs or
private sector service providers;
- Research on SME development is carried out in all four economies and
at EU level. The UK leads outstandingly with regard to SME
development as a subject of academic teaching and conceptual research.
This has supported the dissemination of innovative approaches across the
globe. SME development has some presence at academic levels in
France, to a lesser degree in Germany, and very little in Italy;
- SME development strategies are present in France at national and
regional levels. The UK and Germany used to develop regional SME
development strategies (usually focusing on the development of specific
clusters), but these are given lower priority nowadays and are
increasingly being replaced by a liberal market development approach.
Italy is a special case - the industrial districts there are private sector
borne, while public SME development strategies are mainly directed at
the economic development of the country’s South.
10
Monitoring and evaluation of SME development programmes is taking place in
all four economies, mostly limited to outputs (use of funds), though outcomes of
specific strategies are also evaluated. Evaluations of the overall impact of the
SME support system are known from the UK. This possibly explains why the
support system there has kept changing quite radically over the past decades.
SME development approaches in all four economies are conceptualised on the
basis of informed opinions of knowledgeable people (and the academia in the
UK), and not usually by applying sophisticated research methods.
Informed opinions
of knowledgeable
people shape
approaches to
SME support more
than sophisticated
research methods
2.3. SME growth
The number of SMEs in Europe has grown in a limited measure over the last
decades; only the UK recorded higher growth levels. Fluctuation (SMEs entering
and leaving the sector) over recent years has been between around 6 (France)
and 12 percent (UK) annually, resulting in an annual average net growth of 0.3
percent of SME numbers between 2007 and 2009 in Europe (SBA Fact Sheets,
DGEI, 2009).
If the economic situation provides opportunities to set up small businesses, and
if the SME development system is conducive, SMEs can prosper. Experience
and research point towards two aspects that are important to understand SME
growth:
- SMEs in the economies looked at in this report do not generally perceive
growth from micro to small or from small to medium as their primary
goal. Very little of such transition is actually taking place (Committee
Comité Richelieu, 2003), 4,5. This has to do with how SME owners look
at what they want to achieve in life6. Another reason relates to the ownermanager structure of SMEs: Beyond a certain threshold of numbers of
employees more complex management structures are required. Ownermanagers are often reticent to introduce such structures, fearing to lose
control and hence preferring that the firm remains straightforwardly
sized;
- SMEs are often regarded as the “engines” of job creation. Although jobs
have indeed been created in European SMEs, there is no clear evidence
from research that SMEs in Europe create more employment than larger
firms (cf. Biggs, T., 2002). A study of the German Institute for SME
Research over a period between 2001 and 2009 pointed out that small
firms have indeed created more jobs than larger ones, but this applies to
micro enterprises in the service sector, relating to higher level services,
i.e. not to small and medium scale firms in the productive or low level
service sectors (cf. German Institut für Mittelstandsforschung, 2013)7.
The rationale for promoting SMEs relates rather to the speed at which
they are able to pick up opportunities and create jobs during periods of
economic change 8 (such as recovery from recessions), and to a lesser
degree in sustained employment creation as such.
11
Very little
transition from
micro to small or
from small to
medium is taking
place
SMEs do create
employment, but
are not “the”
engine of job
creation
3. SME Support Systems in Europe
3.1. UK
Successful small enterprise development, innovative support instruments
and rapidly changing institutional structures
3.1.1 How today’s structures developed
SME development in the UK is a comparatively recent occurrence, commonly
pegged to strong initiatives starting with the advent of the Thatcher government9.
Since then, the number of SMEs in the UK has more than doubled (cf. Curran,
J., 2000). The evolution of the SME development system in the UK since that
time is characterised by quite radical institutional changes, bearing evidence of
how the public and the private sectors have been making efforts of working
together so as to establish an effective support system from a historically weak
basis.
The weak standing of SMEs in the UK may be traced back to conflicts that
developed at the beginning of the last century between industrial employers and
artisanal associations. Disputes about the responsibilities for skills training and
consequently the control of the skilled labour market bolstered unionisation of
craftsmen, diminishing the role of traditional craft associations. Employers
eventually gained the upper hand in the conflict This weakened the structures of
the craft sectors and led to the economic contribution of SMEs in the UK not
being highly recognised for a long time (cf. Culpepper, D., Thelen, K., 2008).
Margaret Thatcher strongly believed in entrepreneurship (“England is a nation
of shopkeepers”10.The conviction that smaller firms are better at creating jobs
than large corporations spurred the SME revival that responded to the dramatic
decline of UK industry in the beginning of the 1980s. Universities launched
“graduate enterprise” programmes to combat high graduate unemployment (it
was realised at the time that only 1 percent of British graduates started their own
business, compared to 2 or 2.5 percent in Japan and the USA, respectively) (cf.
Rosa, P., Smith, M., 1994). Encouraged by experience from the USA 11 ,
municipalities, under pressure to deal with unemployment, set up small
enterprise agencies, often as joint ventures with larger firms 12 . Developing
innovative approaches for SME development became a field of academic
teaching and knowledge transfer from universities to enterprise agencies. Many
concepts that became internationally known are SME support instruments
developed at that time (for instance Small Business Incubators).
More than 400 SME agencies were founded in the UK throughout the ‘80s, first
evolving in a varying, independent fashion, and later as an agency network,
based on active private sector contributions (often in kind through the
secondment of counsellors and advisers) and public finance (cf. Bennent, R.J.,
1995), 13.
The first significant change of this support system was brought about in the early
‘90s with the establishment of around 100 Training and Enterprise Councils
(TECs)14. This was meant to streamline the fragmented nature of the enterprise
12
SME development
in the UK is a
quite recent
occurrence,
pegged to the
advent of the
Thatcher
government;
since then, the
number of SMEs
in the UK has
more than doubled
agency system and, perhaps equally importantly, to shift powers away from
Local Councils (many of them controlled by the Labour Party at the time). The
TECs allowed the private sector and local communities to interact and decide
directly on how to develop their areas, under a common concept and structure
set by the national government. Skills development and SME development came
under the same TEC structure.
TECs were to draft economic development strategies for their areas and to
implement government SME development programmes. In doing so, they
collaborated with enterprise agencies as sub-contractors. 90 percent of the
finance of TECs came from public funds15. Not all TECs agreed to subsidise
support services to SMEs, fearing to foster a grant mentality (cf. Lauder, D.,
Boocock, G., Presley, J., 1994) (the issue of subsidies for SME development was
at that time intensely discussed internationally, British scholars contributing
significantly to the debate16). In order to establish sustainable structures, some
TECs merged with Chambers of Commerce (cf. Bennet, R., 2011) to become
membership organisations (CCITEs). The goal of financial sustainability with
regard to service provision to SMEs could, however, not be achieved. When the
TECs were abolished in 2001 under claims that they had become too
bureaucratic, the 16 CCITEs that had already been formed had to de-merge
again.
After the closure of the TECs, responsibilities for SME development were taken
over by nine newly created Regional Development Agencies (RDAs), while
training and skill development came under the responsibility of newly formed
Learning and Skill Councils (LSCs). The RDAs planned for much larger
geographic areas than the TECs. Transportation and large scale infrastructure,
which could not be taken care of by TECs, became part of a holistic RDA
approach. RDAs were public bodies charged to “bring vitality and expertise to
the task of economic development and regeneration in the regions“17 through a
business-led approach. Working closely with local authorities, universities and
other organisations, RDAs developed regional development strategies and
oversaw their implementation, again out-sourcing most of the work to publicprivate or private organisations.
The UK SME support system developed at different levels: In addition to the
local/regional level, where TECs, later RDAs and thereafter Local Economic
Partnerships (LEPs) provided the institutional and management umbrella for
service provision, SME development has also been supported from the central
government level. There, the responsible ministry (formerly the Department of
Industry and Trade - DTI, now the Department of Business, Innovation and
Skills, BIS) is not only providing the conceptual framework for the
local/regional structures, but also supporting SME development through national
support programmes. A third level is the implementation level (the direct contact
level for beneficiaries), which is shared between the above two and local
enterprise agencies. How the two levels developed over time and how they are
interacting with each other is depicted in the graph below.
13
Subsidy-free
provision of
support was aimed
at, but this goal
was sooner
dropped
Fig.4: Development of SME support system from 1980 to 2010
BiTC and LEGS supported
Local Enterprise Agencies
Local Councils had
responsibility for Skill
development and LENs
Decision on local economic
development transferred from Local
Councils to public-private
partnerships.
Decision making transferred from
local to regional level. RDAs to
promote and enable economic
growth in England's .
Time line
Year: 1980
Local/regional
LEGS: Enterprise agency grant scheme 100 TECs (or LECs, equivalent in Scotland) 9 RDAs
BiTC : Business in the Commuity
90% government financed, Boards: Government financed
2/3 priva te sector, 1/3 publ ic s ector
Private s ector led Boards
LEN: Local Enterprise Networks
structures
1990
Government
programmes
Small firms service (SFS), BDS
Implementing
agencies
Local Enterprise Agencies
under Dep't for Trade and Industry
Back from regional to local level:
LEPs to provide vision and
strategic leadership to drive
private sector growth. Purpose
and approach of LEPs vary.
2000
BusinessLink
under Dep't for Trade and Industry (DTI)
Not uniformly organised, often NGOs or local publicprivate partnerships
2010
under RDAs from 2005
38 LEPs: Little direct gov't
finance, can draw on
Regional Growth Fund RGF
BL website, taken care o f by
Dep't for Business, Innov. and Skills
Financed by government (later by RDAs), sometimes
working with Chambers of Commerce as contractors
Source: Author’s compilation based on publications of or about the mentioned institutions
In the ‘80s the DTI established the Small Firm Service, a nationwide network of
offices providing signposting services and a telephone helpline for SMEs (as
well as a limited advisory scheme called BDS). The SFS was replaced by
BusinessLink18, a new approach of the DTI setting in during the ‘90s. Eightynine
BusinessLink offices, each with several satellite offices, were set up, functioning
as “one-stop-shops” for small firms, and in particular as a source of high quality
counselling for growth oriented SMEs. BusinessLink recruited secondees from
larger businesses and also worked with SME entrepreneurs as business advisors
.
BusinessLink was initially planned to stimulate functioning markets for business
services, so that public financing could eventually be withdrawn, a plan that later
had to be dropped. BusinessLink was well funded; DTI, TECs and RDAs,
respectively, as well as EU funds were the main sources, while small businesses
contributed approximately 11% in form of fees to the income, meaning that large
parts of services were subsidised or free of charge. BusinessLink, as the TECs,
sought and formed partnerships with Chambers of Commerce for service
provision. When the RDAs took charge of the oversight of BusinessLink in 2005
and determined its policies, the influence of chambers as partners was partly
reduced (cf. Bennet, R., 2011).
An outstanding achievement of BusinessLink has been their comprehensive
national on-line portal, providing advice, guidance and information for SME
entrepreneurs. This website is full of practical interactive tools for business
planning and management. A telephone hotline and e-mail support service refers
enquirers to the right persons/organisations to assist them19.
Following charges that they were not sufficiently efficient, the nine RDAs were
closed by early 2012, and with it BusinessLink, except its on-line and hotline/email services. Following its “Big Society”20 vision, the coalition government has
been shifting powers closer to local communities and businesses in order “to
drive sustainable private sector growth and job creation in their areas“ 21 .
Emphasis is placed on the revival of voluntary inputs and market forces as
determinants where growth should take place. The nine RDAs are replaced by
Local Enterprise Partnerships (LEPs) (this only applies to England, where 38
14
LEPs are to be established). The objectives of LEPs, their geographical areas
(LEPs are to cover functional economic areas, not necessarily following
administrative boundaries), and their economic priorities are left for LEPs to
decide on - though the national government will have to approve. There are few
government resources available for LEPs’ administration, such as a small
capacity fund. Focusing on “creating the right environment for business growth,
tackling local infrastructure priorities, employment and enterprise in the
transition to a low carbon economy and supporting small business start-ups”,
LEPs are to work closely with universities and education colleges 22 . A new
policy is to allow local authorities to keep the business rates they collect, giving
them an incentive to grow their economy and attract business to the area23.
A Regional Growth Fund, made available by central government, is to finance
focused interventions proposed by LEPs that are to tackle barriers to growth and
investments, which markets cannot address. Former RDA functions, such as
inward investment, sector leadership, responsibility for business support,
innovation and access to finance will now be led from the national level24.
The LEPs are not to be viewed as reincarnations of the TECs, though the idea of
shifting decision making powers towards local public-private partnerships bears
some similarities. LEP cover a larger geographic area than TECs (about twice
the size). Their approach is more market led and they operate at a larger distance
from national government, which in turn takes on stronger responsibility for
cross-cutting economic development issues.
The evolution of the government initiated structures follows an orientation from
very small decentralised structures working hand in hand with national
structures, to small (TECs), then to rather large (RDAs) and back to smaller
(LEPs).
Governmentinitiated support
to SMEs evolved
from very
decentralised to
local, then to
regional and
again back to
local structures
3.1.2 Main actors
In addition to these basic structures, the following organisations are important
actors in SME development in the UK:
Chambers of Commerce in the UK are independent organisations. The
network of the 52 chambers in the UK is called the British Chambers of
Commerce (BCC). Total membership is around 92 000, or about 6 percent
of all firms, with higher membership rates among medium and larger firms.
Chambers lobby for the interests of their members and take active part in
local development as partners of local development organisations and
members of national decision making bodies. They provide advice and
information to their members and offer a wide range of training courses.
The BCC carries out quarterly business climate surveys, undertakes
research and publishes economic reports and opinions. The partnerships that
Chambers of Commerce in the UK had entered with TECs and
BusinessLink augmented their ability to deliver services to SMEs and also
helped them to extend their membership base. Their relationships with
TECs and BusinessLink were, however, short-lived; rarely were chambers
able to take the lead of such partnerships.
Chambers play important roles in the community, hosting, for instance,
community finance organisations in various areas. The chambers’ role is
15
Chambers play
important roles in
the community,
hosting, for
instance,
community finance
organisations in
some areas
being reinforced again with the advent of LEPs, fulfilling the latters’
requirements of volunteerism. Chamber representatives are board members
of all LEPs that have already been established. BCC, the national
association of chambers, also became the lead partner body for the LEP
network(cf. Bennet, R., 2011).
Professional and trade associations are significant actors of the SME
development system. Their number is particularly large in the UK, while
the membership figures of most of them are comparatively small, in the
bracket of a few hundred up to a few thousand only. Professional
associations draw members from SMEs as well as larger scale industry and
are organised at national level, some with a network of regional branches.
Their most important role is that of lobbyists for their sub-sectors, also
providing technical information and sector specific advice to their members.
Some associations promote apprenticeships in collaboration with skills
training colleges, or even run their own training centre. Many SMEs are
members of several associations (cf. Bennet, R., 2011).
The Federation of Small Businesses (FSB) has 200 000 members (or 11
percent of SMEs) and is the most outstanding association of SMEs in the
UK. FSB’s main goal is defending of and lobbying for members’ interests
at regional and national levels. For this purpose, annual surveys of the SME
sector are elaborated25. The FSB provides services, in particular legal advice
to its members.
The library services of some major towns have been playing significant
roles in SME development for a long time. The Birmingham Library, for
instance, operates the Business Insight service, providing free advice,
referral to specific support, finance or training, especially for the smaller
type of SMEs and in particular start-ups. The library services, as any other
public or private business service provider, have to bid for implementing
publicly financed SME programmes, and the library services, too, subcontract some of their services to private service providers.
Enterprise agencies founded during the ‘80s remain key contact points for
potential and active entrepreneurs and continue to play essential roles in
SME development, in particular helping poorer sections of the society to
engage economically. They bid for the implementation of public SME
development programmes, support people interested in starting a small
business, run training courses and counsel SMEs. Operating as not-forprofit organisations supported by local authorities and private business, they
benefit from the spirit of volunteerism that is apparent in the British society,
as well as from the sense of social responsibility among private sector firms,
which continue to second staff to these agencies.
Enterprise UK is a campaigning organisation founded in 2004 by the British
Chamber of Commerce, the Confederation of British Industry, the Institute
of Directors and the Federation of Small Businesses. Supported by
government, Enterprise UK is focusing on young entrepreneurs, instilling
entrepreneurship culture among young people.
16
Enterprise
agencies bid for
implementation of
SME support
programmes;
they benefit from a
spirit of
volunteerism and
social
responsibility
3.1.3 Support offered
Advice for SMEs
Government-funded non-financial support programmes change from time to
time in terms of level of subsidy and conditions. The latest information can
always be picked from the BIS’ or responsible institutions’ websites. In general,
they include:
 Start-up support programmes, which are very visible in the UK, receiving
continued priority. Advice and basic training, offered through different
organisations and often supported through private sector donations, are
usually free of charge. Start-up support is to a large degree sustained by
social policy objectives. Equal opportunity, minority rights, support for
neglected areas and poverty alleviation are important impulses for these
programmes;
 Management advice to existing businesses has been offered under the
“Solutions for Business” umbrella of BusinessLink and will continue in
a streamlined format under the LEP structure. Advice (counselling) is
being offered to smaller enterprises, again with special attention to
minority or vulnerable groups, and is usually free of charge or
substantially subsidised. Specific advisory support to high-growth
SMEs, manufacturing SMEs and exporters is offered on a matching
(50:50) grant basis, so are programmes aiming at energy and resource
efficiency;
 Matching grants are available for innovation, research & development
and product design (often with a much larger grant share than 50
percent). See also the “innovation” below;
 Voluntary networks of experienced entrepreneurs, engineers and
scientists play important roles in supporting innovative SMEs in the UK,
so do business angles assisting new technology-intensive ventures.
Voluntary
networks of
experienced
entrepreneurs,
engineers and
scientists play
important roles
in supporting
SMEs
Where do owners of SMEs in the UK go to for advice and assistance? A
professional business development officer interviewed in the course of
researching for this paper opined that 50 percent of SMEs ask a friend to find a
solution for an issue, 30 percent ask their accountant, and the rest may go to see
one of the SME agencies, the BusinessLink offices or the library service for
advice. This concurs with the results of a FSB survey carried out in 201026. An
evaluation carried out in 2000 estimated that the take-up of government financed
assistance schemes of all SMEs is around 10 percent (Curren, J., 2000). The
authors of the evaluation suggested that this low figure rendered the system
ineffective, although SME development systems in other European countries do
not reach much higher percentages.
Finance for SMEs
There are no development banks in the UK offering specific financial products
for SMEs27. SMEs may get loan finance from the four major commercial banks
in the UK (HSBC, RBS, Lloyds and Barclays) at commercial conditions. The
UK banking system is known for its high profitability and efficiency, but their
network of branches is comparatively sparse (cf. Mullineux, A., Terberger, E.,
17
Small and micro
enterprises do not
always find easy
access to finance
2006). The usual conditions of loans for SMEs are that they must be fully
collateralised and that the firm’s equity contribution must be as high as the loan.
In order to fill the financial services gap, Community Development Finance
Institutions (CDFIs)28 have been created since the ‘90s. CDFIs are independent
not-for-profit organisations, operating under their own name, certified by the
national CDFI Association, but not necessarily following the same
organisational framework. Trustees or members of boards of CDFIs are usually
volunteers. Some Chambers of Commerce host CDFIs. 66 CDFIs are operating
across 175 branches in the UK, offering loans to small businesses, community
organisations and individuals. CDFIs have provided about 3200 loans in
2009/2010, amounting to about 43 Million Euro, to micro and small enterprises
(averages of 11 500 and 40 000 Euro, respectively) for periods of up to 10
(typically 3) years. Interest rates vary and are not necessarily lower than market
rates; the advantage for clients is that loans are provided without strict security
conditions, sometimes against personal guarantees or without collateral. An
Enterprise Finance Guarantee scheme is available, too. The default rate of CDFIs
is reported to be around 13 percent and thus similar to the default rate of SMEs
borrowing from commercial banks. The coalition government had
commissioned an evaluation of the work of CDFIs, which recommended their
continuation (GHK Int., 2010).
The greater share of CDFI funds used to come from the RDAs. These will now
be replaced by other sources, an important one being the Big Society Bank
(BSB), a recent government initiative supporting a range of social development
objectives, including access to finance for those excluded from mainstream
banking. The BSB will be financed through dormant accounts, unclaimed lottery
funds, investments of the large commercial banks and charitable donations.
An alternative source of finance for innovative SMEs in the UK is venture
capital, which is often connected to business angel support. More than 1700
private venture capital companies offer equity investments against active
management participation in the UK. Four per cent of SMEs used venture capital
finance in 2004, however, according to an ACCA (Association of Chartered
Certified Accountants) report, this share has been declining to about 2 percent in
2009.29
Special financing schemes in the UK include products such as the Zero Interest
Carbon Trust Fund and the Clean Energy Seed Fund for energy saving
investments, grants for research and development and grants for business
investments (directed at specific geographic areas). Those are matching grants,
meant to complement SMEs’ own investments. Equity contributions from public
sources are also available, assisting applicants to qualify for commercial loan
finance. Capital allowance schemes permit SMEs to write off investments in
shorter periods of time, and schemes are also available allowing deferred
payment of taxes.
Government offers loan guarantees for loans taken from commercial banks. The
guarantee costs 2% additional to the interest. Take-up is low and such guarantees
seem not to be popular with commercial banks (cf. Deakins, D., Philpott, T.,
1995) 30.
18
An alternative
source of finance
for innovative
SMEs in the UK is
venture capital
Innovation and SMEs
Innovation in SMEs has for a long time been supported in the UK, universities
being helpful in advising and collaborating with SMEs. Venture Capital has been
on offer to finance innovation. More recentently, a structured approach to
innovation support in SMEs evolved.
The UK is a leading science and research nation. Two thirds of public research
funds are invested into “blue sky” or curiosity driven fundamental research31.
The Technology Strategy Board (TSB), a public body established in 2007, led
by peers from the private sector as well as the academia, directs R&D
strategically towards particular sectors and markets, allocating public funds (of
the BIS and other departments) through a range of dedicated programmes. Seven
Research and Development Councils (art and humanities, biotechnology,
engineering and physical sciences, economic and social research, medical
research, national environment research, science and technology facilities) are
supporting the TSB. Applied research has received increased public funding
over the last years, in spite of the financial crisis. Government is establishing an
elite network of six “catapult” technology and innovation centres (the first three
focusing on high value manufacturing, cell therapy and offshore renewable
energy), which help transform innovative ideas into valuable products, processes
and systems, SMEs being perceived as most important clients.
Tax credits of up to 225% of R&D expenditure present a most important
financial support for innovation. Government is eager to channel private capital
towards innovation in SMEs. It offers income tax relief for individuals investing
into the Seed Enterprise Investment Scheme (SEIS) and facilitates access to
venture capital through the UK Innovation Fund. The TSB funds initiatives such
as collaborative R&D, Knowledge Transfer Networks & Partnerships, the Small
Business Research Initiative and a programme offering grants for R&D in
innovative technology SMEs called “Smart32”. Innovation vouchers for SMEs
enable firms to collaborate with external knowledge providers. Innovation
campuses support innovative start-ups and SMEs. The UK innovation system is
internationally oriented, supporting access to international markets, international
finance and global research collaboration, as a reent review of the UK’s
innovation policy by the Science and Technology comittee of the House of
Commons suggests (Bridging the valley of death: improving the
commercialisation of research, 2013)33. In response to some of the criticism of
the report, the UK Government announced several reforms relating to easing
access to and increasing finance as well as extending technical support for
innovation in SMEs.
Tax credits of up
to 225% of R&D
expenditure may
be granted
Vocational and skills training
UK Government reports have suggested that skills training in the UK is lagging
behind EU levels and needs to be upgraded (cf. Leitch Report, 2005). Vocational
and skills training is high on the agenda of the private and public sectors in the
UK.
The vocational and skills training system in the UK has undergone several
profound changes over the last decades. The Education Reform Act of 1988
opened the possibility for schools and training centres to opt out of the control
of Local Councils, which used to be responsible for vocational training. The
19
Vocational and
skills training is
high on the
agenda of the
private and public
sectors in the UK
network of TECs (see above) took over responsibilities for vocational education
and training. 10 years later, in 1999, the newly created national Learning and
Skills Council (LSC, supported by Local Learning and Skill Councils, LLSCs
and independent employer-led Sector Skills Councils, SSCs, defining skills
needs and occupational standards) took over from the TECs, but with wider
responsibilities, including funding, management and quality assurance.
