Dr. Vassilis Korkidis

We have to improve the effectiveness of EU policies in favor of SMEs

Flickr/Salzburg Global Seminar/CC BY-NC-ND 2.0

Evidently, during the period of economic depression (2008-2018) Greek governments promoted some important policies for SMEs. However, there is still a variety of problems. For instance, the fragmented approach to tackling the problems, the failure to monitor the measures being implemented, the absence of an integrated policy for the promotion of entrepreneurship, and the negative consequences of country’s contractual commitments vis-à-vis lenders, have prevented substantial support and the enhancement of entrepreneurial environment. ESEE, over this harsh period, has focused on recording the problems of SMEs and proposing appropriate solutions. Essentially ESEE actively participates in the dialogue for the improvement of the effectiveness of EU policies in favor of SMEs.

First of all, the definition for SMEs is a crucial issue in formulating policies. In the discussion concerning the relaxation of the criteria in the definition of SMEs, ESEE has taken an explicitly negative position and expressed its opposition to its any further enlargement. Already, SMEs at EU-28 account for 99.8% of all enterprises and therefore the relaxation of definition’s criteria would substantially circumvent the definition itself. Concretely, ESEE had proposed the creation of a separate category of very micro enterprises which employ less than five (5) persons. These enterprises are the majority in our country and should make a better use of European tools. Let me also remind you that all the startups are mainly very small businesses.

The Small Business Act in Europe (SBA) is basically the guide of Member States for SME policies and measures. The SME Review is also a useful tool as it provides an overview of the current situation of SMEs in all Member States of the Union. Concretely, it provides information about their structure, their contribution to employment and the economy and, of course their perspectives. However, Greece seems to be different. SMEs in Greece were hit disproportionally hard by the crisis and have still not recovered. Essentially, there are some questions about whether the implementation of the SBA fits perfectly with the immediate needs of Greek SMEs.

According to the SBA Factsheet for Greece for 2017, SMEs represent the 99.9% of entrepreneurship, accounting the 89.9% of total employment and the 73.2% of value added. However Greece’s performance in specific principles of the SBA is well below the corresponding European average and performs worst chiefly in the access to finance and internationalization. It is worth noting that the SBA, despite its declared utility and acceptance, has not become a central tool in the designing and promoting  an SME strategy in Greece.

The challenges facing Greek SMEs in the European environment:

  1. Funding and accumulating the primitive investment capital. Greek SMEs, due to the absence of cooperative culture, seem not ready to make use of alternative forms of finance such as venture capitals. Essentially, information on opportunities for financial support from European resources has fallen well behind while reverse information, i.e. from national to European level, is also necessary. The COSME program is important, but in Greece, despite the agreement between enterprises and banks, the flow of funding remains slow and selective. So what is its effectiveness at the level of Greece?
  2. Competition: At the national level, we have often encountered the problem of interference. At European level – in discussions with UEAPME and EuroCommerce – we have come to the conclusion that a clear legal framework of fair competition is needed. One representative example is the striking variation in the annual turnover thresholds between Member States as regards VAT exemptions. National thresholds should be set according to the requirements of the single market, with the aim of eliminating unfair competition practices which hit hard cross-border firms. Concretely, particular attention should be paid to the protection of small businesses operating within EU. Access to finance, tax rates, ease of operation, etc. should be top priorities ensuring the right treatment for all businesses, regardless of their size (small, medium, etc.). Any burdensome regulation must be abolished and businesses should be encouraged to be extrovert through all means. Additionally, a definitive and uniform VAT system should be based on the principle of taxation in the country of destination of the goods, according to the competent authorities of the European Community.
  3. Single Market: The single market is not even single. For example, the General Privacy Policy (GDPR). During the cooperation of the ESME with UEAPME, we found some time ago that only two Member States had already adopted the relevant national legislation and were ready to implement the new Regulation. This proves that there is no readiness to adopt common rules. At present, the result is that most SMEs, despite our own persistent efforts, ignore their obligations in the new regulatory framework.
  4. Lack of Digital Skills: Many SMEs rely heavily on external consultants, vendors, or affiliates for the implementation of their digital needs. Therefore, they need to invest in enhancing the digital skills of their employees. These skills include familiarization with new technologies, cloud computing, bulk / simple data analysis and mobile application development, as well as software development, web sites, digital marketing and digital sales.

The digital revolution transforms markets. This creates a world in which enterprises have to combine activities and functions and to adapt their strategy into the newfold framework to be competitive.

The example of retail trade over the past 100 years reveals how the transition from the 1st Generation of Entrepreneurship to the 3rd Generation is a striking one. In the 1st Generation small shops were dominant while in the 2nd Generation, supermarkets, had taken over control . The 3rd generation of the “sharing” economy (peer-to-peer platforms like Alibaba, Amazon, eBay – and multimedia sharing sites such as Facebook, Google, Instagram and Pinterest) exiled intermediaries and transmitted the control to consumers. Nowadays the 4th Generation is emerging and control is transmitted again, this time towards artificial intelligence.

In this transitive environment, we are called upon to work and defend traditional small and medium-sized enterprises. But what are the perspectives? What are the goals? The creation of an individual e-shop, a digital display, is the least that needs to be done without being enough. Some would even describe it as an outdated action. Today, the trend is the O-2-O dual-mode model (Online to Offline- and vice versa). This is a business strategy aiming to attract potential customers from online channels to shop in physical stores. The environment in which small and medium-sized enterprises are operating is significantly affected by digital technologies since they cause changes in skills, processes, business systems and tools, business models and organizational structures. At European level, the idea behind the Digital Single Market strategy was to move from 28 national markets to one single market. A fully functional digital single market could contribute to our economy by about € 415 billion per annum and create numerous jobs.

However, I am afraid, that we have not managed to communicate these changes and guide SMEs to develop the appropriate skills in this transitive environment. Therefore, ESEE recommends that the new multiannual financial framework should place particular emphasis on making Europe a more competitive region and a better place to live in. Therefore, we should renounce ourselves from protecting old and inefficient structures.

In summing up, as President Juncker said, as we will be not judged for what we inherited but for what we leave, I hope not only these ideas to be adapted by all countries and all those involved, but also our proposals will have manage to create a European environment that is sustainable and entrepreneurial, especially for small and medium-sized enterprises that, in addition to their significant contribution to the economy, play a pure as a social role in the cohesion of our societies.

Vassilis Korkidis is the president of the Hellenic Confederation of Commerce and Entrepreneurship (ESEE).

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