Green Paper - Entrepreneurship in Europe
Date: 2003-01-21
Institutions: European Commission
Subjects: EU industrial policy, administrative formalities, business management, corporate finance, economic policy, entrepreneurship, tax incentive

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 21.1.2003
COM(2003) 27 final

Green Paper

Entrepreneurship in Europe

(presented by the Commission)

TABLE OF CONTENTS

I.

II.

A.

i.

ii.

iii.

B.

i.

ii.

iii.

iv.

C.

i.

ii.

Introduction - Europe’s entrepreneurial challenge ................................................ 5

The Dynamics of Entrepreneurship ......................................................................... 6

What is entrepreneurship?........................................................................................ 6

Exploitation of creativity or innovation ....................................................................... 6

Entrepreneurs ............................................................................................................... 6

Applications of entrepreneurship ................................................................................. 7

Why is entrepreneurship important?....................................................................... 7

Entrepreneurship contributes to job creation and growth ............................................ 7

Entrepreneurship is crucial to competitiveness............................................................ 8

Entrepreneurship to unlock personal potential............................................................. 8

Entrepreneurship and societal interests........................................................................ 8

The European Union’s entrepreneurial gaps and potential................................... 9

Measuring entrepreneurship......................................................................................... 9

The challenge for Europe ........................................................................................... 10

III.

Policy Options for Entrepreneurship..................................................................... 10

A.

i.

ii.

iii.

iv.

B

i.

ii.

iii.

iv.

v.

vi.

C.

i.

ii.

What does it take to produce more entrepreneurs? ............................................. 11

Entry barriers.............................................................................................................. 11

Risk and reward.......................................................................................................... 12

Fostering capacity and skills ...................................................................................... 13

Making entrepreneurship accessible to all members of society................................. 14

How can enterprises be geared to growth?............................................................ 15

The regulatory environment....................................................................................... 15

Taxation ..................................................................................................................... 17

Access to skilled labour ............................................................................................. 18

Access to finance........................................................................................................ 18

Helping firms to exploit knowledge and international opportunities ........................ 19

Intrapreneurship and corporate venturing .................................................................. 20

Towards an entrepreneurial society ....................................................................... 21

More positive attitudes towards entrepreneurship ..................................................... 21

Entrepreneurship’s role in achieving social objectives.............................................. 22

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IV.

The Way Forward .................................................................................................... 22

A.

i.

ii.

B.

i.

ii.

iii.

A co-ordinated approach to entrepreneurship policy .......................................... 22

Co-ordinating entrepreneurship policy amongst all policy-makers ........................... 22

Learning from the best ............................................................................................... 23

Three pillars for action towards an entrepreneurial society................................ 23

Bringing down barriers to business development and growth ................................... 23

Balancing the risks and rewards of entrepreneurship ................................................ 24

A society that values entrepreneurship ...................................................................... 24

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I.

INTRODUCTION - EUROPE’S ENTREPRENEURIAL CHALLENGE

Europe  needs  to  foster  entrepreneurial  drive  more  effectively.  It  needs  more  new  and
thriving firms willing to reap the benefits of market opening and to embark on creative
or innovative ventures for commercial exploitation on a larger scale.

In the middle of the last century, economists predicted the dominance of large firms. Size was
needed  to  obtain  economies  of  scale,  to  exploit  foreign  markets  and  to  keep  abreast  of
regulations  and  of  new  opportunities  in  technology.  Indeed,  in  the  1960s  and  1970s,  large
companies dominated the economy. Since then, the trend has started to reverse. Large firms
rationalised by restructuring, outsourcing or downsizing and the number of  business owners
in OECD countries increased from 29 million to 45 million between 1972 and 1998.1

Structural  changes  in  the  economy  shifted  Europe’s  comparative  advantage  towards
knowledge-based  activities.  Globalisation  increased  competitive  pressure  on  manufacturing
firms in high-cost locations, which led not only to a shift in production capacity to low cost
countries,2  but  also  to  increasing  productivity  by  using  technological  inputs.  Meanwhile
‘Information  and  Communication  Technologies’  (ICTs)  gave  rise  to  new  markets,  such  as
personal  computers,  software  and  ICT-based  services,  which  revolutionised  production
processes in many industries and led to growth of the service sector.

The  Internal  Market,  created  by  the  European  Union,  is  evolving  through  the  removal  of
barriers and through mutual recognition and harmonisation. It facilitates trading in a market of
380 million people soon to expand to 450 million after enlargement.

These changes have led to opportunities for new entrepreneurial initiative, particularly in the
area  of  services.  The  increased  complexity  of  production  processes  requires  a  variety  of
specialised  inputs.  Also,  the  reduced  costs  of  transmitting  knowledge  across  space  makes
inputs  by  external  providers  relatively  cheaper.  Increased  market  opening  allows  firms  in
niche markets to operate on a more European or worldwide scale.

The capacity to adapt to economic changes is crucial for competitiveness.3 In Lisbon in 2000,
the  European  Council  defined  its  objectives  in  terms  of  employment,  economic  reform  and
social  cohesion.  For  2010,  the  Union  aims  “to  become  the  most  competitive  and  dynamic
knowledge-based economy in the world, capable of sustainable economic growth with more
and  better  jobs  and  greater  social  cohesion”.  In  2001,  the  European  Council  agreed  on  a
strategy  for  sustainable  development  and  added  an  environmental  dimension  to  the  Lisbon
strategy. The Council recognised the need for radical transformation of the economy, in order
to create some 15 million new jobs by 2010.4

1 ‘Entrepreneurship: Determinants and policy in a European US comparison’, David B. Audretsch et al., 2002.
2 Between  1991  and  1995,  manufacturing  employment  in  German  plants  decreased  by  1  307  000  while  it
increased  in  foreign  subsidiarities  by  189  000,  ‘Entrepreneurship:  A  survey  of  the  Literature’,  David  B.
Audretsch, October 2002.

3 Comparison between Europe, the US and Japan suggests that change in European manufacturing may not have
been  fast  enough  in  relation  to  change  in  demand  and  technology.  ‘The  European  Competitiveness  Report’,
SEC (2000) 1823, 30.10.2000.

4 ‘Increasing labour force participation and promoting active ageing’ Council document 6707/02, 08.03.2002,

adopted on the basis of COM (2002) 9 final, 24.01.2002.

4

                                                
A  friendly  environment  for  starting  and  developing  businesses  is  central  to  reaching  these
goals. The Council adopted the Charter for Small Enterprises,5 setting out recommendations
for  small  enterprises  to  take  full  advantage  of  the  knowledge  economy.  The  European
Commission  develops  initiatives  in  this  area,  including  annual  implementation  reports  on
Member States’ and the Commission’s efforts towards reaching the objectives of the Charter
for  Small  Enterprises,  the  report  on  the  Activities  of  the  SME  Envoy  and  the  forthcoming
Communication  on  Innovation  Policy.  In  particular  the  Commission  has  adopted  last
December a Communication on industrial policy in an enlarged Europe and the discussion on
the Green Paper on entrepreneurship has to be seen also in this context.6

At the Barcelona Spring Council in 2002, the Council took note of the Commission's intention
to present a Green Paper on Entrepreneurship. The importance of entrepreneurship has been
reaffirmed  in  the  Commission's  2003  Spring  Report  to  the  Spring  European  Council  which
places  particular  emphasis  on  boosting  investment,  jobs  and  growth  through  knowledge,
innovation and business dynamism.7

II.

A.

THE DYNAMICS OF ENTREPRENEURSHIP

What is entrepreneurship?

Entrepreneurship  is  multi-dimensional  and  although  it  can  occur  in  different  contexts,
economic  or  other,  and  in  all  types  of  organisations,  this  Green  Paper  focuses  on
entrepreneurship within a business context.

i.

Exploitation of creativity or innovation

Entrepreneurship  is  first  and  foremost  a  mindset.  It  covers  an  individual’s  motivation  and
capacity, independently or within an organisation, to identify an opportunity and to pursue it
in order to produce new value or economic success. It takes creativity or innovation to enter
and  compete  in  an  existing  market,  to  change  or  even  to  create  a  new  market.  To  turn  a
business  idea  into  success  requires  the  ability  to  blend  creativity  or  innovation  with  sound
management and to adapt a business to optimise its development during all phases of its life
cycle. This goes beyond daily management: it concerns a business’ ambitions and strategy.

ii.

Entrepreneurs

Entrepreneurship is about people, their choices and actions in starting, taking over or running
a  business,  or  their  involvement  in  a  firm’s  strategic  decision-making.  Entrepreneurs  are  a
heterogeneous  group  and  come  from  all  walks  of  life.  Yet  there  are  certain  common
characteristics of entrepreneurial behaviour, including a readiness to take risk and a taste for

5 The ‘Charter for Small Enterprises’, adopted on 13.06.00 by the General Affairs Council, was endorsed at the
Feira  European  Council  on  19-20  June  2000.  It  covers  ten  key  areas:  Education  and  training  for
entrepreneurship;  Cheaper  and  faster  start-up;  Better  legislation  and  regulation;  Availability  of  skills;
Improving online access; Getting more out of the Single Market; Taxation and financial matters; Strengthening
the  technological  capacity  of  small  enterprises;  Making  use  of  successful  e-business  models  and  developing
top-class  small  business  support;  Developing  stronger,  more  effective  representation  of  small  enterprises’
interests at EU and national level.

