Opinion on the integrated programme in favour of SMEs and the craft sector (95/C 210/16)

On 26 July 1994 the Bureau of the Committee of the Regions, acting under Article 198c of the Treaty establishing the European Community, decided to draw up an Opinion on the integrated programme in favour of SMEs and the craft sector.

The Commission for Regional Development, Economic Development and Local and Regional Finances was instructed to prepare the Committee's work on the subject. The Rapporteurs were Mr Albert Bore and Mr Luigi Ricca.

At its 6th plenary session of 1 and 2 February 1995 (meeting of 1 February 1995) the Committee of the Regions adopted the following Opinion.

I. General comments

THE COMMITTEE OF THE REGIONS

1. Welcomes the Commission's efforts to improve services to SMEs and fully supports the integrated programmes in favour of SMEs and the craft sector (where the text which follows refers to SMEs, this should be taken to mean SMEs and the craft sector).

2. Expressly welcomes the Commission's expressed recognition of subsidiarity, feeling it to be of decisive importance to the effectiveness and acceptance of all measures that regional and local levels be involved and that specific local circumstances be taken into account.

3. Acknowledges the contribution to community employment provided by enterprises employing fewer than 10 people. The Committee of the Regions notes in this connection that SMEs and craft firms are both pillars of the urban and rural economy and an essential factor in urban and village development.

4. Accepts that a services sector where SMEs predominate is still an area for employment potential and that SMEs, because of their mostly regional and local ties, are least sensitive to international competition.

5. Agrees that SMEs do employ young people and women more readily than do large enterprises who have employment and educational barriers in place and are more likely to employ part-time workers therefore allowing access to job opportunities. Full time employment should be the goal where possible and both full and part time work should be reimbursed in line with the social chapter of the EU Treaty.

6. Agrees that the practice of large enterprises in terms of hiving off and contracting out services or production towards the SME sector helps stimulate the developments of SMEs thus maintaining employment levels and acknowledges that large enterprises are still restructuring, decentralizing and outsourcing.

7. Does not support the view that SMEs are well equipped to meet the challenges facing them but does accept that there is a large market available to them. They still however have many problems to overcome in order to qualify for the term 'well-equipped'.

8. Supports the statements concerning the complexity of legal and administrative environment that adversely affect SMEs and agrees that a heavy burden is placed on self-employed persons. SMEs should be freed from administrative tasks as much as possible. Both SMEs and the Community still have some way to go to adjust to the Internal Market.

9. Points out that the access of SMEs to the EU's incentive measures is heavily dependent on their being made aware of the incentive possibilities open to them. For this reason the integrated programme should pay more attention to co-operation with professional associations, chambers of commerce and credit institutions.

10. Emphasizes that the application criteria should take account of the possibilities of SMEs. For this reason it is vital that information and applications be in the appropriate national languages.

11. Agrees SMEs still have difficulty in obtaining the right sort of finance suitable for their differing phases of development.

12. Stresses the importance of the SME structural weakness in their management capacity as an area which needs further attention if we are to progress and have self-reliant SME sectors.

13. Fully supports the integrated programme, with its objectives of:

a) reducing burden on enterprises and particularly SMEs arising from administrative and legal environment;

b) overcome enterprises financing difficulties;

c) support the enterprises in their efforts to handle the complexity of their administrative tasks and to develop strategic policies particularly as in SMEs most management tasks are carried out by the head of enterprise themselves.

Acknowledges that the 'Gateways to Growth' conference in Birmingham attempted to compare existing measures of SMEs, following which a number of states adopted laws or draft deregulation documents concerning SME development.

14. Supports the view that the main objectives are the participation of SMEs in the Internal Market and facilitating the Europeanization of enterprises.

15. Acknowledges that the priority of the Commission is growth and that most measures affecting job creation potential of SMEs are not solely of national origin, and that an important role is also played by local and regional measures.

16. Emphasizes that the programme must also encourage the growth of SMEs in the interests of competition and research and development, and to fill the gaps left by the structural crisis facing big industry.

17. Agrees with the Commission that Community initiatives because of their concentration in less developed regions, particularly Objective 1, do not fully exploit the full potential for employment creation offered by SMEs. Just as a regional policy which promises success cannot boil down to action to support small and medium-sized enterprises, so too it is not possible for an SME policy to focus solely on less developed regions; if an SME policy covers the whole of the Community, problem regions will also benefit from their ties with other regions. The Committee of the Regions stresses the importance of the viability and support to SMEs straddling the boundaries of the EU and in ultra-peripheral regions of the EU and the resultant advantages to SMEs within Europe of cross-border trading between these countries and enterprises in the EU.