The LSC and the LLSCs were abolished in 2010 and replaced by the Skills
Funding Agency (under the new Department of Business, Innovation and Skills),
responsible for apprenticeships and further education of adults, and the Young
People’s Learning Agency (under the Department for Education), responsible
for all training and education for 16 - 19 year olds. Education and training up to
19 years of age is free of charge in the UK, and can be subsidised up the age of
25.
Vocational training qualifications can be achieved at different National Vocational Qualification (NVQ) levels (level 1 to level 5). At an even lower level,
Vocational Related Qualifications (VRQs) can be obtained through basic
courses offered to students at secondary schools even before they reach the age
of 16. The number of students attaining a National Vocational Qualification level
has increased significantly over recent years.
Vocational training in the UK is carried out in secondary schools, in further
education (FE) colleges, other public and private training institutions (such as
“City and Guilds”) as well as through apprenticeships. The latter consist of
practical training, provided in private companies, complemented by theory and
general topics that are taught in FE colleges.
Apprenticeship training in private firms is encouraged and gaining in
importance. 170 000 of the 790 000 who attained NVQs in 2009/2010 went
through apprenticeships and the share of apprenticeships has more than doubled
over the last five years. The greater share of apprenticeships is in service sectors
(banking, insurance, etc.), and covers the first year of learning.
The Scottish system of vocational training, often quoted in vocational training
literature, is highly modular. Qualifications can be obtained at 12 different levels
and at different places of learning (schools, private and public training providers,
companies). Examinations are output based; students can sit for them whether
they have attended courses or not. Modules can be combined vertically (higher
level of specialisation) or horizontally (broad diversified competencies). The
vocational training systems of Wales and England are not as modular as the
Scottish one, but contain many modular elements (cf. Pilz, M., 2002).
20
Apprenticeship
training in
private firms is
encouraged and
gaining in
importance
3.1.4 Observations from a distance
The SME development system in the UK appears strongly influenced by sociopolitical considerations, in particular with regard to equal opportunities and
empowerment of minorities 34 . Outstanding is the emphasis on fostering an
entrepreneurial culture, so as to increase the number of SMEs, with the ultimate
objective of creating jobs. Emphasis on start-up support has been particularly
strong in the UK. Emphasis on innovation in SMEs is another recent strong
accent of the SME support system.
Outstanding is
the emphasis on
fostering an
entrepreneurial
culture
Market forces play important roles in the UK SME support system at two levels:
-
-
The first level is the strategic orientation of development support. Local
or regional economic development approaches regard market forces as
key drivers of the economy. While RDAs developed strategies that
included, for instance, the formation and support of industrial clusters,
such strategies seem to be no longer the priority of the LEPs, which set
the focus on growth sectors (cf. Longlands, S., McCauley, A., 2011), but
not primarily in an interventionist way;
The second level where market forces come into play refers to the method
of service provision, in that competitive bidding is considered essential
for ensuring effective delivery of support measures.
Much emphasis is also laid on chanelling private capital towards SME
development, evidenced by the availablity of venture capital, which is
encouraged by the state, and, for instance, the financial schemes supporting
innovation.
The preparedness of governments to change institutional structures rather
radically within comparably short periods of time is an outstanding feature of
the UK SME development system. The changes from the unfettered SME agency
network in the ‘80s towards the TECs, then to the large-scale RDAs and now to
the LEPs would suggest that the SMEs development system is in a perpetual
development process. The preparedness for change seems to render the UK SME
development system flexible, ever innovative, adapting to actual social,
environmental and economic requirements. The BIS innovation and research
strategy speaks of an innovation “ecosystem”, which may explain how the
institutional/organisations support landscape is perceived as living and ever
changing. Owners of SMEs might find it sometimes taxing to fully understand
changing rules and responsibilities35, though.
Private sector leadership is a common denominator of the SME development
system. This leadership is taking place on government invitation and within
government devised institutional structures and support frameworks. The LEPs
deviate from this pattern in a sense of being more liberal, though government
reserves approval rights, e.g. of boards’ composition.
The SME development system in the UK is not imaginable without voluntary
private participation and contribution. The spirit of volunteerism and social
responsibility of private companies, which second their staff to work in SME
agencies and contribute in many ways to maintain a high level of service
provision, is an outstanding element of the system.
Volunteerism is desired and highly accepted socially in the UK. It represents
specific social capital that is an essential pillar of the SME development system.
21
The British SME
development
system is in a
perpetual
development
process
The SME
development
system of the
UK is not
imaginable
without
voluntary
private
participation
and contribution
Despite their comparatively low levels of membership, chambers and
associations in the UK seem to play important roles precisely because of their
voluntary involvement. While the power of chambers in continental Europe is
solidly based on chamber laws, the UK chambers’ significant influence is
merited by their commitment and voluntary contribution to the development of
the local communities in which they operate.
Public-private dialogue in the UK takes place permanently at the level of the
public-private boards of the institutions and organisations that are part of the
SME development system (LEPs, local enterprise agencies, CDFIs, TSB, etc.),
where outstanding leaders of business, local administration and community
groups interact to find consensual solutions. Business leaders are taking part in
the public-private dialogue foremost in their personal capacities as peers, not
necessarily as representatives of the institutions to which they belong. This
renders the dialogue open and comparatively free of the institutional interests of
private sector organisations.
A measure of altruism seems to be inherent in parts of the SME development
system of the UK. It expresses itself, for instance, in the concern for ownership
that SME entrepreneurs should develop for support measures brought to them
(cf. Curran, J., 2000). A notion of charity can be found in presentations of CDFIs,
which fill the gaps of market failure of the established UK banking system. An
altruistic approach can unleash significant resources, but it might also put a
distance between providers and receivers, in the sense that receivers have limited
legal recourse or clearly defined rights to some of the services. This may not
matter very much in a society in which the notion of fairness forms a strong
element of social interaction, but in a different society it could impinge on the
effectiveness of support provision.
22
3.2. Germany
An efficient, long standing SME development system owned by the
private sector, trying to modernise while keeping traditions
3.2.1 Roots and rationale of SME support
The rationale for supporting SME development in Germany has to do with
fostering economic stability. Ownership of SMEs in Germany is often passed
from one generation to the other. Family owners of firms are commonly
perceived as assertive performers, but reticent with regard to incurring debts,
putting store by avoiding failure rather than chasing short term profits, and being
loyal towards their employees (which employees tend to reciprocate). This
pattern of “Mittelstand” (literally: middle class)36 behaviour has earned itself
social acceptance and is said to render the German economy less vulnerable to
economic ups and downs (Astrachan, J.H., Pieper, T., 2011). SME policy in
Germany is hence directed at fostering the “Mittelstand” role. SMEs in Germany
are further regarded as being able to flexibly adapt to new markets, innovating
products and services. This ability is seen as an important factor supporting
recovery during economic recessions,37 placing innovation at the core of SME
policy.
The relation between the “Mittelstand” and the public administration in
Germany could be described as one of mutual respect and trust. One example is
the creation of the RKW38 after WW 1, an independent and financially selfsufficient membership association (though seed capital was provided by the
government) to advise German firms on productivity improvements 39 . The
suggestion to form this association came from the government. It was taken up
and further developed by the private sector. Improving productivity was
promoted as a “joint task”, in which technical research bodies, trade unions and
public administration acted together. Operating at market rates, the RKW is,
even today, one of the most important sources of advice and counselling for
SMEs, setting quality and professional standards for SME counsellors (cf. Pohl,
M., 1996).
Another example of how the public and private sectors are working hand in hand
is the establishment of credit guarantee banks for SMEs in the ‘50s. These are
important pillars of the SME development system, initiated through public sector
encouragement, but controlled and managed by private sector organisations. The
government provides back-up guarantee cover for 51% of defaults (the rest is to
be born to a smaller part by the “house” 40 banks, through which guarantee
requests must be channelled, and to the greater part by the guarantee bank itself).
The guarantee banks provided close to 8000 guarantees in 2010, for loans as well
as equity participation in SMEs. Applicants pay a maximum of 1.5 percent
annually of the loan or guarantee value (this differs from state to state) plus an
application fee. Default rates are around 2 to 3 percent41. A study in 2010 pointed
out that the net contribution of guarantee banks towards economic development
in Germany is significant (cf. Elkan, M., Schmidt, A., 2010).42
23
The rationale for
supporting SME
development in
Germany has to
do with fostering
economic stability
3.2.2 Main actors
The key roles of chambers and associations
Germany’s chamber system, which effectively dominates the SME development
system, was also proposed by the public sector and taken up by the private sector.
Though chambers had been there much earlier, today’s chambers are
organisations subject to specific chamber laws enacted in the early ‘50s. Specific
for German chambers is that, in addition to providing a range of public services,
they are mandated to develop, oversee and carry out vocational training,
including examinations and certification.
Membership of chambers is compulsory, but chambers are independent of
government. Their CEOs are usually well connected politically - not primarily
because politicians would like to exercise influence over chambers, but because
chambers regard connectivitiy with political decision makers as essential for
effective chamber work. In terms of geographic areas, chambers are organised
according to traditional, not actual administrative boundaries, though typically
(but not uniformly), three or four administrative districts43 share one chamber.
SMEs are either members of the chambers of industry and trade (if commerce is
their main business), or of the chambers of crafts (if they belong to craft or craft
related professions, which are defined according to categories44). There are 80
chambers of commerce and industry and 53 chambers of crafts in Germany. A
remarkable characteristic of the chambers of crafts is that, according to the
chamber law, employees are represented on the chamber board (three of seven
seats). This ensures that employee’s interests are heard and that labour disputes
can be settled at chamber level. Consequently, SMEs are virtually unaffected by
strikes.
Chambers are public stakeholders (so-called agents of public interest) in
Germany. This means that their opinions must be heard by public administration
with regard to any public development project or political decision that could
affect SMEs. Chambers have competent departments elaborating such opinions.
Most of the German states have SME laws, which basically ensure that the
requirements of SMEs are considered in any government action or decision. The
federal government, too, is bound by an SME law enacted in 2006 (also called
law for the reduction of bureaucratic obstacles), which is meant to ensure that
the legal and regulatory environment is conducive to SME development.
Chambers are one of the two pillars of the German private sector organisation
system; professional associations are the other. Membership in associations is
voluntary. At local (district) level, professional associations of crafts are called
guilds. Between 30 and 90 percent (according to regions and professions45) of
skilled craft SMEs are organised in guilds. The elected district guild master is
responsible for distributing information among guild members. All guilds in an
administrative district form the district crafts league (Kreishandwerkerschaft)46.
The league may be compared to a cooperative of guilds, sharing joint management and service provision to members. District crafts leagues, which have
between several hundred and up to 4000 members, employ permanent staff and
are the first point of contact for information and advice for craft SMEs in
Germany. The district crafts leagues are independent, though their remit and
mandate is largely uniform. Chambers audit the legality of their operations.
Sometimes chambers ask district crafts leagues to carry out work on their behalf.
24
SME employees
are represented
on the boards
of chambers of
crafts
SME laws
basically ensure
that SME
requirements are
considered in
public sector
decisions
District crafts
leagues are the
first point of
contact for
information and
advice for
craft SMEs
Chambers and associations are two separate systems. Both work directly with
their members at district levels. While chambers take care of the general interest
of the whole crafts sector, the associations are representing their sub-sectors,
ensuring that members are informed about professional and technology
developments. Chambers and associations are represented at state and federal
(national) levels in form of working groups and federations, respectively, and
connect at state and federal levels. The state assembly of craft enterprises meets
yearly with the cabinet of ministers of the state government. The ZDH (Central
Assembly of German Crafts) at national level is a powerful organisation,
interacting regularly with the federal government at highest levels. The graph
below displays the two independent, but communicating systems.
Fig. 5: Chamber and association system in Germany
Chamber System
Association System
National
Level
Central Assembly of
German Craft
Enterprises (ZDH)

German Assembly of
Chambers of Crafts (DHKT)

Federal Union of
Professional Associations
(for all professions)
Professional association
federations (for each
profession)
Federal
State level
State working group of
Chambers of Craft

State Assembly of
Craft Enterprises

State federations of
professional assoc. (for all
professions)
State federations of
professional assoc. (for
each profession)
Level of
2, 3 or 4
districts
Chambers of Crafts
District
level
District Craft Leagues
(for all craft professions)
May do some work for
the chamber from
time to time
Associations (guilds), for
each craft profession
Compulsory membership


SMEs
Voluntary membership
Source: adapted from Chamber of Craft publications
The diagram refers to craft SMEs. The relationship between the chambers of
commerce and industry and associations of non-craft enterprises are organised
in a similar way, only that chambers of commerce and industry have both SMEs
and larger industries as members.
25
The chamber law mandates chambers of crafts to operate advisory services.
These are, within certain limits47, free. The costs of such advisory services are
equally shared between chambers, states and the federal state. There are about
840 counsellors employed by chambers, two thirds working at the chambers
themselves, mainly providing general advice, while one third, specialised in
technical issues, is working at professional associations. In 2008, 58,000 cases
of on average 7 hours of counselling were extended to craft enterprises (ZDH,
2010). This offer of subsidised advice is not part of a support programme but a
legal right and a permanent feature of the German SME support system
36 percent of counselling is directed at start-ups. An economist at a chamber of
crafts 48 estimated that about 50 percent of all start-up entrepreneurs seek
counselling, while the share of existing SMEs looking for advice is between 10
and 15 percent, roughly half of them seeking counsel how their business could
grow, while the other half has found itself in a difficult economic situation and
requires assistance (often quite late) to get out of it. Significant efforts are made
with regard to counselling retiring owners of existing SMEs to find a
buyer/successor when there is nobody in the family interested to continue with
the business.
SMEs that do not fall under the craft definition can obtain advice through the
chambers of commerce and industry. Initial start-up advice is substantially
subsidised, while advice for existing businesses may be financially supported in
line with the various development programmes established by the states or the
federal government. The amount of subsidy varies, some programmes offer
subsidies on a reducing scale, others limit the hours of free counselling.
Although such programmes are temporary, they are typically long term,
spanning beyond the legislation periods of elected governments. There are
practically always support programmes available, though their themes, priorities
and volumes may change. The emphasis that the German government places on
energy saving and environmental protection is reflected in current support
programmes.
The issue of subsidies for counselling/consultancy being offered to SMEs is
being discussed publicly from time to time (in particular at times when
government spending comes under scrutiny). Proposals have been made to the
effect that subsidies should be paid from a revolving fund, to which firms that
have been assisted should reimburse the cost of support as soon as their
profitability and cash flow situation allows it49.
Chambers of crafts finance themselves through membership fees (around one
third of their income), income from services they provide (around 10 to 15
percent of income) and fees they collect for training and examinations (more
than one third of the income in the case of chambers of crafts). The rest refers to
various other incomes (such as interest on assets, etc.). The significant income
from training and examinations is to a substantial degree indirectly subsidised
through public scholarships.
In addition to the support from chambers/associations, SMEs are supported
through dedicated structures in two main areas: innovation (through dedicated
structures, see below) and start-ups (in varying manner, for instance through
municipalities and regional development authorities, see below).
26
Offering advisory
services for
SMEs is a legal
requirement
Regional development agencies
Role in SME development
Regional Development Agencies play supportive roles in SME development.
They are comparably new to Germany, most of them having been founded
during the ‘90s. Regional development agencies often take care of the economic
development of two, three or four administrative districts. Municipalities/district
administrations, chambers, banks and other private partners are shareholders in
such agencies, though structures are not uniform, and chambers cannot hold
financial shares because of chamber law restrictions .
Regional development agencies have gone through development phases over
time, starting from the common management of industrial sites towards the
integrated development of locations, including start-up support, development of
local potentials, cluster support as well as marketing of a regional identity within
natural economic boundaries. In the beginning, practical considerations
prevailed: municipalities have the privilege to change the use of land, e.g. from
agriculture to industry. The substantial price difference (four to fivefold) results
in income that regional development agencies can use to finance economic
development programmes50. Another practical aspect is the use of EU structural
funds51. Regions applying for such funds must meet certain requirements of size
and organisation, which singular administrative bodies cannot always fulfil,
hence the motivation to collaborate in forming joint development agencies in
order to be able to access such funds.
Contribution to Start-up support
Municipalities and regional development agencies regularly support SMEs startups through various initiatives, including awareness creation seminars as well as
subsidised or free trainings. Such initiatives are usually supported by banks and
carried out in close cooperation with chambers.
Cluster development
Regional development agencies commonly elaborate economic strategies for
their areas. Such strategies often include the development of industrial clusters,
which entail networks with academic research and educational/training
institutions. Federal states promote cluster development, complementing EU
funds where they are available. Some regional development agencies have
developed industrial sites that give preference to selected sub-sectors. The
cluster approach in Germany has been strong and some success stories of cluster
development (energy, logistics, IT, biotechnology, tourism and many others) are
known, especially from regions where economic restructuring has taken place,
such as the Ruhr district and also areas of the new states of East Germany (cf.
Arndt, O., 2006). However, the cluster approach is increasingly also viewed with
scepticism, being fuzzy. Possible negative effects of clustering (creation of
cartels, loss of diversity, increased regional disparities) are being pointed out,
while the attribution of positive effects of policies and programmes is being
questioned, as successful enterprises may be found outside of clusters as much
27
The importance of
networks and
proximity is
increasingly
regarded as
artificial, and
assumptions
concerning
learning,
entrepreneurship
and start-ups are
viewed as
simplistic
as failing ones within them. The importance of networks and proximity is
increasingly viewed as artificial, the social component of regional economic
processes as over-emphasised and assumptions concerning learning, entrepreneurship and start-ups as simplistic (Fromhold-Eisebith, M., 2010). SMEs
wishing to collaborate within clusters may not always have adequate capacity to
reach the critical mass necessary for international competitiveness.
Achievements have been made with regard to networking between SMEs around
projects and themes (such as energy-saving) 52 . Eventually, a free market
approach towards regional economic development may supersede efforts of
forming clusters53.
Technology centres
155 technology and business incubation centres, working in close cooperation
with universities and commonly with regional development agencies, have been
established since the ‘90s throughout Germany, usually co-financed using EU
and state funds. The purpose of these centres is the transfer of know-how,
information and technology to SMEs. Such centres are often managed by private
firms (usually with significant shareholding of public entities), earning income
from renting out space, fees earned from consulting SMEs accommodated in the
centres, and some subsidies. While the association of technology and business
incubation centres points out successes (40 000 firms founded, 250 000 jobs
created since the inception of the centre approach, i.e. 10 to 15 years), this does
not appear outstanding given an annual birth rate of beyond 100 000 SMEs in
Germany. An audit report of the state of Saxony pointed out that several
technology and incubation centres cannot pay back their debts and have reverted
to merely renting out space instead of fulfilling a developmental role
(Rechnungshof Sachsen, 2010).
Cooperatives
The German cooperative system is an important complement to the SME system.
In the 19th century, F.W. Raiffeisen, a humble mayor of a small Rhineland town,
first introduced farmers’ cooperatives, cooperative savings & loans banks (to
become the Volks- and Raiffeisenbanken) and, among other schemes, cattle
insurance policies that poor peasants could use as collateral for credit.
Raiffeisen’s ideas were rooted in the belief of self-help (as opposed to charity)
as well as ethics that are important elements of “Rhineland capitalism”. Today’s
cooperatives54 are regulated according to a special law; they are supervised as
well as audited by the Cooperatives’ Federation. Free from government
interference and subsidies, cooperatives play most important roles for
agricultural processing (such as winegrower cooperatives that take care of
bottling and marketing), but also in other professions, such as cooperative
laboratories for medical practitioners or a computerised processing centre for tax
consultants (the largest cooperative in Germany). Cooperatives are essential
suppliers of certain SME sub-sectors. Butchers operate slaughterhouses as a
cooperative enterprise, or the large bakers’ cooperative operates large scale flour
mills that supply them with their raw material. Procurement cooperatives of
SMEs for raw materials are quite common; they are often regionally based and
a consequence of the guild and district-based craft structures.
28
Innovation and SMEs
Innovation is a SME development priority. Along traditional universities,
Germany’s universities of applied sciences (Fachhochschulen) play important
roles in the German innovation system. Universities of applied sciences offer
practical courses of three years of bachelor level (but also further courses). They
interact intensively with specialised R&D institutions and the private sector.
Fraunhofer, the largest organisation for applied research in Europe, founded in
1949 and financed by public (40 percent) and private funds (the remainder), first
set up a programme directed at innovation for SMEs in 1976. This was
reinforced when innovation in SMEs became one of eight core themes of the
innovation initiative in 2004. Fraunhofer employs approximately 12,000
researchers and operates with a budget of beyond 1 Billion Euros. SMEs can
approach Fraunhofer directly for support in R&D and innovation, or, for
instance, through the ZIM programme (see bleow) .
The Steinbeis Foundation takes care of the important transfer of knowledge,
translating SME research requirements into research projects that universities
can undertake, and vice-versa, transferring results of technology research into
practical application for SMEs. The Steinbeis Foundation, established in the
State of Baden-Wurttemberg in 1971, is active in the Southern and Eastern states
of Germany. It operates a network of about 800 technology transfer centres, most
of them located within universities (both universities of applied sciences and
traditional universities) or within Regional Development Agencies, which SMEs
can approach for advice, training and practical application. The application of
green and energy saving technologies is well represented within the Steinbeis
network. Other federal states have similar specialised institutions taking care of
advising and supporting SMEs in innovation, environment and energy issues.
A „pact for research and innovation” in 2006 ensured an annual three percent
increase of finance allocated to the community of German research institutes
(Fraunhofer, Max-Planck, Helmholtz and Leibnitz Institutes) for the period 2006
- 2010. This pact was renewed for the 2011 - 2016 period, increasing the
allocation growth to five percent annually. Increase in funding goes along with
enhanced networking with the private sector and among the institutes.
In 2008, the Federal Ministry for the Economy started its Central Innovation
Programme SME (ZIM), in essence a signposting and financial facilitation
service, which has (up to mid 2012) supported 18 000 innovation projects,
mainly cooperation projects between universities/research institutions and
SMEs. ZIM supports individual R&D projects in firms as well as cooperative
R&D and innovation projects (cooperation between firms or cooperation
between research institutions and firms), with grants of between 40 and 50
percent (small firms) and between 35 and 45 percent (medium size firms). R&D
and innovation in larger firms with up to 500 employees may also be supported.
ZIM supports projects of R&D institutes with up to 100 percent of costs55.
The EXIST programme, starting in 2007, assists university graduates to establish
high-tech start-ups. More than 800 projects have been supported. The
29
A „pact for
research and
innovation”
ensures growing
support for
innovation in
SMEs
programme also supports universities in fostering an entrepreneurship culture
and establishing start-up facilities. 10 universities were selected in 2012 as
outstanding start-up universities56.
Finance for SMEs
The German SME financing system is characterised by a dense network of nonprofit public banks, the Sparkassen 57 (savings banks) and the Volksbanken58
(people’s cooperative banks). The two large commercial banks in Germany play
a less important role with regard to SME finance. A new player is the recently
privatised Postbank, which used to offer limited financial services (current and
saving accounts) through its very dense branch network and has now developed
a complete financial product range, including loans. The non-profit banks have
an 80 percent market share of holding deposits and an equal share in providing
loan finance to SMEs. Germany may look overbanked and profitability of banks
be regarded as low in international comparison, but the German banking system
is associated with broad supply of financial services to small enterprises and low
income households (cf. Mullineux, A., Terberger, E., 2006).
The government owned German Bank for Reconstruction (KfW) and publicly
owned development banks of the federal states provide a wide range of credit
lines for SMEs, including special loans for start-ups, modernisation, innovation,
energy saving/environmental protection as well as regional development. Equity
participation in SMEs is also offered, mainly in a dormant form (banks not taking
actively part in management decisions). The different credit products are
differently priced according to the client’s credit history and offered below or up
to the level of commercial rates. An important product is the KfW-ERP59 credit
for start-ups, which includes particularly long terms of repayment, grace periods
of up to seven years and interest rates that may increase during repayment from
lower than market rates (at the beginning, in order to lessen the burden on cash
flows of young firms) to higher than market rates (at the end of the credit period,
when firms have gained a solid financial basis). Several credit products may be
combined. Credit guarantees are available for 80 percent of the loan amount from
the guarantee banks. A SME - even a start-up - with a convincing business plan
and 15 percent equity available for investments (also in form of assets) could in
principle finance the rest through credits, using mortgages on the loaned
investments as collateral.