6 These documents are available after their official publication on http://europa.eu.int/comm/enterprise/index_en.htm.
7  ‘Communication  from  the  Commission,  Choosing  to  grow:  Knowledge,  innovation  and  jobs  in  a  cohesive
society’, Report to the Spring European Council, 21 March 2003 on the Lisbon strategy of economic, social
and environmental renewal’, COM (2003) 5, 14.01.2003

5

                                                
independence  and  self-realisation.8  The  British  Household  Survey  found  that  individuals
seriously considering starting a business regard themselves as relatively more imaginative and
creative than others.9

iii.

Applications of entrepreneurship

Entrepreneurship can occur in any sector and type of business. It applies to the self-employed
and to firms of any size throughout the various stages of the business life-cycle, from pre-start
to growth, transfer or exit and re-start.

Entrepreneurship is relevant for firms in all sectors, technological or traditional, for small and
large firms and for different ownership structures, such as family businesses, firms quoted on
the  stock  exchange,  social  economy  enterprises10  or  non-profit-driven  organisations,  which
often have significant economic activities. According to the Global Entrepreneurship Monitor
(GEM) survey 7% of new entrepreneurs11 create a significant new market niche or economic
sector if their business is successful, whereas 70% of new enterprises are providing products
or services in existing markets where there is already considerable competition and where the
critical technology has been available for more than a year.

Entrepreneurship  is  the  mindset  and  process  to  create  and  develop  economic  activity  by
blending risk-taking, creativity and/or innovation with sound management, within a new or an
existing organisation.

B.

i.

Why is entrepreneurship important?

Entrepreneurship contributes to job creation and growth

It is increasingly new and small firms, rather than large ones, that are the major providers of
new jobs.12 Countries exhibiting a greater increase in entrepreneurship rates tended to exhibit
greater subsequent decreases in unemployment rates.13 During the 1990s, fast-growing firms
contributed considerably to job creation. For example in the Netherlands, between 1994 and
1998,  8%  of  fast-growing  firms  created  60%  of  employment  growth  within  existing
enterprises.14  In  the  US  350  000  fast-growing  firms  created  two-thirds  of  all  new  jobs
between  1993  and  1996.15  Research  suggests  that  entrepreneurship  provides  a  positive
contribution to economic growth, although GDP growth is influenced by many other factors.16

8 Some examples are mentioned in Kimmo Hyrsky ‘Reflections on the advent of a more enterprising culture in

Finland: An exploratory study’, Jyväskylä Studies, Business and Economics, 2001.

9 ‘Findings from the Household Survey’, SBS Performance Analysis, 31.03.2002.
10 Social economy enterprises include co-operatives, mutuals, associations and foundations.
11 New  entrepreneurs  in  the  survey  including  those  setting  up  a  business  or  who  are  the  owner/manager  of  an
active  business  for  less  than  3  1/2  years.  ‘Global  Entrepreneurship  Monitor  (GEM)  2002  Summary  Report’,
Reynolds, Bygrave, Autio and Hay.

12 ‘Entrepreneurship: A survey of the literature’, David B. Audretsch, October 2002.
13 ‘Entrepreneurship: A survey of the literature’, David B. Audretsch, October 2002.
14 ‘Entrepreneurship  in  the  Netherlands,  Innovative  entrepreneurship.  New  policy  challenges!’  Ministry  of

Economic Affairs and EIM, February 2002.

15 350 000 out of a total of out of 6 million US businesses with employees. ‘White Paper, Embracing innovation:
entrepreneurship and American economic growth’, National Commission on Entrepreneurship (NCOE) 2001.
16 For example in ‘Entrepreneurship: A survey of the literature’, D. Audretsch, October 2002, ‘Entrepreneurship:
Determinants  and  policy  in  a  European-US  comparison’,  edited  by  Audretsch,  Thurik,  Verheul  and
Wennekers, 2002 and in the annual GEM Survey Reports.

6

                                                
Entrepreneurship  can  also  contribute  to  fostering  social  and  economic  cohesion  for  regions
whose development is lagging behind, to stimulating economic activity and job creation or to
integrating unemployed or disadvantaged people into work.17

ii.

Entrepreneurship is crucial to competitiveness

New entrepreneurial initiatives, either starting a new firm or reorienting an existing one (e.g.
after the transfer of a business to a new owner), boost productivity. They increase competitive
pressure,  forcing  other  firms  to  react  by  improving  efficiency  or  introducing  innovation.
Increased  efficiency  and  innovation  within  firms,  whether  in  organisation,  processes,
products, services or markets, enhances the competitive strength of an economy as a  whole.
This process offers consumers benefits through greater choice and lower prices.

iii.

Entrepreneurship unlocks personal potential

An  occupation  is  not  just  a  way  to  earn  money.  People  have  other  criteria  in  their  career
choices, such  as  security,  level  of  independence,  variety  of  tasks  and  interest  in  their  work.
Higher income levels may prompt people to fulfil ‘higher needs’, such as self-realisation and
independence,  through  entrepreneurship.  The  British  Household  Survey  found  that,  in
addition to material motivations (money and status), people chose to become entrepreneurs as
a means to self-fulfilment (freedom, independence and challenge).

For  some,  who  cannot  find  a  regular  job  to  their  satisfaction,  the  choice  of  becoming  an
entrepreneur may stem partly or entirely from economic necessity. Becoming an entrepreneur
may provide them with the prospect of creating a better position for themselves.

Job satisfaction among entrepreneurs is higher than among the employed. In a survey, 33% of
self-employed  without  employees  and  as  many  as  45%  of  self-employed  with  employees
reported being very satisfied with their working conditions against only 27% of employees.18

iv.

Entrepreneurship and societal interests

Entrepreneurs are the drivers of the market economy and their achievements provide societies
with  wealth,  jobs  and  diversity  of  choice  for  consumers.  In  response  to  growing  public
expectations regarding the impact of business activities on society and the environment, many
large  companies  have  adopted  formal  strategies  on  Corporate  Social  Responsibility.  This
includes  voluntarily  integrating  social  and  environmental  concerns  in  their  business
operations  and  in  their  interaction  with  stakeholders,  recognising  that  responsible  business
behaviour  can  support  business  success.  Such  behaviour  can  include,  for  example,  a
commitment  to  producing  in  an  environmentally  friendly  manner  (‘eco-efficiency’)  or
respecting  consumer  concerns  and  doing  business  in  a  consumer-friendly  manner.  SMEs
demonstrate  ‘responsible  entrepreneurship’  in  a  more  informal  way  but  they  provide  the
fabric and focal point for many communities.19

17 See also ‘Joint Report on Social Inclusion’ Council of the European Union, 15223/01, 12.12.2001.
18 ‘Third  European  survey  on  working  conditions  2000’,  European  Foundation  for  the  Improvement  of  Living

and Working Conditions.

19 Commission  initiatives  in  this  area  include  ‘Commission  Staff  Working  Paper  on  Sustainable  Industrial
Development’,  (SEC)  1999,  1729,  European  Commission,  25.10.1999  and  ‘Communication  from  the
Commission  concerning  Corporate  Social  Responsibility:  A  business  contribution 
to  Sustainable
Development’, COM (2002) 347 final, European Commission, 02.07.2002.

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Entrepreneurship  can  also  play  a  positive  role  in  delivering  health,  education  and  welfare
services efficiently. Social economy enterprises encourage the participation of stakeholders in
the  management  and  delivery  of  such  services,  enhancing  innovation  and  client-orientation.
Such an approach can supplement public resources and extend the range of services offered to
consumers.

C.

The European Union’s entrepreneurial gaps and potential

How does the European Union perform on entrepreneurship? To answer this we must look not
only  at  people’s  attitudes  towards  entrepreneurs  or  the  number  of  actual  entrepreneurs,  but
also to dynamism in entrepreneurial activity and entrepreneurs’ performance.20

i.

Measuring entrepreneurship

People’s preferences for self-employment

Europeans prefer employee over self-employed status according to the Eurobarometer survey.
In  Southern  Europe,  Ireland  and  the  UK  there  is  a  relatively  higher  preference  for  self-
employment.  Compared  to  the  EU  average  of  45%,  as  much  as  67%  of  US  citizens  would
prefer to be self-employed.21

People’s involvement in entrepreneurship

The incidence of entrepreneurs, including self-employed and business owners, varies widely
across  Europe,  from  around  6%  in  Denmark  and  Luxembourg  to  13%  in  Spain,  15%  in
Portugal and over 18% in Greece and Italy. This compares with just over 10% in the US.22

Regarding involvement in new entrepreneurial initiatives, the Eurobarometer survey reported
that 4.5% of EU citizens are currently taking steps to start a business, have set up a business
or taken one over in the last three years, ranging from over 6% in the UK and Ireland to less
than  2%  in  France.  At  13%,  the  rate  in  the  US  is  significantly  higher.  More  than  twice  as
many Europeans than Americans gave up their efforts to start a business.

