COMMISSION OF THE EUROPEAN COMMUNITIES 
COM(94) 352 final 
Brussels, 07.09.1994 
COMMUNICATION FROM THE COMMISSION 
THE EUROPEAN OBSERVATORY FOR SMEs 
Comments by the Commission on the Second Annual Report (1994) 
THE EUROPEAN OBSERVATORY FOR SMEs 
Comments by the Commission on the Second Annual Report (1994) 
INTRODUCTION 
In the context of Community initiatives aimed at promoting better observation of the 
economic development of enterprises as part of the dynamics of effective 
implementation of the Internal Market (1), and namely in the framework of the 
European Observatory for SMEs set up by the Commission on December 1992, the 
Economisch Instituut voor het Midden-en Kleinbedrijf (EIM), coordinator of the 
network made up by the KMO Studiecentrum, Danish Technological Institute, 
Institut fur Mittelstandforschung, Hellenic Organisation of Small and Medium-Sized 
Industries and Handicrafts, Instituto Vasco de Estudios e Investigaciôn, Association 
pour la Promotion et le Développement Industriel, Economie and Social Research 
Institute, Università Commerciale Luigi Bocconi, Chambre des Métiers du Grand 
Duché de Luxembourg, Economisch Instituut voor het Midden-en Kleinbedrijf, 
Instituto de Apoio as Pequenas e Médias Empresas e ao Investimento and the 
University of Warwick School of Industrial and Business Studies, has submitted to 
the Commission a second independent Report on the situation of, and the prospects 
for SMEs in the European Union. 
This Report is mainly in the nature of a review which presents the latest enterprise 
developments and prospects in the European economy in, so far as possible, a 
quantitative form. It discusses a series of current issues which are relevant to 
understanding present and future SME trends. It presents changes in the form and 
direction of Community and national policies which affect the business environment 
and SME performance. And, by doing so, it aims at stimulating, and providing a basis 
for, substantive debate and greater understanding of horizontal issues relating to 
SMEs. 
The Commission is pleased to note that the first report has been well received, and 
widely discussed in all quarters and trusts that this new Report, and its successors, 
will be as important a source of ideas, information and experience as the first. The 
Commission therefore considers that, by providing specific coverage and detailed 
consideration of the impact of the Internal Market on SMEs, the Observatory can 
surely act, by means of its future reports, as one of the most important analytical 
sources on which are to be considered practical proposals for the implementation 
of the "Integrated Programme in favour of SMEs and the craft sector" (2). In 
particular, the report's quantitative approach, will undoubtedly be very useful as a 
basis for discussion in the framework of the enlarged partnership between the 
Commission and the Member States, as proposed in this Programme. 
1. Council Decision 93/379/EEC of 14 June 1993, OJ. L 161 of 2 July 1993. 
2. COM (94) 207 final of 3 June 1994. 
This document represents a summary of the Commission's comments on the 
Report, referring mainly to new data and results provided by the Observatory, and 
focuses primarily on its most controversial findings or aspects that are particularly 
open for outside criticism. The first section of the document, which has been 
organised according to the Report's structure, sets out the Commission's comments 
on the analytical part of the Report (Chapters 2-11) whilst the second section covers 
its policy recommendations (Chapter 12). As it has been the case with regard to its 
comments on the first report (3), the Commission did not appraise systematically 
the data for each Member State or the annexes to the Report although incidental use 
might be made of them in order to illustrate or highlight some of the ideas and 
concepts used. 
GENERAL COMMENTS ON THE REPORT 
The Commission very much welcomes this second Report considering the state of 
SMEs in the European Union, particularly as it reaffirms the need for strengthening 
the competitiveness of enterprises as a means to stimulating growth and creating 
jobs along the lines presented in the "White Paper on Growth, Competitiveness and 
Employment", which has clearly recognised the importance of supporting the 
development and adaptation of SMEs so as to make the Internal Market fully 
effective, and laid down some general guidelines for an Integrated Programme to 
assist them. 
The Second Annual Report of the European Observatory for SMEs aims at providing 
both institutions and individuals with an interest in SMEs with a comprehensive, 
although still preliminary analysis of the Internal Market's impact on them. It is 
largely based on comparable data collected by EUROSTAT as well as on the 
conceptual framework set out in its "Enterprises in Europe" reports, and it involved 
reviewing major trends affecting SMEs, drawing an overall view of SMEs and craft 
enterprises in the Union and assembling information on such fields as employment 
and human capital, capital and finance, innovation and R&TD. 
Throughout the Report, the European SME sector is taken to comprise enterprises 
(except in agriculture, hunting, forestry and fishing) employing less than 500 
persons. Additionally, the following broad size classes are distinguished within the 
SME sector: 
micro enterprises: 0-9 employees; 
small enterprises: 10-99 employees, sometimes further subdivided into 10-
19, 20-49 and 50-99 employees; 
medium enterprises: 100-499 employees, sometimes further subdivided into 
100-249 and 250-499 employees (4). 
3. COM (93) 527 final of 5 November 1993-
4. The general expression "SME" is the only one used throughout this document 
as to designate all enterprises employing less than 500 persons. Any other 
reference to micro, small and medium enterprises should therefore be read 
as referring to specific size classes. 
The Commission largely supports the methodology used by the Observatory in this 
regard, as it has already proved to secure the use of comparable data throughout the 
reports, thus providing a structured and comprehensive basis to guide their 
development in subsequent years. It nevertheless recalls that the limited availability 
of data referring to the period 1991-93 (5) invites to the use of some precaution 
when looking at the relevance and accuracy of qualitative assessments made in the 
Report, particularly whenever developments having occurred during this period are 
compared to those identified in previous years. 
1. SMEs in the European Union 
It is estimated that in 1990 the non-primary private sector of the Community 
included about 15.8 million enterprises, of which more than 999% were 
SMEs. In particular, it is estimated that there were about 14.7 million micro 
firms, some 7 millions of which had no salaried employees, 970,000 small 
firms, 70,000 medium firms, and only about 13,000 large enterprises (6). 
Including large firms, the average enterprise in the European economy had 
about 6 persons employed (ranging from 3 in Greece to 10 persons 
employed in Luxembourg and in the Netherlands), while the average SME 
employed just over 4 persons. As a result, SMEs then provided some 68 
million jobs, thus accounting for a growing share (some 72%) of total 
employment in the European non-primary private sector. 
Moreover, small and medium-sized enterprises appear to dominate in 
manufacturing, construction and wholesale trade, and are the second most 
important source of employment in every other sector. On the other hand, 
micro enterprises excel in retail distribution and (even if their employment 
share has slightly decreased from 1988 to 1990) personal services, whilst 
being of particular importance also in construction and wholesale trade. As 
regards large enterprises, they seem to dominate in extraction, transport and 
communication, and, to a lesser extent, in producer services, without having 
any major role in other sectors, apart from manufacturing. However, the 
Commission considers that, as the Report does not clarify whether temporary 
staff is included and, in that case, how it has been measured and adjusted, the 
sectoral classification used by the Observatory may be misleading, especially 
if used for policy recommendation purposes without having been further 
investigated. 
5. It should also be taken in consideration that, due to the introduction of new 
sources of information and use of improved measurement methods, the data 
from "Enterprises in Europe" for 1988 and 1990 are not fully comparable. 
6. Referring to intermediate size classes, it is estimated that there were about 
563,000, 337,000, 70,000, 56,000 and 14,000 firms in the, respectively, 10-19, 
20-49, 50-99, 100-249 and 250-499 employees range. 
With regard to firm size, it is significant to note that a clear divide seems only 
to take place between micro enterprises, small and medium enterprises, and 
large enterprises. In fact, although the average firm size roughly increases by 
a rather constant factor of ten between the main size classes, the data 
presented in the Report points to the existence of a remarkable stability in 
average firm size increases between every intermediate size class in the 10-
499 employees range (7). As the first report has already given some 
preliminary indications in this direction, this can be seen as additional 
evidence on the existence of fundamental different problems, attitudes and 
behaviour within the SME sector, thus seeming to justify the adoption of 
differentiated policy approaches aiming at micro enterprises on the one 
hand, and small and medium enterprises on the other fyand. Furthermore, 
this preliminary finding seems to give a clear indication as to the need of 
reconsidering the current definitions of SMEs with a view to adopt a general, 
though flexible, size class classification which would better reflect observed 
differences between different types of enterprises. 
Quite unsurprisingly, SME characteristics at the Member State level were 
found to be roughly similar to those identified for 1988 and discussed in the 
first report. Therefore, the present Report generally offers the same broad 
explanations of national differences in the relative position and development 
of SMEs in the Union. Thus being, small and medium-sized enterprises seem 
to dominate in most Member States, with the exception of Greece, Italy and 
Spain where micro firms are dominant, whilst large firms seem to perform a 
relative major role as employment providers only in France, Germany and 
the United Kingdom. 
If the EFTA-EEA countries are considered, the whole picture now seems to be 
somewhat different. In fact, their remarkably low number of enterprises 
makes them, with the single exception of Iceland, much more oriented 
towards large enterprises than the EU Member States. In particular the EFTA-
EEA countries depict, as a whole, a lower number of enterprises per 1,000 
inhabitants and higher average firm size than any Member State, and their 
enterprise structure very much resembles the German one| 
7. The progression factor to be found here approximates 2.25. 
A preliminary analysis of recent developments in the number of enterprises, 
turnover and employment has also been carried out by the Observatory. As a 
result, it can be estimated that the total stock of enterprises in the non-
primary private sector of the Community has increased to some 16.6 million 
firms (8) in 1993. In particular, the number of micro and small enterprises 
increased by an estimated 820,000 since 1990, the number of medium-sized 
enterprises remained roughly unchanged and the number of large 
enterprises is supposed to have decreased by about 750. Furthermore, the 
evidence presented in the Report seems to indicate that SMEs consistently 
outperform large enterprises, at least if their respective performance is 
measured by average annual growth rates in the number of firms, 
employment and turnover (9). Along with the supposed counter-cyclical 
behaviour of the smaller firms employment share and the general tendencies 
towards declining overall firm size, increasing business dynamics and flexible 
industrial specialisation, to which the Observatory rightly refers as possible 
general explanations of observed superior SME performance, the outstanding 
growth experienced in the services sector during the last two decades should 
have made a decisive contribution to this result. 
Moreover, the Observatory has considered useful to analyse developments 
between 1988 and 1993 by distinguishing two sub-periods, as the years 1990 
to 1993 have witnessed slower growth and recessionary tendencies 
throughout the European economy. Although far from being recession-proof, 
the smallest enterprises seem to be quite resilient to economic downturns, as 
micro firms have been the only ones able to secure some net job creation in 
1990-1993, these years being characterised by an important reduction in the 
number of both medium-sized and large enterprises as well as in their 
employment levels. 
This clearly strengthens the Commission in the need for stepping up efforts 
made at the Member State and Community levels to maintain and increase 
employment, and to anticipate and accelerate the development of new jobs 
and activities, namely by reinforcing the job creation potential of SMEs. 
8. 17 million including the former GDR. 
9. The only exceptions to the concentration of employment in SMEs seem to be, 
at least for 1988-1990, Ireland and, though to a smaller extent, Spain. 
2. Macroeconomic environment 
In general, the Report considers that the current macroeconomic 
environment still carries only moderate prospects for SMEs in the immediate 
future. In particular, the expected slow acceleration in private consumption, 
on whose developments SMEs seem to depend more heavily, which is linked 
also to persistent high levels of unemployment, does not allow much hope 
for a rapid economic recovery of the SME sector. Nevertheless, as growth in 
external demand, and therefore extra-EU exports of goods and services, is 
forecasted to accelerate in 1994-1995, international trade can contribute in a 
positive way to stimulate and reinforce the SME position in the Union. 
A reference is also made to currency rates and their impact on enterprise 
competitiveness. In general, currency devaluations are seen as having a short 
run favourable effect on SME competitiveness, as some significant 
improvements in the competitive position of Greece, Italy, Spain and the 
United Kingdom seem to have occurred in the recent past. Considering that 
absolute changes in the general import price level have, however, been 
greater than changes in the general export price level in all four Member 
States, those immediate benefits could well be short lived. Moreover, SMEs 
are found to be relatively more sensitive to transaction costs and exchange 
rate uncertainty than large enterprises. 
The Commission considers that not only do the Report's findings point to the 
paramount importance of achieving EMU objectives as a basis to enhancing 
the macroeconomic environment of SMEs in order to help them to make the 
most of the Internal Market, as they also highlight the need to overcome the 
handicaps which have contributed the most to an erosion of European 
competitiveness in recent years. 
