Nov 29, 2007

The Observatory of European SMEs

The Observatory of European SMEs was established by the Commission in December 1992 in order to improve the monitoring of the economic performance of small and medium sized enterprises (SMEs) in Europe. Its task is to provide information on SMEs to policy-makers, researchers, economists and SMEs themselves.

Estimated Article Reading Time: 3 min.

2007 Observatory survey

This latest Observatory survey was carried out end of 2006 and early 2007 in the 27 Member States of the European Union (EU), as well as in Norway, Iceland and Turkey – in the countries participating in the Multiannual Programme for Enterprise & Entrepreneurship. It included for the first time large-scaled enterprises (employing at least 250 persons) in its sample, to allow an identification of the specific performances, behaviours and problems of SMEs. Altogether, 16 339 SMEs (17 283 enterprises in total) were interviewed. The survey was primarily enquiring general characteristics of firms active in the countries surveyed, perceptions on business constraints, competition and human resources problems and data on internationalisation and innovation.

In this way, it provides an empirical foundation for the design of SME policies – which are one of the key components of the revised Lisbon Strategy – at the national and the EU level.

The main findings are:

1. Exports

Fewer than one in ten EU SMEs (8%) reported turnover from exports, which is significantly lower than the respective share of large enterprises (28%). The main export obstacle for SMEs is the lack of knowledge of foreign markets (13% of exporting SMEs mentioned this as their prime obstacle), followed by import tariffs in destination countries and the lack of capital (both 9%).

2. Relocation/subsidiaries abroad

Only 5% of EU SMEs have reported that they have subsidiaries or joint ventures abroad. These foreign business partnerships seem to have a positive direct impact on employment in the home countries of EU SMEs: 49% of the involved SMEs confirmed that their partnership does not affect employment in their home country, while 18% reported that it increases and 3% that it decreases their respective employment in the home country. The main reason for SMEs to invest abroad is the geographic proximity as supplier to other enterprises.

3. Strategies against increasing competition

While two thirds of SMEs in the EU believe that competition in their markets has increased over the past two years, the primary strategy of SMEs to face increasing competition is the improvement of product quality; increasing working hours, looking for new markets abroad, and especially cutting production are seen as last resort strategies.

4. Innovation: New products in enterprise portfolio

About 3 in 10 SMEs indicated that they have new products or that they do have income from new products. The share of SMEs which reported innovations is higher in the old EU Member States than in the new Member States.

5. Barriers to innovation

SMEs regard four factors as constituting equally important barriers to innovation: problems in access to finance, scarcity of skilled labour, a lack of market demand and the high cost of human resources.

6. Energy efficiency

Comprehensive systems for energy efficiency are much less in place in SMEs (4%) than in large enterprises (19%); the same applies for simple measures to save energy, which are used by 30% of SMEs but 46% of large enterprises.

7. Dependency from regional markets

The survey confirms that SMEs (89%) are much more dependant on the regional labour market than large enterprises (77%).

8. Availability of an appropriate workforce

More than half of SME managers said that they have recruitment problems. A primary problem is the availability of an appropriate workforce; excessive wage demands are a relatively distant second issue. Finding and hiring the appropriate workforce is a challenge for many SMEs in the EU. Especially in the new Member States, a significant number of jobs remain unfilled.

9. Administrative regulations

Beyond the limitations of the demand side, the most important individual business constraint reported by SMEs is the compliance with administrative regulations; 36% of EU SMEs reported that this issue constrained their business activities over the past two years. This judgement is linked to the appraisal that 44% of SMEs consider themselves as operating in an over-regulated environment. Furthermore, SMEs perceive an overall deterioration in terms of administrative regulations.

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EUROPA