Development plans the small and medium-sized companies Business

Development plans: the small and medium-sized companies Business environment in the EU (Ph. D) 1 st Semester, Academic Year 2011/2012 Prepared by Dr. Endre Domonkos

I. SMEs in the single market I. During the 1980 s the rise of the multinationals had slowed. Because of the technological development and the globalisation of the markets several traditional industries are in decline, while new industries and operators are emerging, often offering products and services with a higher value-added content. These new operators are quite often small businesses. It is also clear that the management structures of small enterprises are simpler and more flexible than those of big firms and that this, other things being equal, can be a serious advantage. Moreover, small enterprises absorb the most vulnerable categories in the labour market, i. e. , women and young persons.

I. SMEs in the single market II. The Commission adopted a recommendation concerning the definition of micro, small and medium-sized enterprises used in Community policies. The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding EUR 50 million, and/ or an annual balance sheet total not exceeding EUR 43 million. Within the SME category, a small enterprise is defined as an enterprise which employs fewer than 50 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 10 million. A microenterprise is defined as an enterprise which employs fewer than 10 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 2 million.

I. SMEs in the single market III. It should be noted that with this definition, the Union numbers some 17 million SMEs, providing over 75% of its employment, accounting for 50% of investment and representing 60% of its wealth. A SME is often a family business, whose management and ownership are in the hands of the same person(s). Day-to-day running of a SME falls upon the company head, enabling flexibility and rapidity in the decision-making process and personalised relationship with staff, suppliers and customers. Finally, a SME is heavily dependent on self-financing due to difficult access to the financial markets and it often suffers from limited availability of financial resources. Of course, SMEs have their week points which are notably the followings:

I. SMEs in the single market IV. Small and, above all, medium-sized businesses, must first and foremost, rely on their own efforts to achieve success in the single market. In order to succeed they must make the effort to adapt to their new environment and cooperate with each other. That is why a common enterprise policy is needed to provide a framework for and coordinate the efforts deployed by the Member States to assist their SMEs, without distorting competition by favouring certain undertakings or the production of certain goods within the meaning of Article 87 of the EC Treaty. According to the renewed Lisbon and EU 2020 Strategy, an adequate enterprise policy focuses especially on the activities of SMEs in the European Union is essential boost the economic growth and employment rate and improve the competitiveness of the EU.

II. Enterprise policy I. The European Charter for Small Enterprises, endorsed by the Feira European Council (19 and 20 June 2000), states that the situation of small business in the European Union can be improved by several actions. In this Charter the Member States pledged themselves to the followings: The multiannual programme for enterprise and entrepreneurship (20012005) provides for an enterprise policy to be implemented via a new coordination procedure with the Member States (The BEST procedure) and aims in particular at the need of SMEs in more than 30 countries (European Union, EEA and applicant countries). The elements of this programme:

II. Enterprise policy II. Following the conclusions of the Lisbon European Council (23 and 24 March 2000) on a new strategic goal, the Commission put forward the guidelines of an enterprise policy. The policy guidelines include the followings: Concerning innovation policy in a knowledge-driven economy, the Commission proposes five objectives: In a 2005 communication the Commission highlights the major challenges SMEs face daily, proposes new actions to strengthen their capacity to sustain in the market, to grow and to create jobs and new ways to enhance dialogue and consultation with SMEs stakeholders. Aiming the implementation of the Lisbon Integrated Guidelines and the Community Lisbon Programme, the Communication provides a coherent framework for the various enterprise policy instruments and aims making the „Think Small First” principle effective across all EU policies.

II. Enterprise policy III. The common enterprise policy has three broad objectives, which are the followings: This document highlights the importance of the small and mediumsized enterprises’ (SMEs) in the European economy. The „Small Business Act” aims to improve the overall policy approach to entrepreneurship in compliance with the „Think Small First” principle in policy-making from regulation to public service, and to promote SMEs’ growth by helping them tackle the remaining problems which hamper their development. The Commission is proposing a genuine political partnership between the EU and Member States that respects the principles of subsidiarity and proportionality.

II. Enterprise policy IV. The symbolic name of an „Act” given to this initiative underlines the political will to recognise the central role of SMEs in the EU economy and to put in place for the first time a comprehensive policy framework for the EU and its Member States through: a set of 10 principles to guide the conception and implementation of policies both at EU and Member State level. These principles create a level playing field for SMEs and improve the legal and administrative environment throughout the EU. Ten principles in the Small Business Act.

III. The legal environment of business I. The objectives pursued by the Community through it efforts at harmonisation in the area of company law and accounting are the followings: It is accordingly understandable that the Community’s first effort of structural policy concerned the coordination of the company law of the Member States by means of Council Directives. On the basis of this article, a number of directives harmonised several aspects of the company law of the Member States. The first Directive (Directive 68/151) lays down a system of disclosure applicable to all companies in order to coordinate safeguards for the protection of the interests of members and others and to facilitate public access to information on companies.