Although the cost and the price of energy have not been addressed in the 
Report as one of the important elements that can affect SME competitiveness, 
the Commission wishes to note that since energy is a fundamental element 
for a market economy and a key factor of production, access to reliable and 
efficient energy sources seems also essential to promoting the 
competitiveness of European enterprises. 
3. Impact of the Internal Market on SMEs 
The Commission broadly shares the Observatory's views as regards the 
potential contribution of further liberalisation of international trade to the 
development of economic activity and business opportunities in the Union, as 
well as on the importance of accompanying policies and further development 
and deepening of the Internal Market for European SMEs. In particular, since 
the first-order effects of the Internal Market are the first and most crucial link 
in the causal chain referred to by the Observatory in the first report (10), and 
only complete success in abolishing cost-increasing and market entry barriers 
will ensure that anticipated knock-on and macroeconomic effects of the 
Internal Market will follow, the need to provide for a careful monitoring of its 
functioning has already been clearly recognised by the Commission (11). 
To consider the expected impact of the Internal Market on manufacturing 
industry, construction and services, the Observatory grouped the Member 
States in two categories, namely those with a share of micro enterprise 
employment below or above the Union average in 1988, thus aiming to take 
into consideration, among others, differences in their economic structures 
and patterns of trade (12). In general, the Internal Market is seen by the 
Observatory, on the basis of results obtained from a questionnaire enquiry 
addressed to SME experts in the Member States, as having a positive effect on 
the business environment of SMEs, as well as on demand factors, resources 
and business development, especially on those Member States with a lower 
proportion of SMEs. On the other hand, with the single exception of 
increased possibilities for economies of scale induced by sheer market 
expansion (which are viewed as being relatively more important in Member 
States with a high proportion of SMEs), the completion of the Internal Market 
is believed to have an initial, less favourable impact on competition, costs and 
prices. Clearly, this amounts to recognise that the short run effects of the 
restructuring process under way will be far more reaching for SMEs than for 
large scale enterprises. 
10. See COM (93) 527 final of 5 November 1993, p. 8. 
11. "Making the most of the internal market - strategic programme", COM (93) 
632 final of 22 December 1993. 
12. These are referred to as, respectively, Member States with a low (Belgium, 
Denmark, France, Germany, Luxembourg, Netherlands, United Kingdom) 
and a high (Greece, Ireland, Italy, Portugal, Spain) proportion of SMEs. 
Clearly, the methodology used by the Observatory in this respect can be 
called into question. In fact, although corresponding to the broad split-up 
made by the Commission in its comments on the first report when discussing 
country-profiles for 1988 (COM (93) 527 final of 5 November 1993, p. 24), 
the present distinction seems to be at odds with findings presented early in 
the Report and referring to SME structure in the Member States. 
Furthermore, the Observatory gives no reason on whether should 1988 data 
be preferred to 1990 data, while it is clear that use of the latest official 
statistics would have implied a change in the "low/high" classification of 
Ireland (see note 9 above). Finally, as no indication is given in the Report as 
to how, if at all, results for individual Member States have been adjusted, the 
Observatory findings need to be cautiously assessed and require careful 
interpretation. 
The Internal Market programme has been billed as a stepping-stone towards 
a dynamic ant thriving EU marketplace. Although the current economic 
downturn has certainly overshadowed the changes in market structure which 
were precipitated by its coming into force, the Internal Market is operating 
smoothly and according to intuition in a number of domains as reveals, 
amongst others, the substantial increase in intra-EU trade that has occurred 
since 1985 and is underlined in the Report. But it can not be taken as an elixir 
which will, by itself, solve all the problems confronting European firms. Nor 
will all SMEs undertake all of the relevant adjustments and, indeed, the 
Internal Market can leave the organisational structure of some SMEs (mainly 
those which serve only local markets) untouched. 
All in all, the Internal Market can be seen as an "enabling programme" which 
opens up new possibilities for companies previously confined to one 
Member State market by offering them an opportunity for growth. In general, 
the Internal Market is therefore expected to deliver proportionately greater 
benefits to SMEs than to larger firms, especially in those sectors where there 
was a high incidence of non-tariff barriers in markets for their final product 
or services and in those regions where their markets have been artificially 
divided by trade barriers, as well as to SMEs operating as intensive users of 
inputs in highly fragmented markets or being relatively more affected by 
changes in performances of downstream industrial users. 
The Commission thus considers that the Report's findings reinforce its 
conviction about the need to improve SMEs information on the functioning of 
the Internal Market and the new opportunities opened to them, as well as, 
amongst others, the need to assist SMEs in their efforts to anticipate and to 
adapt to industrial change and current mutations in their business 
environment. Therefore, the Commission intends to strengthen its efforts in 
the field of further enhancing the managerial and strategic capacities of SMEs, 
and improving their awareness and participation in Community initiatives 
which should contribute to upgrade their competitiveness and enable them to 
better operate in the Internal Market. These efforts will be carried out at the 
Community level through the 1993-96 Programme, the Community initiatives 
of the structural funds (mainly the new SME initiative) and will find a strategic 
dimension in the context of the Integrated Programme for SMEs (13). 
13. Council Decision 93/379/EEC of 14 June 1993, O.J. L 161 of 31 July 1993, 
"The future of Community initiatives under the structural funds", O.J. C 180 
of 1 July 1994, and "Integrated Programme in favour of SMEs and the craft 
sector", COM (94) 207 final of 3 June 1994. 
4. Employment creation and human capital 
Although referring to data for only a limited number of Member States, the 
Observatory underlines the decisive role of micro and small enterprises in 
job creation in recent years, whilst noting that the direct effect of, 
respectively, expansions and contractions of established enterprises on job 
creation and job losses seems to be about twice as big as that of enterprise 
births and deaths. 
Though valuable in illustrating the complexity of the job generation process 
throughout the Union these findings are only a first step towards an analysis 
of differences between firms, relatively more important than the sectoral 
structure to understand the reasons for their success or failure, and still 
require further clarification. Nevertheless, as the major causes of enterprise 
failure are to be managerial and organisational difficulties, coupled by 
financial and market problems which can stem from insufficient preparation 
and absence of' a precise business plan, they clearly strengthen the 
Commission belief on the importance of adequate information and 
counselling, as well as of training to newly created enterprises. 
An analysis of self employment in the EU clearly shows that, notwithstanding 
its growing importance between 1986 and 1991, which could be viewed as an 
additional indicator of the ongoing process of tertiarisation of the European 
economy, differences in national legal and fiscal frameworks as well as in 
cultural and organisational attitudes towards work still reflect heavily on the 
structural characteristics and development of the self employment sector. In 
fact, the importance of self employment varies considerably amongst Member 
States, ranging from around 30% in Greece and Italy to a remarkable low of 
10-12% of total employment in the private enterprise sector in Denmark, 
France and the Netherlands. Likewise, the likelihood of a self employed 
having employees, which averages 30% at the Union level, varies dramatically 
from 4% in Italy to 60% in Germany and is, in general, substantially lower for 
women than for men. 
These findings can only but stress the need for further analysis of the self 
employed sector before operational conclusions can be drawn. In particular, 
a subsequent assessment of the economic importance and characteristics of 
family businesses (which, incidentally, could be facing, mainly for 
demographic reasons and as they need to overcome difficulties related to the 
tranfer of enterprises, their biggest shake-up in two generations), namely if 
paying special attention to the role performed by assisting spouses, would be 
welcomed. 
10 
When considering training and human capital, the Observatory still finds 
SMEs to be relatively less inclined to engage in vocational training. As the 
limited evidence available on this issue seems to confirm that SMEs tend to 
face higher labour turnover rates and have fewer training plans than larger 
firms, and considering that non-market forces can place effective floors under 
training activity as well as taking into account that SMEs are recognised to be 
major providers of first jobs and part-time jobs and instrumental in 
absorbing the less sought after groups in the labour market, the Observatory 
thus suggests that there are strong arguments for public intervention in this 
field. 
There is therefore little doubt about the crucial importance of a well educated 
and trained workforce for SMEs. In particular, when reviewing some 
international comparative studies on relatively low technology SME-
dominated industries in both manufacturing and services, the Report clearly 
supports the view that differences in employees skills and qualifications are a 
key factor in explaining observed differences in.labour productivity and in 
the worker's capacity of adaptation to technological change. 
Therefore, the Commission feels that the Observatory's findings can only but 
lend additional weight to the emphasis it has already put on combating 
unemployment also by skill ing young people and retraining staff freed up by 
rises in productivity as a result of technological progress, as well as on the 
necessity to anticipate skills needs correctly and in good time by identifying 
developing areas and new economic and social functions to be fulfilled (14), 
namely through appropriate use of the possibilities opened up by the new 
Objective 4 of the structural funds and the LEONARDO programme. The new 
developments opened up by progress towards the "information society" will 
also have a major impact as the new communication technologies will 
improve the opportunities for distant training by SMEs (15). 
Capital and finance 
Although it seems to draw too heavily on data for southern countries which 
may well not be typical, the Report largely confirms that SMEs can in general 
be characterised by their relatively high dependence on borrowed funds, 
mainly of a short term nature and provided mostly by banks, to finance 
investment (16). In spite of some significant differences across Member 
States, reflecting national specificities in both enterprise behaviour and 
financial institutions attitudes, this result clearly strengthens the Commission 
in its willingness to address the main financial problems experienced by 
SMEs in the European Union. 
14. 'White Paper on Growth, Competitiveness and Employment", COM (93) 700 
final of 5 December 1993. 
15. See the report of the Bangemann Group on the information society. 
16. In particular, short term liabilities seem to be, on average, four times as 
important as long term liabilities for manufacturing SMEs, and financial costs 
are, on average, two percentage points higher for SMEs than for large 
enterprises. 
11 
In particular, venture capital, which seems to be basically concentrated in 
France and the United Kingdom, is relatively more used for business 
expansion and buyout, as venture capitalists have progressively withdraw 
from business creation since the end of the 80's. This probably means that a 
large number of viable projects do not see the light of day in the Community 
because insufficient financing is available, although this type of project 
represents in the long-term a potential source of fast-growing enterprises. 
Furthermore, limited availability of exit routes to venture capitalists does not 
appear to be conducive to providing equity funds for SMEs and their financial 
difficulties are therefore exacerbated by the weakening of existing secondary 
markets as well as by late payment. 
In fact, despite the increasing number and variety of financial instruments 
available to enterprises, expansion of high tech enterprises, which are forced 
to turn to options such as start-up and venture capital, still faces major 
obstacles, particularly fiscal ones, and suffers from the absence of a dynamic 
European capital market for SMEs. The Commission will therefore continue 
to support pilot projects under existing Community programmes where 
these aim to introduce new, SME-tailored financial instruments (for example 
in the field of mutual guarantees and venture capital) or to improve the 
functioning of existing financial markets (for example by encouraging share 
holdings in SMEs). 
The Report also confirms the trend observed in recent years towards a 
growing number of increasingly late payments. Following a large consultation 
process on possible solutions to this problem, the Commission recently 
announced that it could address a recommendation to the Member States on 
this issue (17). Will it be the case, this recommendation could focus on the 
improvement of the current legal framework, which is not considered 
sufficiently dissuasive for bad payers. 
The problems referred to in the Report as regards SME access to bank credit, 
have already led the Commission to set up, in 1993, a Round Table of 
Leading Representatives from the Banking Sector to examine possible ways of 
improving the relations between financial institutions and SMEs. On 19 May 
1994, the Round Table submitted to the Commission its final report 
containing specific recommendations to financial institutions, SMEs, Member 
States and the European Union. The Commission will examine the Round 
Table's recommendations and consider any necessary follow-up, namely in 
the context of the Integrated Programme for SMEs. 
17. "Integrated Programme in favour of SMEs and the craft sector", COM (94) 207 
final of 3 June 1994. 
12 
6. Innovation and diffusion of technology 
Although noting that the examples used and the conclusions reached by the 
Observatory are mostly based on partial data available for a limited number 
of countries, the Commission broadly supports the finding that if on the one 
hand, SMEs play a key role in both product and process innovation, on the 
other hand, they tend to be more involved in incremental as opposed to 
radical innovations. This is mainly due to the fact that technology oriented 
businesses are typically micro and small enterprises which usually do not 
perform fundamental research and concentrate on having a quick response 
to market needs. 
Only a minority of new technology based firms will expand into export 
oriented large scale businesses. Nevertheless, this minority is likely to 
provide the European Union with new worldwide leaderships which 
undoubtedly will be crucial to its overall competitiveness. 