Almost all credit products must be applied for through the applicant’s house
bank. In view of the many (in the bracket of 30) types of credit offered by the
federal and state development banks, house banks need to have a good overview.
They have an important advisory function as to what type of credit is most
suitable for their clients.
Business plans are required, but banks consider benchmarks that SMEs need to
fulfil as more important than financial projections of business plans. The public
sector and banks collect representative data from SMEs to calculate benchmarks
that are easy to understand (for example the minimum turnover of kilograms of
meat per employee that a butchery must achieve in order to be profitable). Such
benchmarks are used for credit appraisals. They are also disseminated by
chambers and associations and serve as a guideline to SME owners, helping them
to gauge their competitiveness.
30
The German
banking system is
associated with
broad supply of
financial services
to small
enterprises
The capital market for SMEs in Germany is not much developed. The rate of
take-up of dormant equity participation offered by equity participation banks
(connected to the guarantee banks) is not high. The application of venture capital
(with active management involvement) is almost exclusively restricted to
technology intensive projects.
Skill development
Skill development and vocational training in Germany belongs to the mandate
of chambers. Centres for basic and further training are established with
government support, but managed by the chambers. Presidents and CEOs of
chambers take pride in keeping their training centres up to date, working with
the private sector to equip them with modern technology. Chambers of crafts
sometimes establish dedicated training centres so as to set the focus on specific
branches (which may in some cases also have to do with the professional
background of the chamber’s president - the best training centre for example for
stonemasons are as a consequence of this in Mainz or that for opticians in
Cologne).
The common perception in Germany is that when starting an apprenticeship one
is already becoming part of a professional group and belongs to the staff of a
firm. The dual training system combines firm-based training (mostly 3 days per
week) with school-based education at public sector maintained vocational
schools (mostly 2 days per week)60. Training lasts for three or three and a half
years and is comprehensive, following an occupational approach (i.e. it is
conceived to be practically applicable and to qualify for immediate employment)
(cf. Pilz, M., 2002). Examinations are held at the end of training; intermediate
qualification levels and certificates are not available. Apprentices have to sit for
theoretical and practical examinations presided over by chamber-appointed
examination boards. A master of crafts is in charge of practical training at firm
level and must be present during the training period. The certificate of
competence of a master is bestowed by the chamber of crafts. It requires at least
three years of practical professional work experience after successfully
completing the appreticeship as well as training and examinations in theory,
which includes pedagogy (in view of the masters’ role of training apprentices)
as well as business administration and skills to run a small enterprise, plus the
successful production of a crafted “master piece”. Training and examinations to
become a master may cost well above 10 000 Euros for the applicant (which is
a good income for chambers of crafts). Loans and scholarships for such training
are available.
Approximately 610 000 students passed their vocational examinations after their
apprenticeships in 2008 61 , thereof 368 000 in industry and trade related
professions, 168 000 in crafts and the remainder of 74 000 in professions that
are examined by other chambers (such as the chamber of lawyers for lawyer’s
assistants, chamber of medical practitioners for medical assistants or the
chamber of agriculture). Going through an apprenticeship is the common and
most popular way to learn a profession in Germany, although school-based
systems are also available and common for some professions (i.e. those
belonging to the health sector).
31
An apprentice is
part of a
profession and
belongs to the
staff of the firm
training him or
her
The German SME development system is rooted in traditions. Concerted action
between the public and the private sectors has produced independent institutions
that have become strong, almost permanent pillars of the civil society. These
institutions are effectively administered and well connected. Though individuals
at the top of institutions can make a difference, it is the institutions and their
mandates that count. While the German SME development system is “well
oiled” and structured, it is not free of inertia and sometimes lacking flexibility.
German traditions demand professional ethics, which the “Mittelstand”
embraces. There are perceptions that traditional roots stand in the way of
modernisation. The requirements of certificates of competence for operators of
craft SMEs have been adapted to match with EU directives on enterprise
mobility, but this process has not been quite easy. Some fear that relaxation of
traditional rules will soften or even erode professional ethics and responsibilities,
which are regarded as cornerstones for the continuity of quality and occupational
standards. The sector considers such standards as competitive advantages, but
customers do not always follow this perception. One example was the relaxation
of competence requirements for hairdressers and barbers, which led to the influx
of professionals from abroad (e.g. Turkey); they are offering haircuts at a much
lower price than their German colleagues, which customers appreciate. The
requirement of full apprenticeships as preconditions for employment in certain
service and trade professions (e.g. for lower level bank employees) may become
a cost that competitors in other countries do not incur.
The dual training system is regarded as very effective. It has advantages in that
it is demand oriented; innovations as well as profiles for new professions are
swiftly picked up by the system. Apprentices learn from the beginning what
customer oriented professional behaviour is all about. The dual system is based
on traditions, which constitute considerable social capital. Without such capital
being available, the system is, however, not transferrable. A disadvantage of the
system is its dependency on economic cycles: when business is down, fewer
owners of SMEs are likely to employ and train apprentices, i.e. the output of
trained young people may become detached and lag behind new demand when
economic recovery picks up again. In order to mitigate this effect, public training
schools were, for instance, established in some East German federal states,
which have been affected by economic decline and where fewer SMEs are
sufficiently strong to employ apprentices.
Traditions also do not help young entrepreneurs who would prefer conditions
that are more conducive to starting and operating a business. An example may
be ding doctors (paintless removal of dents from cars) or nail studios, i.e.
professions that are not covered by traditional occupational profiles. Training for
such activities cannot be accessed at the preferential terms that protect traditional
vocational training. This may turn out being an obstacle to self-employment.
German SME traditions may be strong foundations for good and successful
professional behaviour, but they also limit the opportunities of transferring the
system to other countries.
Another obstacle to self-employment in Germany is health insurance. While employees and employers share the cost of mandatory health insurance,
contributions have to be fully paid by the self-employed. There is also a
32
Concerted action
between the public
and private
sectors has
produced
permanent SME
support structures
minimum fee for the self-employed that may scare people away. The number of
the self-employed going without proper health insurance is considerable.
This said, the German SME support system is apparently competitive. Germany
rose from a global competitiveness rank62 of 22 in 1996 to 5 in 2010 and 6 in
2012, respectively, overtaking the UK and extending its lead over France and
Italy. The structures of the German SME development system did not change
much during that period. The competitiveness improvements have to do with
more competitive costs due to decreasing real wages (they fell by 6.3 percent
between 2001 and 2009), which employees endured not least because of their
general trust in the long term strength of the “Mittelstand” economic structure,
and with the consistent extension of innovation support directed in particular
towards SMEs. The SME support system aligned itself well with the “Agenda
2010” (a national policy that accompanied the competitiveness enhancements
during the first millennium decade), based on the intensive interaction between
public and private sectors, which remains a cornerstone of the German SME
development system.
The fact that many support organisations in Germany are owned (in terms of
being financed and controlled) by the private sector itself induces effectiveness.
Conscious of being the one paying by way of his/her membership fees, a SME
entrepreneur has no problem firing a business counsellor if need be. The
relationship between providers and receivers of assistance is equitable, which
ensures that service provision is of good standard and meeting demand.
33
SMEs legally own
their support
structures, which
renders them
effective
3.3. France
A strong public sector, a new dynamism of institutional set-up, and
strategic orientation, and the ongoing efforts of developing the missing
middle
3.3.1 History of SME policies
Recognition of SMEs
The public sector in France is traditionally strong and present, a characteristic
that is well accepted by the French society63 64. France’s centralised governance
has influenced the way SME development is conceived and managed.
Historically, small businesses in France have been in a weak position. The social
status of an entrepreneur owning a small business has not ranked very high. This
may be related to a generally lower appreciation of entrepreneurship in France65,
and may also be historically related to the French revolution, when craftsmen
were edged out of municipal councils and their associations banned. The advent
of the European Economic Community and the beginning of open markets at the
end of the 1950s reduced industrial protection, which affected in particular
family owned medium sized manufacturing firms. The emergence of larger
industrial groups as engines of growth during the de Gaulle administration,
driven by technological advancement and the creation of “critical scale”, further
reduced the entrepreneurial eminence of many SMEs to a status of dependent
sub-contractors. The industrial concentration process at that time, underpinned
by research and dissemination of effective management methods and modern
technology, was almost exclusively directed towards large industrial groups (cf.
Marchesnay, M., 2008). The left spectrum of the socio-political opinion during
the early ‘70s regarded owners of small firms (“les petits patrons”) partly as
reactionary (cf. Guillaume, S., 2004). When unemployment rose at the end of
the ‘70s, the need for employment creation favoured a re-assessment of the
development contribution of the SME sector. This was on the one hand directed
towards medium sized enterprises so as to increase their numbers, while in
parallel the notion of “small is beautiful” that came up at the time inspired a new
perception of entrepreneurship. The unemployed were encouraged to start their
own enterprise. Greater acceptance of entrepreneurship in small enterprise,
linked to risk taking, technology and innovation, started to take hold during the
‘80s and at the beginning of the ‘90s, when an enhanced focus on regional
development (through the decentralisation act of 1982) strengthened the role of
small firms. It was realised that having a greater number of smaller production
units was important to attain international competitiveness (cf. Marchesnay, M.,
2008). The approach towards SME development during the ‘90s was one of
laissez-faire. However, when the effects of globalisation started to be stongly
felt during the first years of the new millennium, the state found that it had to
implicate itself, helping the SME sector to get orientation and, taking on a
catalytic role, setting the focus on key-sectors and clusters66.
Decentralisation has given the 22 regions of France autonomy to plan and
manage their economic development; however, overall policies, the institutional
framework of SME development and strategic initiatives are planned at the
34
Historically, the
social status of an
owner of a small
business has not
ranked high
national level and rolled out from there. Removing a general suspicion of the
public administration towards owners of small firms has taken a long time (“For
a long time, the public sector regarded SMEs as a structure that was to disappear,
or better even become a large enterprise“ (Guillaume; S., 2004)), and France still
has difficulties letting go of the large industrial group model.
SMEs are in principle defined according to EU standards67, but one often finds
definitions of up to 500 employees as well as references to the group of very
small enterprises (TPE)68. Policy papers frequently refer to firms of intermediate
size (between SMEs and large firm sizes) of 250 to 5000 employees, called
ETI69.
The accent on medium sized firms is important, because SME policies in France
are concerned with two aspects identified as limiting growth: the missing
“middle” in the tissue of French industry, and the weak export base of SMEs70.
Another important aspect of SME development is the transfer of ownership.
Only a small percentage of SMEs in France are transferred within the family;
when they retire, many owners sell their firms - about 25 percent of
entrepreneurs have bought an existing firm71.
SME policies in
France are
concerned with
the “missing
middle” and a
weak export base
Recent policy changes
The objectives of efforts directed towards SME development are clearly
expressed in the Modernisation of the Economy Act of 2008: achieving
economic growth, employment and competitiveness, and rendering the country
attractive for investment. The following milestones leading to this act and
today’s SME policies bear witness of dynamic efforts during recent years:
- In 1996, the Committee for Economy and Planning of the French Senate
commissioned a study tour to the United States to research the Small
Business Administration (SBA) 72 approach. French decision makers
were impressed by the report made to the Senate, and attracted by the
successful growth orientation of SBA policies, as well as the efficiency
of SBA operations. Reference to the SBA can since be found in many
French policy documents and initiatives;
- In 2003, the Comité Richelieu, an association of innovative SMEs
established in 1989 that has since influenced SME policies, published the
“White Book on Innovative SMEs”. It suggested the creation of a
European SBA 73 and further anchored the need for change in French
SME policy towards innovation and growth;
- Also in 2003, an economic initiative act (loi d’initiative économique) was
passed, removing bureaucratic obstacles in enterprise creation and
providing easier access to finance, followed by specific acts in 200574
that provided a safer business environment for SMEs, including startups;
- In 2004, the second decentralisation act further strengthened the role of
regions as coordinators of economic development ;
- Also in 2004, a financial act launched the competitiveness clusters (pôles
de compétitivité), making substantial amounts for R&D and credit
available to SMEs ;
- In 2005, OSEO75 was created, the new financing pillar of French SME
development (see below). OSEO was to a large degree influenced by the
learnings obtained from the SBA;
35
France launched
consistent
initiatives and
established new
institutions
- In parallel, the National Research Agency (ANR) was founded. It
provides funding for research and optimisation projects through
competitive calls for projects, directed at social, environmental, health
and security of information projects. SMEs are to participate in these
tenders;
- In 2006, the Council for Economic Analysis76 published a much referred
to report (Bethèze J.P., Saint-Etienne C., 2006) about the need for
economic growth in view of the “missing middle”, dividing the French
enterprise tissue into three groups77:
- “Elephants”, i.e. large enterprises, often leaders on global
markets, seemingly growing through acquisitions from time to
time, but creating very little employment overall, as they tend to
outsource and streamline their activities;
- “Mice”, i.e. small businesses, which neither grow nor create jobs,
but are regarded as essential to ensure the local provision of
products and services; and
- “Gazelles”, i.e. SMEs that belong to the top 5 to 10 percent
performers in their sub-sector and have the strength and potential
to grow by beyond 10 percent annually for at least four years.
The report suggested policies and strategies aimed at supporting the
emergence of more gazelles, a notion found frequently in the French
SME development discussion;
- Also in 2006, a SME growth programme was launched, with the
objective of doubling the number of firms with more than 250 employees
in five years, reaching a figure of 10 000 firms of that size. The
programme is to a large part directed towards “gazelles” and entails five
components: competitiveness (including the protection of innovations),
new markets for SMEs (export markets and national public tenders),
gazelles (providing a special status and support to high potential SMEs),
finance (equity investments with the support of business angels), and
external growth and transfer (sector oriented support as well as transfer
of ownership of medium sized SMEs);
- In 2008, the modernisation of the economy act was introduced,
liberalising prices, limiting payment delays, stimulating competition,
introducing a tax regime that encourages start-ups and investments,
providing tax incentives for innovation and facilitating access to finance
(including risk capital and the stock market). SMEs gained preferential
access to public tenders, and the “auto-entrepreneur” status was
introduced, greatly simplifying the creation of small firms;
- In 2009 the National Research and Innovation Strategy (SNRI) was
launched. The strategy is meant to create a favourable environment for
innovation that is competitive internationally by promoting collaboration
between public research bodies and business. The strategy focuses on
three key sectors: bio, eco and nano technologies ;
- In 2010, “Pact PME” was launched, establishing a new relation between
SMEs and large enterprise groups, also aiming at the creation of more
medium sized firms. The example of medium sized firms in Germany is
frequently mentioned and the German word “Mittelstand” has entered
the French SME policy discussions.
36
Of mice, elephants
and gazelles
The French SME sector was severely affected by the economic crisis of 2009.
Contrary to the intentions of the industrial modernisation act, the SME sector
lost several hundred of its intermediate size firms, rather than adding new ones.
A recent study pointed out the need for an adjusted tax system, more flexibility
of the labour market and intensification of R&D (cf. Didier M., Koléda G.,
2011). The dominant position of the large industrial groups, which control 30
per cent of intermediate size firms and absorb the larger part of innovation
support meant for SMEs, is still seen as a constraint to SME development (cf.
Portnoff A., 2011) .
3.3.2 Main actors
Traditional and new institutions/organisations
The web-site of the Directorate for SMEs of the French Ministry of Economy,
Finance and Industry includes a long list of public institutions and organisations
concerned with SME development, several of them addressing specific target
groups, notably female SME owners.
At the core of the French SME development system are the Regional Councils,
cooperating with the Chambers of Commerce and Industry as well as the
Chambers of Crafts and Artisans. Important new players with which Regional
Councils collaborate are the new institution OSEO (which combines innovation
support and finance), UbiFrance (export) and the competitiveness clusters (pôles
de competitivité).
However, the SME support system is more complex. Apart from the professional
associations and federations, the employers’ confederations - called syndicates play important political and lobbying roles for SMEs. CGPME (General
Confederation of SMEs) has been a lobbyist for the recognition and protection
of the sector. Founded in 1944, CGPME established in particular the access of
SMEs to credit through a mutual credit guarantee fund created in 1955 (which
later developed into SOFARIS, was taken over by the state and merged into
OSEO in 2005). CGPME lobbies, among others, for rights of sub-contractors in
their relationships with large companies. It has also established a retirement
scheme and unemployment insurance for owners of SMEs. UPA (Union
professionnelle artisanale), founded in 1975, is the recognised syndicate to
represent craft enterprises, offering similar advantages. The larger number of
SMEs registered with the Chamber of Commerce and Industry (i.e. those that do
not belong to the craft and artisan sub-sector) are usually also members of
MEDEF (Mouvement des entreprises de France) 78 , the largest employers’
federation in France. MEDEF is a powerful organisation, representing French
enterprises via their professional federations. MEDEF lobbies for its members,
both at local, regional and national levels. Approximately 50 percent of craft
SMEs are members, too79.
37
Regional Councils
are at the core of
the French SME
development
system
Chambers
Two chambers 80 are important for SME support in France: the Chamber of
Commerce and Industry (CCI) and the Chamber of Crafts and Artisans (CMA).
CMAs represent smaller craft and artisanal firms81, while the CCIs represent all
other commercial or manufacturing firms.
Both chambers are public institutions organised in similar ways: 22 regional
chambers, representing and supervising local chambers (126 CCIs and 106
CMAs 82 each with their own selected boards), which form assemblies of
chambers at the national level (the Assembly of Chambers of Commerce and
Industry - ACFCI - and APCMA, the Permanent Assembly of Chambers of
Crafts and Artisans). Both types of chambers operate close to the government:
they are under the supervision of both local and national public administration,
government representatives taking part in general assemblies and having the
right to veto decisions; they may also place chambers under their direct control,
if extraordinary circumstances require this.
While merchants, bankers and industrialists re-established a chamber as early as
in 1803 (under a decree of Napoleon), the craft and artisanal sector remained
unorganised after their associations were banned during the French revolution
up until 1925. Before that, self-employed craftsmen were more or less regarded
as workers. Having their own chamber of SMEs was hence a matter of having
an organisational framework, combined with social security, and one of
operating at a level playing field with CCIs, which look back at a tradition that
has been giving them a prestigious public status (cf. Bethford, A., 2011).
The CCIs have since their establishment taken a leading role in shaping France’s
economic development. CCIs are the second largest education provider in
France, running 500 schools and professional training centres. Outstandingly,
the French CCIs established the HEC (École des Hautes Études Commerciales),
since 1881 the most recognised business school, and, as one of the “Grandes
Écoles”, known to educate France’s top executives and political elite.
The French CCIs have been entrusted with management of large public
installations. They manage 103 airports, 60 seaports, 33 inland ports as well as
business parks, and are actively involved in competitiveness clusters. They also
organise most trade fairs and expositions. The decentralisation act of 2004
elevated the status of CCIs, entrusting them with important roles in developing
the regional economy alongside the Regional Councils. Recent strategic SME
development directions, in particular the emphasis on promoting “gazelles”,
further enhanced the role of CCIs .
Both types of chambers run CFEs (centre of enterprise formalities), where
registration and all other bureaucratic issues are dealt with in a single window
manner. Services offered by both types of chambers cover a broad range,
including sensitisation, information, advice, counselling and continuous
management training. Working with young people, guiding and supporting them
in their choice of profession as apprentices or in setting up their own small
business, takes a large share of services 83 . CCIs assist beyond 400 000 new
entrepreneurs annually in 234 dedicated start-up fields84. The CCIs and the CMA
are the organisations of choice for SMEs to receive advice and support. Support
services are provided free of charge up to a certain limit, after which they are
still partly subsidised, while the rest of service costs is to be reimbursed.
38
Chambers of
Commerce and
Industry in France
are the second
largest education
provider; they
are entrusted
with the
management of
airports, ports
and other
large public
installations
Chambers are
organisations of
choice for SMEs
to receive
advice and
support
The CCIs run 98 of the total of 155 training centres for apprentices (see skills
training below), while the rest of such centres is run jointly with CMAs,
chambers of agriculture or professional organisations. The CMA is the only
chamber that may award the status of master of trade to artisans, which again is
a precondition for training apprentices in craft and artisanal professions.
CCIs regularly carry out economic climate surveys, which are the basis for the
public - private dialogue, in which employers’ federations and professional
confederations (syndicates) also take part.
French chambers are partly financed through a special tax, which the state
collects from firms and redistributes to the chambers. This amounts to about one
third of the total income of CCIs (1.27 of a total budget of 3.9 billion Euros
nationwide). Another large part of income of CCIs is earned through the
management of public installations, which also absorbs most of the chambers’
human resources. The total employment of all CCIs in France is about 30 000;
CMAs have a much smaller total budget of 750 million Euros and employ about
11 500.
Associations/Federations
Associations play an important role in enhancing professional knowledge and
quality standards in France. UPA (Union Professionelle Artisanale), founded in
1966, is the umbrella organisation of three professional confederations and since
1996 one of the three organisations representing the French SME sector at the
European level (along CGPME and the CMA). The three professional
confederations are:
- CGAD (Confédération Générale de l'Alimentation en Détail),
representing all professional organisation of the food and restaurant
sector,
- CAPEB (Confédération de l'Artisanat et des Petites Entreprises du
Bâtiment), representing all professional organisations related to building
and construction, as well as
- CNAMS (Confédération Nationale de l’Artisanat des Métiers et des
Services), the largest of the confederations, representing all other craft,
artisanal and service professions.
The main tasks of the professional confederations, which represent altogether
about 500 mostly local professional associations, is to ensure the continuous
dissemination of information on technology, quality standards and best practice,
and to organise training for members. About 20 percent of craft and artisanal
firms are members of confederations.
Regional Councils
The first decentralisation act of 1982 established Regional Councils, the act of
2004 further enhanced the decision making powers of regions. Regional
Councils are directly elected. They focus on economic development, among
other responsibilities relating to secondary education, vocational training, spatial
planning, environmental issues, roads and railways as well as infrastructural
installations.
39
The roles of Regional Councils are defined by national policy. Their budgets are
financed by the state (40 percent) and through regional resources (60 percent);
in addition, they manage state funds allocated to the competitiveness clusters
(pôles de competitivité). The technical manpower of Regional Councils has
considerably grown along regional development responsibilities. The Regional
Council of Bourgogne, for instance, started with 30 members of staff in 1982
and now employs 2000.
Regional development strategies are developed in a participatory approach with
regional stakeholders. In order to implement them, specialised agencies are
established, such as (in the case of Bourgogne) an investment agency
(Bourgogne Development), or “J’entreprends en Bourgogne 85 ”, which is an
umbrella organisation for several organisations with specialised focus, such as
“Bourgogne Innovation” or small enterprise start-ups. The web-site of
“J’entreprends en Bourgogne” 86 is an example of a very user-friendly
information platform, showing concern for the future of young people and the
modernisation of small enterprises.
The Regional Councils oversee and direct economic development, making
choices of preferred subsectors to support, working in direct partnership with,
among others, the CCI, Ubifrance (see below), OSEO as well as the regional
competitiveness centres. New ideas to implement SME development strategies,
in line with the overall national strategies of supporting “gazelles” and increasing
exports, are systematically developed between the Regional Council and these
partners.
The partner organisations/institutions of the Regional Councils’ agencies have
their own policies with regard to the extent of services they offer and how these
are charged. The Regional Councils may offer additional services (such as
guarantees for loans in addition to those offered by OSEO). As in the case of
services provided by chambers, costs of services are increasingly to be
reimbursed rather than fully subsidised. This is an important change to previous
approaches. However, advice related to start-ups and innovation is usually free
of charge87.
Regional Councils
oversee and direct
economic
development,
making choices
for preferred
subsectors
Regional development in France is independently planned but follows broader
directions conceived at national levels. Each region focuses on a specific area of
excellence, which is continuously further developed through national and
regional efforts. The competitiveness centre in Bourgogne, for instance, is
focused on nuclear energy. Other areas of excellence, followed in a fashion
coordinated with national development strategies, are agro-industry and
metallurgical industries. Other regions have different areas of excellence88.