Entrepreneurial dynamism

Despite evidence suggesting a similar degree of “churning” (entry and exit rates of firms), in
some European countries and the US, there is less entrepreneurial dynamism in Europe. US
firms  are  on  average  smaller  at  birth  than  European  firms,  but  (employment)  expansion
among  successful  entrants  in  the  US  is  much  stronger  in  the  initial  years  after  start-up.
Entrepreneurs  in  the  US  appear  to  test  the  market  by  starting  on  a  small  scale  and,  if
successful, expand rapidly, whereas in Europe many business ideas never even see the market
as their viability is questioned even before they are tested in the market place.23 Indeed, the

20 In-depth analysis of factors influencing business dynamics can be found in Entrepreneurship: A survey of the
literature’,  David  B.  Audretsch,  October  2002  and  ‘Business  Demography  in  Europe’,  Observatory  of
European SMEs / No 5, European Commission, 2002.

21 Flash  Eurobarometer  134  ‘Entrepreneurship’,  November  2002,  Further  references  to  the  Eurobarometer

concern the 2002 edition unless specified otherwise.

22 Entrepreneurship as a percentage of the labour force. Entrepreneurs are defined as owners of incorporated and
unincorporated  businesses,  excluding  unpaid  family  workers,  salary  workers  operating  a  business  as  a
secondary  activity  and  business  owners  in  the  agricultural  sector,  ‘COMParative  Entrepreneurship  data  for
International Analysis’ (Compendia 2000.1), EIM.

23 The  analysis  covered  eight  EU  Member  States,  the  US  and  Canada.  ‘The  role  of  policy  and  institutions  for
productivity  and  firm  dynamics:  Evidence  from  micro  and  industry  data’,  working  paper  No  329,  Stefano
Scarpetta et. al., ECO/WKP(2002)15, 23.04.2002.

8

                                                
Eurobarometer  showed that  46% of Europeans  agreed  that  “one  should  not  start  a  business
when there was a risk it might fail” against only 25% of US citizens.

To  illustrate  the  growth  of  entrepreneurial  dynamism  in  the  US,  it  took  20  years  to  replace
one third of the Fortune 500 companies listed in 1960, against four  years for those listed in
1998. Moreover, 8 out of America’s 25 biggest firms today did not exist or were very small in
1960. In Europe, all of the largest firms in 1998 where already large in 1960.24

Job creation

Despite efforts to reduce unemployment from 11% in the early 1990s and although rates vary
between Member States, an average unemployment rate at 7.4% is still a major issue. In the
second  part  of  the  1990s,  all  Member  States  recorded  positive  annual  birth  rates  for
enterprises,25 but there is scope for further improvement. Europe has not developed so many
of the fast-growing entrepreneurial ventures that are an important job engine. During the first
years  of  the  1990s,  19%  of  mid-sized  firms  in  the  US  were  classified  as  fast-growers,
compared to an average of 4% in six EU countries.26

ii.

The challenge for Europe

People’s  attitudes  towards  and  involvement  in  entrepreneurship  vary  widely  across  the  EU
Member States, and differences are even greater between regions. On average, the European
Union has no lack of business owners. However, people’s inclination towards developing new
entrepreneurial  initiatives  in  the  European  Union  could  be  improved.  Compared  to  the  US,
there  is  less  entrepreneurial  dynamism  in  the  European  Union.  Europeans  are  less  involved
than  Americans  in  new  entrepreneurial  initiatives  and  European  businesses  do  not  grow  as
much as in the US.

The European Union’s persistent high unemployment rate, again a more pressing problem for
some Member States than others, suggests that efforts should be made to better exploit the job
creation  potential  of  entrepreneurial  activity.  Besides  encouraging  new  entrepreneurial
initiatives, the growth potential of the European Union’s existing firms should be  unlocked.
They are the core of the Union’s economy and provide continuity, jobs and sound experience.
Out  of  roughly  20  million  SMEs  in  Europe,  some  30%  declare  growth  as  their  main
ambition.27

The challenge for the European Union is to identify the key factors for building a climate in
which  entrepreneurial  initiative  and  business  activities  can  thrive.  Policy  measures  should
seek to boost the Union’s levels of entrepreneurship, adopting the most appropriate approach
for producing more entrepreneurs and for getting more firms to grow.

24 ‘Entrepreneurship  in  the  Netherlands:  Innovative  entrepreneurship.  New  policy  challenges’  Ministry  of
Economic Affairs and EIM, the Netherlands, 2002 and ‘White Paper, Embracing innovation: entrepreneurship
and American economic growth’, National Commission on Entrepreneurship (NCOE), 2001.

25 ‘Business Demography in Europe’, Observatory of European SMEs / No 5, European Commission, 2002
26 Definition: Fast growing firms, doubling their turnover between the reference periods (Europe 90-93 US 91-
94),  as  a  percentage  of  all  mid-sized  companies.  ‘An  international  comparison  of  hypergrowth  enterprises’,
EIM  Small  Business  Research  and  Consultancy,  in  ‘Fostering  Entrepreneurship  in  Europe,  the  UNICE
Benchmarking Report’, 1999.

27 The 20 million enterprises concern the EU, EEA and Switzerland. Ref. Observatory of European SMEs / No 1

Highlights from the 2001 Survey, European Commission, 2001.

9

                                                
III.

POLICY OPTIONS FOR ENTREPRENEURSHIP

Policy can contribute to boosting levels of entrepreneurship. The GEM report observed that,
notwithstanding  the  important  influence  of  macro-economic  conditions  on  entrepreneurial
levels, the ranking order of these levels in the countries surveyed remained relatively stable,
suggesting that enduring national characteristics also have an impact.

The  European  Union  has  already  put  in  place  a  strategy  for  growth-  and  stability-oriented
macro-economic  policies,  which  is  a  prerequisite  for  creating  a  climate  conducive  to
entrepreneurial  initiative.  The  Council  issues  annual  “Broad  Economic  Policy  Guidelines”
addressing  the  Member  States’  national  policies.  In  2002  the  guidelines  recommended
fostering entrepreneurship through, for example, the tax and regulatory environment for new
and existing businesses, insolvency law reforms and promoting efficient financial markets.28

Besides economic opportunities, many other factors condition an individual’s decision to start
a  business  or  the  ambition  of  an  entrepreneur  to  take  risks  or  expand.  More  economic
opportunities  does  not  automatically  lead  to  more  entrepreneurship.  This  also  depends  on
people’s preferences, abilities and the available alternatives. Even when individuals consider
being  an  entrepreneur,  they  weigh  the  pros  and  cons  of  entrepreneurship  against  the
advantages and security they may have to forego.

A  comprehensive  approach  to  promoting  entrepreneurship  must  work  on  three  levels  –
individual, firm and society.

– 

– 

– 

To motivate individuals to become entrepreneurs, they should be made aware of the
concept  of  ‘entrepreneurship’,  and  this  should  be  made  a  sufficiently  attractive
option.  They  should  be  equipped  with  the  right  skills  to  turn  ambitions  into
successful ventures.

For  entrepreneurial  ventures  to  develop  into  healthy  firms,  supportive  framework
conditions  are  essential.  These  should  allow  firms  to  develop  and  grow,  and  not
unduly hinder contraction and exit.

Entrepreneurial  activity  depends  on  a  positive  appreciation  of  entrepreneurs  in
society. Entrepreneurial success should be valued and the stigma of failure reduced.

Entrepreneurship policy aims to enhance entrepreneurial vitality by motivating and equipping
entrepreneurs  with  the  necessary  skills.  A  supportive  environment  for  businesses  is  key  for
businesses to start, stop, take over, thrive and survive.

A.

i.

What does it take to produce more entrepreneurs?

Entry barriers

Despite  recent  improvements,  Europeans  still  consider  administrative  barriers  as  a
major  hurdle  to  starting  a  business.  Business  start-ups  have  difficulties  in  getting  the
seed and early-stage finance they need. Risk-sharing between public and private sectors
can help increase the availability of finance.

28 Council Recommendation of 21 June 2002 on the Broad Economic Policy Guidelines of the Member States and

the Community, 2002/549/EC, OJ L182, 11.07.2002.

10

                                                
When Europeans were asked in the Eurobarometer survey to express their views on obstacles
to starting a business, 69% agreed that the existing administrative procedures were complex
and 76% noted a lack of available finance.

Administrative procedures for enterprise creation have already received substantial attention.
In a benchmarking study the European Commission observed a favourable trend in terms of
time taken to start a business.29 The average time taken to set up an individual enterprise is 12
working days and 24 for a private limited company; these figures continue to fall. However,
some Member States still have some way to go in reducing the time and costs of establishing
an enterprise to the European benchmarks. There is scope for further improvement regarding
multiple procedures, contact points, forms, licences and permits needed and costs.