In addition, the Report considers that SMEs, although showing greater 
overall effectiveness than large companies in bringing innovations to the 
market, still face a number of problems as they go through the innovation 
process. These problems are usually linked with the lack of appropriate 
financial and human resources and entail high levels of risk. In order to 
overcome the different barriers against innovation, new technology based 
firms are likely to be more and more involved in cooperation with other 
companies, research centres or universities at their mutual benefits. 
The recently adopted Fourth R&DT Framework Programme recognises the 
role and the needs of SMEs in the field of research and innovation, and 
provides for measures of technological stimulation aiming at encouraging 
and facilitating SME participation in Community research and technological 
programmes, as well as at improving their access to the results of research. 
Accordingly, measures to be undertaken under several R&TD programmes 
are mainly of three types: provision of Community support to decentralised 
networks providing information and assistance to SMEs (looking for partners, 
preparing collaborative proposals); possibility of submitting proposals for an 
exploratory phase, with Community support to the elaboration of the final 
proposals; and financing of "cooperative" research projects, in order to 
enable SMEs that have a common technical problem but lack the necessary 
research capacities to entrust an important part of their research needs to 
one or several third parties (research centres, universities, enterprises). 
13 
In addition, and in order to help SMEs prepare for participation in the new 
R&TD programmes, already before their adoption, the Commission is 
currently expanding the Euromanagement pilot action which is designed to 
provide adequate support to SMEs in assessing their technological and 
managerial capabilities, looking for partners and preparing collaborative 
research proposals eligible for Community support. Moreover, it has 
implemented specific actions, such MINT (Managing the Integration of New 
Technologies), which has been launched in the context of SPRINT to promote 
the absorption of new technologies by SMEs by giving them access to 
consultants who are specialised in innovation management techniques such 
as technology, audits, design, value analysis and establishing transnational 
technological cooperation. Besides, the BICs (Business Innovation Centres) 
have been developed, and could be reinforced on the basis of the very same 
essential elements identified by the Observatory as key success factors in 
innovation. 
As to future analytical developments, the Commission would welcome the 
Observatory to provide, in liaison with SPRINT'S European Innovation 
Monitoring System, a mapping of European new technology based firms 
showing the geographical concentration of those firms and allowing for a 
measurement of their population, as well as to carry a more specific analysis 
of the nature of on-going transnational technological cooperations involving 
SMEs at the Union level. 
7. Regional aspects 
Although it includes a few examples of measures implemented in the regions 
covered by Objective 1, the analysis of the structure of enterprises in the 
regions (particularly with reference to size) and the socio-economic 
characteristics of regions (unemployment rate and per capita GDP) is 
generally descriptive and provides no new information. For instance, it is 
well known that micro firms are more widespread in southern Europe and 
the size of businesses tends to grow as one moves northwards. 
On the basis of surveys carried out in 19 regions, the Report also looks at 
border regions and studies the impact of the Internal Market on the 
development of SMEs in terms of business and personal flows and the 
development of institutional contacts. It shows in particular that the 
Community initiative INTERREG has made it possible to promote transborder 
cooperation, especially at institutional level and in some cases between firms. 
The Commission believes that Member States should focus more strongly on 
cooperation between SMEs in the draft programmes to be submitted by the 
end of October under INTERREG II. 
14 
The identification of impediments to transborder cooperation is also 
interesting, since it can reinforce the Union commitment towards abolishing 
such hurdles (lack of information on potential markets and possible partners, 
language problems). It is also interesting to note in this respect that the 
completion of the Internal Market has not yet had the anticipated positive 
effects on transborder cooperation. 
On the whole, the Commission feels that although this chapter makes up for 
certain omissions in the first report, it is still too backward looking . It makes 
no mention of the new possibilities offered to SMEs in the new programming 
period of the Structural Funds (1994-1999) (Community Support Framework 
and Community Initiatives) and fails to analyse the decision-making process 
for regional policy, particularly with regard to partnership, which is 
important for increasing the involvement of SME intermediaries in regional 
development. Similarly, it would be useful to analyse the best means to 
exploit the potential role of SMEs, an in particular of micro and small 
enterprises in the creation of jobs in the regions, especially in the Objective 1 
regions, since these have the highest unemployment rates and receive 
important support from the Union, as well as in rural regions covered by 
Objectives 5b and 5a and by the initiative LEADER. These aspects and the 
possible implication of regional disparities in business performance are 
surely to be discussed in future reports. 
8. Policy for SMEs 
For the first time, the Report devotes a chapter to national SME policies. The 
Commission would like the Observatory to continue producing a detailed 
report each year on the main developments in each Member State in this 
area. This is particularly important for assessing the follow-up to the White 
Paper, as well as to ensuring the success of the Integrated Programme which 
relies as much on concerted initiatives as on the effectiveness of Community 
contributions and actions in favour of SMEs. 
As regards the debate over whether to support the creation of new businesses 
or the development of existing ones, the Commission generally shares the 
Observatory's opinion that it is not possible to rule out either of these 
objectives. Consideration of the matter is, however, essential for defining the 
priority measures which budgetary constraint imposes in the Member States. 
15 
While it is true that new businesses have a high mortality rate and few of them 
have much potential for job creation, the establishment of new businesses is 
nevertheless essential for renewing the industrial fabric. It is the only way 
ahead for the development of certain regions where the existing business 
fabric is inadequate. As regards both new businesses and those already set 
up, the Commission is of the opinion that the general economic and legal 
environment plays an essential role in stimulating entrepreneurship and 
helping firms in the sensitive stages of their development. As regards firms 
with a high growth potential in particular, the Commission considers, also in 
the light of the experience gained in the framework of the Business and 
Innovation Centres , that it would be appropriate to further encourage 
organising special support for them.. 
As far as the instruments of SME policy are concerned, the Report shows that 
advisory and assistance services play a decisive role in several fields. 
However, although a vast number of services have been set up at all levels in 
the Member States, businesses tend to overlook or underuse them, either 
because they do not reach a critical mass or lack adequate visibility. For this 
reason, the Commission attaches particular importance to promoting mutual 
consultation and exchange of experiences between Member States in order to 
stimulate the demand for enterprise support measures which exist at national 
or regional level, as well as to strengthen the effectiveness, visibility and 
coherence of services currently available to enterprises. Therefore, national 
or regional advisory and assistance projects for SMEs, aimed in particular at 
enhancing the managerial capabilities of SMEs and defining strategies for 
modernisation, would receive particular attention in the framework of the 
Integrated Programme. 
9. The craft trades (18) 
The Report examines the current importance of the craft trades in the 
European economy in either quantitative and qualitative terms, whilst paying 
particular attention to the various national concepts and definitions of crafts, 
and considers the consequences of the completion of the Internal Market on 
the craft sector, namely by summarising its major strengths and weaknesses. 
Moreover, an operational concept of "Craft Dominated Sectors" (CDS) has 
been developed with a view to allow for cross-country comparisons of "craft­
like" sectors. 
18. This constitutes the Report's "theme study". 
16 
The Commission recognises the accuracy of the analysis carried out by the 
Observatory on this subject, and broadly shares its views as regards the 
instrumental role performed by the craft trades in providing economic 
continuity, breeding vocational skills and new entrepreneurship, and 
absorbing and upgrading the less sought after groups in the labour market. 
However, it considers that some of the results presented in the Report, and 
relating to the effects of the completion of the Internal Market on the craft 
industries, deserve further discussion. 
Although recognising that the Observatory is probably right in assuming that 
craft enterprises in the lower income regions are more vulnerable to 
increasing competition as a result of the Internal Market, namely since the 
proliferation of flexible highly automatised machine tools make it possible for 
bigger enterprises to compete successfully even in niche markets and to do it 
because of sluggish demand, the Commission notes that there exist also good 
examples (such as of Italian craft enterprises in footwear, metal sector or 
textile and clothing) where appropriate division of labour and use of 
cooperatives has significantly ameliorated the competitive position of smaller 
companies. Besides, increased mobility of entrepreneurs and craft 
employees, which is already higher than assumed in the Report (19), namely 
on border regions, can certainly contribute to further improvements in the 
overall competitiveness of craft enterprises. 
In general, the craft experts interviewed by the Observatory are mainly 
defensive. They feel that craft related policies are increasingly issued by far 
away public authorities. And they believe that the Internal Market will lead to 
further concentration in the food crafts sector and to increased competition 
in the repair and maintenance sector. However, it can be observed that 
decisions for the construction of supermarkets are made on a regional level, 
and that there is a clear tendency for bigger enterprises to establish their own 
service departments, as increased sophistication of products often means that 
only specialised companies, with particular work tools and spare parts, can 
do the maintenance. 
The Commission nevertheless considers that not only does the Report 
highlight the paramount importance of the craft trades in the European 
economy, namely as instrumental in upgrading the professional 
qualifications of the relatively unskilled workers, hence contributing to 
reabsorb unemployment, as its findings can surely contribute, by their 
richness and variety, to encourage increasingly serious thought and debate 
on craft industries and small businesses. 
19. The figure of less than 1% given for Germany relates to foreign craftsmen that 
want to establish in Germany and does not includes those who passed the 
German Mastercraft examination and want to establish in this Member State. 
17 
10. Monitoring SMEs in the internal market; synthesis 
In general, a brief analysis of developments in selected business indicators, as 
presented in the Report under each country-profile for the period 1986(88)-
1990(91), does allow one to note that SMEs have maintained or increased 
their employment share in almost every Member State, with Ireland being the 
only exception to this general pattern (20). Nevertheless, whilst SMEs have 
gained in importance most noticeably in Belgium and Denmark, some 
concentration of employment in the upper size-classes seems also to have 
occurred in Spain (with large firms "crowding out" medium enterprises), and 
in Luxembourg and Portugal (where both micro and small firms appear to 
have loose some ground to medium enterprises). 
On the whole, the information included in the Report shows that SMEs are 
relatively more important in a group of five peripheral Member States 
(Greece, Ireland, Italy, Portugal and Spain) and increasingly becoming so in 
Denmark and Luxembourg, whilst large enterprises tend to have a greater 
than average share of employment only in France, Germany and the United 
Kingdom. Besides, an analysis of turnover and employment growth rates by 
enterprise size class over the years 1988-1993 (which can thus be expected to 
depict tendencies that are reasonably independent from the business cycle), 
seems to indicate that the size structure of some national economies could be 
changing fast. In fact, even if Portuguese SMEs do appear to have done better 
than the Union average in both grounds (21), SME performance has been 
consistently lower than average in Italy (22), and the best overall performers 
are actually to be found amongst large Irish and Spanish enterprises. 
However, the complexity and intricacy of factors determining both the 
situation of, and the prospects for SMEs still prevent to go much beyond 
these tentative remarks, especially since any national SME tendencies are 
expected to increasingly interact with Union-wide enterprise and 
macroeconomic developments within the context of the functioning of the 
Internal Market. And indeed the Report shows that significant convergence in 
the SME business environment and in SME performance was already under 
way during 1988-1993, in the run up to the completion of the Internal 
Market, even if observed differences in a number of indicators are still found 
to be large enough to lead to SMEs exhibiting distinctive behaviour in 
different Member States in the foreseeable future. 
20. See note 9 above. In fact, only in manufacturing was the Irish SME share in 
employment found to be significantly above the Union average in 1990. 
21. Best SME performers also include Denmark and Germany. 
22. The same is true for the United Kingdom. 
18 
Additionally, the Observatory's SME Internal Market Monitor (SIMM), meant 
to allowing for a comparative assessment of Member States according to 
changes in a set of selected SME business environment variables that have 
subsequently been classified into a number of domains supposed to 
represent important determinants of SME performance, seems to reveal that 
only in a limited number of domains have a few Member States significantly 
and consistently experienced above, or below average changes in all the 
variables concerned. Nevertheless, those domains (government policies, 
labour markets and capital markets, in this order) are exactly the ones the 
Observatory found to be more likely to affect SME performance. 
Although welcoming its rather innovative approach, the Commission 
considers that the Observatory's monitoring procedure still requires a 
number of specific improvements. First of all, the fact that macroeconomic 
developments can always act, along with the completion of the Internal 
Market, as an independent force on SME performance should be explicitly 
taken in consideration, even if relative synchronisation of the business cycles, 
as well as relative convergence of the business environment is to be expected 
in the coming years. Secondly, since different SIMM-indicators are assumed 
to capture distinct Internal Market aspects and relate either to its first-order 
or longer term effects, an assessment of their relative importance through 
time would also be needed. And finally, as no reference is made in the 
Report, if only on a theoretical basis, as to the expected effects of actual 
changes in the business environment variables on SME performance, it is still 
not clear whether the Observatory's findings can have any operational 
relevance. 