3.3.3. Support offered
Competitiveness clusters and innovation
Competitiveness clusters (pôles de compétitivité) in France group small and
large enterprises, R&D institutions and training centres together in defined areas
and around specific themes. Competitiveness clusters have been established
since 2004, following a concept created by a national inter-ministerial
committee, which entails a call for projects based on pre-defined terms of
40
The concept of
competitiveness
clusters is based
on calls for
proposals around
pre-defined terms
of reference
reference. The best proposals are then supported. The objective of
competitiveness clusters is to accelerate economic growth through innovation
and project based collaboration. Projects are supported through a special
government fund (FUI, fonds unique interministeriel), along funds contributed
by regional authorities as well as the enterprises themselves. The national and
regional administrations also contribute to the recurrent costs of the centres .
Competitiveness clusters are in a way the successors of “technolpôles”, which
emerged in the ‘70s in France (and being the first in Europe), bringing
enterprises together with research institutions in industrial development parks,
following examples from Japan and the Unites States. The first technolpôle was
Sophia-Antipolis in Aix-en Provence, followed by more, such as in Grenoble,
Lille, Toulouse and Paris.
Seventy-one competitiveness clusters have so far been created in France. A
recent evaluation89 found that between 2008 and 2011 2.7 billion Euros of public
finance supported 900 projects, creating additional employment in two thirds of
participating firms, which have grown in numbers by 50 percent over the period,
the large majority being SMEs. Taking innovations to the market, enhancing
economic growth orientation, reducing dependency on public funds and
improving the coordination between the state and the regions as well as with
other actors in R&D and innovation were among the suggestions made in the
evaluation report, along with the clear recommendation of continuing the
competitiveness clusters approach (cf. Bearing Point France SAS - Erdyn Technolopolis Group Ltd., 2012).
Innovation in French SMEs is supported through fiscal incentives. The CIR
(credit d’impôt recherche, tax credit for research) allows firms to deduct
expenditure for research and development, including own personnel costs and
costs of contracts with approved R&D institutions and universities, from their
taxable income. The CIR may be granted in addition to other subsidies for
innovation (which must be accounted for, though) and may also be carried
forward for three years if the taxable amount less CIR deductions is negative.
The list of approved R&D institutions and universities is long, giving an idea of
how much universities and public institutions are involved in the cooperation
with the private sector to develop innovations90.
Finance for SMEs
Credit for SMEs can be obtained from public and private banks in France.
OSEO, a public institution, established in 2005 as a merger of ANVAR (the
French innovation agency) SOFARIS91 (a mutual credit guarantee institution)
and BDPME (the SME development bank), has been tasked to render access to
credit and to specific technical support for French SMEs easy and efficient.
Inspired by the SBA of the United States, OSEO supports start-ups, innovation,
expansions of existing firms as well as the transfer of firms to interested buyers
(an important task, as 1 in 9 SMEs in France are not being passed from
generation to generation, but sold92). OSEO works in partnership with public and
private banks, equity capital investors, R&D organisations, universities as well
as large industries. Headquartered in Paris, OSEO has offices in all regions
(employing a total of 1700 throughout the country) and coordinates closely with
Regional Councils and their development programmes. OSEO provides:
41
- Parts of credit needs (up to 50 percent of total credit requirements) and
credit guarantees on a risk sharing basis (0.7 percent are charged on top
of the interest rate for a guarantee);
- Credit for innovation (at zero interest rates), paying half of the cost of
feasibility studies for innovative SMEs;
- apAccess to risk capital through CDC 93 (following its risk sharing
principle, OSEO wants to avoid a conflict of interest by being a provider
of subsidies and a secondary financier at the same time).
OSEO collaborates with the Regional Councils to systematically support upcoming sectors (such as the hospitality sector in Bourgogne). OSEO networks
with the Regional Council and the CCI to make technical advice available to
SME. It supports in particular medium size firms (in view of the “missing
middle”), but has also facilitated credits for 40 000 start-ups in Bourgogne during
2010. The greater risk of guarantees for start-ups (1€ must be contributed in
order to guarantee 3€ of credit) is balanced with lesser guarantee risks of
established SMEs (ratio being 1 : 12). OSEO also provides mezzanine credits
(partly equity, partly loan). OSEO’s focus on enhancing international
competitiveness and medium sized firms will continue in future94.
OSEO introduced a new dynamism into SME financing. Working as closely as
possible to the field and being directly accessible by owners of SMEs, OSEO
can flexibly adapt to SME requirements: during the financial crisis of 2009,
twice as many guarantees were brought on the way in order to safeguard SMEs95.
OSEO does not receive subsidies from the state (which owns it through CDC)
and it is structured like a private firm. Bonuses are not paid.
Skill development
Skills development and vocational training in France is organised in the style of
the general schooling system, the different achievement levels being defined in
relation to the Baccalaureat (A-level certificate). Two main alternative routes
can be distinguished, both starting after the completion of 10 years of schooling
(called level 6): the one is the apprenticeship route, which combines practical
training at a firm with theory training at an apprentice training centre, the other
is professional training at a “lycée professionnel”. Both alternatives take two
years and lead to the same levels of CAP (Certificat d’Aptitude Professionelle)96
(apprenticeship) or BEP (Brevet d’Études Profesionnelles) (at a lyceée). Both
arecalled level 5. The CAP can be obtained for 250 specific different professions,
while the BEP is broader based, covering 50 professional fields. Two further
years of training at the lyceée may lead to the BacPro, a professional
qualification available for 48 different professions that at the same time provides
access to a university (level 4). There are three university levels: a two year
course leads to a professional qualification called BTS or DUT97 (level 3), which
at the same time qualify for onward studies towards a bachelor (licence, level 2)
or masters degree (level 1). The right for equal chances in education is enshrined
in the French constitution, which the state safeguards. Vocational training is
therefore regarded as a public task and free.
42
OSEO introduced
a new dynamism
into SME finance
The historically low social status of crafts and artisans affected vocational
training. After WW II, the school based vocational training system was
continuously upgraded, winning over firm-based apprenticeships, which were
only regulated by public administration from 1970 onwards. The transfer of
responsibilities for vocational training to regions as well as an option created for
public institutions to train apprentices has recently led to an increase of
apprenticeships; however, firm based training is in practice limited to lower
qualification levels. Only 25 percent of all vocational trainees opt for
apprenticeships. “Alternance”, i.e. school based training interspersed by
internships of several weeks was made obligatory, though, and has become
characteristic for the French vocational and professional training system at all
levels (cf. Zettelmeier, W., 2005).
The low social
status of artisans
affected
vocational
training
Individual Right to Training (DIF) was enacted in 2004, entitling employees to
20 hours of further training every year - the employee may suggest the type of
training, though the final choice rests with the employer. Every employee is also
entitled to leave of absence in order to follow further training of his/her choice98.
High youth unemployment related to lack of training is a concern in France.
President Sarkozy remarked in 2007 that the vocational training system is
collapsing ("malheureusement notre système est à bout de souffle" 99 ). The
“yellow book on vocational training of 2008 100 ” summarises the systems
difficulties, proposing to use the training tax (taxe d’apprentissage, 0.5 percent
of the gross wage sum to be paid by every firm employing more than 10) for
retraining and further training of the unemployed.
High youth
unemployment
related to lack of
training is of
concern
Export development for SMEs
French SMEs export less in comparison to other European countries and with
respect to the state of technological advancement of the country. In order to
change this, Ubifrance101 was created in 2009, succeeding the French centre for
foreign trade. Ubifrance has more than 1,400 employees, economic missions in
46 countries with 80 local employees working there, representatives in every
French region and an annual budget of more than 100 million Euro. Ubifrance
offers a complete range of services directed at French SMEs. This includes
market knowledge, information about international tenders, facilitation of
business contacts and participation in exhibitions. Assistance in presentation and
promotion is offered as well as. Advice and support is being provided by
competent experts employed by Ubifrance. Ubifrance disseminates ideas,
strengthening French firms to become export ready (partly in cooperation with
CCI) and then taking them abroad. Within its first three years in existence,
22 000 missions of 10 000 firms were supported. The number of SMEs doing
business abroad has tripled. Ubifrance has reached a level of self-financing (by
raising fees for services) of 60 percent, the remainder being provided by the state.
Ubifrance is presenting itself as a dynamic and resourceful organisation, for
instance arranging for (and partly paying) young professionals as volunteers to
build up a company representation abroad, or mobilising experienced retired
expert in order to advise young entrepreneurs.
43
Within three
years, the number
of SMEs doing
business abroad
has tripled
France is a top economic performer in many fields. Innovation and competence
levels are high, for instance in rail, road and air transportation, renewable energy,
agricultural processing equipment, health technology, communication and in the
hospitality, luxury articles, fashion and design sectors. Having neglected, even
disregarded SMEs as an economic force for a long time, France is making a
dynamic turnaround.
Having neglected
SMEs for long,
France is making
a dynamic
turnaround
It is broadly acknowledged, following bald analysis and self-criticism, that
French SME development is faced with grave structural challenges:
- the “missing middle” between too many small businesses and dominating
large industrial groups,
- the comparatively low level of exports and innovation combined with
limited international exposure, and
- the missing permanence of family-based ownership,
all this leading to receding numbers of SMEs, low levels of growth and
diminishing employment opportunities within the sector.
Political and economic decision makers have translated the need for urgent
change into policies and strategic directions. Emulating the example of the SBA
from the United States may appear surprising, given the frequently cited cultural
differences between the two nations on the backdrop of opinion leaders
remarking that entrepreneurship is not an outstanding French trait and that it has
it for a long time not been accepted socially. The following factors seem to
favour the success of the turnaround:
- The re-thinking is thorough, encompassing the intellectual and practical
spheres. The notion of “gazelles”, a catchword for the future strategic
direction, is firmly rooted in policies, implementation plans and in
attitudes of economic development actors;
- New public institutions have been created (OSEO, Ubifrance, also the
new role of Regional Councils); their personnel is displaying a
committed, business oriented and highly competent attitude towards the
ambitious tasks ahead. The institutions are apparently effective,
networking well with chambers and the other traditional actors. The
esprit of young institutions communicating and working together can be
felt;
- The level of pressure is high in view of the clear goals for achievements
(doubling the number of gazelles) that have been set; this ambition
appears to provide guidance;
- The public sector has taken the lead of the turnaround, clearly defining
strategic directions but also providing guidance and support - this seems
to be fully in line with the French tradition of successfully managing
“grands projets”;
- A common denominator of SME development is the orientation towards
young people. Policies respect their potentials; in particular the new
strategies regarding vocational and further training underline this
orientation;
- The notion of “accompagnement” (counselling) can be found in all
presentations of institutions (alongside sensitisation, encouragement,
etc.). This suggests that institutions are interested in personal interaction
with their target groups. Proximity of institutions is an important success
44
Proximity of
institutions is an
important
success factor
factor in France (and clearly demanded by the public). In this regard it is
a positive point that institutions employ their own personnel as
counsellors.
The “project” of the turnaround with regard to SMEs may not be without risks,
as the recent impact of the financial crisis has shown. The focus on gazelles
exerts significant pressure on firms (if you want to belong to the French success
story, become a gazelle!) and requires a lot from institutions and enterprises
alike, while past experience is not really available. At the same time, the small
business sector (the “mice” - not a really flattering notion) appears still a bit
neglected. The auto-entrepreneur approach, combined with the new concepts
regarding education and training for weaker social groups, may enhance micro
and small business support, leading to employment creation and growth in the
group of “mice” among SMEs, too.
45
3.4. Italy
Private sector led SME development, innovative clusters and ongoing
reforms in VET and finance
3.4.1 Specific characteristics of Italian SMEs
The relation between the state and the private sector
When the Italian Minister of the Economy scolded Ferrari after they just missed
the Formula 1 World Championship in 2010, it is reported that Ferrari’s CEO
quipped “once your ministry contributes ten percent of what we are doing to
Italy’s well-being, you can come back to us”102. Though said in jest, this may
hint at the nature of relations between the Italian government and Italy’s private
sector. Business owners in Italy do not trust the state very much. They prefer
taking care of matters themselves and are on guard that government does not
interfere103.
The focus of confidence of owners of SMEs is on their own associations. They
are the point of contact for any assistance. All policies and strategies concerning
SME development started from proposals brought in by business associations;
this applies to all sectors104.
Business owners
in Italy do not
trust the state very
much;
the focus of
confidence is on
their own
associations
Associations in Italy have a long history. Submitted to state control during the
Fascist period, they formed up again after WW II. The political divide between
communism and church-inspired conservatism (Christian democrats) led to the
creation of separate, politically affiliated SME associations. The political divide
has nowadays become irrelevant, but the existence of associations competing
both for membership and excellence in the provision of services has remained a
remarkable characteristic of the Italian SME development system.
Industrial Districts
Italy’s SME sector is special in several regards. Italy has by far the highest SME
population in Europe. Micro and small enterprises are contributing significantly
to Italy’s exports of superbly crafted fashion and design as well as high level
technology products. Social cohesion based on family ownership is a strong
pillar of economic interactions taking place within Italy’s renowned “industrial
districts”105. Three consecutive steps of interaction among SMEs are regarded as
the success factors behind the high level of competitiveness of industrial districts
(Schmitz, H., 1989):
Flexible specialisation - SMEs specialising in processes rather than
products, leading to
cooperative competition - firms competing with each other for
excellence, but at the same time cooperating when opportunities suggest
that this will be of advantage; this leading to
collective competence, being stronger together than alone; and finally to
the formation of an
industrial district - a tissue of vertically and horizontally interacting
SMEs - a cluster - that is benefitting from the entirety of local skills,
46
Social cohesion
based on family
ownership is a
strong economic
factor
know-how and social capital, and in turn providing identity and
prosperity to its location.
Industrial districts may differ with regard to size, the relationship of firms inside
and outside the cluster, the integration of larger (international) firms into the
cluster, their level of maturity as well as their type of governance, in which
business associations are always involved (cf. Bianchi, P., Lee, M., Miller, L.,
Silvano Bertini, S., 1997). Industrial districts came into being without
government support; however, the public sector often joined after their
formation. As supporters of cluster development, organisations of the provincial
or municipal public administration are taking part in governance; associations
again lobbying for the reduction of bureaucracy connected to such
involvement 106 , suggesting greater networking among businesses instead 107 .
Industrial districts are found in Italy’s North and Centre, far less so in the South.
The North-South divide
Italy’s North and South differ significantly. The South - the “mezzogiorno” was invaded and conquered by the North in 1860 and for a long time
economically exploited, a history that still fuels some suspicion108. Economic
prosperity in the North started in the 1960s (after a period of poverty and
emigration), leading to almost uninterrupted economic growth and full
employment in SMEs until the start of the financial crisis in 2009. In the South,
home to one third of Italy’s population, per capita income is 40 percent lower
than in the North (and lower than that of some new EU members in Eastern
Europe). The level of industrialisation is low, unemployment is high 109 , and
productivity levels are pegged at 60 percent of those in the North . Economic
development initiatives included phases of enhanced infrastructure development
in the ‘60s, followed by state led (e.g. Alfasud110) and incentivised private large
scale industrialisation in the ‘70s and ‘80s, until the enlargement of Europe in
the ‘90s diverted investment flows to other countries111 . EU structural funds are
available, but their absorption rate is low112. The informal sector is growing.
Mafia structures are also an ongoing challenge. However, there are also positive
developments: recent reviews suggest that medium size firms (with more than
250 employees) perform comparatively well in the South 113 . Science and
technology parks in the South are emerging, supporting innovative high-tech
SME development that is connected to local comparative advantage and local
initiative114.
Subsidies have become accepted instruments to close the enormous North South gap. Subsidy schemes to buy equipment, subsidised loans as well as
entrepreneurship development schemes (managed by regional development
agencies with the participation of associations) are in place in the South, but
SME development policies are not regarded as coherent115. Subsidies go along
with schemes of control and conditionality directed at achieving higher
efficiency of administration116 117. In the South one can find perceptions that the
North is directing it, and in the North one can hear complaints about paying for
continuous subsidies118.
One reason for the more successful development of SMEs in the North may be
found in the medieval “mezzadria” system of land tenure, where peasants
cultivating land had to pay owners 50 percent of land produce. The system,
47
Per capita income
in the South of
Italy is 40 percent
lower than in the
North
which extended well into the 19th century, may have fostered positive attitudes
towards higher productivity and profit making, whereas the “latifondo” system
that was practiced in the South, where land owners paid salaries to peasants
without regard to production, provided little incentives to exceed levels of
effort119.
3.4.2 Main actors
The key role of associations
The natural point of contact for an Italian owner of a small firm to solve a
problem is the association. So close is the relation that a member, receiving a
letter from the revenue office, could just take it to the association for them to
answer it. Associations, founded very soon after WWII, first provided basic
services (such as preparing payrolls or tax revenues for members). This evolved
over time into a wide range of strategic support services including counselling,
training and support in technical or marketing issues, often in cooperation with
specialists. Associations sometimes invest together with members into high
value-added economic development projects. They also take care of pensions
and social protection of members and their employees. Associations effectively
lobby for their members’ interests at local and regional levels. The latter is the
specialised responsibility of the regional federations of associations, which
elaborate annual budget proposals and measures for sector development .
Associations devise policies and strategies; they are key partners of the publicprivate dialogue as well as bargaining partners with workers’ unions. The state
is not interfering in the affairs of associations120.
Though competition between associations is an essential characteristic of how
they operate, they also cooperate. Five nation-wide operating SME associations
are joined in a country-wide representataion called R.E.TE.121, founded in 2006,
with the objective of intensifying the political dialogue and to promote SME
development in Italy. At the European level, four associations represent the
Italian SME sector within the European Association of SMEs (UEAPME). The
two most popular Italian SME associations are CNA (Confederazione Nazionale
dell'Artigianato e della Piccola e Media Impresa) and CONFARTIGIANATO
(Confederazione Generale dell’Artigianato e delle Imprese). Both operate at
local, regional and national levels, representing the same type of clientele and
providing similar services. They are large organisations. CNA, for instance,
employs 9 000 staff working in 1,250 offices all over Italy. SMEs are free to join
associations or not; about 60 percent of SMEs are members122.
Traditionally, associations would only represent crafts, but this has broadened
into any service or manufacturing SMEs, to which they can pay more attention
than associations of larger scale firms would. The dividing line is at about 15
employees (definitions vary according to regions). Traders and owners of shops
have their own associations. Most associations are (voluntary) members of
CONFINDUSTRIA (Confederazione Generale dell'Industria Italiana), a very
powerful national business and industrial association which has its roots in
Italy’s industrial revolution at the turn of last century.
The establishment of loan guarantee cooperatives is an example of the
achievements of SME associations. Associations started to organise SME groups
48
Competition
between
associations is an
essential
characteristic of
how they operate
as cooperatives and lobbied banks, suggesting that members should be given
better conditions. Out of these groups, mutual credit guarantee cooperatives
(consorzia fidi) developed (cf. Kuhle, H., 2006). Both CNA and
CONFARTIGIANATO (among other associations in Italy) started such
cooperatives, in competition with each other, reaching several thousand
members. Associations then went to municipalities, suggesting that they support
the guarantee fund in view of the employment generation effects, to which
municipalities responded positively; later on, regions took over the funding. The
guarantee system grew strongly, the state becoming interested in supporting it.
This led to the formation of a national federation of credit cooperatives, applying
a uniform system123.
Associations support a wide network of offices. An office employing permanent
staff (employing a director, a secretary and an expert for services) is regarded
economically feasible from a membership of 300 onwards. There are, for
instance, 15 CNA association offices in the province of Treviso, a municipality
of 80 000 inhabitants and capital of a province with 94 municipalities.
Services offered by associations are to be paid for. Subsidies for coaching and
advice on special themes (such as energy saving) are available from the region.
Each association is structured according to specialist sectors; issues are well
known, so that advice of high quality can be rendered. Up to 2008 SMEs were
only growing - they were interested in advice how to enter new markets. Advice
was therefore opportunity, not problem oriented. The 2009 crisis is forcing more
SMEs to seek strategic advice from associations in order to solve problems that
they did not have before.
Entrepreneurship training is not part of associations’ priorities. The support
model mostly applied in Italy’s South, to which associations are in some cases
partners, is subsidised training in entrepreneurship and start-up advisory
assistance (delivered through contracted local consultants) and subsidised credit
for equipment. In the North of Italy, one in nine people owns a small firm. It is
generally felt there that entrepreneurship cannot be forced and that there is no
need spending resources on creating new enterprises.
Associations are setting up special offices to promote women in SMEs. In family
businesses, husbands usually take the leading role, and female entrepreneurship
was neglected124. Italy has numerous cases of successful women in business,
more so in the North than in the South125. Associations are trying to close the
gender gap. For the first time a woman has been elected president of
CONFINDUSTRIA.
Another concern of associations is the support of immigrants whose numbers as
employees and owners of SMEs has been increasing. A need to balance immigrant entrepreneurship is seen for instance in the garment sector, which Chinese
immigrants have to a large extent taken over (for instance in Prato/Florence,
which used to be a national centre of the textile sector for recycling that started
to employ Chinese immigrants because of lower wages). Chinese entrepreneurs
started to replace local enterprises, employing Chinese workers sometimes under
illegal conditions. The situation is ambivalent, as larger Italian companies
subcontract Chinese owned factories in order to be more competitive. It is feared
that the whole Italian garment sector will be affected126.
49
The establishment
of loan guarantee
cooperatives is
one example of
SME associations’
achievements
Chambers
Chambers of Commerce, Industry, Craft and Agriculture in Italy were first
founded in 1806. They are local autonomous public bodies governed by public
law, fulfilling their functions according to a reorganisation act of 1993.
Membership in chambers is compulsory. Italy has 103 chambers (with local
branches) that are independent but have the same structure. These are organised
in 19 regional unions and one national union. There are also 69 arbitration
chambers to settle commercial disputes.
Chambers’ council members are designated by organisations representing the
enterprises operating in major economic sectors as well as by workers unions
and consumers associations. The chamber president is appointed by the ministry
of industry from two or three members proposed by the general assembly.
Chambers have the official mandate of managing the registry of all businesses,
traders and farmers; they also issue certificates of origin. In line with their
objective of contributing to a balanced growth of the economy, they are also
mandated to provide training, including for people wishing to start a new
business, and advisory services for their member firms. Chambers elaborate
development strategies as well as opinions on economic development in order to
lobby the public administration. Chambers are free, depending on their resources
and the wishes of their assembly, to engage in public and private ventures. They
are shareholders in numerous public and private institutions, organisations and
associations managing science and technology parks, local development
agencies or public infrastructure.
Chambers may
own shares in
public and private
ventures
A significant responsibility of chambers, enacted through public law in 2003,
relates to the link between the education system and the private enterprise sector.
Chambers are to enhance the system of practical learning in firms, developing
new training pathways, aimed at enhancing the employment opportunities of
young people. A portal for job orientation, alternation and linkage between
enterprises and students (Polaris) was set up, which facilitates matchmaking
between interests and competencies of young people with the requirements of
firms.
Regions and Provinces
While national Italian governments typically last for short periods only, regional
governments are much more stable127. Italy is divided into 20 regions, created in
1970 through regional elections. Four regions have a special status. Italy’s
regions are divided into altogether 110 provinces, which also have an elected
administration128.
A constitutional reform of 2001 significantly enhanced the powers of regions to
determine their own economic development. Italy is far from a federal system,
though - this was suggested but clearly rejected in a referendum in 2006.
Legislation and policies for SME development are issued by the regions; this
also means that regional approaches to SME development differ. Business
associations, having established themselves long before regions were created,
had significant influence on the shaping of regional industrial development
policies, based on their experience in lobbying local as well as national
administrations.
50
SME policies are
issued by regions;
approaches to
SME development
differ from region
to region
Diversification of the economy and SME development are only the second
priority of regions, their first being the improvement of road infrastructure,
which is regarded as an Italian competitive weakness. Goods must be transported
by lorry, causing traffic jams and pollution, because railways, falling under
national responsibility, have been neglected129. Regions are subsidising transport
cost through fuel vouchers and discounted prices for using highways130.
Soon after their creation, Italian regions established regional development
agencies. These had at first little power in intervening in economic development.
The extraordinary growth of SMEs organised in industrial districts during the
‘80s, on the backdrop of the crisis of large industry in Italy at that time, suggested
new regionally based approaches. Regional development agencies planned
infrastructure development, devised economic development strategies,
promoted (foreign) investments and set up innovative services in collaboration
with SME associations, also building up SME service centres in order to enhance
balanced regional development. These interventions were almost fully financed
through public funds. During the first millennium decade, regional development
agencies increasingly outsourced services, focusing on analysis, strategy and
evaluation (cf. Dall’Olio, R., 2007).