A one-stop-shop for creating a firm

In  Portugal  Business  Formalities  Centres  have  been  set  up  since  1997  to  facilitate  the
registration  of  new  firms.  These  centres  bring  together  representatives  of  all  public
departments  responsible  for  the  different  formalities  required  in  registering  a  new  firm
(concerning,  for  example,  the  articles  of  association  or  the  business  and  social  security
registers). Future entrepreneurs can obtain advice from a help desk, located within the same
centre.  At  the  same  time,  procedures  have  been  simplified.  As  a  result  the  time  to  set  up  a
business has been reduced by as much as 80% compared to the mid-1990s and Portugal has
committed itself to a further reduction of 50% in 2003.

Access  to  finance  remains  a  major  barrier  for  new  entrepreneurs:  They  have  difficulty
securing bank loans or finding risk capital. Banks want a positive track record and collateral –
which new firms, particularly those developing knowledge-based activities, generally do not
have. Start-ups also experience serious difficulties in covering their working capital needs.

In  addition  to  bank  lending,  start-ups  should  have  better  access  to  alternative  sources  of
finance. Besides venture capital, the potential of informal investments, e.g. family, friends or
business angels, should be further explored. The GEM survey found that informal support for
start-ups was five times that of domestic venture capital support and whereas venture capital
support declined significantly between 2000 and 2001, informal support was more consistent.
To  increase  their  interest  in  risky  enterprises,  private  investors  have  expressed  a  need  for
incentives such as tax breaks.

Risk-sharing  between  banks  and  investors  in  the  private  sector  and  public  financial
institutions specialised in SMEs, or through mutual guarantee societies, is an efficient way of
leveraging  scarce  public  funds  and  has  proved  to  be  successful  in  increasing  funding  for
business start-ups.

ii.

Risk and reward

In Europe, the  risks associated  with  entrepreneurship  are not  adequately offset  by the
prospect  of  reward.  This  calls  for  a  re-examination  of  the  balance  of  the  risks  and
rewards associated with entrepreneurship.

A failed entrepreneur faces the stigma of failure. When the Eurobarometer asked Europeans
to  identify  their  primary  concerns  in  relation  to  the  risk  associated  with  entrepreneurship,
going bankrupt and losing personal property were prevalent. In addition to the social stigma, a

29 ‘Benchmarking the administration of start-ups’, European Commission, January 2002.

11

                                                
personal  bankruptcy  implies  severe  legal  consequences.  Discharge  of  remaining  debts  may
take  years, bankrupts  may  lose their possessions and be  subject  to  certain  restrictions.  Such
consequences  are  justified  in  cases  of  fraud  or  dishonesty,  but  failure  is  an  intrinsic  part  of
economic life and a proportion of entrepreneurs go bankrupt because they cannot compete in
the market. Insolvency laws could be reviewed to reduce barriers to making a fresh start for
honest  entrepreneurs.  This  should  not,  of  course,  unduly  harm  creditors’  interests,  which
might increase their reluctance to invest in small and new ventures.

Insolvency laws

Belgium  has  adapted  its  insolvency  legislation  with  a  view  to  allowing  entrepreneurs  to
attempt  to  rescue  businesses  when  facing  temporary  problems  and  to  liquidate  non-viable
firms  as  quickly  as  possible.  Courts  can  declare  honest  bankrupt  entrepreneurs  to  be
‘excused’, allowing them to make a fresh start in business.

People might be more willing to accept the risk of entrepreneurship if it were compensated by
the prospect of reward in the event of success. A recent trend to reduce tax levels on the self-
employed and small businesses is observed in the European Union and steps are being taken
to  reduce  the  tax  burden  on  potential  self-employed  people.  Nonetheless,  in  some  Member
States  such  tax  rates  remain  high,30  reducing  the  possibility  for  entrepreneurs  to  create  and
retain wealth. In becoming self-employed, one often has to opt for reduced social protection.
A social protection system tailored to the needs of entrepreneurs could make entrepreneurship
more attractive.

Reducing the cost of entrepreneurship

The French government intends to facilitate the change-over from employee to entrepreneur.
This  action,  which  is  part  of  a  comprehensive  initiative  to  boost  firm  creation,  includes
measures  to  reduce  barriers  for  employees  who  want  to  start  up  a  company  either
independently  or  with  their  employer.  It  will  also  remove  discriminatory  fiscal  and  social
charges for nascent entrepreneurs who still have employee status.

More  than  twice  as  many  Europeans  would  prefer  starting  a  business  than  taking  over  an
existing  one.31  However,  taking  over  a  firm  may  be  an  attractive  alternative  with  less  risk
involved. For example, in Austria 96% of successful business transfers survive the  first five
years after a transfer in comparison with 75% of start-ups.32 Around one-third of enterprises
in the European Union are expected to need new owners in the next ten years, either due to
retirement or for other reasons. These will provide many opportunities for taking over existing
firms.

iii.

Fostering capacity and skills

Education and training should contribute to encouraging entrepreneurship, by fostering
the right mindset, awareness of career opportunities as an entrepreneur and skills.

The  Eurobarometer  revealed  that  37%  of  Europeans  are  considering  or  had  considered
becoming entrepreneurs, yet only 15% turned their aspirations  into reality. Surveys  seem to
indicate that knowing about how to start a business increases the likelihood of becoming  an

30 ‘Communication  from  the  Commission  to  the  Council,  Draft  Joint  Employment  Report’,  COM  (2002)  621

final, 13.11.2002.

31 Flash Eurobarometer 107 ‘Entrepreneurship’, November 2001
32 ‘Business transfers and successions in Austria’, Austrian Institute for Small Business Research, 2002.

12

                                                
entrepreneur.  Respondents  in  the  Eurobarometer  survey  with  self-employed  parents  were
found to be more ‘self-employed-oriented’ than those with parents who were employees. The
GEM  survey  found  that  people  who  are  confident  about  their  skills  and  experience  are
between two and seven times more likely to be involved in starting or running a new business;
those that know someone who recently started a business are three to four times more likely.
The  British  Household  Survey  found  that  those  previously  exposed  to  entrepreneurship
(through  friends,  family  or  education)  were  more  likely  to  seriously  consider  starting  a
business.  The  education  system  can  provide  both  skills  and  exposure  as  a  contribution  to
fostering entrepreneurship.

Running a virtual enterprise within school

Virtual enterprises are used as a training aid for students in the Sivitanidios Technical School
in Athens, Greece. The students divide their time between theoretical courses and running a
virtual  enterprise.  This  programme  will  be  extended  to  all  technical  schools  due  to  its  very
positive  results.  A  course  on  entrepreneurship  has  also  been  added  to  the  curricula,  which
will  cover  entrepreneurship  theory  and  practical  guidance  on  preparing  business  plans.
Liaison offices will ensure that students receive advice and support for entrepreneurial career
options.

Setting up a business calls for drive, creativity and persistence, whereas developing a business
gradually  requires  more  managerial  skills,  such  as  efficiency,  effectiveness  and  reliability.
Considering  that  both  personality  and  management  skills  are  key  elements  for  success,
personal  skills  relevant  to  entrepreneurship  should  be  taught  from  an  early  stage  and  be
maintained up to university level, where the focus can  concentrate  on  building management
capacity.33  The  European  Commission  found  that  most  Member  States,  to  varying  degrees,
are  now  committed  to  promoting  the  teaching  of  entrepreneurship  in  their  education
systems.34

Within universities, entrepreneurship training should not only be for MBA students, it should
also  be  available  for  students  in  other  fields.  For  example  in  technical  universities
entrepreneurship  training  may  contribute  to  matching  entrepreneurial  and  technological
potential. Entrepreneurship education in combination with public research programmes brings
together the ingredients to match scientific excellence with the commercialisation of results.

Support for starting entrepreneurs within the campus environment

Enterprise  Ireland  is  implementing  a  strategy  for  developing  high-growth  start-ups  with  a
focused package of support geared to increasing the number  and intensity  of  campus-based
ventures.  The  programme  is  part  of  the  Irish  regional  growth  strategy  and  includes  a  one-
year incubation programme for graduates who wish to start a firm, providing hands-on and
management  support.  Under  the  Campus  Company  Programme,  academics  can  obtain
financial support for turning their research results into commercial reality.

33 Study from the University Nijenrode, April 2000 in ‘De succesvolle ondernemer’, Ministerie van Economische
Zaken en de Nederlandse Vereniging van Participatiemaatschappijen, Den Haag, Nederland, November 2001.

34 Best Procedure Project on ‘Education and Training for Entrepreneurship’, European Commission, 2002.

13

                                                
Business  incubators  are  effective  in  delivering  support  to  new  entrepreneurs.  Firms  in
incubators  have  better  chances  of  survival  than  those  outside  and  incubators  are  a  cost-
effective instrument for the promotion of public policy objectives. This success explains why
their numbers are growing rapidly; there are now over 850 in the European Union.35

iv.

Making entrepreneurship accessible to all members of society

Entrepreneurship  should  be  widely  promoted,  with  particular  focus  on  women  and
other underrepresented groups. Ethnic minorities display high levels of entrepreneurial
flair and even greater potential. The business support services available seem to respond
less well to their specific needs.