18. The following objectives are particularly pertinent to SME requirements:

- to draw on best practice in the various Member States and especially in certain key regions as regard administrative and fiscal matters and SME support systems; and, consequently, to make a careful comparison of different countries' and regional and local authorities' systems, so that their experience can be used to good effect elsewhere;

- to identify those characteristics and 'best practices' which typify Fast Growth Firms in specific Regions and to develop appropriate measures to transpose those to the wider population of SMEs;

- to improve awareness of the complex and diversified range of SME support systems within the EU in order to make it more accessible and to incorporate new initiatives.

19. Recognizes the important role of the European Union and Member States in creating a framework for SME growth particularly by easing legal and administrative burdens and improving access to finance. However, these levels of government often seem remote to many SMEs. Local and regional government have a key role in stimulating the growth and formation of SMEs and their economic development strategies emphasize the importance of this role in the local economy. These economic development strategies are responsive to the needs of the regional economy and local labour market. Local and regional government can assist in the provision of premises, advisory services, export advice and promotion, training, advice on marketing and technology transfer, industry/education links and employment measures to create permanent jobs.

20. Finds that the programme lays considerable emphasis on consultation between Member States as the way to achieve some of the objectives. In practice, the mechanisms envisaged could prove intrinsically confused and inconclusive. However, the danger of red-tape and deadlock could be overcome by targeting each consultation exercise to tackle specific problems in a concrete manner, and by offering streamlined, technically proficient representation channels.

II. The integrated programme: a new approach

THE COMMITTEE OF THE REGIONS

21. Gives its fundamental approval to the programme which will assemble the various initiatives both existing and new into a global framework, thus increasing coherence and visibility.

22. Welcomes the proposals to develop closer working partnerships between all parties concerned with a view to enhancing the convergence of these measures.

23. Considers it of vital importance that the role of manufacturing and trade associations be better supported by the EU.

III.

From the first to the second generation of enterprise policy

The existing framework

THE COMMITTEE OF THE REGIONS

24. Notes the many provisions which already exist to help SMEs, under a programme which seeks to encourage the Europeanization and internationalization of enterprises, particularly SMEs.

25. Notes that not all the provisions for SMEs extend to the crafts sector, which should in fact be included in all the forms of assistance.

26. Stresses the need for SMEs in the service sector to receive the same help and assistance as manufacturing SMEs.

27. Recognizes that Community policy has recently paid more attention to the problems of SMEs and craft businesses by launching initiatives and allocating corresponding resources, although these still cannot be considered sufficient.

28. Notes that the Community SME initiative under the Structural Funds goes only some way towards meeting the requests made by the Council in November 1993 and the guidelines contained in the White Paper.

29. Endorses the call that the new integrated programme should mark a move to a second generation of enterprise policy, and reiterates the following matter of principle: development policies, particularly those for SMEs and craft businesses, should not lead to a proliferation of fragmentary initiatives and instruments, but should rationalize and reorganize existing ones. In order to ensure that the limited resources available are used more efficiently and effectively, existing support instruments must be more widely publicized and better coordinated, and made more accessible and less bureaucratic.

30. To this end, recommends that the proposed measures be supported by the allocation of a level of resources better calculated to make them effective.

31. Welcomes the proposed evaluation and report for future action which will be presented by the Commission on the various networks concerning Euro Info Centres and EIC Network.

32. Requests that all programmes and initiatives affecting SMEs should be the subject of a monitoring and evaluation report produced on a annual basis and such a document made available to the Committee.

33. Supports the Community's continued involvement in the Interprise and Europartenariat programmes as being particularly useful in terms of business to business contacts within the Internal Market.

34. Supports the resolution from the memorandum entitled 'SMEs Driving Force for European Growth' that there needs to be a closer partnership of parties involved in the development of SMEs particularly at regional level in order to enhance convergence between these measures. ()

35. Welcomes the Council's decision to introduce EIB low interest loans on the understanding, however, that steps must be taken to ensure that small and micro enterprises have effective access to these loans.

36. Welcomes the launch of a Community initiative to assist SMEs but considers that attention should be given to the difficulties faced by Objective 1 areas in tackling the complexities of the globalized economy.

37. Agrees with the introduction of the Leonardo Programme, but believes that effectiveness, coherence and visibility would be improved if the existing programme names could be maintained rather than developing new names.