Regional development agencies are set up according to regional laws and are not
uniform in their structure, though the region is usually the only or at least major
shareholder. Not all regions have dedicated development agencies, in which case
departments of the regional administration are taking over the respective
development tasks. Regional development agencies (or the regional
administrations) have the power to create the environment conducive for
business; they also decide on budgets spent on the support of SME development
(such as guarantee funds). They are therefore the direct and most important
addressees of lobbying efforts of associations and their federations.
Local development agencies have been established beginning from the ‘90s in
order to support development of metropolitan as well as rural areas (though
provinces’ administrations may also carry out development work on their own).
Local development agencies do not have a uniform structure either. Their
shareholding is broader than that of regional development agencies, the private
sector (through chambers and/or associations) playing an important part. They
are financed through public (regional) as well as EU funds.
Local development agencies are concerned about SME development. They are
not actual service providers, though provinces are the actual level of service
provision for SMEs through offices of associations. The local development
agencies’ main role is the planning and provision of physical infrastructure, the
management of national and EU-funded programmes and making financial
means for economic development available to appropriate organisations in the
province. Recent success stories include airports, so-called interports (where
goods are transferred from trucks to railways and/or aircraft) as well as the
support for diversified tourism and diversified agriculture based on organic
methods.
Regional and local development agencies in Italy are quite present
internationally, many having a web-site in English.
51
Regional
development
agencies are the
most important
addressees of
lobbying efforts
of associations
Innovation/Science and Technology Parks
Science and technology parks (STP) in Italy are essential organisations for the
advancement of innovation in SMEs. An STP stimulates and manages the flow
of knowledge and technology among universities, R&D institutions, companies
and the market. Managed by specialised professionals, STPs aim at increasing
the wealth of the community by promoting the culture and diffusion of
innovation and the competitiveness of associated businesses and knowledgebased institutions 131 . About 40 such parks exist in Italy, 31 of them being
members of the Association of STPs in Italy (APSTI). STPs are found in almost
all Italian regions (including 9 in the South). Recent legislation with regard to
applied science has enhanced the link between SMEs and universities/public
R&D132. STPs are organised as public-private partnerships, shareholders (though
this is not uniform) being universities, chambers of commerce and industry,
business/industry associations and, as the case may be, public administration,
banks as well as private investors.
STPs ensure funding of innovation through regional and EU (innovation
framework) funds. They provide a broad range of practical support, underlining
their concern for small and even micro enterprise development. They support
start-ups, SMEs in their expansion phase and the formation of SME clusters,
building on the strong basis of industrial districts, to which STPs appear to be a
perfect match. Support offered by STPs is directed at innovation, from the
creation of an idea (including patenting) to taking developed products to local or
foreign markets. They thus offer complete innovation support, providing access
to venture capital or loan finance for innovation, market and engineering
consultancy, management training, support in clustering and networking and in
particular internationalisation. STPs are usually organised as a park (i.e. firms
are physically located in it), though firms outside may also benefit. In fact, the
notion of meta-districts has been formed (for instance in connection with a
biotechnology STP in Lombardy), indicating that firms within the park are
supported in interacting with firms outside. STPs in Italy follow different areas
of excellence in future oriented sectors133, competing with each other, and in
particular demonstrating that technologies otherwise associated with larger scale
industries can be appropriately developed and applied by SMEs. Italian STPs are
networking internationally and regard the facilitation of access to global best
practice as an important part of their mission.
Science and
technology parks
are essential
organisations for
the advancement
of innovation in
SMEs;
they offer
complete
innovation support
including finance
and marketing
consultancy
Finance for SMEs
The percentage of Italian SMEs taking up long terms loans is by far the lowest
in Europe (cf. Ayadi, R., 2001). Families owning SMEs prefer to use their own
savings for investments. Other savings are invested into treasury bills - the state’s
presently high debt levels are mainly due to private local depositors. The banking
system in Italy is inwardly oriented and was consequently not very much
affected by the financial crisis.
Italy does not have a development bank offering financial products for SMEs.
Funds for dedicated development purposes are made available to banks by
national government and regions directly. The point of contact for entrepreneurs
52
The percentage of
Italian SMEs
taking up long
terms loans is by
far the lowest in
Europe
seeking a loan is their local bank. National and regional governments in Italy are
ensuring that the flow of funds for the financing needs of SMEs remains
adequate. Measures taken in reaction to the financial crisis included, for instance:
- public guarantees and counter guarantees for loans through Confide
worth 5.2 billion Euros,
- a one year debt moratorium for SMEs, suspending repayment of principal
for one year,
- a venture and growth capital fund to boost capitalisation of SMEs,
- use of the deposit and loans fund (cassa depositi e prestiti) to make more
funds available to SMEs through bank loans as well as
- tax exemptions, tax reductions and delayed payment of VAT (cf.
Finanzgruppe Deutscher Sparkassen und Giroverband, 2011)
Confidi, the credit guarantee cooperative created by SME associations, which
has been helping affiliated firms to obtain better credit conditions, played an
important role to ensure better access to bank loans during the financial crisis134.
Italy’s banking sector has gone through a period of liberalisation and significant
consolidation from 1990 onwards. Consolidation involved both private and
public banks, and aimed at modernising the sector, rendering it internationally
competitive, and protecting it from unwanted foreign bids (Sylvers, E., 2006).
Consolidation of large banks caused a movement of clients to small banks, in
particular credit cooperative banks, which have performed well in comparison
to large banks, enlarging their lending to small and medium firms since the start
of the consolidation process(cf. Catturani, I., 2010). Cooperative banks (banche
popolari and banche di credito cooperativo) play an important role in financing
households and small business (cf. Gutiérrez, E., 2008). Characterized by small
size and a local approach, they are governed by rules ensuring that profits are
invested into reserves. A small proportion of profits must be invested into mutual
aid and charity. The total network of branches of both cooperative banks is close
to 8,000 (cf. Barra, C. et al., 2011).
Important banks for the financing of SME requirements in Italy are also the
former savings banks (cassa di risparmio), with 25 000 branches, which used to
belong to municipalities. The role of savings banks used to be sustaining the
local economy, while large banks are supporting large industries. In order to
enhance efficiency (and also to reduce the debt burden before the Euro was
introduced), the savings banks were transformed into joint-stock companies.
Most stocks were bought by the two large banks Unicredit and Intesa Sanpaolo,
which now hold the majority of most of the former savings banks, while other
stocks are held by foundations, which hold the majority of others (cf.
Finanzgruppe Deutscher Sparkassen und Giroverband, 2010). One of the
foundations in the Veneto region has specialised into restoration of old buildings
and also operating a pawn shop - which used to be a common way for SMEs to
obtain credit during the savings banks time. The savings bank of Firenze has
remained under the control of the municipality and developed into an important
large bank135.
Micro credit is under discussion in Italy, but no operations have started yet.
Ethical banks (which are only investing into ethically sound businesses) are
coming up, too.
Despite the good performance, in particular of the cooperative banks, Italy’s
banking sector is under criticism from both the public and private sector for not
53
Consolidation of
large banks led to
a movement of
SMEs to small
banks
being adequately dynamic and responsive to financing requirements. Criteria for
SME loans are generally regarded as too rigid. Banks were affected by loans to
enterprises that lost markets, and also by a receding housing market.
Skills and vocational training
Italy’s system of education and vocational training136 has undergone significant
transformations and changes of responsibilities between national and regional
levels over the past 20 years, though the direction of change has not always been
coherent and clear (Bifulco, L. et al., 2011).
In 1997, the cycles of education were re-organised. They comprise:
- a first eight-year cycle of primary (5 years) and lower secondary
education (3 years);
- a second cycle consisting of either five years of upper secondary school
or three years of initial vocational training;
- post secondary non-tertiary education (higher technical education and
training), as well as
- higher education at university level (CEDEFOP, 2009/2010).
Education is compulsory for 10 years (up to the age of 16). The last two years of
compulsory training can be accomplished at upper secondary school or within
the three year initial vocational training period. Everyone has the right to free
education for at least 12 years before reaching the age of 18. This right can be
performed either in the school system or in full time vocational training and
apprenticeship.
Vocational training lacked regulation until 1972, when the newly created regions
were given regulatory powers. In 1996, a law was passed that conferred
exclusive legislative powers over vocational training to regions and renewed the
vocational training system. The ways of how vocational training in governed
therefore differ from region to region. The special regions of Trentino and Aosta
follow vocational training adapted to the Austrian and French systems,
respectively. Vocational qualifications may be obtained in regional training
centres, at private training centres and in form of apprenticeships in private
firms. Finance is made available through national and regional funds as well as
a training levy of 0.3 percent of their wage bills, which all firms must pa.y
Apprenticeships in Italy take place in form of a mixed labour contract. This
labour contract was reformed in 2003 and foresees three different types of
apprenticeship:
a) Apprenticeship in fulfilment of compulsory education requirements for
young students who have not yet reached the age of 16. They may take
up a labour contract in any profession. The length of the labour contract,
to which a training plan is attached, is at most three years. The contract
is combined with external training that students are obliged to attend. The
contract aims at obtaining a vocational qualification, not necessarily at
securing employment;
b) Professionalising apprenticeship: young people between 18 and 29 years
of age (i.e. after having fulfilled compulsory education) may be
employed. According to the qualification to be obtained, the contract,
again including an individual training plan, may last for a minimum of
two and a maximum of six years. 120 annual hours of external training
54
Governance of
vocational
training differs
from region to
region
are foreseen. This type of apprenticeship usually takes place in
commerce and crafts and is aimed at employment after the training;
c) Apprenticeship aimed at higher level training: in all professions student
between 18 and 29 years of age may undergo training in order to qualify
for the upper secondary school leaving certificate so as to have access to
the higher level education and training system.
Most (84 percent) of the apprenticeships belong to the professionalising
category. However, as the students have a right, but not an obligation to undergo
external training, this is not always taken up. As certificates recognised by the
regions only refer to the external training, professionalising apprenticeships are
to the greater part mere private sector affairs, i.e. it takes place without much
public sector regulations (apart from the training plan attached to the labour
contract and the requirement that a tutor must accompany the apprentice). The
owner of the enterprise where the training takes place confirms that an apprentice
has successfully concluded his/her training and that his/her skills conform to
professional standards. This confirmation is recognised by other private sector
firms137.
Available numbers of apprenticeships refer to 2007, when 638 807
professionalizing apprenticeships were recorded, compared to 124 262
apprentices in public training centres. These figures show that professionalising
apprenticeships, in spite of the lack of regulation and public certification, are
popular and preferred over training in public centres. High level
craftsmanship 138 , for which Italy is so renowned, continues to be passed on
through apprenticeships. In order to enhance skills training, and also to
strengthen the labour market, associations set up their own training and further
training centres, financed by regions and using EU funds. Trade unions do the
same for skilled workers in larger factories.
The third type of apprenticeship (high level) is an innovation in Italy, promoted
by the national government and the regions. Few apprentices have so far been
involved. The type of apprenticeship is connected to the introduction of Higher
Education and Technical Training, a level that is meant to be an alternative to
university levels, but has not yet asserted itself as equal (cf. Bifulco, L. et al.,
2011). The IFTS (Istruzione e Formazione Tecnica Superiore) system, set up in
1999, is a training channel of higher technical specialisation that aims at entry
into employment, and at facilitating and enhancing further training, integrating
school, vocational and university resources).
Nowadays very few graduates of the training system get permanent employment.
Employers prefer temporary work contracts. Immigrants push into the labour
market. Shorter employment cycles work against skills training - entrepreneurs
do not have interest in training apprentices if the work contract is short. Italy
thus has both a problem of growing unemployment and at the same time one of
insufficient numbers of adequately skilled young people. In order to protect
people from losing employment, further training and adult training has gained
importance. A law enacted in 2000 entitles employees to (unpaid) training leave.
The state, regions and local authorities provide training courses tailored to the
territory.
The transition from education to employment is a delicate issue in Italy. The
percentage of graduates whose jobs have little to do with their qualifications is
the highest in Europe139 ). In September 2009, the Ministry of Work, Health and
55
Apprenticeships
take to the greater
part place without
public sector
regulation
Social Policies together with the Ministry of Education, Universities and
Research presented a project “Italy 2020, a Plan of Action for Youth
Employment by Integrating Learning and Working”, aimed at enhancing
apprentice contracts and at reducing mismatches between demand and offer of
work. Whether this has led to positive results could not be established within the
scope of research for this paper.
Several aspects of Italy’s SME development stand out:
There is first of all the remarkable development out of poverty to become
globally leading in craftsmanship and innovative technology. A poor
background seems to be a catalyst for innovation. Examples are
Luxoptica, which developed from a poor village, looking at glass
products that are light enough to be transported, to become the most
important producer of high quality sunglasses, covering 80% of the world
market and hosting big names - Gucci, RayBan, Armani and others.
Montebelluna, a village from where people used to emigrate, emerged as
a production centre for shoes, and has become a global centre for sports
shoes during the last 15 years, inventing “the shoe that breathes”140.
Secondly, the interaction between entrepreneurs constitutes specific
Italian social capital that significantly supports SME development.
Strong family structures contribute to a dynamic fabric of small
enterprises, which swiftly make informed choices between collective and
individual action, gaining the optimum out of available opportunities.
Thirdly, entrepreneurial attitudes are making a difference: flexibility that
looks beyond limits set by professional fields, adding for instance watch
making to leather production (Gucci), or switching from successfully
marketing garments to the construction business (Benneton brothers), the
common denominator appearing to be a passion for excellence in
organising business, an open eye for opportunity and absence of
complacency. Knowing that competition is permanent, Italian
entrepreneurs take achievement and growth as a case for further search
of opportunity and investment.
The fourth is the relation between the private and the public sectors:
Italian SMEs seem to develop not because of government action but in
spite of national government weaknesses. Private sector organisations are
particularly strong, independent actors driving and managing economic
development. The achievements of associations and the impressive
performance of science and technology parks during recent years are
good examples. The public - private communication in Italy is
pronounced, characterised more by “name and shame” than by
entertaining protracted discussions, pushing the public sector to
providing the support that the private sector requires.
Italy channels high levels of subsidies to SMEs, most of them going to the South.
The situation of Italy’s South constrains the country’s economic development.
The public and the private sectors have a common interest in the development
of the South, but the lack of trust and interaction between both sectors, which
56
Poverty seemed to
be a catalyst for
innovation
Achievement is
regarded as a case
for further search
of opportunity
seems to be a source of initiative in the North, appears to lead to limitations in
the South. Italy has not found strategies or a recipe how to combine public and
private resources in order to bring about prosperity in the South. While the
private sector is strong enough to manage its own development in the North, it
apparently does not have such strength in the South. Where public-private
interaction is needed in the South, it does not work effectively enough.
Limited public-private interaction may also be a reason contributing to Italy’s
unassertive development of education and vocational training, and the
challenges of the Italian labour market, which has difficulties matching the offer
and demand of skills. Young people train for competence in one field, but take
up work in another. Performance and competitiveness of SMEs might get
affected if skills development and employment get less connected.
57
Lack of trust
between public
and private
sectors seems to
be a source of
initiative in the
North, but leading
to limitations
of development
in the South
3.5. Summary: Characteristics of the SME support systems in the UK, Germany, France and Italy
Issues
UK
Societal patterns that shape
the way SME development is
conceived and managed
Belief in market forces and
volunteerism are important
elements of the SME support
system.
Main policy objective
Sustainable
private
sector
growth, job creation and startups in the transition to a low
carbon economy
Germany
SME
SME support structures emerged
during 1970s/’80s, institutional
support has seen radical
changes over last 30 years
Traditions influence private
sector behaviour, private sector
accepts ideas/advice from the
public sector on how to manage
SME support.
In general: fostering economic
stability through a balanced
SME
structure;
enhance
innovation in SMEs, but no
specific SME policy
“Mittelstand”, a notion that
includes SMEs and larger family
owned firms, is a key pillar of
German economy
Main public bodies directing
SME development
Department of Business, Innovation and Skills (BIS), Local
Economic Partnerships (LEP).
Local Enterprise Agencies,
Library Services in some cities,
any other public or private
organisation winning tenders to
implement
SME
support
programmes.
Ministries of Economy of Federal
States, Federal Ministry of
Economy.
For craft SMEs: District Craft
Leagues, Chambers of Crafts
Non craft SMEs: own professional associations, Chambers
of Commerce and Industry (but
less support than for craft SMEs)
Chambers of Commerce and
Industry have few members
among SMEs (6% of SMEs), but
play important roles in local
SME support initiatives, Local
Enterprise Partnerships (LEPs)
and Community Development
Finance Institutions (CDFIs)
Obligatory
membership
in
Chambers
of
Crafts
and
Chambers of Commerce and
Industry. Chambers are independent, control and manage
all vocational training. Special
structure of Chambers of Crafts:
Employees are represented on
Board (so that labour disputes in
SMEs are avoided) Chambers
are limited by chamber law to
participate
in
commercial
ventures
Special aspects
development
of
Main organisations delivering
support/contact point for SMEs
Role of chambers
58
France
Italy
Achieving economic growth,
employment
and
competitiveness, render the
country attractive for investments
Economic growth, employment
and income generation in South
Italy, no specific SME policy in
the North
Support of “gazelles” (high
growth SMEs) is central to SME
policy, “autoentrepreneur” approach encourages self-employment; substantial changes of
institutional structures over last
10 years
Ministry of Economy, Finance
and
Industry,
Regional
Councils.
Craft SMEs: Chambres des
Métiers (CMA)
Other SMEs : Chambres de
Commerce et Industrie (CCI),
some direct support through Regional
Councils,
UbiFrance,
OSEO and other organisations.
Obligatory membership in (CMA)
and
CCI.
Chambers
are
independent, but public sector
has some control. CCIs are an
important education provider
(e.g. founder of HEC (Haute
École de Commerce); run
vocational training centres. CCI
also manage large public
instal-lations such as airports
(except Paris), marine ports and
others.
“Industrial
districts”
(SME
clusters) are greatly contributing
to competitiveness of Italian
SMEs, have come up without
public sector assistance, but
public sector has joined later to
provide support
Regional governments
Society accepts strong public
sector, demands (and receives)
accessibility and high levels of
performance in return.
Private
sector
has
little
confidence in government,
SME
associations
manage
development and support.
SME Associations, covering all
SME subsectors
One chamber for industry, commerce and agriculture, obligatory
membership, chambers are independent, but public sector has
some control, chambers fulfil
public mandates, provide training
and also take part in public and
private business ventures
Issues
UK
Associations
Federation of Small Business:
11% of SMEs are members, are
important lobbyist; there are
many independent professional
associations in the UK, albeit with
small membership, SMEs may be
members in several associations.
Main providers of finance for
SMEs
Established commercial banks
provide range of financial
products weak branch network,
little specialisation in SME
products; CDFIs provide small
loans for SMEs at less strict
conditions, privates venture
capital support for SMEs is on
offer more popular than in the
other economies.
State
credit
guarantee
is
available, but not popular; CDFIs
for credit guarantee.
Credit guarantee
Innovation support
Directed
and
funded
by
Technology Strategy Board, 6
Catapult Centres offering wide
range
of
support,
being
established, university-industry
networks support innovation in
SMEs, substantial tax credits
and
innovation
fund
are
available.
Skill development
High priority, recently changed
system, quality of training assured by government, provision
through school and public or private training centres, apprenticeships are gaining importance
for basic vocational training. Highly modular, system in Scotland, courses can be vertically
and horizontally combined.
Germany
Organised according to professions, are called guilds (for
craft SMEs) at district level, form
district craft league as basic
support structure, federations
of associations at state and federal levels, cooperate with chambers, membership between 30%
and 90% of SMEs.
Federal development bank
(KfW) and state development
banks offer wide range of financial products applied through and
managed by bank holding the
SME’s current account. Dense
network of Cooperative and Savings banks facilitate access. No
subsidy, but special conditions
for SMEs and specific purposes.
Private sector initiated and
controlled system, to be applied
for through banks holding current
account.
Fraunhofer Institutes, carry out
research, Steinbeis and other
similar centres facilitate SMER&D linkages, Central Innovation Programme facilitates
cooperation and finance, growing
funding
for
innovation
in
SMEs.Mixed experience with
technology centres.
Dual system of vocational
training,
regulated
and
administrated by chambers, is
popular among private sector
(student learn about world of
business from beginning).
59
France
Italy
Three main associations represent groups of professions,
20% of SMEs are members;
syndicates (employers federations of SMEs) have membership
beyond 90%.
Key organisations to develop
and provide SME support and to
lobby; represent all SMEs, 60%
of
SMEs
are
members;
associations
compete
with
other
associations
for
membership and best service
delivery.
OSEO is public apex bank,
offering wide range of financial
products directly and through
banks holding the current
account of SMEs. Wide range of
financial products tailored for
SMEs, including guarantees,
special support for high growth
SMEs and innovation
Cooperative and formerly (now
privatised)
municipal
banks
present a dense network for
SMEs. State credit programmes
are channelled through these
banks. Subsidised credits are
available for SMEs in the South
Offered through OSEO (in
collaboration with private sector
organised guarantee scheme).
Private sector organised and
popular.
71 Pôles de compétitivité
(competitiveness clusters) offer
support packages including finance, marketing, R&D linkages,
accommodation; OSEO supports
advice and finance for innovation,
innovation is central to supporting
“gazelles”. Larger industries still
have advantage of access to
public innovation support.
Training in training centres,
owned
and managed
by
chambers, quality control by
state; “alternance” (intensive
practical training) applied at all
skill
levels,
apprenticeships
gaining in importance.
Science and Technology Parks
(40) offer complete support
including finance, marketing,
R&D
linkages
and
accommodation.
Two types of vocational training:
through school and training
centre system, and through
apprenticeships,
the
latter
highly unregulated (no exams
through public bodies required),
but highly regarded.
Issues
UK
Universities/public R&D
Strong implication of universities
in
concept
development,
teaching and research about
SMEs;
Role of R&D institutions and
universities in support of innovation in SMEs is strong and
gaining importance .
Specific support instruments/
approaches
Counselling, financed through
matching grant schemes, is main
method of individual support.
Wide range of partly subsidised
general training courses for
SMEs available. Specific advice
and counselling offered for
modern themes (energy, green
economy).
Outstanding free for all web-site
offering
information
and
interactive tools for SMEs.
Clustering: used to be priority of
now
disbanded
Regional
Development Agencies (RDA). Is
less of a priority now; market
forces are to prevail.
Clustering
Start-up support
Priority of public support, many
support initiatives directed at this.
Support included subsidised
information, training and counselling as well as facilitation of
access to credit.
Local/regional development
Local Economic Partnerships
are key organisations to develop
“natural” economic areas, take
care of areas with on average 1
Mill inhabitants each; have
private sector led boards,
appointed by public sector.
Germany
Implied in innovation in SMEs
for a long time (laws regarding
applied research permit this);
connectivity between universities/R&D institutions and SME
facilitated by specialised public
organisations. Little presence of
SME development as topic of
teaching and research.
Counselling, free up to a certain
limit is main method of individual
support for craft SMEs (law
regulates availability of subsidised counselling). For non-craft
SMEs counselling is free up to a
limit and/or financed through
matching grant schemes. Specific advice offered for modern
themes (energy, etc.) Wide range
of partly subsidised training
courses for SMEs available.
Clustering is being followed in
particular in regions of economic transition (such as
former mining regions). Recently,
scepticism with regard to clustering is emerging and market
led approach preferred.
Not first priority but regarded as
important. Subsidised information, training and counselling.
Traditions require proof of competence in technology, business
administration and pedagogic
skills to train apprentices before
starting a craft SMEs.
3 to 4 administrative districts
(approx. 1 Mill people) collaborate forming regional development agencies, municipalities,
banks and sometimes chambers
(without financial implication)
hold shares.
60
France
Italy
Long tradition of cooperation
between private sector and
universities/R&D (since establishment of “technopôles” in
‘80s), strong implication in “pôles
de compétitivité”. Some academic research about SME development at university level.
Implied in science and business
parks.
Academic research about SME
development is rare.
Counselling, free of charge up to
a
limit
and
otherwise
reimbursable, is main method of
individual support. Wide range of
partly
subsidised
training
available.