GENERAL COMMENTS ON THE POLICY RECOMMENDATIONS 
The Report proposes a number of policy recommendations which strongly focus on 
the current employment debate and the role SMEs and entrepreneurship can play in 
reducing unemployment. By doing so, the Observatory clearly is in line with the 
present priorities of the European Union. 
The Observatory analyses in turn labour demand oriented approaches, then labour 
supply based approaches and finally the matching of the two. It thus deals with 
many subjects that were developed in detail in the Commission's White Paper on 
Growth, Competitiveness and Employment. The Observatory's stance is generally 
the same as the Commission's. 
Many recommendations on promoting exchanges of information and experiences 
between the Member States concerning the relevant initiatives, in order to identify 
best practices and encourage their spread, have in fact been already considered by 
the Commission in the framework of the Integrated Programme for SMEs. 
19 
Other recommendations, such as the development of a European programme for 
promoting entrepreneurship, could also be examined in the context of the 
implementation of the Integrated Programme . 
In addition, new programmes under discussion (SOCRATES and LEONARDO) 
should make it possible to respond to most of the Observatory's recommendations 
on education and training, as should the European Social Fund under the new 
Objective 4. 
In particular, as was stressed in the Integrated Programme for SMEs, since most of 
the measures affecting the job creation potential of SMEs are still of national origin, 
it is at present a question of encouraging the Member States and all those concerned 
by the development of SMEs to bring the various initiatives within a single 
framework that will ensure their consistency and visibility. 
CONCLUSIONS 
In general, the Second Annual Report has more focus on dynamics than the first 
one: whether on employment creation and training, capital and finance, or 
innovation and diffusion of technology, it proved to be possible to present 
developments in addition to structures. Moreover, it provides a dynamic picture of 
several variables of the SME sector as well as the business environment by Member 
State and presents the results of a first convergence/divergence analysis, thus 
monitoring anticipatory effects of the completion of the Internal Market during the 
period 1988-1993. 
In this vein, as more longer time series become gradually available and the time 
elapsed since the official completion of the Internal Market allows more first and 
possibly second-order effects to be visible, the Commission considers that the 
Observatory's future work should pay increased attention to development of the 
SME Internal Market Monitor. To this end, it seems possible to adapt the structure of 
subsequent reports so that it will mirror more closely the proposed contents of the 
Monitor, namely by explicitly considering the various items to be presented and 
variables to be analysed as elements of either the performance of SMEs or their 
business environment. 
As it stands, the Report does confirm that, in spite of some size-related handicaps 
and unfavourable macroeconomic trends, SMEs clearly are to be considered as one 
of the main single sources of employment growth potential in the nineties. 
20 
The Commission has a continuing commitment towards improving the business 
environment and promoting the development of enterprises in the European Union, 
and the European institutions have further strengthened their engagement on the 
field of specific measures in favour of SMEs during the past few months. 
The implementation of new initiatives, within the framework of the achievement of 
the objectives of the White Paper, will doubtless contribute on the return to growth 
and to competitiveness as well as to the improvement of the employment situation. 
To this end, the Community will endeavour to stimulate, innovate and supplement 
the range of existing actions in a new form of partnership, as proposed under the 
Integrated Programme in favour of SMEs and the craft sector. By providing specific 
coverage and detailed consideration of the impact of the Internal Market on SMEs, 
the European Observatory for SMEs can surely act, by means of its future reports, as 
one of the most important analytical sources on which are to be considered practical 
proposals for its implementation. 
In particular, this partnership requires an action narrowly concerted between the 
Community, the national and regional authorities and all the business 
intermediaries, whether they be employers' federations, professional associations or 
Chambers of Commerce and Industry, to give concrete expression to the common 
objective of mobilising SMEs as the most important layer of job creation. It is indeed 
essential to engage all strengths and means to obtain a "mass effect" in the 
implementation, at all levels, of enterprise policy, as well as to ensure that the 
various actions in support of SMEs fit in with current economic and political 
objectives, so as to raise their profile and coherence, without necessarily touching 
the legal bases which subtend these actions. 
The Commission will thus endeavour to promote such a development by prompting 
and supporting the adoption of a suitable framework for a number of concerted 
actions, in the respect of the subsidiarity principle and without recourse to 
additional budgetary means, and by ensuring that the Community instruments based 
on various provisions of the Treaty integrate into such a mechanism. 
21 
EXECUTIVE SUMMARY 
THE EUROPEAN OBSERVATORY FOR SMEs 
Second Annual Report, 1994 
Report submitted to Directorate-General XXIII (Enterprise Policy, Distributive Trades, Tourism and Cooperatives) of 
the European Commission by: 
ENSR - European Network for SME Research 
and co-ordinated by 
EIM - Small Business Research and Consultancy 
April 1994 
ABSTRACT 22 
Recent years have witnessed the advent of the internal 
market. While the recession formed a barrier to rapid 
progress, significant changes can be noted in the busi­
ness environment of SMEs. intra-EU trade, after stalling 
between 1970 and 1985, has sharply increased once 
more since the agreement on the completion of the 
internal market. Business orientation has unmistakably 
shifted towards a Union-wide outlook. Recent surveys 
show, however, that SMEs report an increase in compe­
tition more often than an increase of exports, in the 
intra - EU border regions business flows, personal 
flows and institutional contacts have increased only to a 
limited extent. The major residual barriers are related to 
remaining differences in legislation, technical standards 
and cultural and language differences. SMEs are partic­
ularly hampered by difficulties in access to information. 
These aspects warrant careful and continuing observa­
tion. For that reason a monitor of SMEs in the internal 
market has been designed, focusing both on the busi­
ness environment and the performance of SMEs. 
On the threshold of the internal market SMEs are still 
faced with business and market conditions which differ 
between Member States. On the other hand, a tendency 
towards convergence can be observed in many ele­
ments of the business environment. This holds particu­
larly for real short term interest rates, inflation, direct 
and indirect taxes as a percentage of GDP, availability 
of venture capital and labour costs per employee. 
The performance of SMEs is related to these structural 
tendencies in the business environment as well as to 
the business cycle. SMEs (0-500 employees) now em­
ploy 67 million people, about 2.6 million more than in 
1988. In the large enterprise sector, where there are 26 
million jobs, employment has not increased since 1988. 
However, the real divide is between micro (0-10) and 
small (10-100) enterprises on one hand and medium-
sized (100-499) and large (>500) ones on the other. 
Micro and small enterprises in the Union now offer em­
ployment to 53 million people, of whom about 17 mil­
lion are businessmen and -women. Between 1988 and 
1993 these enterprises created 3 million jobs, especially 
in the distributive trades and other services. However, 
medium-sized and large enterprises have lost even 
more jobs in the recession than they created since 1988. 
ENSR estimates that in 1990 there were 4.4 million 
enterprises within the Craft Dominated Sectors in the 
European Union, employing 24.5 million persons. 
The dynamism of the small business sector is also illus­
trated by the strong growth in the number of firms. 
Every year an estimated 1.5 million Europeans decide to 
start a business of their own. In spite of high failure 
rates, especially during the recession, the number of 
enterprises has continued to grow at an impressive 
rate. Over five years the number of enterprises in­
creased by 9%, to reach a total of 17 million last year (including former East Germany). In the same period 
the population of the Union increased by only about 
2.5%. 
SMEs - both existing ones and new start-ups - can play 
a key role in combatting unemployment. At all policy 
levels this should be promoted by improving the busi­
ness climate, reducing labour costs and administrative 
burdens and by stimulating the diffusion of new techno­
logical knowledge. The European Commission is partic­
ularly recommended to promote the dynamism of the 
European business sector, to establish a European Plat­
form for Vocational Training and to facilitate the inter­
national exchange of 'best practice' policies applied in 
Member States to stimulate job creation by SMEs. 
1 STRUCTURE AND KEY INDICATORS AT THE UNION LEVEL 
23 
The vitality of the European economies is seriously at 
stake. Economic growth is down or even negative, the 
international competitiveness of European business 
seems in jeopardy and the unemployment rate is unac-
ceptably high. 
Meanwhile the Member States have embarked upon a 
mission of further economic integration, which is ex­
pected to increase dynamism and prosperity, but will 
also imply a far reaching restructuring of their econo­
mies. In this crucial stage of European development, the 
key role will be played by small and medium-sized en­
terprises (SMEs). 
In 1993 there were 17 million of these SMEs in the Eu­
ropean Union (inclusive of former East Germany), but 
there were only about 12,000 large enterprises (LSEs) 
with more than 500 employees1. This means that for 
every 1,000 inhabitants there are almost 50 enterprises. 
In the past five years the number of SMEs has increased 
by about 1.5 million enterprises2, or by 9%. in the same 
period the total population of the Union increased by 
only about 2.5%. This signals a revival of dynamics and 
entrepreneurship. Growing flows from unemployment 
into start-ups of new enterprises in recent years only 
seem to play a minor part. Most jobs in the private sector are in SMEs. In fact three 
out of ten jobs are in micro enterprises and four are in 
small and medium-sized businesses. This means 67 mil­
lion jobs were provided by SMEs in 1993, about 2.6 mil­
lion more than in 1988. Job creation since 1988 has 
been especially vigorous in the micro enterprises sec­
tor. Small enterprises showed modest employment 
growth, but medium and large enterprises were not 
able to maintain job numbers between 1988 and 1993. 
The average size of an SME has slightly declined over 
the past five years. During the economic boom in 1989 
and 1990 SMEs became somewhat larger due to vigor­
ous job creation, but in the early nineties continued new 
start-ups as well as job losses caused average enter­
prise size to decline. On average an SME now occupies 
four persons. 
Table 1 Key Indicators at the European Union Level* 
micro firms SMEs 
(0-9) (0-499) 
Structure (1990) 
number of enterprises (x mln.) 
number of enterprises per 1,000 inhabitants 
idem EFTA-countries** (1988) 
average enterprise size (employment) 
number of persons employed (x mln.) 
employment share 10-499*** (%) (1988) 
idem USA {%) (198S) 
SME share in total business R&D (%) 
employment share of micro/SME per sector (%) 
- manufacturing 
- retail trade 
- all sectors 14.7 
2.0 
30.1 
15 
58 
32 15.8 
49 
21 
4.3 
68.0 
58 
43 
18 
63 
86 
72 
Business developments 1988-1993 (average annual growth) 
number of enterprises 
employment 
turnover at constant prices 1.8 
1.7 
2.7 1.8 
0.8 
2.2 
* Excluding former East Germany. 
** Excluding Switzerland. 
*** Share in employment of enterprises >10. 
Exclusive of large firms in former East Germany. 
Exclusive of new enterprises in former East Germany. 
24 
Average figures for the European Union tend to conceal 
the differences between the Mediterranean countries 
and most of the other Member States. In the former 
countries there are about 65 enterprises per 1,000 in­
habitants, whereas in the latter this ratio is just below 
40. Within Europe at large differences are even more 
spectacular. In the EFTA-countries1 there are less than 
25 enterprises per 1,000 inhabitants, and firms in these 
countries are twice as big as in the EU on average; even 
bigger than in Denmark, Germany and the Netherlands. 
This can partly be explained by a higher level of labour 
costs and of per capita income in the EFTA-countries. 
Enterprises in the Union also seem to be smaller than in 
the USA, as indicated in table 1. 
These international comparisons indirectly support the 
hypothesis advanced in the First Observatory Report, 
that, especially in the Mediterranean countries, the in­
ternal market will stimulate processes of concentration 
and restructuring, resulting in a smaller number of 
enterprises with a larger average firm size. However, in 
the years preceding the completion of the internal mar­
ket there was no clear evidence of this process. 
A share of 18% in total R&D expenditures of enterprises 
highlights the role of innovative SMEs. However, these 
statistics tend to underestimate the actual efforts made 
by SMEs. Besides the same ECU spent by a smaller 
enterprise may produce better results in terms of the 
number and quality of innovations than in a large en­
terprise. 
Excluding Switzerland. 
2 MONITORING SMEs IN THE INTERNAL MARKET 25 
The completion of the internal market is co-determining 
the economic performance of European business and 
European SMEs, in connection with various other fac­
tors. Some other major influences are: the business 
cycle, currency exchange rates, GATT and other interna­
tional trade agreements, and, last but not least, busi­
ness orientations and strategies anticipating tomor­
row's markets. As for the latter, business expectations 
of the internal market have dynamics of their own, as 
shown by the wave of mergers and acquisitions in the 
eighties. Consequently, the impact of the internal mar­
ket is inseparably connected with these anticipatory 
strategies and orientations. 
2.1 Progress of the internal market: a qualitative 
impression 
International trade 
Intra-EU trade has significantly increased since the 
agreement on the completion of the internal market. 