There are considerably fewer female than male entrepreneurs in Europe, proportions of self-
employed women ranging from 16% in  Ireland to  40% in  Portugal.36 Women  entrepreneurs
face the difficulties commonly faced by all entrepreneurs, but in certain cases these issues, for
example raising finance, appear to be more significant for them. Women also frequently lack
the  necessary  confidence  and  skills  to  successfully  start  and  run  a  business.  There  are  a
variety  of  reasons  for  this  including  the  choice  of  activity,  information  gaps,  perceived
discrimination, lack of networks or difficulties in combining work with family obligations.37

The European  Commission has facilitated exchanges of  good  practice  on  policy  to  promote
entrepreneurship  among  women  through  the  ‘WES  Network’,  which  brings  together
government officials with responsibility for promoting women entrepreneurs.38

Women consultants for women entrepreneurs

NUTEK, in Sweden, started the Business Consultants for Women Project, under which female
consultants  provide  advice  and  non-financial  assistance  to  women  entrepreneurs.  This
responds  to  evidence  showing  that  many  women  prefer  to  turn  to  other  women  for  advice
when  it  comes  to  running  a  business.  The  consultants  advise  on  business  issues  and  wider
concerns  such  as  how  to  combine  family  life  with  running  a  business.  NUTEK  provides
training and exchanges of experience for the consultants.

Ethnic minority businesses in Europe display a strong entrepreneurial capacity and potential.
Ethnic  entrepreneurs  are  a  heterogeneous  group  in  terms  of  language,  socio-economic
positions  and  culture,  which  is  reflected  in  the  nature  of  their  business  activities.  Even  so
many are concentrated in low entry threshold activities and have difficulty in breaking out of
these.  The  problems  ethnic  entrepreneurs  face  are  generally  similar  to  those  of  all
entrepreneurs,  but  they  seem  to  benefit  less  than  average  from  public  business  support
services and are less involved in business organisations.39

35 ‘Benchmarking of Business Incubators’, European Commission, February 2002.
36 ‘Annual Labour Force Statistics’, European Commission, 2001.
37 Best Project on ‘Promoting entrepreneurship amongst  women’ and the study  ‘Young  Entrepreneurs,  Women
Entrepreneurs,  Co-Entrepreneurs  and  Ethnic  Minority  Entrepreneurs  in  the  European  Union  and  Central  and
Eastern Europe’, European Commission, July 2000.

38 Further information at http://europa.eu.int/comm/enterprise/entrepreneurship/craft/craft-women/wes.htm.
39 ‘Young  Entrepreneurs,  Women  Entrepreneurs,  Co-Entrepreneurs  and  Ethnic  Minority  Entrepreneurs  in  the

European Union and Central and Eastern Europe’, European Commission, July 2000.

14

                                                
A European-wide network of ethnic entrepreneurs has been suggested to facilitate sharing of
experiences and to suggest remedies to the issues identified.40 In the context of its policy on
immigration, the European Commission has put forward two proposals for directives, which
will contribute to facilitating business start-ups by entrepreneurs from third countries.41

B

How can enterprises be geared to growth?

Entrepreneurs are faced with many obstacles. Complying with administrative regulations and
their  related  costs  remains  a  significant  burden.  Access  to  skilled  workers,  the  degree  of
flexibility  of  the  labour  market  and  appropriate  finance  are  also  constraints  on  business
performance.42 In addition, businesses should be helped to make the most of the opportunities
offered by the Internal Market and to innovate.

i.

The regulatory environment

Despite ongoing efforts for improvement, entrepreneurs still point to red tape as a major
hurdle  to  running  a  business,  particularly  for  those  who  want  to  operate  and  grow
within the Internal Market.

Regulation  is  not  generally  differentiated  according  to  firm  size,  and  therefore  often
disproportionately affects smaller firms. Public authorities must be encouraged to ‘think small
first’,  keeping  regulation  as  simple  and  appropriate  as  possible.  To  reduce  administrative
burdens,  a  number  of  Member  States  have  established  exceptions  for  SMEs  or  provide
administrative  services  to  support  them.  Provision  of  information  and  support  can  help
entrepreneurs in dealing with red tape.

EasyPay

Denmark  has  introduced  a  new  system  for  handling  salaries.  By  signing  up  for  ‘EasyPay’,
which is voluntary and free of charge, employers can provide information about salaries and
employees to one place. This is then distributed to all relevant authorities. EasyPay is part of
the “E-administration” initiative, which also includes www.indberetning.dk, where all forms
from  public  authorities  relevant  for  businesses  are  collected  electronically,  and  Webreg,
which enables new limited liability companies to register online. Registration via Webreg is
made legally binding by use of digital signature.

Virtual help with administrative procedures

Austria  has  introduced  a  website  (www.help-business.gv.at)  offering  entrepreneurs  concise
information on administrative procedures. All procedures which can be accomplished on-line
are accessible via one administrative tool (@mtsweg online). Entrepreneurs can fill in their
municipal tax declarations using a tool called HELP, which sends the data to the competent
authority.  The  website  also  provides  extensive  information  on  various  aspects  of  running  a
business, from ‘registering staff’ to ‘annual leave’.

40 This  suggestion  grew  out  of  a  seminar  on  ethnic  entrepreneurship,  involving  academics,  policy-makers  and

business organisations, and organised by the European Commission in June 2002.

41 ‘Proposal for a Council Directive on the conditions of entry and residence of third-country nationals for the
purpose  of  paid  employment  and  self-employed  economic  activities’,  COM  (2001)  386  final,  11.07.2001,
‘Proposal  for  a  Council  Directive  concerning  the  status  of  third-country  nationals  who  are  long-term
residents’, COM (2001) 127 final, 13.03.2001.

42 ‘Observatory  of  European  SMEs  /  No  1  Highlights  from  the  2001  Survey’,  European  Commission,  2001,

‘European Business Survey’, Grant Thornton, 2002; and ‘Business Views on Red Tape’, OECD, 2002.

15

                                                
Following a survey among European firms on the quality of their regulatory environment, the
European  Commission  estimated  that  €50  billion  could  be  saved  with  better  quality
legislation.43 The Commission is committed to improving the quality of legislation44 and has
therefore taken a set of initiatives at EU level, including an action plan for better regulation,
minimum  standards  for  consultation  on  new  policies  and  a  systematic  approach  to  impact
assessment.45  The  Commission  is  also  developing  mechanisms  for  consulting  businesses
under  the  ‘Interactive  Policy  Making  Initiative’  and  has  created  a  platform  for  the  Member
States to exchange views on their own Business Impact Assessment systems.46

In 2002 an SME Envoy was nominated within the European Commission to act as an active
interface with the business community and to ensure that the interests of SMEs are identified
and properly taken into account across the  relevant Commission services. Similar  initiatives
have also been taken in some Member States.

The  Internal  Market  has  considerably  reduced  barriers  to  doing  business  in  the  European
Union. The Union has continued to make good progress in extending the Internal Market (e.g.
in  the  financial  sector),47  but  a  gap  persists  between  the  vision  of  an  integrated  European
economy  and  the  reality  as  experienced  by  providers  and  users.  The  Internal  Market
Strategy,48  a  five-year  programme,  focuses  on  those  areas  where  progress  is  most  urgently
needed,  such  as  intellectual  property,  public  procurement  rules  and  barriers  affecting
services.49  European  entrepreneurs  have  an  interest  in  further  harmonisation  to  enhance
consumer  protection,50  as  cross-border  business  activities  would  benefit  from  an  Internal
Market attractive to consumers.

ii.

Taxation

Appropriate  tax  measures  can  contribute  to  the  development,  growth  and  survival  of
firms.

The  structure  of  the  tax  system,  including  income  and  corporate  tax,  labour  tax  and  VAT,
influences  the  ability  of  firms  to  expand.  The  complexity  of  tax  systems  is  in  itself  an
administrative burden for entrepreneurs. The European Commission has identified a number

43 ‘Internal Market Scoreboard’, No 9, European Commission, 19.11.2001.
44 ‘European Governance - White Paper’, COM (2001) 428 final, 25.07.2001.
45 Communications  from the Commission  ‘European Governance: Better  Lawmaking’,  COM  (2002) 275  final,
‘Impact  Assessment’,  COM  (2002)  276  final,  ‘Consultation  document:  Towards  a  reinforced  culture  of
consultation  and  dialogue  –  proposal  for  general  principles  and  minimum  standards  for  consultation  of
interested  parties  by  the  Commission’,  COM  (2002)  277  final,  ‘Action  plan:  Simplifying  and  improving  the
regulatory environment’, COM (2002) 278 final 05.06.2002.

46 Interactive Policy Making Initiative, IPM C (2001) 1014. Final Report from the Business Impact Assessment

Pilot Project, March 2002.

47 ‘Communication of the Commission, Risk Capital: A key to job creation in the European Union’, SEC (1998)
552,  31.03.1998;  ‘Communication  of  the  Commission,  Financial  Services,  Implementing  the  framework  for
financial markets: Action Plan’, COM (1999) 232 final, 11.05.1999.

