COMMUNICATION FROM THE COMMISSION - Challenges for enterprise policy in the knowledge-driven economy

(presented by the Commission)

COMMUNICATION FROM THE COMMISSION- Challenges for enterprise policy in the knowledge-driven economy - Proposal for a COUNCIL DECISION on a Multiannual Programme for Enterprise and Entrepreneurship (2001-2005)

1. Introduction

The European Union is confronted with a quantum leap stemming from globalisation and the new knowledge-driven economy. This was the key message of the Lisbon European Council, where the Union set itself a new strategic goal for the next decade to become the most competitive and dynamic knowledge-driven economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion.

This goal can be achieved only by making Europe more entrepreneurial and innovative. Jobs in the new economy will primarily be created by vibrant small and medium-sized enterprises - both in the e-economy proper and in the more traditional sectors of the economy, especially in services. The impact of the internet and electronic business will cut across all sectors.

This calls for a systematic approach to foster entrepreneurship in the new economy. First, we must encourage risk-taking and the spirit of enterprise. Second we need to build a dynamic enterprise environment in which companies can be created, grow and innovate, supported by risk capital and an effective innovation and research policy. Third, we have to ensure that our enterprises have effective access to markets, both internal and global, in which to sell their products and services.

This communication sets out the challenges to be faced by enterprise policy over the next five years. By overcoming them, the EU will achieve what President Prodi, in his contribution to the Lisbon European Council, referred to as Enterprise Europe. Further, it presents the Multiannual Programme for Enterprise and Entrepreneurship 2001-2005, which provides for a framework of actions in support of these objectives.

A successful enterprise policy is essential to achieve sustainable development. The new open method of co-ordination, which was initiated by the Lisbon European Council, implies a co-ordinating role for the European institutions, using benchmarking methodology and an effective monitoring of progress to ensure a more coherent strategic direction. On the basis of the principles outlined in this Communication, the Commission will identify indicators and propose more specific targets and dates in the second semester of 2000, in the context of the forthcoming benchmarking exercise.

These different actions which seek to improve the competitiveness of enterprises and stimulate entrepreneurship must be integrated in the coordination process of structural reforms. In particular, these actions must be coherent with the priorities identified in the broad economic policy guidelines (BEPG) which play a central role in the coordination of economic policies between the Member States.

The present communication should be seen in the light of the Commission's overall commitment to sustainable development and in the specific context of four other related and forthcoming initiatives of the Commission:

- the comprehensive eEurope Action Plan, by June 2000;

- the benchmarking exercise on entrepreneurship and innovation, to be launched by June 2000, first results presented by December 2000;

- the European Charter for Small Enterprises, to be endorsed by June 2000;

- a review of EU financial instruments to redirect EU funding towards high tech start-ups and other risk capital initiatives.

2. Challenges for European enterprise policy

2.1. Entrepreneurship is the key to the new economy

Enterprise Europe requires a revolution in our culture and attitudes towards entrepreneurship.

Europe must re-examine its attitude to risk, reward and failure. Thus, enterprise policy must encourage policy initiatives that reward those who take risks. Europe is often reluctant to give another chance to entrepreneurs who failed. Enterprise policy will examine the conditions under which failure could acquire a less negative connotation and it could be acceptable to try again. It will encourage Member States to review bankruptcy legislation to encourage risk-taking.

Education for entrepreneurship is another driver towards a more dynamic enterprise culture. General knowledge about business and entrepreneurship needs to be taught, right through primary, secondary and tertiary education. Enterprise policy will aim at making specific enterprise and business-related modules or programmes an essential ingredient of education schemes at secondary level and at colleges and universities. For a scientist or an engineer, being able to draft a business plan should be as natural as doing a scientific experiment or writing a theoretical article. Entrepreneurship education should also include the development of a culture of service towards customers.

Boosting start-ups rates and the chances for new firms to survive and grow is an important goal. To expand the population of entrepreneurs, enterprise policy will aim at improving the start-up rate among women, young people and unemployed, encouraging networks and customer orientation. It will also analyse and promote new forms of entrepreneurship.