III. The legal environment of business II. The second Directive: The third Directive (Directive 78/855) The sixth Directive (Directive 82/891): The eleventh Directive (Directive 89/666): The twelfth Directive (Directive 89/667): The fourth, seventh and eighth Directives create a code of European accounting legislation. The fourth accounts (Directive 78/660 and Directive 2006/46) the annual accounts of certain types of companies.

III. The legal environment of business III. The seventh Directive (Directive 83/349 and Directive 2006/46): The eighth Directive (Directive 2006/43): More than 31 years after the Commission proposal for the creation of the European company, the Council finally adopted the two legislative instruments necessary for its creation, the regulation on the statute for a European company (Regulation 2157/2001) and a Directive (Directive 2001/86) supplementing this statute with regard to the involvement of employees. The legal provision, which entered on 8 October 2004 made it possible for a company to be set up within the territory of the Community in the form of a public limited-liability company, with the Latin name Societas Europaea (SE).

III. The legal environment of business IV. The SE makes it possible to operate Community-wide while being subject to Community legislation directly applicable in all Member States. Several options are available to enterprises from at least two Member States wishing to form an SE: a merger, a holding company, the creation of a subsidiary, or transformation into an SE. An SE may itself set up one or more subsidiaries in the form SEs. An SE should be treated in every Member State as if it were a public limited-liability company formed in accordance with the law of the Member State in which it has its registered office. The statute for a European cooperative society (SCE) is modelled on that of the European company, with the changes required by the specific characteristics of cooperative societies.

III. The legal environment of business V. The harmonisation of company law and the creation of European companies facilitate the interpenetration of markets and the concentration of companies at European level. It was therefore essential introduce a legal instrument covered by Community law, which would make adequate cooperation between undertakings from different Member States possible. This is the purpose of the „European Economic Interest Grouping” (EEIG), an instrument for cooperation on a contractual basis created by a Council Regulation in 1985. The EEIG is not an economic entity separate from and independent of its members, behaving autonomously and trying to make profits for itself. It serves as an economic staging post for the economic activity of its members.

III. The legal environment of business VI. That is the pre-condition for the existence of the European Economic Interest Grouping and distinguishes it from any other form or stage of merger. The Grouping ensures the equality of its members. Natural persons, companies and all other „legal entities” falling under public or private law can form part of an EEIG. Groupings can be created in all sectors of the economy, from agriculture to industry, trade, the craft sector or managers. An EEIG can be constituted without capital; it can even have no assets. The Commission supports the effective promotion and development of cooperatives in the European Union.

IV. The business environment in the EU I. The European Union should therefore ensure that the impact of its legislation on enterprises, in particular SMEs, is not in conflict with the common objective of seeing enterprises reach their full development in the single market. The European institutions try, indeed, to take into account the problems and conditions which are specific to SMEs when drawing up and implementing common policies (regional, social, research, environment etc. ). All proposals presented by the Commission to the Council and the Parliament are accompanied by an impact assessment. Through the „impact assessment method”, the Commission analyses the direct and indirect implications of a proposed measure. The results of each assessment are made public.

IV. The business environment in the EU II. The Community’s legislative authorities are thus kept fully informed of the implications of a proposal on business and employment. At the invitation of the Amsterdam European Council, the Commission set up in July 1997 a Business Environment Simplification Task Force (BEST). In order to improve the European business environment, a directive (Directive 2000/35) aims at combating late payment in commercial transactions in the public as well as the private sector. It is also necessary to improve the quality and flow of information on the internal market and other fields of Community policy directed towards enterprises, in particular SMEs.

IV. The business environment in the EU III. The Euro-Info-Centre (EIC) network is designed to respond to SMEs’ requests for information covering in particular the internal market. The EICs have three major objectives: Several recommendations of the Commission, addressed to the Member States, aim at improving the business environment for European SMEs. In order to improve and simplify the environment for starting up business, a Commission Recommendation invited the Member States to reduce the fiscal, social, environmental and statistical burden imposed on business start-ups.

VI. Business funding I. Many European SMEs experience financing problems. The risk capital action plan (RCAP), adopted by the Cardiff European Council in June 1998, encourages venture capital investments by the structural funds and other capital markets. The European Investment Bank (EIB) through its Global Loans and the European Investment Funds (EIF) are the financial institutions of the Community in support of SMEs. The EIF’s activity is centred upon two areas: 1. venture capital and 2. guarantees.