There is some evidence that the growth rate of intra-EU 
exports by SMEs is at least twice the growth of SME 
exports to other countries over the last three years. 
The export potential of SMEs considerably exceeds cur­
rent exports. Mobilization of this potential depends on 
the progress of the internal market, i.e. closing SMEs' 
information gap, reducing administrative burdens, and 
on the development of Economic and Monetary Union. 
The period 1986 to 1989 witnessed a substantial in­
crease of intra-EU trade in services, in particular con­
struction and business services. 
Last year's GATT agreement is expected to influence 
general SME export performance positively, supple­
menting the internal market programme. Services will 
benefit especially. Liberalization of trade in services is a 
strong impulse to redefining make-or-buy and alloca­
tion decisions in this field, and to creating new business 
network structures. New opportunities for (predomi­
nantly SME) service firms are the result. 
Mergers and acquisitions 
Mergers and acquisitions are an indication of and stra­
tegic anticipation of industrial restructuring. The num­
ber of mergers and acquisitions within the EU rapidly 
increased in the eighties and reached a peak in 1990. 
They were almost exclusively a matter for large enter­
prises. However, an indication of SMEs' involvement in the restructuring process as a result of the internal mar­
ket is the increase of joint ventures since the publication 
in 1985 of the White Paper on the completion of the 
internal market. Here, larger numbers of SMEs are 
involved, especially in manufacturing, and in the bank­
ing and insurance business. In addition, LSE mergers 
have clear consequences for SMEs, notably Europeani-
zation of the subcontracting market. 
Furthermore, increasing returns to scale can enhance 
further specialization and labour productivity growth, 
thus creating further opportunities for SMEs. 
Business orientation of SMEs 
Business orientation has unmistakably shifted toward 
an EU-wide outlook, in spite of the gradual and often 
delayed real effects of the internal market1. 
Recent EU-wide survey research on the effects of the 
internal market shows increasing competition being 
reported by EU businessmen on the one hand, and 
increasing exports on the other. 
In particular SMEs report increasing competition more 
often than increasing exports. One possible implication 
is that increasing exposure to international competition 
will inevitably result in a shake-out among SMEs in the 
EU, with the more competitive ones surviving in the 
longer run. The main policy issue is the regional impli­
cations of the restructuring process involved. This 
requires careful monitoring. European SME experts 
interviewed for this Observatory highlight the develop­
ment of production costs in manufacturing as a nega­
tive internal market effect on SMEs. The reason is that 
economies of scale and increasing international compe­
tition are behind lower costs. This is especially the case 
in the Member States with high SME employment. 
Future restructuring effects will probably be stronger 
there. 
Major barriers to SMEs 
Gaining access to and processing information is a 
major barrier for SMEs. The administrative burden of 
cross-border operations within the EU has indeed been 
reduced in the last few years, but is still considerable 
for SMEs. Public procurement participation is still being 
handicapped for that reason. SME experts throughout 
the EU point at the removal of administrative burdens 
and barriers at the border as major positive effects of 
the internal market. 
The European Observatory for SMEs. First Annual Report, figure 3.1 (page 81), distinguished between first order, second order and 
long-term effects of the internal market. 
26 
However, remaining barriers in the field of customs pro­
cedures, fiscal matters and technical standards should 
not be underestimated. New procedures, shortcomings 
in informing businessmen about them, and diverging 
transition periods between Member States add substan­
tially to administrative burdens. SMEs are expected to 
benefit especially strongly from a reduction of these 
barriers. effect of reduced non-tariff barriers in the North and 
lower labour costs in the South. The experts also pre­
dict some scaling-up trend within construction, but this 
trend seems mainly to apply within the SME range. 
2.2 Convergence in the business environment facing 
SMEs 
Restructuring effects 
Restructuring effects are by their nature mainly 'second 
order' or long-term internal market effects. In other 
words, only the first signs wili be observed by now. 
Some insight into effects on SMEs can be derived from 
expert opinion, however. The European SME experts 
surveyed were asked for their opinion on some of these 
effects, either direct or indirect. 
On balance they felt that manufacturing SMEs will gain 
weight in the Souîh of the EU, and lose ground in the 
'mature' economies in the North. On the other hand, the 
relatively SME dominated South will face radical re­
structuring effects as a result of scaling up tendencies 
and increasing international competition. 
The internal market impulse for service exports is em­
phasized by experts in the North, while in the view of 
the SME experts from the South this impulse to serv­
ices is likely to be confined to the domestic market. 
SME experts from the South also expect better access 
to new markets for their SME construction industry as 
an internal market effect. This is based on the joint On the threshold of the internal market, SMEs were still 
faced with conditions which differ between the Member 
States. Some elements of the business environment 
which exhibit sharp differences are interest rates, 
labour costs, availability of venture capital and direct 
taxes as % of GDP. 
However, in the years preceding the formal completion 
of the internal market a definite tendency towards con­
vergence could be observed in several selected busi­
ness environment indicators. Table 2 provides an over­
view. 
In part it appears that convergence of these indicators 
has been caused by the economic downturn in the early 
nineties. This certainly holds for interest rates and for 
inflation. But, by and large, more structural forces relat­
ed to the internal market have also become manifest. 
In future Observatory reports the monitoring of conver­
gence in the business environment of SMEs will be con­
tinued. 
Table 2 The rate of convergence (+) and the rate of divergence {—) in SME business environment by decreasing order of convergence, 1988-19933 
Business environment variable Convergence (+) 
Divergence (—) Significance 
Real short term interest rates 
Direct taxes and social contributions as % of GDP 
Direct taxes as percentage of GDP 
Indirect taxes on goods and services in % of GDP 
National majority acquisitions and mergers in 
manufacturing industry and construction 
Public expenditures on active labour market measures as % of GDP 
Venture capital stock as percentage of GDP 
Share of extra EU-trade of goods & services in % of GDP 
Inflation 
Labour costs per employee in current prices 
Business expenditures on R&D in % of GDP 
Share of intra EU-trade of goods in total exports 
GDP per capita at constant market prices in PPP 
Gross fixed capital formation at current prices as percentage of GDP 
Firms per 1,000 inhabitants ++++ 
+++ 
+++ 
++ 
++ 
++ 
++ 
+ 
+ 
+ *»» 
*•* 
••• 
*** 
Notes: *** highly significant, ** significant, * not significant. 
a. The rate of convergence was calculated on the basis of statistical data; for an explanation of the methodology the reader is refer­
red to the main report. 
27 
Figure 1 Development of turnover and employment, by size class, average annual growth 1988-1993 
Micro Small Medium 
i Turnover growth, constant prices • Employment growth Large 
2.3 Performance of SMEs and their business environ­
ment 
Turnover of SMEs increased slightly more than that of 
large enterprises over the entire 1988 to 1993 period. 
Especially in the late eighties, SMEs experienced high rates of output growth and seem to have improved their 
market share. In the early nineties the economic reces­
sion slowed down turnover growth of SMEs to a con­
siderable extent. In 1993 output of the SME-sector actu­
ally declined in most Member States. 
Table 3 Correlation between business environment indicators and SME performance across the Member States, 1988-1993 
Canonical correlation* of SME performance 
with 
domains with individual 
indicators 
Government policies 
- indirect taxes 
- direct taxes 
- direct taxes & social security contributions 
- inflation 
Labour market 
-active labour market measures 
- labour costs per employee 
Capital market 
- gross fixed capital formation 
- venture capital stock 
- real short term interest 
International markets 
- intra EU-trade in total trade 
- extra EU-trade in GDP 
R&D 
- business expenditures on R&D 
Entrepreneurship 
- enterprises per 1000 inhabitants 
- national majority acquisitions 
National market 
- GDP per capita 0.61 
0.60 
0.57 
0.48 
0.37 
0.33 
0.28 0.52 
0.44 
0.32 
0.10 
0.56 
0.04 
0.54 
0.19 
0.18 
0.37 
0.35 
0.37 
0.33 
0.25 
0.28 
Canonical correlation describes the correlation of the set of SME performance indicators (turnover growth and employ­
ment growth) with the individual business environment indicators as well as with groups of indicators {the domains). 
28 
However, it is primarily in employment growth that 
SMEs have most notably outperformed large enterpris­
es. Between 1988 and 1993 SMEs in the European 
Union were responsible for a net employment increase 
of 2.6 million jobs. On the other hand, in 1992 and 1993 
large enterprises lost the same number of jobs (1 mil­
lion) as they created in 1988-1991. 
In fact the divide is not between SMEs and large enter­
prises, but between micro and small firms on one side 
and medium and large enterprises on the other. As is 
shown in figure 1, the micro firms were the best perfor­
mers with small firms as runners-up. Medium-sized 
firms actually lagged behind large enterprises. 
Between 1988 and 1993 the turnover and employment 
growth rates of SMEs in the Member States have clear­
ly converged. For instance, at the end of the 1980s SME 
real turnover growth ranged from 1.7% (UK) to 9.2% 
(Portugal), but by the early 1990s the range was from 
-0.4% (UK) to 3.6% (Ireland). It seems that in part this 
simply reflects slowing economic activity across the EU. 
However, the performance of SMEs is not only related 
to the business cycle, but also to structural tendencies 
in the business environment. 
An exploratory analysis across the Member States re­
veals that SME performance in the period 1988-1993 
was most strongly correlated with policy-oriented indi­
cators such as taxes and active labour market measures 
as well as with the cost and availability of labour and 
capital and with international trade (see table 3). 
3 A SNAPSHOT OF SME FIELDS 29 
3.1 Job Generation 
The creation of new jobs can arise because new en­
terprises are established and because established en­
terprises expand their operations. From detailed studies 
in five Member States it can be concluded that the 
direct effect of expansions on job creation is about 
twice as big as that of enterprise births. Of course, the 
establishment of new enterprises may also have an 
indirect effect because it stimulates expansion in later 
years. 
Net employment growth does not only follow new job 
creation, but also depends upon job losses due to clo­
sures and contraction of enterprises. In most countries 
(except for the UK) contractions are more important 
than enterprises deaths. 
Job generation studies focusing on the size dimension 
of firms are still rare in the EU. However, recent analy­
ses in Denmark and the UK provide results which ap­
pear to closely parallel the well-known findings of Birch 
regarding the USA. 
Results show that net job growth was either fully (Den­
mark) or nearly (UK) confined to micro and small en­
terprises, and was actually dominated by micro firms 
(under 10 employees). 
Results for the UK also provide an interesting contrast 
between a period of rapid economic growth and the 
onset of recession. As is shown in figure 2, SMEs seem­
ed relatively stable in both generating and shedding jobs over the greater part of the business cycle. 
On the other hand, large enterprises (LSEs) show a dra­
matic increase of job losses due to contractions during 
the early stages of the recession. 
3.2 Training and labour productivity 
Training and SMEs 
While comparisons are fraught with difficulties, it is 
clear that very marked differences remain between the 
'initial' vocational education and training systems used 
by young people entering the world of work across the 
Member States. For the less well documented 'contin­
uing* training of adults national systems are if anything 
even more diverse. Europe's SMEs must thus contend 
with a wide range of training arrangements. Neverthe­
less, basic economics predicts that all enterprises are 
reluctant to invest their own resources in training 
employees in skills of use to other employers, but SMEs 
face particular problems because they experience high­
er labour turnover rates and so have greater difficulty in 
retraining any skills created within the enterprise. 
The available evidence shows that smaller enterprises 
do indeed train less, and, when they do train, make 
more use of external training and place relatively more 
emphasis on induction training for new personnel. In 
Denmark, for example, only 36% of micro enterprises 
have a specific training budget compared to 76% for 
those with 250 or more employees. 
Figure 2 New jobs and job losses in the UK, by size class, 1987-1991 
1500 -r SMEs 
1987-1989 1989-1991 LSEs 
500 
-500 4-
-1500 -L 1500 -r 1987-1989 1989-1991 
• New jobs from firm 
births 
13 New jobs from 
expansion 
U Job losses from firm 
deaths 
• Job losses from 
contractions 
H Net job change 
-1500 
30 
However, there are some indications that non-market 
forces like legal requirements and 'peer' group pres­
sures have placed effective floors under training activity 
among SMEs, for instance in Germany's long estab­
lished 'dual' apprentice training regime. 
Training's impact on labour productivity 
Since the 1980s a series of two-country studies has 
assessed the impact of a better qualified workforce on 
labour productivity levels. This was done through a 
series of very detailed analyses of 'matched' establish­
ments in various sectors. An example is given in the 
case study below. 
The consistent pattern shown by these studies supports 
the view that better qualified workforces are key factors 
underlying the observed differences in labour produc­
tivity. 