Entrepreneurs need finance to translate ambitions into reality. Equity finance for SMEs is still largely underdeveloped in Europe. Enterprise policy will promote better SME access to finance and encourage innovative approaches. It will address market failures in the provision of seed and early stage financing and micro-loans. It will focus on weak points in the financing cycle in order to strengthen the whole. A current review of the Community financial instruments will assess their contribution to growth and employment. Experience outside the EU, in particular in the US, in seed capital, early stage finance, and going public, will be examined, to establish benchmarks and identify shortcomings in Europe as to the creation and development of viable innovative businesses and hence the creation of jobs.

2.2. Promoting an innovative business environment

Innovation is a critical process in a modern knowledge-driven economy. Enterprise policy will study all elements capable of creating a climate favourable to the creation and growth of innovative enterprises, notably SMEs, which often have problems in applying the latest knowledge. It will seek to facilitate the access of businesses to new technologies and examine the conditions that could encourage public-private partnerships and spin-offs. It will foster an innovation and research culture in the economy and society, establishing a framework conducive to innovation and linking research and innovation more effectively. The creation of a European Research Area, with better networking of existing centres of excellence, more coherence between national and European research, greater mobility of researchers, and a European dimension to scientific careers, will help meet these challenges.

The Commission will work to identify and remove barriers to innovation and change. For instance, adequate protection of intellectual property rights is essential to ensure a climate that is conducive to innovation, creativity and investment. Internal Market rules in this field should foster a pro-competitive environment and at the same time achieve a careful balance of all the interests involved. The adoption of the Community Patent and other instruments, as agreed at the Lisbon Summit, is essential.

Another barrier to innovation and change is shortage of skilled workers, such as informatics and telecoms engineers. This may hinder the creation or development of new enterprises. The reform of education and vocational training systems to correct this situation will meet a goal of enterprise policy.

2.3. Stimulating new business models in the e-economy

Realising Europe's full e-potential was identified by the Lisbon European Council as a key objective. Its achievement depends on providing the conditions for electronic commerce and the internet to flourish, hooking up many more businesses and homes to the internet via fast connections, so that the Union can catch up with its competitors. The new economy will change everybody's work, affecting the flow of new ideas into enterprises, their management, organisation and procedures.

E-commerce is very much about electronic business between companies, that is business to business e-commerce (B2B). B2B e-commerce currently makes up 85% of all e-commerce in Europe. It will have a profound impact on all sectors of the economy, including the traditional ones.

While e-commerce from business to consumers will be characterised by evolution, e-commerce from B2B will be marked by revolution. It will affect the whole supply chain, including subcontracting, procurement, product development, marketing, logistics and distribution. In other words, the impact of e-business is not limited to the "internet companies" but requires new business models from each and every enterprise.

Generally in Europe, SMEs are still too hesitant about electronic commerce. It is essential to enable and to encourage European SMEs to exploit e-business. Enterprise policy can encourage best practice and the widespread take-up of successful business models.

2.4. Getting still more from the internal market

The Internal Market has been one of the EU's great successes. It has been the main instrument for ensuring that European enterprises have wide access to markets. Its results have spilled over into the global market.

Yet despite the progress in market access in the last fifteen years, there are still far too many obstacles and unnecessary costs put in the way of enterprise in the European internal market. And there is progress to be made, in areas such as gas, electricity, transport and postal services. The Lisbon European Council pinpointed such areas.

The Strategy for Europe's Internal Market sets out the actions needed. This Strategy is reviewed each year to ensure continuos progress. The first review will address the issues highlighted by the European Council and address such issues as the development of on-line procurement, which is a necessary condition for European e-commerce to flourish and to enhance job creation.

2.5. Cutting red tape

Another challenge is cutting red tape. This means making both existing and future regulations as light and as simple as possible, consistent with achieving their public policy goals. Essentially, the European Union must "think small first" to avoid undue burdens on business. Thinking small first assumes that regulation which is right for small firms can be handled by all firms, but the reverse is not true.

