Opinion of the Committee of the Regions on the 'Proposal for a Council Decision on a Third Multiannual Programme for Small and Medium-Sized Enterprises (SMEs) in the European Union (1997-2000) (presented by the Commission) - Maximizing European SMEs' full potential for employment, growth and competitiveness` (97/C 34/08)

THE COMMITTEE OF THE REGIONS,

Having regard to the Commission proposal to the Council [COM(96) 98 final - 96/0087 (CNS)] ();

Having regard to the decision taken by the Council on 10 April 1996, under the first paragraph of Article 198c of the Treaty establishing the European Community;

Having regard to its own decision on 8 March 1996 to direct Commission 1 for Regional Development, Economic Development and Local and Regional Finances to draw up the relevant Opinion;

Having regard to the Draft Opinion adopted by Commission 1 on 20 June 1996 (Rapporteur: Mr Ricca) (CdR 211/96 rev.);

Having regard to the Treaty establishing the European Union;

Having regard to the Commission White Paper on Growth, Competitiveness and Employment;

Having regard to the Report presented by the Commission to the Madrid European Council: 'SMEs: a dynamic source of employment, growth and competitiveness in the European Union` (CSE(95) 2087);

Having regard to the Commission Recommendation of 3 April 1996, concerning the definition of SMEs ();

Having regard to the report of the Group of Independent Experts on legislative and administrative simplification, COM(95) 288 final of 21 June 1995;

Having regard to the Communication from the Commission on the Evaluation of the Second Multiannual Framework Programme for Enterprise and SMEs (1993-1996), COM(96) 99 final of 20 March 1996;

Having regard to the Communication from the Commission on the craft industry and small enterprises: keys to growth and employment in Europe, COM(95) 502 final of 26 October 1995;

Having regard to the Communication from the Commission: European SME Observatory, comments by the Commission on the Third Annual Report (1995), COM(95) 526 final of 8 November 1995;

Having regard to its own Opinion on the Integrated Programme in favour of SMEs and the craft sector, CdR 18/95 of 1 February 1995 (),

adopted the following Opinion unanimously at its 14th Plenary Session on 19 September 1996.

1. General comments

1.1. SMEs (including the crafts sector) are by virtue of their number a key factor in the distribution and preservation of wealth, and hence in economic and social growth.

1.2. In the European Union SMEs account for 99,8 % of all undertakings, 66 % of overall employment and 65 % of EU business turnover. In particular, very small businesses are now playing a crucial role in promoting growth and generating a higher than average number of new jobs.

1.3. Over the period 1988-95 net job creation in SMEs more than offset the loss of jobs in large undertakings. Nonetheless, there was little new employment in Europe and no substantial drop in unemployment.

1.4. Compared to the United States, where SME employment in 1995 rose by 4,7 %, resulting in the net creation of 2,1 million new jobs, SME job creation in the EU remains stagnant.

1.5. Consequently the growth and job creation potential of the SMEs is NOT exploited fully.

1.6. The data available indicate that SMEs' scope for promoting growth and employment has been restrained by inefficiencies or failings rooted in the market and current policies, for which satisfactory solutions have not yet been found.

1.7. The COR therefore observes with satisfaction that the Third Multiannual Programme aims at a more incisive, effective Community policy in favour of SMEs, backing up the action taken by regional and local bodies and the Member States; this involves framing appropriate measures to tackle priority issues with a view to stimulating entrepreneurial spirit, creativity and innovation throughout the European Union.

2. The Community's SME policy

2.1. The COR would stress the need to mobilize all suitable initiatives to boost and exploit SMEs' scope for promoting growth and employment as well as coping with the weaknesses inherent in their smaller scale, which makes them more vulnerable to failure.

2.2. In February 1995 the COR already expressed its support (Rapporteurs: Mr Bore and Mr Ricca) () for the Integrated Programme in favour of SMEs and the Craft Sector. In this connection the Third Multiannual Programme for the period 1997-2000 gives EU policy continuity in setting the following objectives:

a) Simplify and improve the administrative and regulatory business environment;

b) Improve the financial environment for enterprises;

c) Help SMEs to Europeanize and internationalize their strategies, in particular through better information services;

d) Enhance SME competitiveness and improve their access to research, innovation and training;

e) Promote entrepreneurship and support special target groups.

2.3. The COR supports these five priority objectives and the programme's focus on SMEs, regardless of sector, legal status or geographical location within the European Economic Area.

3. Proposed action

3.1. Objective A: Simplify and improve the administrative and regulatory business environment

A1 Ensure consideration of the interests of SMEs in the various Community initiatives and policies;

A2 Simplify and improve Community legislation;

A3 Increase transparency and the spread of best practices on simplifying and improving the administrative and regulatory environment;

A4 Improve framework for transnational operations of SMEs.