3.3 Financial structure and financial costs of SMEs 
The financial structure of SMEs is characterized by: 
• a high dependence on borrowed funds 
• large dependence on banks as the main source of 
borrowed funds 
• high proportion of short term credit. 
This type of financial structure implies higher financial 
costs for SMEs compared to large enterprises. Financial 
costs are, on average, two percentage points higher for 
SMEs than for large enterprises. 
The lowest ratio of financial costs to turnover is found 
in Germany, followed by the Netherlands and Ireland, 
while the highest ratios (above 4%) are in Portugal, Italy 
and Greece (see figure 3). In most of the EU countries, 
except for Spain, the share of financial costs in manu­
facturing firms (both large and small) is bigger than in 
services. 
The ratio of financial cost to gross economic profits, 
indicating the capacity of the firm to generate funds for 
further expansion as well as paying interest also differs 
between Member States (see figure 4). In some, the 
financial burden is always greater for manufacturing 
SMEs than for large enterprises (e.g. Italy). In others it Case Study Hotels in Britain and Germany 
Considering a total of 30 British and German medium quali­
ty hotels selected from national Michelin guides, average 
labour requirements per guest night were about 50% higher 
in London than in Germany and twice as great in hotels in 
large British provincial cities as in Germany. 
While in both countries most staff lacked qualifications, in 
Germany 35 per cent had attained craft-level qualifications 
in hotel and catering against only 14 per cent in Britain. 
Although British hotel rooms were refurbished more often, 
labour saving improvements were most noticeable in 
Germany. Further, the work of (unqualified) chamber maids 
appeared more efficiently organised in Germany. Some 
three quarters of German housekeepers held vocational 
qualifications (against a single example in the British sam­
ple) and they spent much of their time on organisational 
tasks which in Britain tended to be dealt with by managers. 
So far as 'front/ reception desk staff were concerned, some 
70 per cent of German staff employed during normal work­
ing hours were vocationally qualified or in the process of 
qualifying. The comparable British figure was only 17 per 
cent. Partly due to more sophisticated computer systems, 
German reception desks were manned more economically, 
but individual staff in Germany were able to carry out a 
variety of tasks, often left in separate hands in Britain. 
Source: Steedman and Wagner (1989). 
changes yearly (France, Portugal). Similar patterns oc­
cur outside the EU. In Japan SMEs are worse off, while 
in the USA larger enterprises face higher financial bur­
dens. 
In Germany and in the Netherlands enterprises can 
generally count on more favourable conditions regard­
ing financial costs. In these two countries, in fact, the 
financial burden is lower than elsewhere; on the other 
hand in Italy and Portugal the financial burden amounts 
to more than 40% of gross economic profits. The lower 
financial burden of German and Dutch enterprises can 
to some extent be explained by low interest rates, and 
on the contrary by high interest rates in Italy and Por­
tugal. 
31 
Figure 3 Financial costs on turnover, manufacturing SMEs, 1986-1991 
I B P 
• 1986 «1987 a 1988 si 1989 s 1990 a 1991 
3.4 Risk capital 
Banks are the largest single source for risk capital provi­
sion accounting for 35% of the total in 1992. The second 
largest source is capital arising from realised capital 
gains (16%), a reflection of the maturity of the venture 
capital markets in Europe. Pension Funds (13%) and In­
surance Companies (9%), come next. 
The stock of Venture Capital (VC), representing medium 
or long-run equity investments in private business, is 
basically concentrated in the United Kingdom and 
France, but with Italy showing the biggest increase from 
1991 (see figure 5). 
The supply of new risk capital has shown a 5% reduc­tion in 1992. It amounted to 3.8 billion ECU, and it is 
unevenly distributed across the Member States with the 
three biggest countries, United Kingdom, France and 
Germany, accounting for 77% of the total. 
Looking at the destination of VC by type of investment, 
(see table 4) it appears that VC is concentrated in expan­
sions and buy-outs while investment at earlier stages is 
barely represented. On average funds for seed and 
start-up projects do not exceed 8.5% of the total amount 
invested by venture capital firms all over the EU. The 
following table shows the distribution of VC investment 
in Europe in 1992. 
Figure 4 Financial costs on gross economic profits, SMEs and large enterprises (LSEs), 1991 
110 
100 4-
iSMEind. HLSEind. • SME ser. B LSE ser. 
32 
Figure 5 Venture capital stock, 1988-1992 (in billion ECU) 
GR IRL I 
11988 «1991 Q 1992 
There are some differences between countries with 
regard to the distribution of VC investment: the highest 
shares for seed capital in 1992 were reached in Den­
mark, Spain and Ireland. For start-up activities the high­
est shares were reached in Spain, Portugal and Italy. 
Table 4 Distribution of VC investment in Europe* 
Type of investment 1992 
Seed 
Start-up 
Expansion 
Replacement 
Buy-out 
Total in% 
0.6 
6.3 
45.8 
8.6 
39.8 
100 
* Non-EU countries represent 3.4% of total investment in 1992. 
Source: EVCA. 
3.5 Late payments 
Trade credit is the main source of short term financing 
for SMEs. Since SMEs also grant trade credit to their 
clients terms of payment, when long, represent a 
serious problem for the cash resources of the firms, 
because SMEs are squeezed between suppliers and 
customers. Average trade terms differ across Member 
States, being very short in Denmark (38 days) and 
Germany (34 days) and long in Italy (89 days), Portugal 
(76 days), and Spain (74 days). Average payment 
periods and the change in the promptness of payment 
in the past year are shown in table 5. Companies which want to expand their activity abroad 
should bear in mind these differences. In the last year, 
payment periods have worsened almost right across 
Europe (65% of the enterprises registered a worsening 
of terms), but mainly in Greece, Italy and Spain. This 
implies higher costs for the firms and additional costs in 
carrying out action to collect overdue debts. 
3.6 Innovation and R&D 
In the advanced industrialised countries technology and 
knowledge in a broad sense are the major engines of 
growth. The involvement of a country in R&D activities 
depends on many factors including the type of the eco­
nomic structure and the presence of large firms. 
In 1991 the EU's four biggest economies, Germany, 
France, the United Kingdom and Italy, accounted for 
88% of total gross expenditure on R&D of the EU as 
whole. Looking at the ratios between expenditure on 
R&D and GDP, and hence excluding the size effect, Italy 
falls below the smaller advanced countries like Belgium, 
the Netherlands and Denmark. Figure 6 shows the R&D 
effort ratios for the EU countries in 1986 and 1991. The 
R&D effort increased in only 6 countries over that pe­
riod. 
SMEs, R&D and innovation 
According to the official statistical data on R&D, SMEs 
are far less active in innovation than large firms. This is 
shown in figure 7. The only exception seems to be 
Ireland. On the other hand, SME innovativeness cannot 
be fully measured by the official statistical data, 
because they refer mainly to the R&D performed inside 
R&D departments. 
33 
Table 5 Average payment period and change in the promptness of payment in the past year. 
Country Average days 1993 Better in % Worse in % 
Belgium 
Denmark 
France 
Germany 
Greece 
Ireland 
Italy 
Luxembourg 
The Netherlands 
Portugal 
Spain 
United Kingdom 
EU average 45 
38 
66 
34 
69 
60 
89 
57 
48 
76 
74 
51 
65 61 
35 
61 
66 
76 
57 
76 
67 
48 
60 
74 
47 
65 
Source: Grant Thornton European Business Survey 1994 
Most of the innovative efforts of SMEs do not come 
from this source, and many innovations do not rely on 
patents. R&D work performed in SMEs and R&D perfor­
med in large enterprises is not the same. SMEs are 
mostly involved in development rather than pure 
research. SMEs for which research is a core business 
are relatively few (New Technology Based Firms or 
High-Tech SMEs). 
To capture the role of SMEs in innovation it is also ne­
cessary to look at new products, new production pro­
cesses, and new applications. From the outcome of 
qualitative studies it appears that over 60% of the major 
inventions developed in the last century came from independent inventors and small companies. Compared 
to their share of output, this percentage shows that 
small enterprises are three times more 'effective' at 
innovating than large enterprises. 
Pattern of innovation across the Member States 
Some differing patterns are apparent in technological 
development between the EU Members. 
• In France and Luxembourg, SMEs are more involved 
in product than in process innovation and the small­
er the enterprise the less it is involved in process 
innovation. Large enterprises are, on the contrary, 
engaged in both types of innovation. 
Figure 6 Business expenditure on R&D as a percentage of GDP 
B DK F GR IRL 
• 1986 01991 
34 
Figure 7 Ratio between SMEs' R&D share and share of SMEs in employment 
100 
60 
40 4-
20 4mm-
DK IRL NL SP UK 
In Italy both SMEs and large enterprises are more 
process than product innovative and large enterpris­
es are more product innovative than small enterpris­
es. This result can be explained by the fact that 
Italian industries, especially SMEs, rely much more 
on the acquisition of embodied technologies than 
on 'pure' innovativeness. 
In the Netherlands it seems that SMEs (except micro 
enterprises) are much more involved in process 
than in product innovation. 
In Ireland, almost all product innovations in a na­
tional sample were due to enterprises with less than 
500 employees. 
In the United Kingdom, while only 26% of product 
innovations over a long period were due to SMEs, 
their share is increasing. 
3.7 Innovation, obstacles and key factors 
Innovation activity implies a degree of risk. Risk repre­
sents the first 'psychological' barrier. Other barriers to 
introducing innovations are: cost; financing problems; 
lack of skilled personnel; and insufficient market 
knowledge. These kinds of barriers play an important 
part in the smallest enterprises. 
However, even when the innovation has been intro­
duced, implementation may present difficulties. The 
main implementation difficulties are the same in all 
the EU countries. Again these are: high cost; lack of 
financial resources; and shortage of qualified person­
nel. 
Key success factors in innovation 
Innovative SMEs appear to have clear characteristics. 
To be successful attention must be paid to three es­
sential elements. These are: Project assessment and strategy of the enterprises 
The enterprise should adapt the projects involving 
innovation to its strategy, size and capability. 
Enterprises must explore the consequences of the 
project on: organization; marketing; internal/external 
skills; and the technological resources required by 
the project. 
A clear strategy, especially a commercial strategy, 
and consolidation of the innovative position are 
highly necessary. 
Business plan 
The innovator must plan the cost of the project as 
precisely as possible and be aware of the time avail­
able. 
The importance of time in developing new products 
must be stressed. This increases as product life 
cycles become shorter. 
Cooperation 
Cooperation and especially transnational coopera­
tion appears to constitute a key point for the small­
est enterprises, the smallest Member States and 
New Technology Based Firms. 
3.8 Regional differences 
Both within and across Member States the various 
regions of the European Union show large differences 
in structure and development. Within the SME area, 
regional aspects are important for at least two reasons: 
• the different impact of the completion of the internal 
market on economic development in the various 
regions; 
• major involvement at local level of small enterprises 
compared to large enterprises, 
35 
hence the greater dependence of small enterprises 
on local development. 
Type of economy 
Most of the regions of the EU are typified by a high 
share of SME dominated sectors. All Italian regions and 
most Portuguese regions, however, show a high share 
of micro dominant sectors. The same holds for some of 
the French regions, especially in the southern part of 
the country. In all regions in Denmark SME dominant 
sectors have by far the greatest share. In some regions, 
especially in France, large scale dominated sectors have 
a share only slightly lower than SME dominated sec­
tors. 
Number of firms per 1,000 inhabitants 
The number of firms per 1,000 inhabitants decreases as 
one moves from south to north through the EU. This 
figure also shows more variability between regions in 
the southern countries (especially Greece and Portugal) 
than in the northern countries (especially Denmark, the 
Netherlands and Belgium). 
Unemployment and GDP per capita 
The highest level of GDP per capita is registered in 
Germany (Hamburg) and the lowest one in Greece 
(Voreio Aigaio). However, even within individual coun­
tries there are remarkable differences. The greatest dif­
ference in GDP per capita is registered in Germany 
between Hamburg and Lueneburg, followed in France 
by the differential between Ile de France and Corse. 
In regions with a higher GDP per capita, micro domi­
nant sectors have a lower share in regional employ­
ment. 
Unemployment varies strongly in some countries due 
to differences in the economic structure between re­
gions. The highest unemployment figures are found in 
Spain, the lowest in Luxembourg. In many regions with 
a high share of micro dominant sectors in employment 
there is also a high unemployment rate. 
Objective 7 regions 
Most of the Objective 1 regions (with per capita GDP 
not exceeding 75% of the EU average) are situated in 
Greece, Spain, and Portugal. The lowest GDP per capita 
is found in Greek and Portuguese Objective 1 regions. 