What applies to the EU applies also to the Member States. The Commission, working with the Council and the Parliament, must ensure that EU regulation meets stringent standards. The Commission wants to see the Member States do the same.

The time has come to take a radical approach. The whole acquis needs to be evaluated on the basis of experience in operation. Five years is a challenging, but broadly achievable time in which to do this.

Where new measures are proposed, they will be subject to improved business impact assessment. What has been lacking in the past in the Commission is not intention but clout. In the US, the Office of Management and Budget of the White House has the authority to stop legislation and to insist that a cost-benefit analysis be made. The Commission will make a committed effort to let business impact assessment have a concrete impact on legislation by scrutinising it at the highest political level.

The Commission will insist that legislative proposals can only be adopted if business impact has been properly assessed prior to launching the proposal.

2.6. New methods of coordination: benchmarking, monitoring and concerted actions

The Lisbon European Council identified benchmarking as an essential element of the new open method of co-ordination. It called on the Council and the Commission to launch, by June 2000, a major benchmarking exercise, whose first results should be presented by December 2000.

Benchmarking, peer review, seminars and conferences are all methods directed to identifying and exchanging good practice. As requested by the Council, the Commission will integrate its work on good practice. In the enterprise field, it will do so under the title "BEST Procedure". It will co-ordinate this with the benchmarking and other good practice activities in related policy areas, such as research, education, environment, vocational training and economic and employment policy.

The BEST Procedure will:

- identify issues through scoreboards and the Competitiveness Report;

- involve the Member States and other interests. The Charter for small firms, announced at Lisbon, to be endorsed in June 2000, should ensure real commitment where the results will be important for SMEs;

- use benchmarking, peer review, or other concerted actions, as appropriate, to identify and exchange good practice;

- report to the Council and the European Council on the results;

- monitor and follow up recommendations, to ensure real progress.

Benchmarking goes beyond traditional analysis of competitiveness. While traditional analysis can identify performance gaps, benchmarking focuses on why these differences in performance have occurred. It identifies the processes that lead to better performance. It also provides an environment in which changes can be implemented and their success evaluated.

A programme will be launched to benchmark the performance of Member States' policies on entrepreneurial activity, innovation and access to markets and so to improve the framework conditions for enterprise. Further exercises will target the industry-research interface and the skills needed by industry for the information society. A project to identify and take over best innovation practices is already in the pipeline, in cooperation with the Member States. It will set up scoreboards, peer reviews and benchmarking studies, while establishing a platform for co-ordination with policy makers in the Member States. The project will target innovation finance, development of innovative businesses, protection of technology and promotion of technology transfer.

Concerted actions provide a practical, flexible and effective way for the Commission and Member States to work together in order to improve competitiveness through the exchange of best practice. This in turn provides a frame of reference for establishing consensual benchmarks. As well as building on past actions to improve the regulatory environment for start-ups and business support services, concerted actions will develop a new focus on areas such as training for entrepreneurship.

Benchmarking and concerted actions are two interrelated methods of making serious progress on competitiveness. They will provide pillars for the Commission's activity in enterprise policy in the coming period.

2.7. Summary

Enterprise policy needs to address the entire business environment to enable enterprises, whatever their size, their legal form, sector or location, to grow and develop in a way that is compatible with the overall EU goal of sustainable development. In Enterprise Europe, anyone with a commercially feasible idea should be able to realise it in the best business conditions, with access to the best research and technology, and then deliver it, by the best possible means, to the appropriate market.

3. The Multiannual Programme for Enterprise and Entrepreneurship 2001-2005

3.1. Introduction

The EU must meet the challenges for enterprise policy in the knowledge-driven economy, if it is to achieve Enterprise Europe by 2005. Major goals for enterprise policy have been set out above.

The Multiannual Programme for Enterprise and Entrepreneurship constitutes a major instrument for the pursuit of these goals during the next five years. Activities launched under the programme will pay particular attention to small and medium sized enterprises, which have a central role to play in the achievement of Enterprise Europe.

On the basis of analysis of business needs and discussion with the Member States and the business community, the Commission has identified five objectives for the Multiannual Programme, which translate the general objectives of enterprise policy into a specific programme of activity tailored to the needs of small and medium-sized enterprises.