38. Suggests that existing programmes should be assessed, and recommends that, where results are positive, derivative programmes should be introduced rather than developing new ones.

39. In devolving power to local and regional authorities there should be appropriate allocation of funding and fund-raising powers.

40. Agrees that the various initiatives need to be both comprehensive and complementary to each other and that coherence and visibility will be improved through greater coordination of these measures.

41. Welcomes the proposed simplification of the legal and administrative environment in which SMEs have to work.

IV. New measures

THE COMMITTEE OF THE REGIONS

42. Supports the view that the best way to encourage enterprises' capacity to generate and retain jobs is to develop a legal and administrative environment conducive to enterprise creation and growth.

43. Urges the Commission to take the interests of SMEs into consideration when drafting legislation.

44. Agrees that Member States should encourage information and experience exchanges. As prominent actors in economic development, local and regional authorities need to play a leading part in these exchanges so that good practice is spread throughout the Union.

45. Welcomes the Commission's suggestion of setting up a group composed of Member States/organizations who have a responsibility or a role in respect of administrative simplification.

46. Identifies that local authorities in particular have a major regulatory role not only in legislative terms but also because the environment they provide can play a crucial part in the setting-up of SMEs and in meeting their production and innovation needs.

47. Considers that it would be helpful to set up a European-wide Forum to act as a clearing house for all new initiatives and to assist the EU authorities in the formulation of proposals.

V. Concerted action on support initiatives for enterprises

THE COMMITTEE OF THE REGIONS

48. Acknowledges that there is an impressive array of measures currently existing in all member states to support enterprises and that the life cycle of SMEs is recognized in the support programmes.

49. Agrees that smes are discouraged by difficulties in obtaining information on support measures and their complexity and, in particular, they question the ability of outside organizations to assist them.

50. Accepts that the SMEs who do seek external support have a much greater survival rate than those who do not. Points out that whilst a long term relationship is required with smes there is a careful balance not to create dependency.

51. Supports the proposed advisory facilities for firms on the various aspects of their day-to-day management.

52. Accepts the proposal on the discussion forum on services to assist enterprises and welcomes any research into effectiveness and the concentration of resources into helping and developing growth SMEs.

53. Calls for research into and support mechanisms to assist the establishment of workers and community cooperatives within the EU.

54. Suggests that where monitoring and evaluation is available this should be made available on a regular basis to the panels recommended in this paper.

55. Encourages exchanges of experiences to increase knowledge of markets and accepts that this is increasingly required by enterprise in order to take advantage of the Internal Market.

56. Asks that the Commission provides concrete support for SMEs when introducing environmental management and business assessment systems and transferring the 1993 Eco-Audit Regulation. Support mechanisms should be established in remote rural areas adversely affected by environment protection initiatives like increasing fuel prices.

57. Agrees that concerted action is needed to encourage greater use by enterprises of information, training and advisory services.

58. Agrees that the minimization of the number of programmes would form an important step in making programmes more visible and ensuring better targeting of such services. The Committee of the Regions feels that local and regional authorities can play an important role in increasing both the visibility and targeting of these programmes and that, due to their close contact with SMEs, local and regional authorities can provide a link between SMEs and the European Union.

VI. Improving the environment for enterprises

THE COMMITTEE OF THE REGIONS

59. Fully endorses the programme's emphasis on the need for measures to facilitate business transfers, thereby safeguarding the SME and craft network and employment. Transfers are a particular obstacle to the development of small firms, seriously hampering their ability to provide jobs and pursue long-term objectives.

60. Stresses the need, as part of concerted action between Member States on business services, to strengthen advisory services for entrepreneurs to help them define a transfer strategy. The Committee of the Regions stresses the need to support the fundamental role which local and regional authorities play in providing services which are increasingly geared to the production and innovation needs of SMEs.

61. Deems it vital to improve the legal and fiscal environment of SMEs by removing legal and fiscal barriers raised by national legislation.

62. Stresses the need to facilitate spread of the best-practice arrangements found in certain Member States, and to make particular efforts to:

a) lift the obstacles to the continued operation of a sole proprietorship or partnership in the event of the death of the head of the enterprise or one of the partners;

b) help the firms mentioned in a) to move to corporate status, with a view to transfer;

c) reduce the administrative formalities and the cost of access to public limited-liability status for SMEs, in a manner which is compatible with the protection of partners and third party interests;

d) reduce the fiscal burdens on legatees who continue to operate the enterprise.