48 ‘Communication  from  the  Commission  to  the  Council,  the  European  Parliament,  the  Economic  and  Social
Committee  and  the  Committee  of  the  Regions,  2002  Review  of  the  Internal  Market  Strategy,  Delivering  the
promise’, COM (2002) 171 final, 11.04.2002.

49 The  ‘Report  from  the  Commission  to  the  Council and  the  European  Parliament  on  the  State  of  the  Internal

Market for Services’, COM (2002) 441 final, shows the existence of a huge ‘delivery’ gap for services.

50 Eurobarometer  57.2  Flash  Eurobarometer  128  ‘Public  opinion  in  Europe:  Views  on  business-to-consumer

cross-border trade’, 14.11.2002

16

                                                
of  tax  obstacles  to  cross-border  activities  in  the  Internal  Market  and  highlighted  remedies,
which are being further examined.51

As  marginal  income  tax  rates  increase,  entrepreneurs  tend  to  expand  their  business  more
slowly,  to  invest  less  and  to  hire  fewer  staff.52  The  level  of  labour  tax  may  also  influence
firms’  decisions  to  hire  staff.  Tax  reforms  in  recent  years  have  contributed  towards  a  clear
trend in reducing the tax burden on labour in the European Union although labour taxes in a
number of Member States remain high.53

As  regards  national  activities,  the  Commission  has  made  recommendations54  specifically
geared  towards  SMEs  to  encourage  transfers  of  businesses  by,  for  example,  waiving
registration  fees  or  deferring  taxes,  but  little  progress  has  been  made.  The  tax  treatment  of
business transfers is of particular concern to family businesses, which make up a significant
proportion of Europe’s firms. Retirement and succession can be hindered by inappropriate or
complex  tax  arrangements.  At  worst  this  can  result  in  the  immediate  closure  of  such
businesses or can damage the future viability of the firm.

Reduction of inheritance and gift taxes

In  Spain,  in  the  case  of  a  mortis  causa  or  inter  vivos  transfer  of  an  individual  business,  a
professional business or of shareholdings, a 95% reduction of the value of the taxable amount
may be applied in certain cases, provided that the holding is maintained for ten years and the
beneficiary  is  entitled  to  an  exemption  from  Estate  Tax  during  the  same  period  (the  latter
applies only in the event of inter vivos transfers).

iii.

Access to skilled labour

Bottlenecks  in  the  labour  market  create  barriers  to  growth  and  efforts  to  develop  the
skills of workers need to be intensified.

Although  unemployment  still  constitutes  a  major  challenge  for  the  European  Union,  recent
years have also witnessed increasing recruitment difficulties in certain regions and sectors. In
the  later  1990s,  most  new  jobs  were  for  medium  to  highly  skilled  workers,  whereas
employment for low skill workers fell. The growth of demand for highly skilled workers has
outstripped the growth of supply.55 The Council emphasised the need to ensure that the skills
of  the  labour  force  correspond  to  the  economic  and  technological  evolution.56  Life-long
learning is an effective means of building such skills. Today many Europeans are involved in

51 ‘Communication from the Commission to the Council, the European Parliament and the Economic and Social
Committee  Towards  an  Internal  Market  without  tax  obstacles’,  COM  (2001)  582  final,  23.10.2001  and  the
‘Commission Staff Working Paper, Company Taxation in the Internal Market’ SEC (2001) 1681, 23.10.2001.
52 ‘Economic  policy  and  the  start-up,  survival  and  growth  of  entrepreneurial  ventures’,  Holtz-Eakin  &  Rosen,

prepared for the Small Business Administration, Washington DC, May 2001.

53 ‘Communication  from  the  Commission  to  the  Council,  Draft  Joint  Employment  Report’,  COM  (2002)  621

final, 13.11.2002.

54 ‘Commission Recommendation of 07.12.94 on the transfer of SMEs’, 94/1069/EC, OJ L 385, 31.12.1994
55 ‘Commission Staff Working Paper, European Competitiveness Report’, SEC (2002) 528, 21.05.2002.
56 ‘The  concrete  future  objectives  of  education  and  training  systems’  Council  of  the  European  Union,  5980/01

EDUC 23, 14.02.2001.

17

                                                
life-long  learning,  but  to  varying  degrees.57  Other  bottlenecks  affecting  the  flexibility  of
labour market should also be addressed.

Firms  are  already  responding  to  the  skills  gap,  for  example  by  providing  either  formal  or
informal  training  to  their  staff.  In  a  survey  46%  of  respondents  would  consider  employing
(more) people from another country, particularly for professional positions. Among the main
obstacles  mentioned  were  language  skills,  work  permits  and  administrative  complications.
Almost all EU  businesses  expected  enlargement to  have  a  positive  or  neutral  impact  on  the
firm’s labour supply.58

The European Commission adopted an Action Plan on Skills and Mobility in 2002 to improve
occupational  and  geographic  mobility.59  In  2001,  the  Commission  adopted  a  proposal  to
facilitate recruitment from third countries where there is a proven economic need for workers
in  a  specific  job  or  sector  that  cannot  be  filled  within  the  European  Union  (e.g.  through
unifying the residence and work permits into a single permit).60

Enterprise management incentives

The  UK  government  provides  incentives  to  help  small  higher-risk  companies  to  recruit  and
retain  the  employees  they  need  to  help  them  achieve  their  growth  potential.  The  scheme
enables companies to give fiscally attractive share options to key employees.

iv.

Access to finance

Access  to  finance  is  indispensable  for  growth  but  many  SMEs  have  difficulties,  as  the
risk capital market is underdeveloped and banks increasingly avoid risky lending.

About  20%  of  small  enterprises  report  problems  accessing  long-term  finance.61  Despite
differences between Member States, loans continue to dominate SME finance in the European
Union.  Banks  increasingly  use  mechanisms  to  rate  SMEs,  which  means  that  loan  costs  are
adapted  to  the  level  of  risk  associated  with  an  individual  SME.  Furthermore,  the  high
overhead costs of small loans make these unattractive for banks.

Europe should continue to develop its risk capital markets as an alternative to bank lending.
US  firms  tend  to  have  stronger  balance  sheets  than  European  ones  (with  on  average  about
50% of equity capital,  against  only  about  30%  in  Europe).  Although  about  7  000  European
firms  received  early-stage  or  expansion  capital  from  venture  capital  funds  in  2001,  these
tended to be high-tech and high-growth firms.62

57 The percentage of the population aged 25-64 participating in education and training over the four weeks prior
to the survey varies from some 20% in the UK to only around 5% in several EU Member States. ‘Structural
indicators’, Eurostat, 2002

58 The  survey  included  Austria,  Belgium,  Croatia,  Czech  Republic,  Denmark,  Germany,  Greece,  Cyprus,
Hungary, Iceland, Italy, Luxembourg, Portugal, Romania, Slovenia, Turkey and the UK. ‘European Business
Panel Survey 2002, Skills, mobility and training for competitiveness’, Eurochambres, 2002.

59 ‘Communication  from  the  Commission  to  the  Council,  the  European  Parliament,  the  Economic  and  Social
Committee and the Committee of the Regions - Commission’s Action Plan for skills and mobility’, COM (2002)
72 final, 13.02.2002.

60 ‘Proposal for a Council Directive on the conditions of entry and residence of third-country nationals for the

purpose of paid employment and self-employed economic activities’, COM (2001) 386 final, 11.07.2001.

61 ‘European Business Survey, Grant Thornton, 2002’.
62 ‘Annual survey of pan-European private equity and venture capital activities’, EVCA Yearbook 2002.

18

                                                
To act as catalysts for private investors and to increase the supply of SME guarantees, public
institutions have developed programmes in support of SMEs covering a range of instruments
from micro-credits to venture capital. At EU level, the European Investment Fund manages a
series  of  financial  instruments  funded  under  the  Multiannual  Programme  for  Enterprise  and
Entrepreneurship.63  Within  the  Structural  Funds,  the  European  Commission  has  asked
Member  States  to  privilege  risk  capital  financing;  this  has  resulted  in  a  doubling  of  such
financing under these programmes.

Access to micro-loans

Finnvera, the public SME  finance  institution  in  Finland,  runs  a  micro-loan  programme  for
existing  and  new  micro-enterprises,  which  has  financed  investments,  working  capital  and
business development for 2 741 entrepreneurs amounting to €45.5 million in 2001. It finances
up to 75% of the total financing requirement. Loans are between €3 400 and €35 000. This
programme  combines  state  and  EU  regional  fund  guarantees  against  losses  and  includes  a
business assessment tool aiming to promote a high survival rate among the entrepreneurs.

Entrepreneurs  should  be  helped  to  overcome  their  reluctance  to  accept  outside  investors.
Investors need quality information about firms, which entrepreneurs must be able to provide.

v.

Helping firms to exploit knowledge and international opportunities

To  reap  the  benefits  of  the  Internal  Market  and  to  meet  the  challenge  of  fiercer
competition,  entrepreneurs  should  be  encouraged  to  innovate  and  to  internationalise.
For this, they should have access to knowledge, relevant contacts, training and top-class
business support services.