Policy development, the development of financial instruments and information support services will be the main activities covered by the Multiannual Programme for Enterprise and Entrepreneurship. Policy development will be implemented by the new BEST procedure (benchmarking, concerted actions, peer review, seminars, conferences, exchange of best practice), as outlined in Annex 1. It will be supported by statistical work and analysis (to establish indicators and strengthen policy development), studies and reports (including the European Observatory for SMEs).

The Multiannual Programme for Enterprise and Entrepreneurship (2001-2005) will build on the experience of the 3rd Multiannual Programme for SMEs in the European Union (1997-2000) [1] and the independent evaluation carried out on that Programme. Its overall aim is to contribute to the achievement of Enterprise Europe. Further, it will do so in a way that is compatible with the announced re-orientation of Commission activity, away from small financial interventions, whose management is incompatible with the constraints of Commission resources, towards a focus on larger scale activities and policy development.

[1] Council Decision 97/15/EC of 9 December 1996, OJ L 6 of 10.1.1997, p. 25ff.

3.2. Experience with the 3rd Multiannual Programme for SMEs in the European Union (1997-2000)

The 3rd Multiannual Programme provided for action under 6 main headings. These were:

1. Simplify and improve the administrative and regulatory business environment;

2. Improve the financial environment for enterprises;

3. Help SMEs to Europeanise and internationalise their strategies, in particular through better information and co-operation services;

4. Enhance SME competitiveness and improve access to research, innovation and training;

5. Promote entrepreneurship and support target groups;

6. Improve SME policy instruments.

These main headings were further subdivided to provide for more detailed headings. An annual work programme and activity report provided a framework for their implementation, where the Commission was assisted by a management committee of the Member States (the 'Article 4 Committee').

An independent evaluation was presented to the Commission in April 1999. It covered actions undertaken in 1997, 1998 and the first part of 1999. It focused on the quality of design and approach of actions, their quantitative and qualitative impact and their cost effectiveness, taking account of results achieved.

The evaluation made a number of recommendations with a view to achieving increased efficiency and cost-effectiveness. The need for actions to be well focused and to provide added value in terms consistent with the available resources was a general theme. In a detailed review of all actions undertaken, it argued in particular that policy development was under-resourced and should be integrated with priority themes. Actions in support of the identification of good practice, such as concerted actions, the Round Table of Bankers and the Business Environment Simplification Task Force (BEST) were regarded as successful models which could be further developed. Further, the Programme was supporting too many small pilot projects and actions, which made only a limited contribution to policy development. While the large scale support of Euro Info Centres was believed to have a strong impact, both qualitatively and quantitatively, their number could be reduced and they could be better integrated into national SME support agencies.

The Commission responded in some detail to this evaluation with its Report of June 1999 [2]. Overall, it welcomed the conclusions and provided for them to be taken into account, either in the continued management of the 3rd Multiannual Programme for SMEs, or in subsequent proposals.

[2] Report on the evaluation of the 3rd Multiannual Programme for SMEs in the European Union (1997-2000) COM (1999) 319 final, 29.6.1999.

3.3. Consultation

The Commission has consulted with the Member States, including the members of the management committee for the implementation of the 3rd Multiannual Programme for SMEs, and with the European business and professional organisations, in preparing the Multiannual Programme for Enterprise and Entrepreneurship.

3.4. Constraints on the Commission's management capacity

In the meantime, there have been important developments in the declared policy of the Commission regarding its financial interventions. In particular, it has repeatedly made clear its determination, in response to criticism expressed by the Court of Auditors and the European Parliament, to limit its interventions strictly to those for which it has adequate management capacity. It has made clear that this implies a determination to withdraw from small actions whose effect, while positive, is too small to justify the use of scarce management resources.

3.5. Objectives of the Multiannual Programme for Enterprise and Entrepreneurship

In the light of the challenges outlined earlier in this Communication, the experience of previous Programmes and discussion with the Member States, five main objectives have been identified. This represents a narrowing of the focus, compared with the 3rd Multiannual Programme for SMEs.