63. Considers it necessary to take appropriate action to address the problem of double taxation of estates when the deceased, the heir and assets are domiciled in different Member States.

64. Considers that a Recommendation is a rather weak instrument for implementing this initiative, and wonders whether it would be possible, for example, to scrutinize the transfer instruments (which might involve free assistance or other incentives) used in the most advanced systems (as identified in the course of the consultation process), with a view to devising other forms of action, rather than just a Recommendation.

65. Welcomes the Commission's efforts concerning the impact on businesses of various programmes and is pleased to know that impact assessments are being carried out.

66. Agrees that compliance costs and other administrative burdens weigh heavily on the SME and conditions for transfer of enterprises should be improved.

67. Welcomes the advisory services for entrepreneurs and agrees that they in themselves do not ensure successful transfers.

68. Supports the Commission's plans to facilitate the circulation of various countries' best practices but without imposing binding procedures on Member States. The Committee of the Regions, given the present employment situation in the Community, is of the view that there is a need for intensification of national measures with a view to creating greater job opportunities.

69. Welcomes the Commission's consultation process with interested parties covering aspects of legal and fiscal environment for transfer of business.

70. Welcomes the Commission's submission to improve the physical environment of SMEs aimed at reducing obstacles to their development and to facilitate an environment favourable to the creation of new employment in local services.

71. Welcomes the Commission's work on creating new jobs in areas not so far exploited such as local services or protection of the environment.

72. Looks forward to receiving the objective analysis concerning ways to support the development of such services and activities without conflicting with the interests of existing enterprises.

VII.

Improving the tax environment for SMEs

THE COMMITTEE OF THE REGIONS

73. Considers that improving the fiscal environment for SMEs is a priority (alongside Point 102 below) of the integrated programme. In order to make the most of SMEs' growth and employment potential, it is vital to improve their ability to fund expenditure from their own resources, gain access to external sources of funding, and reduce their operating costs.

74. To this end, endorses the objectives of:

a) bringing the fiscal charges levied on sole traders and partnerships into line with those paid by corporations of a similar size;

b) eliminating the double taxation which may arise along the SME financing chain, as regards investors and, in particular, venture funds;

c) eliminating the fiscal and administrative charges which often discourage SMEs from setting up permanent establishments in other Member States;

d) coordinate, and simplify, where possible, taxation and social security reporting and payment arrangements for SMEs.

75. Stresses that harmonization of the fiscal treatment of SMEs will also help to prevent the emergence of unfair regional competition conditions with respect to investment.

76. Agrees that the present VAT system should be revised.

77. Proposes that the Commission examine the potential for selective use of payment of reduced levels of corporation tax by SMEs.

78. Considers that the proposal to issue a Communication and Recommendation on improving the fiscal environment is not ambitious enough.

VIII.

Improving payment deadlines between enterprises

THE COMMITTEE OF THE REGIONS

79. Agrees with the Commission's view that late payments increase financial and administrative burdens, undermine the entire economic fabric and endanger the survival of many enterprises.

80. Recognizes the need for measures to impose compliance with payment deadlines and discourage the systematic delaying of payments as a way of improving cash flow.

81. Stresses the need to develop appropriate financial instruments accessible to SMEs and to launch a 'package' of different measures (both legal and practical) to improve the situation.

82. Endorses the Commission's proposals and invites it to back the proposed initiatives (Recommendation, joint action by the Member States to enable injunctions to be obtained for non-contested claims, etc.) by devising penalties for undertakings which fail to comply (e.g. withdrawal of other special concessions for SMEs).

83. Examines the feasibility of adapting 'best practise norms' in relation to late payments, by referring to practise in the two best performing countries.

84. Proposes immediate action by Member States to ensure that all payments in respect of the public sector to SMEs are processed within the specific contract period.

85. Accepts the support for the development and adjustment of SMEs is vital to ensuring full effectiveness and adequate levels of competitiveness within the Internal Market.

86. Welcomes community initiatives which assist enterprises to handle administrative and legal environment successfully, that embrace innovation and modernization and, in particular, give preference to the latest management methods as part of a more strategic approach to the development of SMEs.

87. Welcomes the measures introduced such as the fourth RTD framework and the Leonardo training programme, which is a real catalyst for a changing society. The Committee of the Regions is, however, concerned at the low take up rate from SMEs in past programmes and feels that consideration should be given to ensuring the greater involvement of SMEs in new programmes. Participation of SMEs in the RTD programmes is particularly important because technological SMEs have a strong record in terms of growth and employment creation. To ensure maximum effectiveness, financial support for training should take the form of a full-scale commitment rather than just topping-up.