3.1.1. The COR welcomes the proposed activities in the hope that they will have a practical impact in improving an administrative environment, also at local level, which currently places structural burdens on SMEs struggling with an increasingly complex legal, tax and administrative situation, aggravated by slow and costly formalities.

3.1.2. The present state of affairs pushes up SME costs and discourages the setting up of new firms, recruitment, initiative and innovation, besides making it more difficult, and often impossible, to transfer a business from one generation to the next.

3.1.3. The COR feels that greater SME involvement in the framing of Community legislation or programmes will boost the impact of Community initiatives since measures would then be rooted in a practical understanding of SME interests and requirements.

3.1.4. The COR would stress that the simplification drive must extend to improving the transparency and coordination of procedures for access to EU funding and aid, and hence their application and impact.

3.1.5. To facilitate the handing down of businesses, the COR would recommend, by way of practical action, the development of financing companies in the 'management buy out` sector to enable managers to buy a business if the entrepreneur has no heirs. Incentives could take the shape of a special tax concession on the revenue of companies in this branch of activity.

3.2. Objective B: Improve the financial environment for enterprises

B1 Improve access to loan financing;

B2 Intensify efforts to reduce late payment problems;

B3 Facilitate the development of specific financial instruments;

B4 Stimulate the development of capital markets for fast-growing SMEs.

3.2.1. The COR agrees with the need to identify means of improving the financial environment for SMEs. To back up the 1994 Integrated Programme in favour of SMEs, measures are proposed to:

- alleviate the difficulty of obtaining low interest loans (typically SMEs at present pay an interest rate two to five percentage points higher than large enterprises);

- remove national tax constraints which discourage entrepreneurs from reinvesting savings in their own business;

- encourage the development of new Europe-wide financing instruments and establish an interface between SME capital needs and potential investors.

- to supply SMEs who invest in innovation with local-based capital coming from local and regional authorities or from 'patient` sources, or long-term savings, generally provided by pension funds.

3.2.2. More specifically, as regards improving the effectiveness of loan guarantee initiatives (B1), the COR feels that EU assistance must be provided for guarantee bodies to offset some of the losses they sustain (e.g. 50 % of the losses paid to banks during the previous year) in guaranteeing loans to SMEs.

3.2.3. On point B4, it would be helpful to introduce subsidies (at least 50 % of the cost) for SMEs which agree to be 'rated` by specialized firms. This rating would make it easier for outside investors and partners in other countries to assess the enterprise when weighing up potential cooperation agreements. The rating will also facilitate listing on the stock exchange, where relevant. The Member States should be asked to institutionalize a substantial tax concession (40 %-50 %) during the three years subsequent to a SME being listed on the stock exchange.

3.2.4. The COR hopes that the planned schedule for transition to Economic and Monetary Union will be respected. The common European currency, the Euro, will be of significant value to SMEs as a result of the elimination of currency transaction and exchange-rate support costs within the Monetary Union. The Euro will mean the creation of a comprehensive liquid financial market offering more attractive investment and financing opportunities than the currently still fragmented currency markets. This will result in a new surge of entrepreneurial innovation and bring to an end the 'crowding out` of SMEs.

3.3. Objective C: Help SMEs to europeanize and internationalize their strategies, in particular through better information services

C1 Develop information services (Euro-Info-Centres as 'First-Stop-Shops`);

C2 Improve the promotion of SME policy actions;

C3 Promote co-operation through business search networks (BC-NET and BRE);

C4 Promote direct contacts through partnership programmes (Europartenariat and Interprise programmes);

C5 Develop subcontracting partnerships;

C6 Promote access to new markets and internationalization of SMEs.

3.3.1. The COR agrees that helping SMEs to internationalize their activities is a key factor in boosting their competitiveness on the Community market and on a wider front. Success on the international market hinges above all on access to the information necessary to devise a strategy. Consequently the use of information technologies and communications tailored to SMEs' needs should be promoted.

3.3.2. The COR welcomes the Commission's goal of making the EIC the focus of Community business promotion policy and the main tool in improving SME access to Community information.

3.3.3. In particular, the aim is to instigate the development of a global service strategy with the EICs acting as 'first-stop shops`, a single interface with the final customer in order to direct each request to the relevant Community network or service provider.

3.3.4. The COR wishes nonetheless to draw attention to a number of comments that the Arthur Andersen & Co report on the evaluation of the Second Multiannual Programme for SMEs (1993-1996) makes on this chapter:

- though a major share of funding under the enterprise promotion policy is earmarked for the EIC initiative, synergy between this network and other Community networks is still insufficient;

- the current promotion drive has failed to give the EIC network a high profile in business circles;

- despite their 'good` conception, use of the BC-NET and BRE networks is limited because their quality has not been sufficiently improved.