Thus, referring to the headings of the 3rd Multiannual Programme for SMEs, the first has been adapted to take account of the Amsterdam Treaty (sustainable development) and the challenges described in sections 2.1 and 2.2 above (innovation and entrepreneurship). The second is maintained. The third is re-oriented and limited in scope, to focus on the provision of support networks and services and steer away from internationalisation. The fourth is continued, but the particular emphasis on the knowledge-based economy reflects the challenges set out in section 2. The fifth is re-oriented to target the challenges mentioned under 2.1 and to reduce the emphasis on support for specific sectors and groups. The sixth is superfluous, since policy development, which is emphasised under 3.6, will be pursued across all headings. The re-ordering of the headings reflects their logic, but is without impact on their content.

The Programme places particular emphasis on those areas where enterprise policy faces its main challenges in the coming period, although it is somewhat broader in its scope than the issues outlined earlier. This is because that part of the paper focused on what was new. There are, of course, plenty of continuing issues to be examined. The objectives are to:

1. Promote entrepreneurship as a valuable and productive life skill, based on customer orientation and a stronger culture of service;

2. Encourage a regulatory and business environment that takes account of sustainable development, and in which research, innovation and entrepreneurship can flourish;

3. Improve the financial environment for SMEs;

4. Enhance the competitiveness of SMEs in the knowledge-based economy;

5. Ensure that business support networks and services to enterprises are provided and co-ordinated.

3.6. Instruments of the Multiannual Programme for Enterprise and Entrepreneurship

For the reasons outlined above, the Commission has decided to restrict its interventions under the Programme. Of existing instruments, only those that were positively evaluated under the 3rd Multiannual Programme for SMEs and whose continuation is compatible with its declared policy on limiting its financial interventions, are included. In particular, it has had regard to their scale and the breadth of their impact.

The Commission will focus its activities under the Multiannual Programme for Enterprise and Entrepreneurship under a small number of headings. These will be used to:

1. Support policy development through identification, exchange and implementation of good practice;

2. Ensure that the needs of SMEs are fully taken into account;

3. Develop statistical and technical understanding of the needs of business, especially SMEs, in support of policy;

4. Distribute and diffuse studies and other information in support of the above;

5. Ensure the information support of SMEs.

This implies that a number of actions which, in themselves, can be considered as having been successful, will be discontinued. The Commission considers that a number of such actions, which were favourably evaluated in 1999, have shown their worth. It invites those who benefit from them, including the Member States, to explore ways in which they could be developed and continued. To cite but one example, Interprise was favourably evaluated, as meeting a real need and achieving good results in a cost-effective way. However, the average participation at Interprise events was 100 firms in 1999. Despite its benefits for those involved, the Commission cannot justify the continued allocation of its scarce resources to benefit such a small number of SMEs. It is time for others to carry this good work forward.

3.6.1. Support of policy development through identification, exchange and implementation of good practice

The exchange of good practice has become a focal area for the contribution of the EU in enterprise policy. It offers a means by which the EU can add value to the work of the Member States without raising issues of subsidiarity. Developments of methods such as benchmarking and programmes of activities such as the concerted actions, using seminars, peer group assessment, conferences and other means have been well received. It is in the light of their success that the European Council reacted favourably to the Commission's suggestion, and called for a much wider benchmarking activity than had previously been undertaken.

The Commission intends to re-organise and integrate its activities in the field of good practice in the field of enterprise policy, under the title BEST Procedure [3]. In doing so, it will provide a coherent framework within which to manage a growing range of projects, using different methodologies.

[3] The existing BEST Action Programme monitors and reports on the implementation of measures which were identified by the Business Environment Simplification Taskforce. The Commission is proposing to extend and re-orient this work. The acronym will no longer be relevant.

The stages of the procedure are outlined in the chart and diagram at Annex 1.

3.6.2. Ensure that the needs of SMEs are fully taken into account

Business Impact Assessment has a major role to play in ensuring that the needs of SMEs are given explicit consideration in regulation and other aspects of the business environment.