SMEs  consider  that  the  Internal  Market  has  led  to  more  competition,  but  also  to  new
opportunities  for  expansion.64  Competitive  pressure  drives  firms  to  continuously  exploit
knowledge  and  innovation.  Firms  can  innovate  in  different  ways,  including  technological
development,  quality  management,  new  ways  of  organising  work  or  distribution  channels,
brands or design. Human  capital is critical  to generating  creative or innovative ideas.  Firms
can  gain  from  capitalising  on  the  informal  knowledge,  competencies  and  networks  of  their
own  employees.  This  calls  for  encouragement  of  entrepreneurial  attitudes  amongst
employees, which can be done by offering financial participation. The European Commission
recently  adopted  a  Communication  on  employee  financial  participation.65  Entrepreneurial
attitudes among staff can be further increased where financial participation is accompanied by
greater influence of employees in a firm’s decision-making process.66

Industrial districts

The economic landscape in Italy is characterised by the presence of a multitude of industrial
districts  (clusters),  which  are  agglomerations  of  small  firms  specialised  in  a  single  sector.
The districts combine both competition and co-operation between firms to boost their overall

63 Council  Decision  (2000/819/EC)  of  20.12.2000  on  a  multiannual  programme  for  enterprise  and

entrepreneurship, and in particular for small and medium-sized enterprises (SMEs) (2001-2005).

64 ‘European Business Survey’, Grant Thornton, 2002.
65 ‘Communication  from  the  Commission  to  the  Council,  the  European  Parliament,  the  Economic  and  Social
Committee  and  the  Committee  of  the  Regions  on  a  framework  for  the  promotion  of  employee  financial
participation’, COM (2002) 364 final, 05.07.2002.

66 ‘Shared  modes  of  Compensation  and  Firm  Performance:  UK  Evidence’,  Martin  J.  Conyon  and  Richard  B.

Freeman (LSE and Harvard).

19

                                                
performance.  At  national  level  there  is  a  law  on  industrial  districts,  while  support  and
policies are mostly developed at regional level (e.g. Veneto, Lombardy, Emilia Romagna). To
enhance their quality and effectiveness a number of districts are  organised  in the ‘Club dei
Distretti Industriali’, representing 40% of all districts, or 30 000 firms and 250 000 jobs. The
Club  aims  to  develop  a  network  among  Italian  and  foreign  industrial  districts  to  exchange
information, to promote access to research and to represent the districts’ interests.

The conditions for SMEs to internationalise should be improved. Whereas in the Observatory
for  European  SMEs’  survey  about  one-third  of  SMEs  reported  an  increase  in  their
international business contacts over the last five  years, the European Business Survey found
that they are no more likely now to be trading in the wider Internal Market than ten years ago.
SMEs  express  a  preference  for  operating  independently  when  they  internationalise,  but
nonetheless  rely  on  advice,  through  local  and  regional  networks,  from  other,  mainly  large
international,  firms,  personal  relations  and  intermediaries.67  Promoting  regional  networks  or
clusters  could  not  only  help  entrepreneurs  to  share  experience  about  expansion,  but  also  to
gain access to knowledge, partners and advice.

Entrepreneurs need to update and develop their managerial skills to keep ahead in a changing
economy,  but  long  working  hours  make  it  difficult  for  most  of  them  to  attend  courses.
Alternative  learning  tools,  such  as  distance  training  for  managers68  or  mentoring  schemes
where  entrepreneurs  can  learn  from  each  other,  merit  further  attention.  ICT  learning  tools
tailored to the needs of SMEs should be further developed to stimulate the understanding and
take-up of such tools by entrepreneurs.

To compensate for the lack of personal expertise  in  the  increasingly  varied  skills  needed  to
run  a  business,  entrepreneurs  must  have  access  to  top-class  business  support.  Today,  fewer
than  20%  of  small  firms  make  use  of  public  support  services.69  Generally  speaking,  such
services  must  further  develop  their  client-orientation,  ICT  facilities  and  professional
standards.70 The European Commission already provides financial aid, through the Structural
Funds, to develop different types of business support services.

vi.

Intrapreneurship and corporate venturing

‘Intrapreneurship’  and  corporate  venturing  provide  an  effective  means  of  developing
entrepreneurial ventures that would otherwise be left unexploited.

Results from R&D or innovation in large firms, universities or research institutes, which they
do  not  want  to  exploit  themselves,  can  be  commercialised  through  ‘spin-offs’,  managed  by
(former)  employees:  a  practice  known  as  intrapreneurship.  For  example,  in  the  Netherlands
almost a quarter of larger firms have helped employees to set up their own business in the past
5 years. Although most firms are positive about intrapreneurship the initiative is usually left
to the employees.71 Many employers nevertheless provide support once the spin-off is started,

67 ‘Internationalisation  of  European  SMEs’,  co-ordinated  by  the  Institut  fur  Soziologie,  Friedrich  Schiller

Universität Jena et al., April, 2002.

68 See also ‘A study and analysis of management training techniques for the Heads of SMEs’, particularly using

the ICTs’, European Commission, December 2000.

69 ‘Support services for micro, small and sole proprietor’s businesses, final report’, European Commission, June

2002

70 ‘Commission Staff Working Paper Creating Top-class Business Support Services’ SEC (2001) 1937, European

Commission, 28.11.2001.

71‘Entrepreneurship in the Netherlands New economy:  new entrepreneurs!’, Ministry of Economic  Affairs and

EIM January 2001.

20

                                                
for example in the form of knowledge, contacts, work or finance. In a comparison with other
SMEs, spin-offs demonstrated higher than average levels of innovation and growth.72

Regional networks to foster entrepreneurship

The ‘EXIST Programme’ in Germany was launched by the Federal Ministry of Education and
Research  to  promote  regional  co-operation  between  universities,  technical  colleges,  the
business sector and other partners. It brings together players who would not otherwise have
worked together to jointly create a more entrepreneurial mentality in higher educational and
research institutions, to foster knowledge spill-over and to capitalise on the potential of ideas
and entrepreneurs. This should lead to more innovative start-ups and new jobs.

It is natural for firms of all sizes to work together for their mutual benefit. Alliances between
large  and  small  firms  are  increasingly  important,  providing  the  flexibility  required  in  the
innovative economy and the critical mass to  conquer markets on a larger  scale.  Large firms
gain access to new markets, technology and innovations  and smaller firms  can benefit  from
improved access to finance, knowledge and networks.

C.

i.

Towards an entrepreneurial society

More positive attitudes towards entrepreneurship

Building  an 
towards
entrepreneurial initiative, and failure, must be made more positive. Crucial to achieving
this are those on whom today’s and future entrepreneurs depend.

everyone.  Attitudes 

entrepreneurial 

involves 

society 

Entrepreneurship  was  recognised  by  the  Council  as  worthy  of  promotion  because
entrepreneurial skills and attitudes provide benefits to society, even beyond their application
to  business  activity.73  To  appreciate  entrepreneurship,  society  must  value  and  celebrate
successful  entrepreneurs  and  tolerate  failure.  Positive  attitudes  towards  entrepreneurship  are
particularly important among those on whom today’s and future entrepreneurs depend, such
as  schools,  universities,  investors,  local  communities,  regions,  business  organisations,
business  advisers  and  the  media.  One  way  of  encouraging  such  positive  attitudes  is  by
providing role models through the ‘showcasing’ of success stories.

Showcasing entrepreneurship

Luxembourg has introduced prizes to reward successful business projects. Supported by the
European Commission, the Chambre des Métiers awards a prize to young entrepreneurs. The
Ministry in charge of gender equality awards a prize for successful businesses run by women.
A high-profile prize for innovative business ventures attracts considerable attention amongst
the target audience of industry representatives and young researchers.

72 ‘Spin off start-ups in the Netherlands At first glance’, EIM, May 2002.
73 ‘The  concrete  future  objectives  of  education  and  training  systems’  Council  of  the  European  Union,  5980/01
EDUC  23,  14.02.2001  and  ‘Detailed  work  programme  on  the  follow-up  of  the  objectives  of  education  and
training  systems  in  Europe’,  adopted  by  the  Council  and  the  Commission;  Council  of  the  European  Union,
EDUC 27, 6365/02, 20.02.2002 and COM (2001) 501 final.

21

                                                
Training teachers

The  University  of  Strathclyde  in  the  UK  offers  a  programme  to  promote  a  positive  attitude
towards  entrepreneurship  amongst  teachers.  The  content  of  the  programme  is  flexible  and
geared to ‘learning by doing’. Tasks include writing a business plan and taking management
decisions,  with  the  support  of  a  tutor.  Teachers  learn  about  entrepreneurial  skills  and
attitudes, but also how they can apply this experience to enterprise education in their schools.