The GDP per capita in most of the Spanish and Italian 
Objective 1 regions is higher than the highest GDP per 
capita in the Greek and Portuguese Objective 1 regions. 3.9 Border regions 
Border regions are the intra-EU border regions. They 
are considered as the seam of European physical unity. 
However, since 1990 business flows, personal flows and 
institutional contacts between border regions have 
increased only to a limited extent, according to a tele­
phone survey of experts in 38 border regions all over 
the EU (see table 6). 
Business flows are taking place but on a limited scale. 
The main barriers are: differences in legislation; in so­
cial security systems; in administrative procedures; in 
quality requirements; fiscal systems; and cultural and 
language differences. 
Personal flows have slightly increased, but cross border 
commuting and shopping has already taken place over 
a long period. Commuting has not increased due to the 
economic recession and high unemployment all over 
Europe. Moreover, the extensive administrative effort 
related to carrying out work abroad places SMEs in a 
difficult position when delivering consumer services in 
corresponding border regions. However, such activities 
do take place, for example, consumers in France (Dé­
partement Nord) hire construction enterprises from the 
corresponding border region in Belgium (Arrondisse­
ment Mons). 
Institutional cooperation between regional govern­
ments, agencies etc. has already taken place for a 
long period and seems to be increasing gradually. A 
specific programme has been launched by the EU in 
order to promote economic development through 
cross border cooperation, namely INTERREG. This 
programme has had an important positive impact on 
cross border business and institutional flows. 
The extent of cooperation differs between regions. An 
example of cooperation between institutions is the 
case of Denmark and Germany, where the regional 
governments of 'Amt Sonderfullands' and 'Kreis 
Schleswig-Flensburg and Kreisfreie Stadt Flensburg' 
work together in planning schemes on environmental 
protection, building shopping centres, infrastructure 
development etc. 
The main barriers are: language and cultural differ­
ences; a lack of tradition in cooperation; and lack of 
clear economic complementarity between the regions 
concerned. 
36 
Table 6 Development registered in the intensity of business, personal and institutional flows after 1990 
Business flow: 
- subsidiaries 
- mergers 
- cooperation 
- subcontracting/outsourcing 
- financial services Change 
Personal flows: 
-commuting 
-shopping 
-consumer services 
Institutional flows: 
-cooperation between regional governments, Chambers of Commerce, employers organizations 
-INTERREG responsibles MM 
0 : no change 
+ : slightly increased 
++ : increased 
3.10 Policy for SMEs 
The 'Growth Initiative' (1992) and the 'White Paper' 
(1993), the two latest initiatives of the European Union 
aimed at promoting growth and employment, both 
identify SMEs as a target group for policy action. They 
give recommendations for economic policy in both the 
EU and individual Member States. 
Major recommendations focus on: 
• employment growth 
• economic growth 
• improving the competitiveness of enterprises. 
Practically all Member States have taken these recom­
mendations into account, some of them already had 
policies in these directions. 
New developments in the Member States which mostly 
comply with the recommendations made in the White 
Paper and the Growth Initiative, tend to follow the ap­
proach of implementing additional support program­
mes while simultaneously improving the economic 
environment. The approach of abolishing or alleviating 
'home made' constraints on competition such as high 
tax rates or restrictive capital and labour market regula­
tions has been a marked tendency in the 1990s. 
Some major trends in the new measures are: 
• For Denmark: supporting the development of enter­
prises with high growth potential and a new guaran­
tee programme aimed at easing the difficulties of 
these enterprises concerning finance 
• For France: fiscal reforms, reinforcement of the equi­
ty base and access to long-term credits, reform of 
the competition laws, deregulation of markets, pro­
motion of inter-firm cooperation, institution of a 
guarantee fund 
• For Germany: reduction of profits taxes aimed at 
easing the financial burdens on enterprises • For Greece: improving the quality of management in 
SMEs by offering more information, training and 
advice 
• For the Netherlands: improvements in labour market 
flexibility to secure the present stock of jobs and 
facilitate further employment, and investment in 
apprenticeship 
• For Portugal: facilitating access to finance and diver­
sification of financial sources, improvement of effi­
ciency and fostering corporate redimensioning, fos­
tering innovation and start-ups (Intermezzo pro­
gramme), prolongation of the PEDIP I programme 
(PEDIPII), supporting restructuralization and interna­
tionalization processes in enterprises (FRIE Fund) 
• For Spain: special line of loans, creation of a new 
mutual reguarantee society, taking minority stakes 
in newly created enterprises (Joint-venture capital 
fund), and labour market reform 
• For the United Kingdom: improving the quality of 
management in SMEs by offering more closely inte­
grated information, training and advice through 
single local outlets (Business Links) 
In some Member States policies have also been intro­
duced at regional level, especially in the field of techno­
logy. They are directed at those regions which suffer 
industrial decline and underdevelopment. For example, 
the 'Mezzogiorno' in Italy, and the 'Neue Bundeslander' 
37 
in Germany. Compared to national SME policies, re­
gional support offered to SMEs more often consists of 
direct subsidies. Measures include: government assis­
tance for investment; general subsidies; and public pro­
vision of infrastructure as well as various negative in­
ducements. 
4 THE CRAFT TRADES 38 
The craft trades are providing economic continuity, 
breeding vocational skills and new. entrepreneurship. 
Crafts are thought to account for a substantial share of 
all the enterprises and employment in the EU. While the 
economic importance of the craft sector seems to go 
beyond its share in GDP, this importance is hard to 
assess formally. Definitions of, and accordingly the pro­
ductive capacity, structure, and environment of, craft 
industries differ greatly between the Member States. 
Nor are craft trades a separate statistical category. 
The Member States of the EU can be divided into three 
groups according to the legal status of the craft sector: 
1. Craft is defined by law in France, Germany, Italy, 
and Luxembourg. In Belgium, the definition is set 
by actual practice. 
2. The non-official concepts of craft in Denmark and 
the Netherlands include 'modern crafts' as is the 
case in the Member States in the first category. 
3. In most of the remaining Member States the con­
cept of craft is associated with very small-scale 
handicraft. This is the case in Portugal, Spain, and 
the United Kingdom. In Greece craft also includes 
the very small enterprises in trade and services. In 
Ireland, crafts are not legally defined, but there is a 
working definition of handicrafts. 
Enterprises in the Member States are considered (by 
definition or common sense) as craft enterprises accord­
ing to one or more of the following criteria: their branch 
(line of business), their size (in terms of employment 
per enterprise), the type of the products they make (e.g. 
artistic products), the way their products are made (e.g. 
handmade) and their occupation. 
The importance of the craft sector - measured by national 
definitions - differs greatly between Member States. The 
share of craft employment in total employment ranges 
from 42% in Greece to less than 1% in the UK. The 
share of craft enterprises ranges from virtually zero in 
the UK to more than two-thirds in Greece. In table 7 the 
quantitative importance of the craft trades according to Table 7 Importance of the craft trades in Member States' on official 
or non-legal definitions3 (%), different years 
Enterprises Employment 
Belgium 
Denmark13 
France0 
Germany 
Greeced 
lre!ande 
italyf 
Luxembourg 
Netherlands 
Portugal 
Spain 
United Kingdom 1 
27 
35 
23 
35 
20 
25 16 
10 
15 
42 
1 
15 
25 
11 
1 
f. Source of the figures presented: ENSR, unless other­
wise stated. 
Key figures for 11 selected types of craft activities. 
Source: Les chiffres clés de l'artisanat. Janvier 1993. 
NSSG census data 1988, based on a broad definition 
of craft by EOMMEX. 
An estimate of the employment share of 'skilled wor­
kers' in manufacturing industry, repair and mainte­
nance is: 12.5%. 
Source: CERVED, Tagliacarne 1992. 
national definitions (if any) is presented. Due to differ­
ences in national definitions these data are not compa­
rable. 
To allow for a better cross country comparison of craft 
trades the concept of Craft Dominated Sectors (CDS) 
has been developed. CDS have been selected based on 
the dominance of craft professions in sectors. The 
importance of CDS differs between Member States, as 
is shown in figure 8. In three southern countries 
(Portugal, Italy and Greece) CDS have by far the largest 
employment share. 
The average size of CDS enterprises is below non-CDS 
enterprises, although the differences are smaller than 
Figure 8 Enterprises and employment in Craft Dominated Sectors (in %) 
D GR IRL I L NL P 
• Percent, of enterprises 0 Percent of employment 
39 
might be intuitively expected. 
Women account for one quarter of CDS employment 
against 46% in the non-CDS. 
Part-time employment is relatively rare in CDS com­
pared to the total economy. 
CDS are able to absorb the unemployed (much) better 
than non-CDS, which may be explained by relatively 
low entry-barriers in terms of educational level on the 
one hand and the possibility of acquiring occupational 
skills through dual training systems. Labour flows from 
CDS to non-CDS are greater than vice versa. 
The level of education of employees in CDS is lower 
than in non-CDS. On the other hand, specific occupa­
tional skills are generally much more important in CDS 
than in non-CDS. 
Participation in apprenticeships and dual training sys­
tems is significantly higher in CDS than in non-CDS. 
However, participation in continuing vocational training 
is much lower in CDS than in non-CDS. market, however. Here, industrialization of craft activi­
ties will intensify the competition faced by many craft 
enterprises. 
Cross border activities have only played a minor role in 
the craft sector. However, due to the completion of the 
internal market, experts expect an increase in cross bor­
der cooperation and an increase in imports (see table 8). 
There is a distinct European trend in craft and SME poli­
cies toward regionalization: provincial and other region­
al authorities increasingly assume responsibility for 
craft policy and policy implementation. 
Table 8 Most important single effect of the completion of the Single European Market on cross-border activities ïn the craft sector 
in % 
An increase in cross-border co-operations 
An increase in Imports 
An increase in cross-border education and training of employees 
An increase in exports 
An increase in recruitment of foreign labour 
An increase in other forms of internationalisation 
Additional units/outlets in other Member States 
Don't know/no answer 
Missing 
Tota!: 24 
22 
13 
12 
TO 
8 
4 
3 
5 
TOO 
In the framework of this in-depth study on the craft 
trades, a unique survey of representatives of craft asso­
ciations within all the Member States was carried out 
during 1993. This is the first EU-wide investigation of 
the craft trades ever undertaken. From this survey it is 
clear that the European craft sector is so far only mar­
ginally affected by the internal market, since most of the 
enterprises involved depend on customer contact and 
as a result serve purely local markets. 
The internal market is more frequently associated with 
increasing risks than with increasing opportunities by 
craftspersons in the EU. This corresponds to the general 
finding that increasing competition affects more enter­
prises than increasing sales. The internal market is ex­
pected to cause a mild 'shake out' among SMEs. This is 
confirmed by craft experts' expectations with respect to 
the balance of start-ups and close-downs, which were 
clearly negative. 
Craft enterprises in Member States such as Portugal 
and Greece may be particularly affected by the internal 
5 COUNTRY PROFILES 40 
Belgium 
With major economic indicators and economic struc­
tures (in both SME and sectoral terms) which are very 
close to the EU average, Belgium may be considered 
the most 'European' EU economy. A general strong 
convergent trend is apparent towards EU average val­
ues. This 'averageness' may reflect the open character 
of the Belgium economy and its restructuring towards 
the demands of the larger internal market. 
Denmark 
Denmark has the typical profile of a small prosperous 
EU economy, with high GDP per capita and labour costs 
per employee. SMEs play an important role in the econ­
omy and most economic sectors are SME dominant, alt­
hough the number of enterprises per 1,000 inhabitants 
is small. 
The combined effect of increased employment in micro 
and small enterprises with decreased employment in 
medium-sized enterprises means that total SME em­
ployment has increased since 1988. 
Self employment seems not to be well developed. 
Given its peripheral location and cultural background, it 
is nor surprising that Denmark's international trade is 
strongly orientated towards the other Scandinavian 
countries. 
France 
France has a relatively weak SME presence, with en­
terprise numbers per 1,000 inhabitants decreasing rela­
tive to the EU average. However, southern France has a 
large number of micro dominant sectors and a high 
number of enterprises per 1000 of the population. With 
a developed large-scale industrial sector including 
chemical, electronic and defence segments, France 
records R&D investments as a percentage of GDP above 
the EU average. 
Germany 
As in the other large national economies (with the ex­
ception of Italy), the share of SMEs in employment is 
relatively low and average enterprise size is high. The 
sectoral structure of German SMEs shows relative under-
representation in manufacturing industry and trade, and a 
relatively strong position in producer services. The 
employment level in SMEs has increased significantly 
since 1988, especially in micro enterprises. However, 
the self employment rate is well below the EU average, 
perhaps due to numerous requirements surrounding 
the formation of businesses. 