Specific advice offered for
modern themes (energy, green
economy)
Very good free web-site offering
information and interactive tools
for SMEs.
Important priority for regional
development, regions are to
develop clusters of industrial
excellence, implication of pôles
de compétitivité in clustering.
Counselling
through
associations
against
partly
subsidised fees, counselling
through private sector, wide
range of training courses
available through chambers and
associations.
Specific advice on modern
themes (energy, etc.)
Auto-entrepreneur
concept,
supported through information,
training
and
counselling,
facilitates
transition
from
employment to self-employment.
Priority in the South, supported
through
special
credits,
counselling, and training, no real
priority in the North.
Regions (average of 4 Mill
people) are basis of regional
approach, Regional Council
coordinates, specialised regional institutions take care of
specific tasks (e.g. inward
investments).
Regions
(average
3
Mill
inhabitants) have mandate of
economic
development,
economic development and
support activities are centred in
Provinces (approx 1 Mill
inhabitants).
Industrial districts are a form of
clustering, but they are based on
private sector initiative alone,
public sector involvement follows
later.
4. Concluding: What is best practice in SME development in
Europe?
The overview in chapter 3.5 summarised how the SME development systems
in the four European economies reflect different patterns of societal norms,
matching and responding to the different meta-level framework conditions,
i.e. the overall national approaches to achieving change and development that
have to do with social structures, mentalities and traditions.
The French society accepts central structures, demanding (and receiving)
accessibility to these structures and high levels of performance in return. The
French SME development system is consequently characterised by strong
public sector presence. This contrasts starkly to the Italian system, which
could possibly not work effectively within a public sector dominated
hierarchy. That system reflects the Italian entrepreneurs’ propensity for
interaction among each other in order to take better care of their own affairs,
and their penchant for competitive challenges, including competing
institutions. The latter would possibly irritate Germans, who seem to prefer
clearly attributed organisational roles and responsibilities that reflect
traditional professional ethics, while the British society seems to accept even
radical changes of the SME development system without suspicion, believing
in common sense and fair play that is underpinned by the dialogue between
public and private sector peers.
It follows that the system of one of the four countries could not easily be
transferred to another. In a positive vein, one could assume that the adaptation
of the systems to the societal characteristics renders them particularly
effective, but this would be difficult to prove. In a more critical perspective,
the different systems may complicate interaction (the organisations
representing the SME sectors at EU level are, for instance, differently
legitimised and have different missions), while a one-fit-all system might
facilitate cross-border cooperation and understanding. The UK, and in
particular France, have taken up the example of the SBA of the United States
to influence significant parts of their systems - with a long positive experience
in the UK and a so far short period of experience in France. The successful
transfer of parts of the SBA approach might lead to the suggestions that a
system that has proven its effectiveness in a multi-cultural environment, such
as that of the US, can more easily adapt, and that the European systems are
too country specific. The French initiative of establishing a European SBA
points towards the direction of a generally applicable system.
The essential conclusion is that SME development in Europe is not a mere
technocratic matter and its effectiveness cannot be assessed without societal
consideration; best practice in one society is not automatically best practice
in another.
SME development systems in Europe also differ because of the different
policies at the macro level. Equitable economic growth may be a common
denominator for SME development support, but this is differently accentuated
from country to country. Job creation is a priority in the UK, underpinned by
social aspects on the one hand as well as growth in manufacturing on the
other, while SME policies in France are strongly geared towards
strengthening growth of medium scale141 enterprises, creating a better balance
61
SME development
systems reflect the
different patterns
of societal norms
in Europe
Maybe the
European systems
are too country
specific, limiting
international
interaction
between firm sizes. Italy does not have a clear SME development policy, and
applied strategies are fundamentally different in the North and in the South.
Germany does not have defined national SME development strategies either;
interventions are directed at maintaining the structural stability of the SME
and industrial tissue. Support for innovation in SMEs has become a priority
in all four economies, again with different accents, as delivery systems and
their maturity differ.
Overall, there is little of what one could call best practice in setting policy
objectives of SME development among the four economies - the objectives
of existing SME policies reflect different economic situations and
orientations.
The ways policies are formed in the four economies bear similarities. In all
four countries the public-private dialogue is central to setting SME policy and
development strategies. Differences exist with regard to who is initiating,
inviting to and leading the dialogue, and how formal it is. The German public
private dialogue is equitable, regular and formal, in line with SME laws and
to a great part taking place in the form of exchanging written opinions and
statements. In the UK, the dialogue is built into the governing bodies of
institutions and committees concerned with SME development, in which
private sector representatives are taking the lead. The public sector is taking
the lead in the policy dialogue in France; much of the dialogue initiated by
private partners - including syndicates - concerns itself with bargaining for
rights of SMEs (such as access to public contracts). Policy dialogue in Italy
often takes place in the form of strong lobbying coming from the private
sector. Best practice with regard to the way the public-private dialogue is
organised cannot be found in the four economies, as this appears to be akin
to their different meta-level characteristics.
What the four economies share in terms of policy is the application of
subsidies for support interventions, albeit to different degrees. Britain, the
economy most reticent with regard to private sector subsidies, has been trying
to abolish them (during the ‘90s) but has kept them, using them with
restraint142. The generally accepted view in the four economies is that national
investmenbbts into growth of SMEs through counselling, innovation support
and easier access to capital pay dividends in a national economic perspective.
Subsidies are partly also applied to enable poorer segments of the society to
engage economically - this can, for instance, be observed in Southern Italy as
well as in Britain, and to a degree also in France with regard to supporting
vulnerable groups. The main rationale for subsidies in all four economies is,
however, an economic rather than a social one. Subsidised SME support
programmes come and go, to be replaced with new ones. The informed
application of subsidies for SME development has become a permanent
feature of the SME development systems of all four economies - this may be
considered best practice.
The institutions and organisations (the meso level) supporting SME
development in Europe differ profoundly with regard to their public or private
character, governance and roles. In France, the delivery of most support
services is through public institutions (governed by mixed public/private
boards) and chambers - which are private sector organisations, but with
affinity to the public sector because of their significant public mandates.
62
A policy that the
four economies
share is the
application of
subsidies
The institutional
structures
delivering support
differ profoundly
Changes of approach would have to make their way through some of the
French public sector hierarchy, which can be successfully accomplished as
the substantial changes during the last decade show143. The delivery of the
greater part of advisory support to SMEs in Italy and Germany is through
traditional private sector membership organisations. This renders the delivery
highly responsive to demand. In the UK, the delivery system is private sector
led, but as delivery organisations must bid for contracts, they have to be loyal
to their public financiers. Support organisations in Britain are concerned that
beneficiaries “own” the approach and products on offer 144 . This is a
complication that is not known in Germany or Italy. However, the British
delivery organisations, free from restrictions through traditions, can swiftly
change in order to always improve on delivering support. Such changes have
limits in Germany (this is, for instance shown by the weaker offer of support
for SMEs that fall out of the traditional professional or craftsmanship
patterns). One might suggest that - also in view of the achievements that the
system has to its credit - the British system of enterprise agencies, working
under the umbrella of (changing) public sector created bodies, could be
regarded as good practice for economies that do not have strong traditional
structures supporting SME development. The British system, having gone
through substantial changes itself, appears adaptable to different
environments; many East European countries took up approaches from
Britain during the ‘90s (they could not emulate the spirit of voluntarism that
renders the British system strong, though). One might think that the British
system could be combined with a strong dose of the Italian approach of a
delivery system managed by SMEs themselves. This was somehow tried
during the ’90, when the then TECs merged with chambers - and
discontinued, possibly because it did not fit well with the policies of the then
new (Labour) government145.
With regard to innovation, support and delivery structures differ, though
cooperation between SMEs and universities as well as publicly financed R&D
institutions has become best practice in all four economies. Science and
technology parks and competitiveness clusters, respectively, have become the
focus of SME innovation support in France and Italy. These are physically
demarcated areas/structures where scientific research, market research,
finance and support for commercial application of innovation are brought
together. Britain is following a similar approach. Germany, where the
experience with technology centres is mixed, places more emphasis on
facilitating collaboration between universities and SMEs at their locations,
for which effective structures have been in operation for some time.
Responding to the comparably small share of public R&D funds that SMEs
received in Britain and in particular France, dedicated efforts are made in
these countries to correct the imbalance146. OSEO in France has introduced a
remarkable system that combines innovation support and finance, and the UK
appears to be leading in venture capital for innovation, having longer
experience with that financing instrument than the other three economies.
Innovation support systems in Europe are still at a developing stage.
Innovative SMEs and the innovation support systems in the four economies
communicate, not least because of EU funds being available, and the systems
seem to continue learning from each other.
63
The British system
appears to be
more adaptable to
different
environments
Innovation
support systems
in Europe are
continuing to
learn from
each other
Credit and financial products for SMEs in the four economies are offered
through different delivery channels. The UK have a particularly efficient
banking system, albeit with limited access for SMEs (the social development
oriented CDFCs are therefore complementing the offer of credits), while
Germany’s banks financing SMEs are less profitable, but the network of
banks is dense and well accessible for SMEs. Italy has gone through a period
of restructuring and privatisation of its banking system, with some loss of
access for SMEs but higher profitability and sustainability of the system itself.
The system of specialised apex banks in Germany and France (KfW and
OSEO), appears particularly effective in making tailored financial products
available to SMEs, OSEO with its regional offices offering the additional
advantage of direct access available for SMEs. France, Germany and Italy
have effective, economically viable credit guarantee systems, in Italy and
Germany owned by the private sector, while OSEO in France is
complementing its own guarantees with those of a private sector led guarantee
system. Talking about good practice in SME finance, one cannot overlook the
OSEO approach, which seems to combine a high level of outreach with local
presence and an offer of modern financial products suitable for the
requirements of SMEs. Britain is considering establishing an SME
development bank.
Talking about best
practice in
finance, OSEO
cannot be
overlooked
Whether the systems providing financial support are privately of publicly
owned does not seem to affect effectiveness.
Micro credit has, in spite of attempts, not found its way into any of the SME
finance systems in the four economies.
Reduced interest rates are in all four economies offered for certain purposes
(for instance energy saving investments), but subsidised interest rates are rare
and mainly applied for special purposes in certain regions, such as for
supporting start-ups in Southern Italy.
The approach towards local and regional economic development in the four
countries was in part driven by the availability of EU structural funds, the
application of which is contingent to establishing local/regional decision
making structures in which public and private local actors take part. In
Britain, local economic development started in the early ‘90s with the
establishment of the TECs, which were to develop local strategies for local
economic development. The LEPs of today are benefitting from the TEC
experience. In Germany, local/regional economic development was
accelerated by the need for greater collaboration between
municipalities/districts in order to reach economies of scale in particular in
the Eastern federal states after re-unification. In Italy, the transfer of decision
making powers to regions presented the case for regional development
approaches, which were later complemented by local economic development
based on public-private partnerships at provincial levels. In France, regional
economic development was equally accelerated by the decentralisation and
the transfer of decision making on economic development to regions. The
rationale for local and regional economic development has hence been
different in the four countries, yet common approaches have formed. Regions
are regarded as areas that display an identity in terms of economic activity
and industrial relations. The territories covered often have between one and
64
The rationales
for local and
regional economic
development
in the four
economies differ,
yet, common
approaches have
formed
three million inhabitants. Within such areas, forces are joined to develop the
region, shaping their specific characters and rendering them attractive for
investments. The regions formed in this way are thus strong enough to
compete with other regions nationally and internationally.
Cluster development has been a strategy commonly applied in regions. The
approach is promoted through public interventions in France. Italian regions
are benefitting from the industrial district development borne by the private
sector. In Germany, cluster development is losing priority, possible negative
impacts are being discussed. In the UK, too, cluster development strategies
of the former RDAs are no longer intensively followed by the LEPs. Regional
economic development, using a flexible approach towards who may be a
stakeholder (provided private and public interests are taken care of), can be
regarded as best practice, as regions present suitable economies of scale on
which SME development systems can be based147. This is best reflected in
Germany and France, where the areas covered by regional development
agencies often correspond to those of chambers, and in Italy, where the areas
served by the offices of associations correspond to the boundaries of
provinces.
Skill development for SMEs is differently conceived and supported in the
four economies. Germany stands out with its “dual system” of vocational
training, which is governed by the private sector and regarded as very
effective. It is based on the traditions of Germany’s chamber system;
however, precisely because of these traditional roots, the system cannot easily
be transferred. The UK has employed different systems of governance and
administration of its school/training centre based skill development system
over the last three decades. The highly modular system of Scotland stands out
as very flexible. The French system, also mainly training centre based, is in a
process of being reformed. Italy’s private sector is maintaining a highly
unregulated system, which, alas, is having difficulties in meeting both private
sector requirements and expectations of students sufficiently well. All four
economies offer free initial professional training and subsidise further
training.
Alternating
training (at firms
and schools) has
become best
practice
One may say that alternating training (in training centres/schools and at the
work place) has become best practice in skill development in the four
economies. Apprenticeships are the rule in Germany and to a lesser extent in
Italy, and gaining importance in Britain and France. The UK and France are
being quite self-critical of the existing situations in their countries and making
strong effort improving them.
The approaches of applying SME support at enterprise level in the four
economies are not very different. The common, best practice approach to
support is that of “counselling”, i.e. individual advice based on joint analysis
and discussion of suitable solutions between a business counsellor and an
entrepreneur. Counselling contrasts to consulting, i.e. the elaboration of
solutions to business challenges at a bit more distance from the entrepreneur.
There may be cases for such approaches as well (for instance when a tax
consultant prepares a short report comparing the cash flow implications of
alternative options of leasing, buying on credit or buying second hand), but
this is more usual for medium size firms.
65
Best practice of
actual delivery of
support at firm
level is
counselling
delivered by
mature, competent
experts
The four surveyed economies are generally also in agreement with regard to
what business services may be subsidised and which ones not. Legal advice,
tax consultancy, book-keeping services and other operational support, such
as web-site design, cannot be subsidised in any of them. Support services are
only subsidised when they serve development purposes, i.e. they must entail
strategic advice to support growth and innovation, or to get a SME out of a
problematic situation.
While business consultants advising larger firms in Europe are often young
professionals, meant to transfer the latest know-how in management and
technology from universities to business, SME counsellors in all four
economies are usually mature and well experienced experts of high
competence. This, too, can be regarded as common best practice in SME
development.
Start-up support in form of advice and training is subsidised in all four
countries. Entrepreneurship development in the UK used to address personal
skill development, including motivation and creativity, which was, for
instance, part of graduate enterprise courses. The approach corresponded to
the aim of enhancing the spirit of entrepreneurship; similar approaches were
partly tried in the Eastern Federal States of Germany after re-unification.
They are no longer regarded as best practice in any of the four economies.
Start-up support is limited to the supply of relevant information and transfer
of knowledge as well as to critical self assessment of one’s capabilities of
becoming an entrepreneur.
Access to interactive web-sites that assist potential and existing entrepreneurs
to provide information, answer questions, assist in elaborating a business plan
or preparing tax returns, signposting where to get special advice, etc., is
available in all four economies. BusinessLink in the UK is probably the best,
but France has very good web-sites, too, and Germany as well as Italy are
catching up.
Concluding, there is common best practice in Europe, mainly at the enterprise
level. Owners of SMEs will find more or less similar approaches when they
seek development advice. Financial support systems are very different. There
is no best practice regarding the institutional set up, and SME policies differ
significantly, too.
66
Interactive websites have become
common, the
British one
possibly being
the best
5. SME development approaches applied in developing
countries
5.1. Increasingly deviating approaches
The graph below shows two curved lines: they are to indicate that approaches
to supporting SMEs in industrialised and developing countries started being
quite different before and during the 1980’s; they came closer to each other,
applying some similar approaches until about 2000, when instruments and
institutional set ups started to significantly deviate from each other. Today,
some SME development instruments are clearly developing country
instruments, while others are the domain of industrialised countries, with only
a few being shared between them148.
Figure 6: SME support instruments in developing and industrialised countries
Source: Author
BDS (Business Development Services), the value chain approach and “doing
business” (or business environment enhancement) are concepts and terms
applied or known in developing countries (see discussion further below),
while counselling, innovation and clustering are key topics for SMEs in
industrialised countries.
SME support in developing countries was commonly regarded as a
government task before and during the 70’s and early 80’s. The Industrial
Estate concept from India was perceived as good practice and transferred with
the support of many donors. SME development banks were founded and small
industry development organisations (SIDOs) established, usually parastatal
bodies, which provided counselling support and infrastructure (such as
common facility workshops, where SMEs could hire the use of machines by
the hour). Though the conflict of interest between credit provision and
counselling was recognised (it may become difficult to blame an entrepreneur
failing to repay a loan when he/she is intensively advised), the two were
usually combined for practical reasons. SME development officers of
67
Today, some SME
development
instruments are
clearly developing
country ones,
while others are
the domain of
industrialised
countries, with
only a few being
shared between
them
SIDOs/industrial estates were to a large degree occupied writing business
plans for people wanting to start or expand an SME. Political aspects (e.g.
“Africanisation” of the private sector) played important roles; they produced
significant success stories, though failures, too.
Structural adjustment programmes during the late 80’s reduced the size of
government structures in many developing countries. This affected SME
support institutions. During the same period, donors became increasingly
dissatisfied with large scale public organisations and looked for alternative
partner structures for SME-development, while their focus shifted from
medium and small towards micro and informal sector enterprises149. Informal
sector support and entrepreneurship development programmes were among
the first approaches applied in developing countries not primarily through
public institutions, but working with NGOs.
Structural
adjustment
programmes
during the 80’s
affected SME
support
institutions
From the beginning of the 1990’s until about 2000 significant transfers of
SME support models from industrialised countries to developing countries
took place. This was accelerated by the need for effective SME structures in
Eastern European and former Soviet Union countries after the fall of the iron
curtain. Models included SME agencies independent of government
structures and instruments such as incubators and entrepreneurship
development programmes, the UK being an important source of know-how.
The local economic development approach, which the TECs in the UK
championed, found its way to Eastern Europe and subsequently to developing
countries, also borne by the donors’ political interest to spur decentralisation,
participation and democratic governance. Scholars from the UK were
important advisors on SME development systems in Eastern Europe and
developing countries, feeding in experience gained in particular in the UK150.
5.2. Observations on common approaches
BDS (Business Development Services)
The famous “Blue Book”, published by the DCED (Donor Committee for
Enterprise Development) in 2001, was a decisive point of change. The term
“BDS” (Business Development Services) came with guiding principles that
have since strongly influenced SME support in developing countries .
BDS is not only a term circumscribing Business Development Services, but
a concept promoting the idea that services should not be free, and that, if
quality levels are adequate, markets for BDS would eventually develop.
SMEs - as clients - would then be willing to pay full costs.
Neither the term BDS nor the policy connected to it are applied or known in
industrialised economies 151 . A few years before the “Blue Book” was
published, the TECs in the UK tried to introduce a market-oriented system of
service provision, but dropped this goal not long afterwards.
The BDS concept became very popular among donors. It built on the
experience of “matching grant” schemes, which are indeed known from
Europe and had been introduced in developing countries from the early ‘90s.
In developing countries, matching grant schemes soon took up the market
68
The famous “blue
book” of the
DCED was a
decisive point of
change
development principle, aiming at phasing the grant element out in the medium
and long term.
The BDS approach has been instrumental in capacitating service providers
and in raising the quality of services to their clientele. Evidence is available
that SMEs were sensitized for the benefit of buying services. Some aspects,
however, require consideration152:
- While a clear distinction is made in industrialised countries between
subsidisable (strategic advice, training) and non-subsidisable
(operational) services to SMEs, the BDS approach applied in
developing countries counted “any” service to SMEs as BDS. In order
to stimulate the market for such services, subsidies were provided for
operational services, too, as a temporary measure to popularise them.
It proved difficult to withdraw such subsidies later on;
- Strategic services, such as finding new markets, planning business
growth, innovating products or processes or finding solutions to
business problems, received less specific attention. In the end, the
BDS approach often subsidised services that it should not have
subsidised, and did not sufficiently establish effective support
mechanisms where affordable advisory services could have been
helpful to spur growth ;
- BDS projects often followed the double objectives of market
development and raising competitiveness. Strategic services directed
at enhancing competitiveness cannot be routine, they need to be
tailored to the specific enterprise situation and must be of high quality
in order to be effective. This renders them expensive, and markets
usually fail to provide them. SMEs have difficulties bridging the time
between buying such services and generating additional cash as a
consequence of the services’ impact. In the end, both objectives could
not be achieved as expected;
- The approach did not sufficiently take into account that many
operational BDS in developing countries are provided on an informal
basis. Bookkeeping services are offered by accountants employed in
larger firms, who earn a little extra for themselves assisting small
firms in the evening. Loan officers of banks may help entrepreneurs
writing business plans; IT freelancers design web-pages without full
tax invoices. Support programmes ended up paying subsidies in order
to formalise a market that is actually working quite well informally.
When support projects ended, markets fell back into informality.
A matching grant scheme, introduced in Mauritius in 2008, allowed the same
50 percent share of subsidy for the cost of services as a similar scheme,
supported by the same donor, 15 years earlier. If the share of subsidies cannot
be phased out or at least reduced in a strong, rapidly developing economy
such as Mauritius, in which other developing country could it?
While industrialised economies have accepted that public investments into
SME development are generating economic benefits and should therefore be
made, the market approach in developing countries negates this, at least as a
principle. At the same time, the approach does not provide realistic exit
routes:
69
BDS projects often
followed the
double objectives
of market
development and
raising
competitiveness
of SMEs, in the
end, both were
not achieved
- A sustainable exit route would require that decision makers
controlling public finance are in a position of making an informed
judgement on whether subsidies for BDS generate sufficient return on
investments and should therefore be made available. The wealth of
data with regard to costs and results of donor assisted projects could
have underpinned decisions. Evaluations suggest that this chance has
not been adequately used;
- Viable service supply structures have not been built up in a
sufficiently sustainable manner, mainly because of the ambitious
assumption that fees for services could pay for costs. Some projects
suggested when they phased out that business development officers
they employed should form cooperatives continuing service supply;
however, this usually only worked as long as other donors provided
(subsidised) work for them. Other BDS projects were implemented in
partnership with pivate sector associations or chambers of commerce,
based on the hope that the organisations’ connections to the business
sector could contribute to establishing markets, and break-even points
could eventually be reached; but this did not actually materialise. It
sometimes lead to losses in terms of image and finance for the
supported partner organisations.
- Other schemes still went further, donors encouraging the private
sector to set up associations or federations specifically for the purpose
of delivering BDS. Managers were often recruited from the local
business community, some receiving unsustainably high salaries. A
good number of such associations/federations vanished soon after
donors retracted, others have continued receiving subsidies from other
donors and still others ventured into public sector consulting,
receiving contracts from the donors that helped establishing them.
Sustainability was hardly achieved.
Strategic advice to SMEs in developing countries is essential for them to find
new niches, in particular in a globalizing economic environment that demands
reciprocity in trade. The president of an employers’ federation in Senegal
answered to a question how SMEs are preparing for Economic Partnership
Agreements (EPAs)153: “we are stopping to produce”. Such perceptions are
dangerous for economic development; they show how important it is to invest
into advice for SMEs.
The challenge is not only to build up adequate competence and experience for
growth inducing services (strategic BDS), but to develop sustainable
financing models. In this regard, the BDS approach could have benefitted
from experience in Europe. Financing possibilities could include tapping
public resources for the provision of BDS, such as universities, which could
render BDS supply much cheaper, or to include, for instance, start-up
counselling in an investment credit package. Suitable ways of financing
strategic BDS could also lie in using income from mandated services (such
as export documentation) to finance related strategic BDS. It would be
important to explore such possibilities to a greater extent.
70
Sustainable
financing models
for BDS are
needed
Value chain development
Value-chain development has become an important SME support instrument
in developing countries during the last decade. The approach is often applied
to assist agricultural producers finding new markets and diversifying their
production, providing them with a safer basis of planning the growth of their
business. Facilitating linkages between enterprises in the sequence of
business processes 154 can result in significant gains, as individual small
producers may not have the capacity to access markets on their own. Projects
supporting value chains have produced numerous and interesting success
stories155.
It is important to understand that integrating several steps of a production/
service process - be it within a firm or between several firms - into an
integrated chain first creates inefficiencies, because each step of the valuechain operates most productively only at a certain rate of capacity utilisation,
which is likely to differ between steps (see graph below). The value chain
(VC) approach must consequently produce sufficient value added to
compensate the inefficiencies created. If it does not, some value chain
participants might look for alternative linkages, possibly causing the value
chain to break apart.