VI. Business funding II. Both instruments implemented by the EIF for SMEs are complementary to the Global Loans provided by the European Investment Bank to financial intermediaries in support of SME financing. EIF’s instruments are implemented in the context of the multiannual programme for enterprise and entrepreneurship (2001 -2005). SMEs are particularly interested in the possibility of Community Funding under the common regional policy. The Regulation on the European Regional Development Fund provides for a series of measures to support local development initiatives and the activities of SMEs. It supports notably:

VI. Business funding III. The Business and Innovation Centres (BICs) are designed to promote business creation and expansion by providing a comprehensive programme of services (training, finance, marketing, technology transfer, etc. ) to SMEs which are developing innovative technologybased projects. The European Investment Bank is able to contribute to the development of SMEs in the EU Member States and the candidate countries in the framework of the Lisbon strategy. The EIF does not invest in SMEs directly, but instead always works through financial intermediaries. The EIF is not involved in individual investment/credit decisions. The EIF plays an important role in the creation of investment funds.

VII. Other EU supports for SMEs I. Another important financial source for supporting the activities of the SMEs is the so-called JEREMIE Programme. JEREMIE: Joint European Resources for Micro to medium Enterprises. JEREMIE creates a framework of cooperation with the specialised financial institutions, the EIF and EIB and other international financial institutions. JASPERS offers technical assistance to the twelve Member States that joined the EU in 2004 and 2007 to prepare major projects for EU support. JASPERS is a partnership between the Commission (DG Regional Policy), the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD) which became operational in 2006.

VII. Other EU supports for SMEs II. The SMEs can also participate in the Seventh Framework Programme for Research and Development as well for the period 2007 and 2013. Innovative SMEs can participate in projects using the new Risk Sharing Finance Facility (RSFF). The RSFF aims to improve access to the EIB debt finance for participants of European R&D projects. The Commission proposals for FP 7 also aim to strengthen the research and innovation capacity of SMEs. The Commission has proposed increased funding available for specific actions to support outsourcing of research by SMEs or SME associations.

VII. Other EU supports for SMEs III. Competitiveness and Innovation Framework Programme (CIP) It encourages a better take-up and use of information and communication technologies (ICT) and helps to develop the information society. The CIP runs from 2007 to 2013 with an overall budget of € 3621 million. The CIP is divided into three operational programmes. Each programme has its specific objectives, aimed at contributing to the competitiveness of enterprises and their innovative capacity in their own areas, such as ICT or sustainable energy:

VIII. Aid for small and medium-sized companies I. The General Block Exemption Regulation (GBER) provides special rules for SMEs support. The GBER sets four conditions for the exemption from notification of the following main aid types exclusively for SMEs: - SME investment and employment aid; - aid for small enterprises newly created by female entrepreneurs; - aid for early adaptation to future Community standards for SMEs; - aid for consultancy in favour of SMEs; - aid for industrial property rights costs for SMEs; - aid for innovation advisory services and innovation support services.

IX. Cooperation between businesses Cooperation can foster the modernisation and diversification of SMEs. There are different forms of cooperation, e. g. joint ventures, syndicates, agreements covering non-financial links (the granting/purchasing of licences, the transfer of know-how, marketing etc. ) or the acquisition of holdings. The Commission is in favour of cooperation between SMEs and agreements of minor importance. SMEs investing in other Member States prefer to create subsidiaries rather than joint ventures, or to enter into looser cooperation agreements without the obligation to create a new legal entity. The Business to Europe (B 2 Europe) as an initiative of the Commission:

X. The Hungarian SMEs in the Single Market The contribution of SMEs to employment in Hungary (71%) is, compared to the European average (67%), higher. Problems facing the Hungarian SMEs sectors: 1. Lack of adequate capital and financing problems. 2. Low effectiveness and productivity rate. 3. Lack of entrepreneurial knowledges. 4. Low sharing of Hungarian SMEs in innovation activities comparing with the EU-average (18 % versus 36%). 5. Lack of supply and delivery chains in the market. 6. Strong dependency from the domestic consumption. 7. Problems occurred by the black economy. 8. High tax burden on SME sector. 9. Complicated planning systems.

XI. Financing of the Hungarian SMEs The Szechenyi card programme (which started already before 2007) with an interest rate and guarantee fee subsidy of EUR 6. 8 million for 2008 and EUR 2009 was further developed, i. e. the card validity became easily extendable to 2 years (Szechenyi Card 2 from June 2008). Several parallel programmes have been set up to improve the access to finance of SMEs. On 28 of July 2010, the new conservative cabinet led by FIDESZ and KDNP launched the „New Szechenyi Plan” to support the SMEs sector in order to boost employment rate. The „New Szechenyi Plan” consists of 7 thematic priorities:

Conclusions At the turn of the millennium, there were approximately 18 million such undertakings in the EU-15, which employed 66 percent of the Community’s employees. The Multiannual programme on enterprise for the period 2001 -2005, the European Charter of Small and Medium-Sized Enterprises and the „Small Business Act”. In the Lisbon and now the EU 2020 strategy, special emphasis was given to the improvement of business environment of SMEs. The SMEs activities are supported by the Global Loans of the European Investment Bank and by the European Investment Fund. The European Regional Development Fund can be another important financial tool for the SMEs.

Thank you for your attention!