Germany's GDP per capita and labour costs per em­
ployee are both well above the EU-12 average. Greece 
Greece is a typical SME dominated 'southern' economy 
with an especially large proportion of micro enterprises, 
strikingly low average enterprise size and a high rate of 
enterprises per 1000 habitants, and high SME shares 
even in manufacturing, producer services and transport 
and communication. The self employment rate is the 
highest in the EU, probably partly explained by low 
start-up costs and fewer requirements for establishing a 
business. GDP per capita and labour costs per employ­
ee are among the lowest in the EU. 
Ireland 
The size structure of Irish economy is changing very 
fast. Recently LSE employment has grown faster than 
SME employment. While the employment share of 
SMEs as a whole has decreased since 1988, the shares 
of medium-sized and large enterprises have Increased 
substantially. The share of SMEs as a whole in employ­
ment is relatively high, but the number of enterprises 
per 1,000 inhabitants is quite low. The sectoral structure 
of SMEs broadly matches the EU average, except for an 
overrepresentation of SMEs in manufacturing industry. 
Irish per capita GDP is below the EU average but on a 
converging trend. Labour costs per employee are well 
below average as well, and grew slightly less than the 
EU average over recent years. 
Italy 
In Italy SMEs enjoy one of the highest shares in econo­
mic activity found anywhere within the EU. SMEs are 
particularly overrepresented in almost every sector, but 
manufacturing is the most SME dominated sector com­
pared with the EU average. Micro dominant sectors 
have a particularly strong weight within the Italian 
economy as a whole and they dominate the southern 
regions, while SME dominant sectors dominate the cen­
tral and northern regions. Self employment is well 
developed and continues to increase. Italy is exception­
al within the EU since it is a large economy character­
ised by a strong SME sector but with high labour costs 
per employee and prosperity (as measured by GDP per 
capita). 
Luxembourg 
In Luxembourg the share of SMEs in employment is 
just above the EU average, but the contribution of micro 
enterprises to employment is very low and in fact SMEs 
in Luxembourg are among the largest in the EU in 
terms of average employment. 
The number of enterprises per 1,000 inhabitants is low 
as well. Employment in SMEs has increased considera­
bly since 1988, but especially in the medium-sized 
enterprise class. GDP per capita is well above the EU 
Mapping the key indicators of the EU 41 
Annual growth 
of employment 
in SMEs 1989- 1993 
Country Empl. Growth 
[%] 
Belgium 1.1 
Denmark 1.5 
France 0.8 
West Gerrni-iy 2.6 
Greece 1.4 
Ireland 0.3 
Italy 0.1 
Luxembourg 2.4 
The Netherlands 1.7 
Portugal 2.0 
Spain 0 1 
United Kingdom -0.5 
EU 0.8 Shares of SMEs in employment 1990 (EU = 72) 
60 -71 % 
72 -80% 
81 -91 % 
O Number of firms per 1,000 inhab. 
(EU = 49) 
42 
average and so are labour costs per employee. Inter­
national trade is well developed with Luxembourg 
being a small open economy. 
The Netherlands 
The share of SMEs in employment resembles the EU 
average, and the sectoral structure of SMEs is also very 
similar, with the exception of the relatively large scale 
retail trade sector. The number of enterprises per 1,000 
inhabitants is very low. Employment in SMEs has 
grown rapidly since 1988, but this has been unevenly 
spread among the enterprises size classes, with the 
micro enterprise size class growing the most. In the 
Netherlands GDP per capita is well above the EU aver­
age and so are labour costs per employee. The country 
is one of the most open in the EU, and its international 
trade shows clearly the 'open' character of the econo­
my, with a disproportionate share of exports, both intra-
EU and extra-EU. United Kingdom 
The United Kingdom's industrial structure is dominated 
by the LSE sector, reflected in a high average enterprise 
size and a relatively low share of SMEs in total employ­
ment. 
The onset of a strong recession in 1990 cut employment 
levels and real GDP in the early 1990s although recov­
ery began in 1992. Average labour costs per employee 
are below the EU average but have tended to increase 
relative to the average for other Member States. 
The profile of international trade is similar to France 
and Germany, which means that intra-EU trade consti­
tutes a relatively modest part of total exports. 
Portugal 
Portugal's profile is similar in some respects to that of 
Greece . It has a strong SMEs presence and a very pro­
nounced share of small enterprises in employment. The 
number of enterprises per 1,000 inhabitants is of course 
very high. Self-employment is quite developed, with 
women accounting for a large share of the self employ­
ed. 
The sectoral structure of SMEs shows that manufactu­
ring industry and retail trade are relatively the most 
SME dominated sectors. Compared with the other 
Member States employment in SMEs has increased a 
lot since 1988, especially in very small enterprises. 
GDP per capita and labour costs are amongst the lowest 
of the EU Member States. 
Spain 
Spain resembles Portugal, Greece and Italy for many 
economic indicators. Small and medium-sized enter­
prises play an important role in the economy, especially 
enterprises in the micro size class. The modest growth 
in SME employment is the result of a large increase in 
micro enterprises and a large decrease in employment 
in small and medium-sized enterprises. A large share of 
SMEs is to be found in manufacturing and transport 
and communications. GDP per capita is low compared 
to the EU average. Inflation is well above the EU aver­
age. 
6 GENERAL RECOMMENDATIONS 43 
In the First Annual Report of the European Observatory 
for SMEs much attention was paid to policy issues relat­
ed to promoting and stimulating SMEs and the craft 
sector in the EU. In this Second Annual Report of the 
Observatory the recommendations will be oriented 
more specifically towards employment creation in small 
and medium-sized enterprises (including the craft sec­
tor and micro enterprises) as a prominent part of Eu­
rope's economic fabric. Primarily the recommendations 
are aimed at the policy makers at the EU-levèl and to a 
lesser extent towards national policy makers. 
Reducing unemployment is a top policy priority for the 
EU, as highlighted in the recent White Paper on Growth, 
Competitiveness and Employment. Effectively tackling 
the problem requires a range of approaches involving 
stimulating economic growth while simultaneously fos­
tering production systems that are internationally com­
petitive on the (increasingly global) market promoting 
the (re)absorption of the unemployed and new entrant 
or reentrant labour supply and significantly improving 
the mechanisms which 'match' labour supply to de­
mand. 
Basic policy considerations 
Policies geared to reduce unemployment are primarily 
the responsibility of the national governments, but, 
nevertheless, there is limited room for the European 
Commission to develop specific initiatives to stimulate 
economic growth and to create new jobs in the wider 
European context. In principle EU strategies aimed at 
reducing unemployment should be centred around cer­
tain key elements: 
• creating a favourable European business environ­
ment that stimulates competition and economic dy­
namism; 
• improving the 'transparency' of policies, govern­
ment regulations, initiatives and legislation aimed at 
reducing unemployment within individual Member 
States, especially exchanging information on 'best 
practice' in employment generation in SMEs; 
• carefully monitoring, evaluating and adapting exis­
ting EU-level initiatives concerned with employment 
stimulation and unemployment reduction (e.g. with­
in the ESF framework) in the light of the specific role 
of SMEs. 
Within this broad strategic approach particular attention 
must be given to job creation in SMEs and the craft sec­
tor. This is necessary because of: 
• the (hidden) economic potential of SMEs which 
could strengthen the general competitiveness of 
Europe's economy; 
• the proven record of SMEs in creating additional 
jobs and the likelihood they will continue to do so in 
the future given suitable economic conditions; 
• the structure of SME employment (especially in the 
craft sector) which offers greater potential for the 
successful reintegration of formerly unemployed workers back into productive activity; but 
• the structure and practices of the SME sector raise 
challenges (e.g. in improving training, recruitment 
and personnel practices, and job 'quality' generally) 
as well as opportunities for job creation. 
As the main report notes, labour market policy recom­
mendations whether at the national or supranational 
level can be grouped under three broad headings: 
a. labour demand oriented approaches; 
b. labour supply based approaches; and 
c. 'matching* approaches. 
Labour demand policies 
Demand policies can conveniently be considered under 
four broad headings. 
1. The business environment 
The economic growth and hence job creation poten­
tial of SMEs, whether new start-ups or well estab­
lished businesses, must be strengthened by: 
• creating a more favourable general European busi­
ness environment, with proper financial and ma­
cro-economic policies, and considering more ex­
pansionary policies; 
• controlling and reducing administrative burdens 
taking into consideration the effects of both na­
tional and supranational policies, including the 
development of monitoring methods; 
• improving SMEs' financial position in terms of 
both the potential for self financing and access to 
capital markets. Effective distribution of the 1 bil­
lion ECU worth of loans from EIB made available 
at the European Council in Copenhagen is essen­
tial. 
• stimulating the R&D activity of SMEs and dissemi­
nating technical 'know-how' are urgent priorities. 
SMEs and innovative craft enterprises need to be 
better integrated into the EU's technology pro­
grammes. 
2. Wage policies 
Reducing labour costs per unit of output may be 
pursued by restructuring wage setting arrange­
ments to more closely reflect factors like labour pro­
ductivity and/or by adapting fiscal and social securi­
ty systems to bear less heavily on wage costs. Grea­
ter transparency in tax and social security systems 
would be a helpful starting point. 
3. Work sharing 
Possibilities for sharing work without increasing 
production costs should be explored. International 
experience should be exchanged and pooled, al­
ways taking into consideration the social, fiscal and 
cultural systems that influence the design of work 
organisation. An international campaign aimed at 
stimulating work sharing arrangements which meet 
the specific needs of the SME sector is recommen­
ded. 
44 
Labour supply policies 
Supply based approaches can be grouped under three 
headings. 
1. Wages and social benefits 
A far clearer insight into the relationships between 
social security systems, income policies and labour 
market policies, and, in particular, the position of 
SME needs is necessary to increase flexibility on the 
labour market and to stimulate the better absorption 
of the (hidden) supply. A Europe-wide research pro­
ject is required. 
2. Upgrading labour quality and skills 
Initial, vocational and continuing training should be 
better geared to the needs of SMEs. European pro­
grammes could be the basis for this, but better 
adaptation to the specific needs of SMEs and craft 
enterprises is a prerequisite. Training programmes 
should not only focus on training employees but 
must also include entrepreneurs whose decision 
making and management skills are the key to future 
economic development. 
The experience of several Member States with 'dual' 
apprentice training systems should be shared more 
broadly to help promote a better mixture of theory 
and practice in 'initial1 training for young people. 
Similarly international exchanges of trainees and 
trainers from the various national VET systems 
should be supported. A European Platform for Voca­
tional Training geared primarily to the needs and 
practices of SMEs should be established to provide 
a new impulse for the VET systems of the EU and 
the international exchange of experiences and deve­
lopments. 
Much more attention is needed for entrepreneurship 
in education programmes, career advice and devel­
opment. A Training Institute which operates interna­
tionally should be developed to provide a more 
cross-cultural and efficient approach to entrepre­
neurship training. As well as training its task should 
include exchanges of managers/entrepreneurs and 
the development of courses focused on SMEs and 
the craft sector. Networking with national training 
systems or through EICs should be considered. 
The availability of Structural Funds for private train­
ing organisations instead of only public institutions 
is strongly recommended, as many training activi­
ties, both for employees and entrepreneurs, are 
organized on a private basis in the Member States. 
3. Increasing labour mobility 
Rigidities in the labour market may hamper an effi­
cient allocation of human resources. Government 
regulations concerning dismissals, pension fund 
systems, general or specific wage agreements, and 
the rights and obligations of the unemployed should 
be considered. Thorough analysis of the different 
systems found in the Member States should provide 
useful insights into the most fruitful avenues to be 
explored. "Matching' approaches 
It is recommended that the EC trace and monitor 'best 
practice' in the field of matching instruments and com­
municate these to the relevant actors. 
In particular attention should be paid to the recruitment 
practices of SMEs and the effective reach of the differ­
ent instruments. New, modern, personal and regional 
oriented matching approaches should be stimulated to 
identify both existing and 'hidden' vacancies in SMEs 
and craft enterprises. 
Good experiences of labour pools, as applied in several 
Member States, should be exchanged on an interna­
tional level. The EC could stimulate this communication 
by workshops or international exchanges between au­
thorities in this field. 
HS 
ISSN 0254-1475 
COM(94) 352 final 
DOCUMENTS 
EN 08 
Catalogue number : CB-CO-94-363-EN-C 
ISBN 92-77-72075-1 
Office for Official Publications of the European Communities 
L-2985 Luxembourg 1