Fig. 7: Different capacity levels in a value chain
Optimum
capacity for
step 1
Optimum
capacity for
step 2
Optimum
capacity for
step 4
Optimum
capacity for
step 3
Optimum
capacity for
step 5
Efficiency losses occur below this line
Source: Author
Quantitative analysis of value chains with respect to the economies of scale
of each step is hence essential. This requires good knowledge of capacities of
processing technologies. Volumes of market niches need to be quantitatively
researched, too.
A key factor of competitiveness relates to how a value chain is organised in
relation to those of competitors156. Owners of different SMEs joining to form
a value chain may be threatened by competition from an entrepreneur
integrating the different steps into one business. The entrepreneur may
integrate steps into the chain that are not competitive on their own, but
provide the enterprise with a unique competitive advantage in combination
with others, such as flexibility or shorter lead times157. Individual enterprises
linked into a value chain could not follow such an approach and might thus
fail in a competitive environment. Value chain promotion needs to anticipate
such competitive risks and find ways to mitigate them, which again requires
thorough knowledge of best subsector practices.
Value chain approaches advocate a bottom up approach, strengthened by the
guidance of “champion” enterprises. Projects usually provide significant
inputs into the facilitation of value chain groups of SMEs, where important
entrepreneurial decisions for the whole chain are taken. A lot of responsibility
rests on the shoulders of facilitators, who are often expected to distinguish
71
Quantitative
analysis of value
chains with
respect to the
economies of
scale of each
step is essential
between profitable and loss making ideas and render advice. As several
enterprises are linked in the value chain groups, mistakes in advice could have
negative consequences.
These are often not fully monitored, as some value chain approaches regard
the establishment of proper processes and capacity building for process
faciliatoion as their main contribution, i.e. they measure their success in terms
of transferred processes, and not in functioning value chains.
The challenge for value chain projects lies in ensuring the presence of
sufficient competence among facilitators in terms of technical and marketing
knowledge, at costs that members of the groups can sustaianably afford.
When projects supporting facilitation end, groups of enterprises are either
continuing to pay facilitators from their own resources, or continue discussing
proposals on how to improve the value chain among themselves without
facilitation. There are examples where this has been achieved, but failures
have occurred, too.
Value chain development approaches are not really known as SME
development practice in industrialised countries. This may have to do with
the strength of cooperative systems, for instance in France, Germany and
Italy, where cooperatives fill gaps in value chains. Unfortunately, the notion
of cooperatives acquired a negative image in many developing countries,
stemming from a time when national governments promoting cooperative
systems interferred in economic decisions. The difference of the cooperative
approach with regard to value chains is that members become shareholders,
exercising direct control of a jointly owned processing facility linked to their
own business, whereas in a value chain approach group interests are present,
but matters become more complex should one member not perform as
required.
Cluster development is an approach known from industrialised countries.
Cluster development is receiving considerable support from public resources
in France, Germany and, for instance, the US. The difference to value chain
development is that cluster approaches place more emphasis on horizontal
linkages between firms operating in similar fields, in addition to vertical
linkages to, for instance, research and development organistions. Public
support institutions seem to find it easier to facilitate vertical linkages
between public organisations and private firms rather than vertical linkages
between private firms, which may explain their preference for supporting
clusters.
In a broader perspective, the value chain approach is one of several alternative
business models. A business model describes the type and extent of
interaction between firms pursued to reach a competitive position. Competing
by costs is by far not the only option in global markets. Alternatives are
competing by lead times, by customer care and several others. A value chain
approach needs to create awareness among participants about such different
competitive alternatives.
72
Entrepreneurship development
Entrepreneurship development is a training concept based on research 158
showing that in any society, between 2 and 5 percent of the population is
entrepreneurial. The idea is, that existing entrepreneurial potentials can be
unlocked and developed. Training courses entail motivation and creativity
training, followed by project selection and business planning. The concept
was applied in industrialised economies for a short period159. It flourished for
a much longer time in developing countries and is partly still being applied
today 160 . As in the case of BDS, it was hoped, that markets for
entrepreneurship development training could develop.
The gap between the costs of high quality entrepreneurship development
training/facilitation and what participants can afford could not be closed,
though. In order to reduce costs, the duration of courses was reduced and
partly less experienced trainers were employed, which affected quality. At the
same time there was a lot of pressure on entrepreneurship development
projects to produce a favourable ratio between the number of participants
trained and actual enterprises founded. As the incubation period of planning
mistakes of even a small business may take longer than a year and monitoring
periods after conclusion of training were usually shorter, conclusive answers
to the impact of the approach are not generally available. Yet, there are
numerous well documented examples of success.
However, negative impacts occurred as well, in that participants started a
business without being fully prepared, eventually losing their own savings,
and sometimes even their courage161.
Entrepreneurship development projects helped to set up entrepreneurship
trainer associations as a platform for continued, sustainable application, with
varied success. The approach made optimistic assumptions about people’s
abilitities. Approaches supporting start-ups in idustrialised countries limit
themselves to the supply of information and training in organisation and
management.
Local and regional economic development (LRED)
LRED is about harnessing natural, material, human and knowledge resources,
as well as making use of the existing industrial fabric, initiatives and
commitment in a locality, in order to accelerate economic development. It is
meant tp turn local comparative advantages into competitive advantages for
the locality.
The approach, as it is applied in developing countries, entails a series of steps,
one being Rapid Economic Appraisal (REA) (or similar approaches), which
analyses human, knowledge and natural resources of a territorial area,
including entrepreneurial potentials and social capital. In a series of
workshops, ideas of how available potentials can be better exploited are
explored and commitment from stakeholders is mobilised and organised. The
approach has led to success. It is typically oriented towards rural rather than
urban areas, and targeted at promoting employment and income for poor
people.
73
It was hoped that
markets for
entrepreneurship
development
training could
develop, but they
did not
LRED workshops offer opportunities - often the first - for the public and
private sectors to develop joint strategies. The spirit of cooperation triggers
ideas. The LRED model connects well to the BDS and value chain
approaches.
Two different lines of development are being followed: one is LRED as the
umbrella, or supervisory organisation, for a range of instruments of private
sector development and in particular SME development, the other being
LRED as one of other private sector development instruments. The same
distinction could be observed in Europe (the British model against the
German model). Both models are sometimes mixed. LRED approaches in
developing countries often put emphasis on public-private dialogue as the
source of ideas and a forum of committment. Business and investment climate
surveys are undertaken, feeding information about the perceptions of the
private sector (often with a view of reducing bureaucratic burdens) into the
dialogue. One may sometimes gain an impression that development
programmes have romantic perceptions about the public-private dialogue, as
if broad dialogue fora could solve all problems. There have been cases of
disappointment with dialogue fora, when the private sector got impatient with
protracting discussions. An emphasis on processes requires balancing with a
result oriented approach.
If loose ends are not sufficiently tied up, and missing links and information
properly followed up, the enthusiasm around LRED entails a “fire in the pan”
risk, which might lead to frustration. Responsible projects are applying
suitable monitoring and follow up mechanisms to avoid such effects.
The sustainable financing of LRED is an issue that needs to be taken up at
local as well as national levels. The costs of facilitation and organization of
workshops are not high, but nevertheless budgets need to be set aside.
The LRED approach applied in developing countries has strong links to
approaches followed in industrialised countries, partly following similar
pathways. LRED projects in developing countries undertake study trips to
inform themselves about methods and success factors in European regions.
The approach appears to be a good example of knowledge and methodology
exchange.
Enabling environment
A important part of support of private sector development is directed at the
business environment. While industrialised economies have for a long time
applied tools that measure the business and investment climate, it was not
until the mid 90’s when the World Economic Forum (WEF) came up with its
first competitiveness report that measured the business environment, ranking
industrialised and some developing countries according to their
competitiveness. Such measuring was reinforced by the World Bank’s “doing
business” surveys, starting in the early years of the last decade, ranking
economies according to the business environment they offer . Governments
in developing countries are concerned that they obtain good “doing business”
rankings, hoping that this will lead to greater productivity of the private sector
and more investors locating in their countries . “Doing business” rankings and
ways to improve them are very present in the media and in public
74
The LRED
approach seems
to be a good
example of
knowledge
exchange
communications in developing countries. Competition between countries has
thus set in, which has apparently contributed to the cost of doing business
having gone down and much unnecessary bureaucracy as well as
unproductive controls having been abandoned. This has easened private
sector development. Some countries have introduced regional business
environment surveys, encouraging comeptition between regions for investors.
The “doing business”-approach is not without risks, though. Relaxing
regulations may result in arbitrary entrepreneurial behaviour, and while social
control would limit this in industrialised countries, such control is not always
available in developing countries.
“Doing business” surveys are expensive, they are selective, leaving out small,
micro and informal businesses and thus the by far largest population of SMEs,
which also requires attention in terms of supportive regulations. After many
years in operation, it is difficult to find a correlation between “doing business”
rankings and actual investment flows, as countries with unfavourable
rankings find investors, while other countries, having made all the efforts of
improving their ranking, ask themselves why investors are not coming. Annex
2 contains a table comparing “doing business” rankings with investment
flows and other indices in Africa.
Though industrialised economies are also ranked, “doing business” rankings
hardly play a role in discussions and policy/strategy decision making there.
M4P
Some of the critical aspects of the BDS-approach, such as the fact that
markets for business development services in developing countries are often
informal, were taken up by a new approach to private sector development,
called “Making Markets Work for the Poor” (M4P). M4P focuses on poor
people, and specifically includes agricultural small businesses as well as the
informal sector, whereas BDS has been a concept primarily for formal SMEs.
M4P tries to identify problems and opportunities where better use can be
made of existing market structures for the benefit of the poor.
Combining elements of the value-chain-approach, as well as some basic
thinking behind the BDS-approach, M4P is a concept of direct intervention,
working with structures such as NGOs and Community based organisations
(CBOs).
The concept is rather new. It was specifically designed for developing
countries. It is broad, applicable to rural and urban areas, to informal and
formal businesses. Success stories are apparently still developing.
Micro credit
Micro credit has been introduced in many developing countries, based on,
among others, the Grameen-Bank-approach in Bangladesh (but also building
on experiences with informal saving- and loan-schemes, for instance in West
Africa).
Micro credit schemes have gone through an evolution, in that group credits
have given way to individual credits and credit meant to support consumption
75
After many years
in operation, it is
difficult to
establish a
positive
correlation
between “doing
business” ranks
and actual
investment flows
has increasingly been complemented with small credits for investment. Many
micro credit schemes have become successful. After years of direct support,
donor interventions are now focusing on improving the institutional
environment for micro credits (financial system development), as sufficient
knowledge and best practice has been generated and banks in developing
countries are very well able to manage schemes efficiently (for instance the
National Micro Credit Bank in Tanzania). Local savings- and credit
cooperatives (SACCOs) have become successful, too, though they always
entail the risk that one society member may take out a credit that is beyond
his/her means of repaying it. Partly misleading indicators (such as the
repayment ratio, which does not always consider the cost of following up
borrowers who have difficulties to repay) have been replaced with indicators
such as a black bottom line.
Micro credit is comparably expensive for the borrower. Interest rates are high,
which is necessary to pay for the high costs of follow-up and the
administration of small loan amounts (though salaries of bank employees are
low in poor economies, which is an opportunity for the development of micro
credit schemes). Small enterprises often prefer to pay higher interest rates for
short term credits162 rather than loosing a contract. Things are more complex
for investment loans, which are long termannot be paid back over a short
period of time.
Micro credit is a field where the transfer of know-how actually went the
opposite way: from developing to industrialised countries. There have been
attempts of introducing micro credit in industrialised countries (for instance
in Germany), albeit with little success, as salary levels of loan officers are
high in relation to small loan amounts. The CDFIs (Community Development
Finance Institutions), which came up during the 90’s in the UK, are applying
micro credit concepts. They regard small enterprises as bankable, make use
of volunteer support in order to save administrative costs and provide
products that match the needs of micro enterprises.
5.3. Trying to compare
The approaches/instruments described above do not comprehensively
describe the spectrum of SME development approaches in developing
countries, but present some typical practices as donors apply them. These
include the following principal characteristics:
- An ambitious appeal to make use of the inherent strength of poor
people, providing them with opportunity to contribute to their own
development (help for self-help). This is very present in M4P as well
as in the value chain approach;
- Emphasis on strengthening grass root organisations. The applied
approaches are to a high degree meant to be independent from
government structures;
- Some preponderance to experiment, combined with an orientation
towards quick wins (in order to convince stakeholders), sometimes at
the expense of sustainability (less sucessful approaches are silently
dropped and exchanged against new ones).
76
Micro credit
know-how was
actually
transferred from
developing to
industrialised
countries
In contrast, outstanding elements of applied practices in industrialised
countries seem to be:
- A strong emphasis on strengthening institutions, either by
rejuvenating them (France), by setting-up new ones (UK) or by
maintaining the strength of private institutions/organisations that have
for a long time taken responsibility for SME-development (Germany,
Italy).
- A continued reliance on public finance to facilitate counselling of
SMEs.
- An ever increasing emphasis on innovation, tapping the resources of
public knowledge available at universities as well as R&D-resources.
The differences between industrialised vs. developing economies are
substantial in terms of objectives and attitude and could be described as
follows:
- A stronger focus on growth through innovation and targeted
counselling of SMEs in industrialised countries, compared to an
approach of facilitating economic engagement of the poor in
developing countries;
- A practical attitude towards subsidies (more investments into growth)
in industrialised countries, compared to an objective of subsidy-free,
i.e. market-led support structures in developing countries;
- Turning away from charity towards sustainable, market-led
approaches is the parole in developing countries, however, donors
appear to have difficulties following through with this idea. Poverty
reduction is the overarching goal, against which projects have to be
justified. Although the principle is always self for self-help, an
element of charity remains, even if it is just for the consumption of
taxpayers in the donor’s home countries. In industrialised economies
the notion of charity with regard to SME development is allmost
absent;
- A tendency to develop universally applicable “best practice”
approaches in developing countries, risking that locally anchored
functionality is sacrificed for conformity with these approaches (it has
been difficult, for instance, to implant BDS approaches into the
operation of chambers);
- While SMEs in industrialised countries are referred to as “clients”,
project reports of SME-programmes in developing countries are not
always free of a slightly patronising undertone, referring to SMEs as
beneficiaries or target groups. The latter two terms could not easily be
applied in industrialised countries. The applied practice of donors is
still - even if the approaches are participatory - to help poor people
find their directions. In industrialised countries, the approach would
be helping entrepreneurs to keep their head above the water, so that
they can find their own directions. This is a slight but still important
difference in approach;
- Another difference regarding the applied practice in SMEdevelopment has to do with perception: SME-development in
industrialised economies is driven by goals: more innovation,
increasing exports, growth. In developing countries, the starting point
for donor intervention is still the definition of a “core problem”,
77
The differences
between
industrialised vs.
developing
economies are
substantial in
terms of objectives
and approach
though matters have improved a little (DFID bases its interventions
on a ”business case”, which could be the solution to a perceived
problem or the exploitation of an opportunity). It should be understood
that entrepreneurs in developing and industrialised countries alike,
including owners of tiny enterprises, deal with problems, but are not
driven by them. They are positively motivated 163 ; the notion of
“survivalists” as the description of the informal sector is an
uninformed one164.
In summary, differences of approaches in developing and industrialised
countries are mirrored in the table below:
Table 1: Characteristics of approaches to SME Development in industrialised and developing countries
Developing countries
Industrialised countries
Economic participation/ engagement of
the poor
Innovation based growth
Market development, subsidies are in
principle wrong and should be phased
out
Practical approach; subsidies are regarded as
investments that must produce economic
returns
Social (“pro poor”) rationale is present, at
least indirectly
Economic rationale
Dichotomy between SME and academia
Making intensive use of knowledge resources
of universities and public R&D institutions
Tendency towards universally applicable
approaches
Country specific approaches
“Target groups”, “beneficiaries”
“Clients”
Much emphasis on process orientation
More emphasis on result orientation
Starting point: a core problem
Starting point: economic goals (with
exceptions)
Emphasis on non-state actors
and/community-based organisations
Institutional strengthening and organisational
change
Some tendency towards experimentation
Stronger public supervision and review
Source: Author
Most of the instruments applied in developing countries are promoted as best
practice by donors and the DCED (Donor Committee on Enterprise
Development), i.e. organisations from industrialised countries. The
instruments are different from those applied in industrialised countries
because they must respond to the context of the economic situation of
developing countries. These are still in the process of finding their own most
suitable approaches of SME support.
Economic and political scenarios change. Priorities of developing countries
change, too. An example is the discussion about Economic Partnership
Agreements (EPAs) with the European Union following the Cotonou
Agreement. This has first led to hopes and then to uncertainty about the
opportunities of private sector development in a reciprocal trade regime .
Meanwhile, developing countries have asserted their views that some of the
goals of EPAs are unrealistic or even counterproductive . Though EPAs are
still on the agenda, there is no push any more for concluding them. Another
important change is the Paris Declaration and the Accra Agenda for Action
on Aid Effectiveness. Again, developing contries have asserted their opinions
of what type of support is most suitable for them. Maybe it would be a good
78
It might be a good
idea if developing
countries would
form their own
committee on best
practice in SME
support
idea if developing countries would form their own committee on best practice
in enterprise development, researching their own experiences with regard to
the effectiveness of SME support instruments from practical implementation
and independent of donor perceptions. This could eventually lead to a
consensus with regard to how most effective private sector support methods
can be found.
79
6. Some recommendations for SME approaches in developing
countries
Developing countries need to make their own decisions about SME support
instruments that are well adapted to the resources and potentials of their
economies. Some information about how industrialised countries go about
SME development, in particular how they have recently reacted and changed
in view of competitive pressures, might nevertheless be of interest for
developing economies. The following points might be useful to consider:
- Awareness needs to be raised that SMEs, including micro enterprises,
are essential to building a competitive economy. Micro enterprises in
developing countries often belong to the informal sector and are partly
being stigmatised. A factual research about the positive economic
contribution of micro enterprises would take this stigma away. If the
true economic potential of the greater part of the SMEs sector is better
known, more effective support instruments can be designed.
However, awareness also needs to be raised that growth cannot be
expected without significant investment into counselling and
innovation.
- SME support in the UK, in Germany and in Italy (less so in France) is
based to a significant measure - albeit in very different ways - on
social capital. Social capital is present in developing economies in
many ways, too. Examples are associations of SMEs that care for
colleagues in need, credit associations, the presence of social
entrepreneurs helping SMEs to organise themselves and many others.
It might be helpful to explore ways how available social capital could
be used in SME development. This is said with a word of caution,
because attempts have been made and some of them failed because
approaches were too ambitious. On that background, social capital
should be searched for and applied as an important private sector
development resource;
- The capacities of SMEs in developing countries to innovate has not
yet been adequaterly tested. Approaches to private sector
development in developing economices have often moved from
interventions at enterprise level to those at institutional and policy
levels, with the consequence that assumption about potentials are
being made, rather than facts gained from practical implementation.
Innovation is not only meant to facilitate the transformation from
productivity driven towards innovation driven economic states, but is
broad and relevant for developing economies, referring to competitive
improvements through more effective organisational processes,
alternative business models, superior processing technologies as well
as improved and new products. Product diversification and
technology improvements can help SMEs to become competitive vis
à vis imports. Research about the innovation potential of SMEs in
some developing countries could produce examples that could be
interchanged between countries.
- Developing countries can learn from industrialised countries that
knowledge available at public institutions (universities) is meant to be
ploughed into the economy. Industrialised countries have, with
80
Small firms are
essential for a
competitive
economy
Social capital,
could be an
important
resource for
private sector
development
It is time to study
the innovation
potential of
SMEs in
developing
countries
significant success, established close collaboration between
institutions of higher learning and SMEs. This experience could be
tapped by developing countries, so that they can build up their own
system of academia - SME-networking. This is a long-term process.
It requires patience (academia and SMEs speak different languages)
and persistence in following through. The models of communication
between SMEs and universities from industrialised countries, which
took time to develop, could be studied, along with the policies and
rules that allow professors to conduct applied research in support of
SMEs. It might also be useful (and maybe a good starting point) to let
students carry out appplied SME research projects, including market
reseach or value analysis of products in form of seminars or thesis.
Such activities would generate knowledge for SMEs without incurring
high costs.
- Industrialised countries employ highly competent counsellors as
advisors to SMEs. Those are usually thoroughly experienced
industrial engineers or people with high qualifications in business
economics. It could be important for developing countries to realize
that investments into advisory capacities, should they be effective,
require competitive salaries and proper selection. An appeal to donors
is made to support training of SME counsellors in a way that more
case studies from developing countries are used to transfer the
required knowledge.
- There is no conclusive evidence whether state-led or private sectorled organisations are better performing support institutions. However,
experience from industrialised economies shows that strong private
sector involvement in the conceptualisation and delivery of support
measures enhances effectiveness and efficiency. Some central
oversight and commonly applied concepts are beneficial, though;
SME-development requires a good dose of national level leadership,
be it from private or public organisations or public-private joint
ventures.
- The most important recommendation is for developing economies to
acquire a sound judgement on whether it is economically justified to
subsidise SME-support or not. Ideally, decision makers in developing
countries should be provided with clear evidence clarifying that a
applying certain support instrument produces a certain amount of
economic return on the investment made into support
Academia-SME
relations can
plough knowledge
into the economy
Competent
business
counsellors need
to be available
Investments into SME support instruments = economic results
- Econometric calculations are not really made in industrialised
countries and an algorythm may not be available, but decision makers
there have a sound feel and understanding of economic results. The
logical step for private sector support directed at developing countries
would be that the knowledge how sound investment decisions in
support measures are made is transferred to decision makers in
developing countries. The latter would require to be enabled to make
their own competent judgement on the expected return on subsidies
for SME development. This will result in greater capacity of decision
81
Decision makers
require a sound
information base
on the economic
return on
investments into
SME support
makers to manage their own budgets for support, even if finance for
this is partly still provided through donors.
An urgent appeal to donors would therefore be to accelerate the development
of benchmarks for the instruments they apply and to develop monitoring and
evaluation systems that can possibly tell that, for instance, an LRED-project
worth so and so much (including the hiring of international expertise if
necessary) has resulted in so and so many new jobs and so and so much added
value being produced. This does not mean that more academic studies should
be produced, but that the facts and figures that are available are processed in
a way that benchmarks can be determined.
The result will be that decision makers in developing countries can tell, with
a margin of safety, that a dollar invested into, say, m4p, generates x dollars
worth of income from employment and subsequent benefits in terms of
education and prospects to get out of poverty. Donors are encouraged to use
their data-banks and monitoring results to increasingly enable decision
makers to come to that point.
82
Donors are
encouraged to
process available
data and assist in
developing
benchmarks
Annex 1:
Short description of the Small Business Administration (SBA)
of the USA
The Small Business Administration (SBA) of the US is an institution that has influenced European SME
development systems. The American example was followed in the UK when a new support system
through small enterprise agencies was set up in the early 80’s. France studied the approach of the SBA
intensively and took strong initiatives at national and European levels to transfer essential parts of the
US system.
There are about 11 Million small businesses in the United States. The enterprise tissue differs
significantly from that of Europe:
- Compared to Europe, the US has far fewer micro enterprises and a much greater share of large
enterprises in terms of employment and numbers (large enterprises represent close to 1
percent of all enterprises in the US, compared to 0.4 percent in Europe;
- SMEs in the US spend 7 times more on R&D than their European counterparts;
- The 25 largest European enterprises already existed in 1960, compared to only 6 of the 25
largest in the US (Comitée Ricehlieu, 2003) .
The strength of the US structure appears to be the ability of small enterprises to innovate and grow
into large ones in a short time.
The SBA was founded in 1953 to aid, counsel, assist and protect, insofar as is possible, the interests of
small business concerns. Maximum sizes of firms to qualify for SBA support vary; SMEs are defined for
each of 1000 subsectors by employment, sales revenues or turnover of materials. Qualifying sizes are
generally larger than in Europe (often a threshold of 500 employees is set; but this may also be 50 or
1500).
In the Obama administration, the Head of the SBA has cabinet rank (as during the Clinton era). With a
budget of close to US$ 1 Billion, the SBA operates through regional and local offices, often in
partnership with colleges and universities.