88. Supports the work that will bring about the information society which will allow improvements of SME management capability and allow access to advanced telematic services together with increasing spread of new technologies into SMEs.

89. Fully supports the White Paper's three major objectives of improving access to finance and credit, supporting cooperations between firms and improving management quality.

90. Supports cooperation between enterprises and regards the encouragement of partnership and alliances between European enterprises as essential to maximize benefit of the Internal Market.

91. Feels that SMEs and the craft sector should be given support in seeking out and accessing new markets.

92. Agrees that it is necessary to follow up the initial phases of partnership and alliances with some practical hands-on support by way of encouragement through what is a complex process.

93. Supports the statement that enterprise networks should be encouraged between the more and less advanced regions.

94. Considers that the opening up of public procurements whilst an opportunity for SMEs still needs a considerable amount of work in order to create transnational partnerships between enterprises.

95. Believes that sub-contracting is a key factor in the development of new industrial relations and plays an increasingly important role in enterprise competitiveness.

96. Agrees that a total package is required in terms of quality and modernized management systems and production facilities if SMEs are to increase and sustain their shares of the globalized economy.

97. Regards the closer cooperation between principles and subcontractors through such mechanisms of 'inverted trade shows' and better cooperation between subcontracting SMEs will significantly increase the prospects of SMEs in significant change affected sectors.

98. Welcomes the opportunity to work with the Commission concerning subcontracting promotion centres to develop complementary areas of activity between economic regions.

99. Accepts that it is a fact that in many cases the head of the enterprise themselves carry out multiple functions and in many cases do not have the necessary skills or qualifications to carry out some of the more technical roles.

100. Supports the statement that there is scope for improving the availability of advisory services which deal with various aspects of day to day management as well as the usefulness of a European standard defining the quality criteria for consultants who hope to participate in programmes.

IX. Support for improving management quality

THE COMMITTEE OF THE REGIONS

101. Supports programmes which allow expertise to be made available to SMEs when entering a growth phase.

102. Considers that Euro-management project is a valuable addition to SME development but would wish to receive some output data for this programme and the projects dealing specifically with quality and certification issues.

103. Calls for more information on the Plato programme in order to review how the benefits of this programme could be successfully used at a national and regional level.

X. Improved access to finance and credit

THE COMMITTEE OF THE REGIONS

104. Notes the various financial instruments available to SMEs, but observes that financing remains the chief obstacle to SME investment. The Committee of the Regions expects the Member States to improve their own capital aid programmes.

105. Recalls that the White Paper calls for an increase and improvement in the financial resources made available to SMEs, and for steps to improve relations between financial institutions and SMEs, paving the way for more generous allocation of private finance to SMEs and broader use of the most appropriate financial instruments.

106. Welcomes the initiatives proposed in the integrated programme, and recommends:

a) that the overall resources available to SMEs and craft businesses be ensured;

b) that special attention be paid to the practical operation of the financial instruments available and that access be widened by simplifying procedures, reducing administrative costs, and making assistance arrangements as flexible as possible;

c) that the financial instruments available and the conditions governing access to them be widely publicized at every opportunity, and that measures be decentralized at local or regional level, since this is the level at which SME and craft firms operate;

d) that priority consideration be given to improving SME access to new technologies and increasing their investment rate, in order to speed up product and process innovation;

e) that resources be allocated to help business start-ups, particularly on the part of young people or the unemployed, inter alia in the form of guarantees;

f) that financial incentives be used first and foremost for ensuring future profitability and for investment and innovation, and not just for financial purposes.

XI. Conclusions

THE COMMITTEE OF THE REGIONS

107. Welcomes the integrated programme for SMEs and the craft sector which not only brings together various initiatives into a global framework, thus ensuring their coherence and visibility, but also reflects the great need to develop closer partnerships between all parties concerned with the development of the SME sector.

108. Agrees that the measures outlined will help to achieve the objectives of the White Paper in terms of growth and competitiveness whilst improving the unemployment situation but believes that more information in terms of monitoring and evaluation of programmes is required in order to allow the Committee to fully participate in the direction of such services and programmes.

Done at Brussels, 1 February 1995.

The Chairman

of the Committee of the Regions

Jacques BLANC

() See Belgian Presidency memorandum 'SMEs: Driving Force of European Growth'.