Despite  evidence  that  failed  entrepreneurs  learn  from  their  mistakes  and  perform  better  in
their next businesses,74 they nevertheless face the stigma of failure. They are confronted with
a lack of trust  among  consumers and  are often required  to provide  additional  guarantees  by
investors  and  business  partners.75  45%  of  European  citizens  said,  in  the  Eurobarometer
survey, that they would be less inclined to place an order with such a business. Society should
rather give failed entrepreneurs a chance to make a fresh start.

ii.

Entrepreneurship’s role in achieving social objectives

The  social  economy  and  social  enterprises  apply  business  principles  and  efficiency  to
achieving  social  and  societal  objectives.  Such  enterprises  face  particular  challenges  in
accessing finance, management training and advice.

The social economy is made up of enterprises, including co-operatives, mutuals, associations
and  foundations,  whose  primary  objective  is  to  provide  services  to  their  members  or  to  a
wider  community.  Social  economy  enterprises,  accounting  for  nearly  8%  of  private  sector
jobs in Europe,76 are often able to survive and provide quality services in circumstances that
‘investor-driven’  firms  would  find  less  lucrative.  However,  their  specific  management
structures,  stakeholder  groups  and  capital  structures  necessitate  adapted  skills  amongst
managers and board officials.

Many local authorities have sought to combine the positive aspects of the private and public
sectors  to  increase  efficiency  in  the  delivery  of  public  services.  This  partly  explains  the
growing  importance  of  ‘social  enterprises’,  having  primarily  social  or  societal  objectives,
which now provide 3.5 million jobs in the European Union.77

IV.

THE WAY FORWARD

A.

i.

A co-ordinated approach to entrepreneurship policy

Co-ordinating entrepreneurship policy amongst all policy-makers

Entrepreneurship  requires  a  co-ordinated  approach  because  of  its  horizontal  nature.  Policy
should embrace all the influential elements within the relevant policy areas, to allow these to
act in a mutually reinforcing way. Within public authorities, co-ordinating services can forge
links between different departments, and  regional and  local authorities,  to  identify  priorities

74 ‘Seminar  on  Business  Failure’,  European  Commission  and  Ministry  of  Economic  Affairs,  Noordwijk,  the

Netherlands, 10-11 May 2001.

75 ‘Bankruptcy and a fresh start’, European Commission, August 2002.
76 7.92% of full-time equivalent salaried civil employment (1995-1997), ‘The Third  System  and  Employment’,

CIRIEC, 2000.

77 ‘Researching social enterprise’, David Smallbone et al., the UK Small Business Service.

22

                                                
and  ensure  a  coherent  approach.  The  European  Commission  could  assume  a  co-ordinating
role at EU level.

A co-ordinated approach

In  the  Netherlands,  a  co-ordinated  approach  to  entrepreneurship  has  been  put  in  place,
involving interaction between various government departments, public agencies and business
owners.  It  was  considered  crucial  to  involve  the  regions,  which  are  directly  involved  in
implementing  entrepreneurship  policy.  The  regions  agreed  with  the  Ministry  of  Economic
Affairs to jointly undertake action on key issues, such as stimulating an entrepreneurial spirit
within higher education and facilitating the development of integrated support services.

ii.

Learning from the best

In  many  aspects  of  entrepreneurship,  some  Member  States  are  outperforming  others  and
might  serve  as  inspiration.  The  European  Commission  helps  Member  States  to  learn  from
each  other  on  the  basis  of  the  ‘open  method  of  co-ordination’  whereby  the  Commission
creates platforms for Member States to exchange good practice and benchmark themselves.

Further benchmarking  exercises could be envisaged in areas identified as vital to  promoting
entrepreneurship.  It  must  be  borne  in  mind  that  different  national  or  regional  contexts  will
affect the effectiveness of policy measures and, while identifying priorities or implementing
policy, a country or region should take its specific context into account. Common guidelines
should be adapted to national or regional circumstances. As the availability of comparable and
relevant  indicators  is  a  prerequisite  to  the  success  of  such  exercises,  the  Commission
endeavours to actively co-ordinate the development of the necessary statistical data.

1(cid:1)  What should  be  the key objectives for an  agenda  for entrepreneurship  in  the  European
Union and how should these relate to other political ambitions? How can we build a model
for entrepreneurship in an enlarged Europe?

B.

i.

Three pillars for action towards an entrepreneurial society

Bringing down barriers to business development and growth

With  regard  to  the  time  and  costs  involved  in  setting  up  a  business,  European  benchmarks
have been fixed which governments should achieve. When so doing, they should ensure that
the public is made aware of their efforts to reduce start-up barriers.

Current work to improve the functioning of the Internal Market and to reduce red tape, must
continue to bring down barriers for doing business and the ‘think small first’ principle should
be  promoted.  Also  efforts  must  be  intensified  to  improve  access  to  finance  and  skilled
workers. Entrepreneurs need to be supported  in developing the skills required to adapt  their
business  to  changing  conditions.  Sharing  experience  and  working  together,  in  clusters  or
networks,  can  help  entrepreneurs  to  find  inspiration  and  advice,  access  technology  and
knowledge, or identify partners. Fostering networks could be particularly effective in support
of certain sectors or groups of entrepreneurs, such as ethnic minority businesses.

2(cid:1)  How  can  we  improve  the  availability  of  finance  (tax  measures,  public-private
partnerships,  stronger  balance  sheets,  guarantees)  and  what  alternatives  to  bank  loans
should  be  promoted  (business  angel  finance,  leasing,  factoring  and  micro-loans  from  non-
bank lenders)? How can entrepreneurs be supported in obtaining external finance?

23

3(cid:1)  Which  factors  most  hinder  growth  ((lack  of)  mutual  recognition  and  EU  rules  or  their
(non-)implementation at national level, national tax provisions or the situation on the labour
markets)? What actions are best suited to supporting growth and internationalisation (trade
missions, market analyses, clustering and networking, information and consultancy services)?

4(cid:1)  To  ensure  high  quality  businesses,  what  training  and  support  should  be  offered  for  a
business  start-up  (basic  training  -  compulsory  or  voluntary,  incubators,  mentoring)  and
business  development  (networks,  courses,  mentoring,  distance  learning,  e.g.  e-learning)?
Should there be  services tailored to the needs of specific groups  (women,  ethnic  minorities,
unemployed  or  socially  disadvantaged  people)  or  businesses  (knowledge-based  activities)?
Should  the  quality  of  delivery  of  support  services  be  improved  (using  ICTs,  professional
standards)?

5(cid:1) Are the obstacles and incentives for business  development and growth  in  the  European
Union  similar  for  entrepreneurs  in  the  Candidate  Countries,  and  does  the  forthcoming
enlargement call for specific measures in the Candidate Countries?

ii.

Balancing the risks and rewards of entrepreneurship

Risk-taking should be rewarded, rather than punished. Social security and tax provisions must
be re-assessed in the light of their effects on entrepreneurs’ willingness to take the risk to start
a business or grow. Taking over an existing firm should  be encouraged  and the  potential of
‘intrapreneurship’  could  be  further  explored.  To  reduce  the  negative  effects  of  bankruptcy,
appropriate  measures  such  as  earlier  discharge  of  debts,  the  retention  of  certain  assets  or
lifting certain restrictions on bankrupts should be considered.

6(cid:1)  What  can  EU  Member  States  do  to  make  the  balance  between  risk  and  reward  more
favourable  to  promoting  entrepreneurship  (reducing  the  negative  effects  of  bankruptcy,
making  more  social  benefits  available  for  entrepreneurs,  reducing  the  tax  burden  either  in
terms of administration or rates)?

7(cid:1) How might more prospective entrepreneurs be encouraged to consider taking over rather
than starting a new firm (buyers and sellers databases or marketplaces, special training for
family-owned businesses, management or employee buy-outs)?

8(cid:1)  How  can  spin-offs  be  made  more  attractive  (management  buy-outs,  showcasing,
specialised advice, tax or other provisions for employees and their employers whilst starting a
business)?

iii.

A society that values entrepreneurship

Although  many  people  express  a  preference  for  being  an  entrepreneur,  many  lack  the
confidence and skills to turn their ambitions into action. Young people should be exposed to
entrepreneurship and be supported,  along  with their  trainers, in  developing  entrepreneurship
skills.  Campaigns  could  provide  role  models  and  success  stories  to  showcase  entrepreneurs
and highlight the benefits that they bring to society. These should particularly  address those
that can play a key role in supporting prospective entrepreneurs, such as schools, universities,
investors, local communities, regions, business organisations, advisers and the media.

24

9(cid:1)  How  can  education  support  the  development  of  the  awareness  and  skills  necessary  for
developing  an  entrepreneurial  mindset  and  skills  (entrepreneurship  training  as  part  of  a
school’s curriculum, getting entrepreneurs into the classroom, apprenticeships for students to
work  with  experienced  entrepreneurs,  more  entrepreneurial  training  in  universities,  more
MBA programmes, matching entrepreneurial training with public research programmes)?

10(cid:1)  What  could  business  organisations,  the  media  and  public  authorities  do  to  promote
entrepreneurship (role models, media campaigns, open door days of firms, award schemes for
entrepreneurs) and at what level (European, national, regional or local)?

25