There is a need to develop better sources of finance for SMEs, addressing gaps in the market and focusing on the reasons which have contributed to the failure of the market to meet particular needs. Measures will be developed to address the problem of gaps in the market.

3.6.3. Develop statistical and technical understanding of the needs of business, especially SMEs, in support of policy

With reference to the European Statistical System, the Commission will procure statistical surveys and analyses to provide a clear picture of the business environment and the problems which business faces. Continued development, starting from existing instruments, is necessary as a support to the policy debate in all the fields covered by the Multiannual Programme for Enterprise and Entrepreneurship. At present, the development of scoreboards to highlight scope for exchange of good practice and the use of benchmarking is inhibited by lack of adequate data.

3.6.4. Distribute and diffuse studies and other information

The development of policy and the identification of good practice sets a premium on efficient distribution of information to potential beneficiaries. Reports, studies, analyses and recommendations will be given the widest possible diffusion.

3.6.5. Ensure the information support of SMEs

Information and business support services are of increasing importance to enterprises wishing to compete in the Internal Market and beyond. Existing arrangements, which give a special role to Euro Info Centres, will be developed and improved. The Multiannual Programme for Enterprise and Entrepreneurship will be used to provide an added value not available from services offered by the private sector or the Member States. Complementary links with other tools operated by Commission services, Member States and the private sector will be strengthened.

3.7. Co-ordination with other Programmes

The programme will be co-ordinated with existing programmes such as the 5th Framework Programme for Research, Technological Development and Demonstration Activities [4], actions supported by the programme for the promotion of innovation and encouragement of SME participation [5], and actions targeted at SMEs under the structural funds. It will also take account of the establishment of the European Research Area.

[4] Decision no. 182/1999/EC of the European Parliament and of the Council of 22 December 1998, OJ L 26 of 1.2.1999, p. 1.

[5] Council Decision 1999/172/EC of 25 January 1999, OJ L 64 of 12.3.1999, p. 91.

3.8. Increasing internationalisation

Participation in the activities of the Multiannual Programme will help prepare enterprises and entrepreneurs in the candidate countries for membership of the European Union. The Multiannual Programme will operate in more than 30 countries [6], meeting the needs of the Member States, the European Economic Area and the candidate countries.

[6] The 18 Member States of the European Economic Area (the 15 European Union Member States, Iceland, Liechtenstein and Norway); plus the candidate countries for membership of the European Union.

3.9. Specification of actions

The needs of enterprise and entrepreneurship are constantly changing. Therefore, although the objectives to be achieved will remain valid for the duration of the Programme, specific actions in connection with these objectives will need to be decided periodically. For example, while the use of benchmarking in support of the entrepreneurship objective will be continuous, the more precise specification of funding for projects should be decided in the light of developments. This will be done through measures adopted by the Commission after obtaining the opinion of the management committee of the Programme. The adoption of a detailed annual programme, in this way, is envisaged. However, this need not exclude measures that would, for example, provide for a specific action to be undertaken over a number of years.

In view of the decision on comitology [7], laying down procedures for the exercise of implementation powers conferred on the Commission, it is appropriate for these measures to be adopted following the management committee procedure.

[7] Council Decision of 28 January 1999, OJ L 184 of 17.7.1999, p. 23ff.

Nevertheless, such measures are not necessary for preparatory work on statistics and analysis, or for the diffusion of the results of actions. The Commission would, of course, keep the committee informed about the general nature of its activities in these fields.

The actions would also have to be carried out within the limits of appropriations included for this purpose in the budget.

3.10. Reporting and evaluation

This programme focuses on a small number of priority objectives, targeted on actions that must be cost-effective and have clear added value at European level. Evaluation of actions undertaken will take place as a matter of course. Performance indicators will be established, so that an objective evaluation of actions can be carried out throughout the duration of the programme.

The Programme foresees a report by the Commission by the end of June 2003. This could draw attention to any necessary adjustments for the remainder of the Programme. If necessary, the Commission could make appropriate proposals.

Annex 1

Best Procedure

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