The priorities of the SBA are expressed through 3 Cs: Capital, Contracts, and Counselling.
Capital:
SBA facilitates access to finance from micro lending up to substantial debt and equity investment
capital (venture capital). It guarantees loan finance through commercial banks; loans are structured
according to SBA requirements. Maturity may reach up to 25 years.
Contracting:
According to the Small Business Act, 23 percent of prime public contracts are to be reserved for small
businesses, 5 percent exclusively for women, 5 percent to disadvantaged groups and other shares to
veterans and historically underutilised business (HUB) zones. This adds up to a large proportion of
public procurements being allocated to small businesses. SBA advises and trains small businesses to
take part in the programmeI.
Important programmes underpinning this are SBIR (Small Business Innovation Research Program) and
STTR (Small Business Technology Transfer Program), which make substantial support available to small
83
businesses for research and development, ensuring that a specific percentage of public R&D
expenditure is directed towards small businesses. Support may be up to US$ 850 000 per firm. The
application of research results is not subsidised, but left to the small firm to finance (e.g. jointly with
private sector partners).
Counselling and entrepreneurial development:
SBA provides free individual face-to-face and internet counselling and low-cost training to nascent
entrepreneurs and established small businesses. SBA has at least one office in each U.S. state. In
addition, the agency provides grants to support counselling partners, including approximately 900
Small Business Development Centres (often located at colleges and universities), 110 Women's
Business Centres, and SCORE (Service Corps of Retired Executives), an association of 11500 volunteers.
The counselling services reach more than 1 million small business owners annually.
A dedicated office of the SBA carries out research on American small businesses and the small business
environment, regularly assessing the impact of the regulatory burden on small businesses.
An example of US small business development is the Regional Cluster Initiative in 2011, which was
launched as a competition between local communities in rural and urban regions driving developments
based on identified economic strengths in areas such as advanced manufacturing, information
technology, aerospace and clean technology. The 20 best proposals were supported trough SBA funds
as well as matching funds from other agencies. The initiative will accelerate the formation of new highgrowth businesses, advance the commercialisation of research, support the deployment of new
technologies, enhance the capacity of small businesses in the cluster, develop skills and support
business interaction with international buyers and suppliers.
84
Annex 2:
Correlation between “doing business“ ranking and FDI
Correlation between “doing business“ ranking and FDI
Pop.
HDI*
DB*
FDI
WEF*
(Mill.)
(rank)
(rank) (%/GDP) (index)
Congo Rep.
3.8
126
44
24.5
Liberia
4.1
162
25
17.1
Madagascar
20.1
135
17
15.6
3.4
Lesotho
2.1
141
20
13.4
3.3
Ghana
24.3
130
5
12.7
3.6
Guinea
10.3
156
42
10.1
Chad
11.5
163
46
9.9
2.9
Gambia, The
1.8
151
23
8.9
3.8
Zambia
13.3
150
7
6.6
3.7
Namibia
2.2
105
6
6.1
4.0
Central African
4.5
159
45
6.1
Rep.
Mozambique
23.4
165
18
6.0
3.3
Uganda
33.8
143
12
5.5
3.6
Senegal
12.9
144
26
5.3
Mauritius
1.3
72
1
4.1
4.3
Tanzania
45.0
148
14
3.6
3.6
South Africa
50.5
110
2
3.5
4.3
Zimbabwe
12.6
169
36
3.0
3.3
Niger
15.9
167
38
2.7
3.4
Togo
6.8
139
32
2.3
Rwanda
10.3
152
3
2.3
4.2
Angola
19.0
146
37
2.0
3.0
Benin
9.2
134
39
1.8
3.8
Côte d'Ivoire
21.6
140
34
1.7
3.4
Burkina Faso
16.3
161
24
1.7
3.3
Mali
13.3
160
22
1.5
3.4
Malawi
15.7
153
21
0.9
3.6
Botswana
2.0
98
4
0.8
4.1
Kenya
40.9
128
9
0.3
3.8
Burundi
8.5
166
35
0.3
2.9
Cameron
20.0
131
31
0.2
3.6
CPI*
(index)
2.1
3.3
2.6
3.5
4.1
2.0
1.7
3.2
3.0
4.4
2.7
2.5
2.9
5.4
2.7
4.5
2.4
2.6
2.4
4.0
1.9
2.8
2.2
3.1
2.7
3.4
5.8
2.1
1.8
2.2
* HDI: Human Development Index, UNDP; DB: “doing business” rank in Africa, World Bank; WEF: World
Economic Forum competitiveness ranking; CPI = Corruption Perception Index, Transparency International
Blue shadings: highest correlation, Red shading: least correlation
Source: Own compilation from the above sources.
85
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Endnotes
The EU definition of SMEs is being used, according to which micro enterprises have up to 9, small enterprises between 10
and 49 and medium enterprises between 50 and 250 employees, provided they do not surpass maximum thresholds of turnover
and asset.
2
The Fact Sheet figures are based on figures reported to the EU based on uniform counting methods, which may differ from
those applied in national statistics.
3 National economic research organisations point out that it is quite impossible to get a complete overview of all available
subsidies.
4
This was the clear opinion of all opinion leaders interviewed in the four economies surveyed.
5 The “Livre Blanc des PME innovantes” of the Comité Richelieu (2003) puts the percentage of small enterprises graduating
from small to medium at less than 5%
6
A goldsmith, for instance, may want to derive self-fulfilment from working with materials and from customers’ appreciation
, and not think of becoming the owner of a jewellery factory
7 A study of the German Institute für Mittelstandsforschung of 2013 “Der nachhaltige Beschäftigungsbeitrag von KMU” (the
sustainable contribution to employment of SMEs) came to the conclusion that the relative growth of employment of SMEs
between 2001 and 2009 was 13.6 percent, against a loss of employment within large firms of 1.2 percent. However, the
employment growth among SMEs occurred to the greater part in micro enterprises belonging to the high level services sector.
8 The quoted study of the German Institute für Mittelstandsforschung of 2013 “Der nachhaltige Beschäftigungsbeitrag von
KMU” supports this point.
9
The often quoted Bolton Report of 1971 actually set the focus on the economic potential and capacities of SMEs.
10
Promoting the spirit of free enterprise, Margaret Thatcher quoted her father saying that he took Napoleon’s remark (England
is a nation of shopkeepers) as a compliment,
11 See annex 1 for a description of the United States‘ Small Business Administration (SBA) approach
12
Redundancy plans of large corporations offered opportunities for managers/accountants to work as counsellors in SME
agencies
13 BiTC (Business in the Community), a private sector charity organisation formed in 1982 developed the conceptual basis,
while the Local Enterprise Agency Grant Scheme (LEAGS) provided finance.
14 or Local Enterprise Companies, LECs, in Scotland
15
See also: Second Report of the Committee on Standards in Public Life, UK Government 1997
16 The „Blue Book“, published by the Small Enterprise Development Group of international donors, set guidelines for subsidies.
British scholars contributed to the Blue Book, among others the Springfield Centre of Durham.
17 According to the RDA website: http://web.archive.org/web/20110710193842/http://www.englandsrdas.com/what-we-do
18
Business Link had a similar set-up, but was differently named in Scotland and Wales
19 This can be gathered from Business Link’s website http://www.businesslink.gov.uk/bdotg/action/home
20 „Big society“ is the flagship idea of the coalition government and the antipode to „big government“. The objective is to
create a climate that empowers local people and communities, building a big society that will take power away from politicians
and give it to people.
On LEPs: http://www.bis.gov.uk/policies/economic-development/leps
22 As explained on the government website, www.bis.gov.uk
23 As explained on the government website, www.communities.gov.uk/news/newsroom/1753574
24
On LEPs: http://www.bis.gov.uk/policies/economic-development/leps
25 The survey is available at http://www.fsb.org.uk/policy/assets/fsb%20icm%20annual%20survey%20uk.pdf
26 See also: Annual Survey of SMEs of the FSB, 2010, which suggests that the schemes are little known and that 8% of surveyed
SMEs have used it. http://www.fsb.org.uk/policy/assets/fsb%20icm%20annual%20survey%20uk.pdf
27
A Business Bank is being planned
28 CDFIs play important roles in the USA, but was not researched whether the UK model has benefitted from US experience,
or vice versa
29
See also ACCA: Improving access to equity finance 2010
30
See also:http://www.fsb.org.uk/policy/assets/fsb%20icm%20annual%20survey%20uk.pdf
31BIS, Innovation and Research Strategy for Growth, 2011
32 www.innovateuk.org/-/smart
33
Bridging the valley of death: improving the commercialisation of research, Third Special Report of the House of Commons
of the Session 2012/2013, House of Commons, 2013
34 Many academic papers on SME development in the UK are about socio-political themes
35 This was the opinion of a SME counsellor interviewed during the field work
36 The term refers historically to the social rank of merchants, craftsmen and their guilds in the middle between peasantry and
aristocracy/clerics. The term corresponds technically to SMEs, but is commonly used to encompass all owner or family run
enterprises (also those exceeding the <250 employees definition).
37 This was a statement made at the Ministry of Economy of Baden Württemberg made during a visit of a delegation from
Eastern Europe accompanied by the author in 1996
1
92
The Reichskuratorium für Wirtschaftlichkeit in Industrie und Handwerk (Curatorship for economic efficiency in industry
and crafts of the German Empire), which now stands for Rationalisierungskuratorium der Wirtschaft (Curatorship for
rationalisation of the economy)
39
The idea came after the Carl Köttgen, Vice CEO of Siemens, visited the United States and realised that German firms could
not keep pace in technology development without support. After the second world war, the RKW played an important role to
provide technical assistance in implementing the Marshall Plan
40 House bank is the bank where a SME has its current account
41
According to the Association of Guarantee Banks
42 The Study of Inmit of the University of Trier of 2010 points out that German Guarantee Banks contribute significantly to the
creation of jobs and value added, and that the back-up guaranties provided by the state are paid back 7 times through additional
taxes collected from firms that would not have been operative without the guarantees.
43
Districts are the second level of elected administration in Germany, catering for between 150 000 and 300 000 inhabitants.
44 Professions that require the higher certificate of professional competence as precondition to operate an enterprise in this
profession, professions that are regulated but require a lower certificate of competence, and other defined professions that may
be carried out without certification
45
Most bakers and butchers are members, which may have to do with their joint raw material procurement systems; in the
Eastern federal states membership is generally lower than in the Western states.
46 Guilds may also opt out, which happens, albeit rarely.
47 The limits refer to the areas of advice (for instance legal or accountant services are excluded) and to the volume of free
advice, which is limited to a few person-days)
48 A chief economist of a chamber of Crafts interviewed in the course of research for this paper
49 This was the proposal of the now elected prime minister of the State of North Rhine Westphalia during an election campaign
in 2012
50
This method of finance was explained by senior managers of various Regional Development Agencies in Germany visited
by the author between 1990 and 2010.
51 This applies to regions that are eligible
52 Many Regional Development Agencies employ officers responsible for networking
53
An experienced economist of a chamber of crafts opined this in the course of fact finding for this paper.
54 Cooperatives are called cooperative enterprises, not cooperative societies in Germany
55 See also ZIM’s website at www.zim-bmwi.de/
56 See also Exist’s website www.exist.de/
57
Sparkassen in Germany are banks according to public law under the auspice of municipalities or districts, with the mandate
of providing finance for the local economy and public infrastructure. Their financial products used to be limited to fulfil these
functions, but these days saving banks offer a comprehensive range of financial products.
58 Volksbanken go back to the initiative of Friedrich Wilhelm Raiffeisen, a humble mayor of a small Rhineland town in the
19th century. He introduced farmers’ cooperatives, cooperative savings & loans banks and, among other schemes, cattle
insurance policies that poor peasants could use as collateral for credit. Raiffeisen’s ideas and actions were rooted in the belief
of self-help (as opposed to charity) as well as Christian ethics, which are important elements of “Rhineland capitalism”.
59 ERP developed out of the former European Recovery Program (Marshall Plan) after WW II
60
This shared task is the result of a complex process of consensus seeking between responsible levels (the federal government
has the final responsibility over the part of training taking place in firms, while the vocational training schools are under the
supervision of the federal states). At both levels, employers, unions and the public administration are agreeing on training
contents, new occupational profiles, etc.
61
According to the Federal Statistical Office
62 WEF Global Competitiveness Reports
63 During the field work for this paper one interlocutor explained that the French prefer public organisations that are accessible
by and of service to the people, and that this desire goes back to the spirit of the French Revolution; the French society, well
aware that they are theirs, accepts strong, centralised structures
64 Geert Hofstede conducted perhaps the most comprehensive study of how values in the workplace are influenced by culture,
one of five cultural dimensions being power distance (measuring in how far people are inclined to accept authority). The French
power distance index is around 62, against the European average of around 40 (Germany and the UK: around 30, Italy around
44), indicating a high preparedness to accept authority. http://www.gert-hofstede.com/hofstede_france.shtm
65 During the field work, interlocutors explained - independently from each other, that „entrepreneurship is not very much
present in France, people fear it” and that „the French industrial society is one of engineers, not of business people“.
66
According to opinions collected during the field work for this paper
67
Occasionally, the upper employment level is stated as 500
68 Très petites entreprises - very small enterprises
69 Entreprises de taille intemediaire, ETI (medium sized enterprises)
70 According to representatives of institutions interviewed during the field work for this paper
71
This was mentioned by a representative of OSEO during the field work for this paper
72 The SBA entails 3 important strategic elements: (1) 38 percent of public markets being reserved for SMEs, combined with
information support and fast track payments; (2) easy access to R&D funding and investment capital (loans, loan
guarantees, equity) for growth, (3) a network of 11 500 retired experts as counsellors, 1 000 business development centres
offering technical assistance. See also Annex 1, a description of the SBA and its specificities.
73
Presented in the course of a colloquium in which high level stakeholder took part to the permanent Secretary for SME in the
presence of the President of the SBA
74 Enterprise protection act (loi de sauvegarde d’entreprises) as well as the act in favour of SMEs (loi en faveur des PME)
38
93
OSEO is not an acronym, but an artificial name, related to the verb oser, meaning trying hard, being courageous or even
daring, the o at the end meaning “haut”, high.
76 The Conseil d’Analyse Economique (CAE), established in 1997, is a group of about 30 distinguished experts advising the
Prime Minister
77 The classification goes back to David Birch: The Job Generation Process, 1979
78 Presentation of CCI international at the Eurochambers academy, February 2012
79
According to a representative of a French chamber of crafts interviewed during the field work for this paper.
80 There are 3 so called „chambres consulaires“, meaning chambers of consuls in France, representing commerce and industry,
crafts and artisans and agriculture. The term „Consulaire“ stems from the times when members of the first chambers (in
Marseille at the end of the 16th century) had the status of consuls of the municipality.
81 When starting their business, firms must not employ more than 10 persons
82 Local chambers are encouraged to merge
83 The CMA Bourgogne employed 150 in 2011, of which 30 were full time business counsellors and 30 only assisting people
wanting to start a business. The CCI in Bourgogne employed 700, of who 250 were counsellors to existing and up-coming
SMEs, while 30 were concerned with larger firms.
84 According to a presentation made by the French CCI to Eurochambers in Brussels on February 2012
85 „I run a business in Bourgogne”
86
https://eco.e-bourgogne.fr
87 This information was collected during a joint discussion with representatives of the CCI, the Regional Council and UbiFrance
during the field work for this paper
88 This can be gathered from the Map of Competitiveness Centres in France:
http://competitivite.gouv.fr/documents/commun/Documentation_poles/cartes-poles/carte.pdf
89 Evaluation des pôles de compétitivité, Bearingpoint France SAS - Erdyn - Technolopolis Group Ltd., 2012
90 http://multimedia.enseignementsuprecherche.gouv.fr/innovation/credit_impot_recherche/cir/files/assets/downloads/publication.
91
SOFARIS was a mutual credit funds, initiated by CGPME, the confederation of SME owners; government stepped in,
because guaranties were abused, strong ones were forced to support weak ones, government to share the risk (according to an
OSEO representative interviewed during the field work)
92 According to a representative of OSEO interviewed during the field work for this paper
93
CDC, Caisse des Dépôts et Consignations, is a government finance institute managing pension and other public funds,
holding state shares in industry and investing funds into SME development, social housing, modernisation of universities and
sustainable development
94 The information was collected during a visit of the author at OSEO
95
As above, the opinions about OSEO were also brought forward by representatives of other institutions during the field work
for this paper in France
96 CAP stand for Certificat d’aptitude professionnel, BEP: brevet d’études professionnelles, Bac Pro: baccalaureat
professionnel, BTS: brevet de technicien supérieur
97
Brevet de technicien supérieur and Diplôme universitaire de technologie, respectively
98 Employees can, for instance train at the CNAM, a state institution for further training operating over 150 training centres
throughout the country.
99 Remark of the French President on the social agenda 2008 on salaries, the labour market, vocational training the public
employment service, the reduction of poverty and collective bargaining in Paris, 19. December 2007, according to
http://discours.vie-publique.fr/notices/077003976.html, 2011
100 Projet de loi de finances pour 2008, Livre Jaune „Formation Professionelle“ http://www.performancepublique.budget.gouv.fr/farandole/2008/pap/pdf/jaune2008formationprof.pdf, 2010
101
Ubifrance is not an abbreviation or acronym, but, pronouncing it in English, is to confer the message „you buy France“
102 This is anecdotal, but the author collected this from a TV report
103 E. Marcegallia, President of Conindustria to „Libero“, Dec. 2008: “Enough of this waste, it‘s time to reform the state”,
quoted from www.confindustria.it
104
A former executive of CNA Veneto and key interlocutor for this paper, opined this
105 The term „industrial district“ is defined by law in Italy (law no 317)
106 According to an Italian SME development specialist interviewed during the field work for this paper
107 Speech by Aldo Bonomi, Confindustria Vice President, May 2009: Flexible global economies and industrial clusters,
comparison with the Italian scenario, quoted from www.confindustria.it
109 2008: 2-3% unemployment in the North, 12 - 14% in the South, 2010: 5% in the North, 20% in the South
110 A car factory set up near Naples in the 70s to produce a new Alfa Romeo (at that time a state owned firm) car. The car and
its successor was beset with quality problems, and car production was stopped after FIAT took over Alfa Romeo.
111
Delocalisation, i.e. SMEs moving to other countries, is being accompanied by SME associations. Associations, in
collaboration with chambers, received subsidies to open an office assisting SMEs of Veneto region settling in Romania.
112 A rate of 10% usage of EU structural funds was reported
113
Check-up Mezzogiorno: the North-South Divide, Feb. 2009, www.confindustria.it
114 The author concluded this from the reading of several presentations of Science and Technology Parks located in the South
of Italy
115 Check-up Mezzogiorno: the North-South Divide, Feb. 2009, www.confindustria.it
116
FIAT, producing lorries in the Sicily, stated in 2010 that they would remain only if labour conditions were relaxed; 60% of
workers decided to accept, but FIAT was still of the opinion that
94 this is too little. It was also under discussion in 2010 that
75
the transfer of funds should depend regions in the South achieving efficiency benchmarks, failing politician in
underperforming regions to be barred from public office.
117
The OECD has recently commended that Italy is using part of EU structural funds to improve administrative structures and
reduce bureaucracy
120
According to an Italian SME development specialist interviewed during the field work for this paper
121 Rappresentanza E TErritorio, country-wide representation
124
According to an Italian SME development specialist interviewed during the field work for this paper
127 Only one government lasted for the full period of 5 years after WW II; Italy was several times without government for
months
128 These were compromises made towards secession movements after WW II. Three regions in the North (Aosta, Trentino,
Friuli-Ventio-Giulia),have a special status because of their national and language links with France, Austria and Slovenia,
respectively, while Sicily, having been the landing site for the liberation from the Fascists, was considering joining the United
states. These regions receive higher public budgets and have other privileges.
129 The producer of lorries and rolling stock for railways being one firm, investments directed towards the production of lorries
may have been regarded as more profitable.
131
Gabriele Gatti: Presentation of AREA Science Park, Prague Summer Conference on IP& Innovation, 2010
132 http://www.invitalia.it/site/eng/home/investment-opportunities/life-sciences/assets/science-and-technology-parks.html
133 For example: Biotechnologies, new materials, ITC, energy and environmental technologies in Trieste, Agro-food,
biotechnology, biomass, cultural heritage and innovative materials in Sicily, Biomedical science park in Milan, Aerospace,
ICT, medical and food technologies, transport and mobility in Naples, etc…
134 According to: Financing SMEs and Entrepreneurs 2012, an OECD Scoreboard, 2012
136 The information in this chapter, if not otherwise indicated, was taken from “Vocational education and training in Italy”,
CEDEFOP, 2009/2010
138 Vintage cars are often taken to Italy for professional restoration; most European car producers have their prototypes made
by hand in Italy.
139
The information in this chapter, if not otherwise indicated, was taken from “Vocational education and training in Italy”,
CEDEFOP, 2009/2010
140 The information was provided by an Italian SME development specialist interviewed during the field work for this paper
141
Author’s own conclusions
Author’s conclusion on the basis of the related literature and interviews during field work
144
Author’s conclusion on the basis of literature and discussions with several British SME development specialists in the
course of professional exchange
145
This is concluded from the chapter on the UK SME development system in this paper
146
Author’s conclusion on the basis of the listed literature studied for this paper.
142
143
147
148
Author’s opinion
Author’s opinion on the basis of long practical experience in the field
149
The latter was triggered, among others, by an ILO publication pointing out the economic importance of the informal sector
in Kenya
150
The above paragraphs represent the authors personal experience from long years of working in SME development in
developing countries
151 The term may have been taken from a government scheme called BDS in the UK that existed during the 80’s, basically a
signposting service, supporting the then Small Firm Service of the DTI. These days, a search of the web-sites of BIS and
BusinessLink in the UK or SBA in the US for “BDS” would not produce a hit. There may be private consulting firms using the
term.
152 These are the results of numerous project reviews and evaluations that the author conducted or they are taken from
evaluations/reports made known to him.
153
Economic Partnership Agreements between the EU and ACP (African, Caribbean and Pacific) countries
154 See also the ValueLinks Manual, GIZ
155 An outstanding example was a value chain analysis in Sri Lanka, which found out that a key value adding step - blending had to be performed in the tea export destination countries because in Sri Lanka it was forbidden to import tea, even the small
quantities that may be required for blending. When this law was relaxed, a most profitable value adding step was reestablished in Sri Lanka.
156 Michael Porter refers to this in his introductory video to the 2008 WEF report, see WEF website
157 An example was an entrepreneur in Mauritius, owning a sizeable factory producing knitwear. His dying and spinning plants
were not competitive in comparison to those in India or China, but having these plants enabled him to produce prototypes very
95
quickly, which again helped him to acquire large scale orders. Flexibility and quick response, not costs were his competitive
edge. This example contributed to a caution regarding the promotion of value chains in the textile sector in Mauritius, which
the government wanted to promote.
158
E.g. David McLleland, who developed the achievement motivation theory.
159
160
For example in Graduate Enterprise programmes in the UK, or to a limited degree in East Germany after re-unification
Tunisia is a case in point, where the approach has become part of national programmes to combat unemployment and
encourage small business start-ups.
161
A former participant of a training course in Tunisia, about 40 years old, said in an interview: I am a mechanic. I was
enlisted for training. I was taken to a hotel which I would never go to on my own, given food that I do not usually eat and I
was told by the trainer „you can make it“. I was helped to elaborate the business plan and given a loan, but the business did
not work. Now I am at home waiting for the bank to collect the equipment. I lost all my savings, and I have even lost the
appetite for being a mechanic“.
162
The owner of a tiny carpentry workshop in a rural area might get an order to produce school furniture, which could earn
him an income of, say, 1000 US$ - enough to feed his family and send his kids to school for several months. Production would
only take him a month, so what does does it matter whether he pays a 10 percent or 30 percent annual interest rate for a credit
(8 or 30 US$) - important is that he has access the credit immediately and without hassle.
163
Imagine a person deriving its goals in life from the problems he or she has – a poor fellow indeed.
164
This has been proven by hundreds of direct surveys of micro enterprises, which the author conducted. The notion of
survivalists was, for instance, popular in South Africa at the beginning of the last decade.
96

WORKING PAPER 01 - Cologne Business School

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