3.3.5. The COR notes that the Third Multiannual Programme does not provide a satisfactory answer to all the comments made in the above report on the Second Multiannual Programme. In its view:

- more effective promotion is needed to make a greater impact on the business community, via an improved and expanded network system targeted at more appropriate potential business partners;

- more in-depth appraisals are needed of whether reorganization of the EIC network system could achieve a greater impact on entrepreneurs;

- technological standards should be improved and use of BC-NET and BRE should be made easier;

- the success of the Europartenariat and Interprise programmes should be consolidated through more effective use of BS-NET, BRE and the EIC network.

3.3.6. The COR would stress the importance of starting some pilot-projects for regions which might be able to encourage:

- an international infrastructure for SMEs, and a coordinated approach of several European programmes.

3.4. Objective D: Enhance SME competitiveness and improve access to research, innovation and training

D1 Increase the innovative potential of SMEs;

D2 Stimulate managerial training;

D3 Adaptation to environmental requirements.

3.4.1. The COR agrees with the Second Ciampi Report's claim that the main challenge lies in the capacity to translate research results into marketable innovations. Here the proposed activities could make a positive contribution. The COR would recommend more extensive dissemination of the results of pilot projects set in motion.

3.4.2. A major role is played by training, to be tailored to SME requirements and include specific activities aiming to:

- promote 'sandwich courses` (apprenticeships combining theoretical education with on-the-job experience);

- management training;

- 'in-service` training in new technologies.

3.5. Objective E: Promote entrepreneurship and support special target groups

E1 Business culture and entrepreneurship;

E2 Craft and small enterprises;

E3 Enterprises in commerce and distributive trades;

E4 Women and young entrepreneurs: enterprises owned by minorities.

3.5.1. The primary goal - which the COR endorses - should be to restore and stimulate a truly entrepreneurial culture, based on values such as self-reliance, risk-taking and a sense of personal commitment. Since action to reshape attitudes is a sine qua non, a political campaign, encompassing the regions and local authorities, is needed to involve all interested groups in each Member State.

4. Policy development

- Statistics

- SME Observatory

- Studies on SMEs

- Develop and evaluate SME policy actions.

4.1. In the COR's view, the various proposals meet the specific need for know-how and information and are a valuable instrument in enabling policymakers to identify appropriate enterprise policy initiatives.

4.2. The COR would stress the importance of:

- the quality and usefulness of the data published, which need to be more detailed and up to date;

- a more effective dissemination strategy;

- applying and supplementing new technologies and exploiting the information society's potential for facilitating access to available data.

5. Conclusions

The Committee of the Regions:

- welcomes the activities proposed in the Third Multiannual Programme for Small and Medium-sized Enterprises (SMEs) in the European Union (1997-2000), which ensures the continuity of Community enterprise promotion policy, consolidates a number of ongoing activities and introduces a set of new initiatives in key sectors identified in the Commission's recent policy paper on SMEs;

- hopes that aims will be translated into action in the simplest and most accessible form possible so as to avoid adding Community redtape to the constraints with which SMEs already have to contend;

- in addition to its comments on specific points in the report - all of which are relevant to these conclusions - the COR would reiterate that:

a) practical implementation of the proposed initiatives should be underpinned by an approach aiming at the greatest possible decentralization, taking account of specific local strategies to promote SMEs in the Member States, i.e. in close liaison with business circles and involving local structures;

b) organizations representing SMEs, including trustworthy business consultancy bodies (banks, private and public sector consultancy agencies, chambers of commerce, etc.) which can draw on a wide range of means of action, should be closely incorporated into the EIC, BC-NET and BRE networks;

c) every effort should be made to boost the impact and improve the quality of the EIC, BC-NET and BRE networks, including reorganization of the system;

d) the information society's potential as a channel for helping SMEs frame strategies should be exploited to the full and substantial investments made in technology;

e) serious consideration should be given to the possible need for additional resources (financial, human, specific back-up skills) if the proposed policies are to be truly effective. The feasibility of transferring tasks to the Member States and to regional and local authorities who already play an important role in providing financial and technical back-up for the development of SMEs should also be explored;

f) all activities aiming to optimize the great potential of European SMEs at the same time make a major contribution in promoting employment policies; these also need to be backed by the 'territorial employment pacts` proposed by the European Commission.

5.1. The COR strongly advocates a periodical assessment of the practical impact on SMEs and of progress made in the individual Member States in implementing measures to simplify, on all fronts, the lives of EU entrepreneurs. By freeing them from expensive and useless formalities, entrepreneurial spirit, creativity and innovation will be able to flourish throughout the EU.

5.2. The COR would recommend that publicity be given throughout the EU to the most effective measures adopted by the individual States for purposes of optimizing and making full use of SMEs' potential to promote growth and generate new jobs.

Brussels, 19 September 1996.

The Chairman of the Committee of the Regions

Pasqual MARAGALL i MIRA

() OJ No C 156, 31. 5. 1996, p. 5.

() OJ No C 107, 30. 4. 1996, p. 4.

() OJ No C 210, 14. 8. 1995, p. 92.