Interview with Luc Hendricx, Director of Competitiveness of Enterprises and External Relations at UEAPME.
European SMEs are very different from each other, varying in size, sector and access to market. This should not come as a surprise, since the European Commission counts more than 23 million SMEs. Nevertheless, they all share some challenges and difficulties in dealing with the globalised market, from access to credit to excessive red tape. To help them meet those challenges, a series of tools has been put into place by the European Institutions and the associations operating in strict contact with them. But how effective are these tools? And what can be done better?
To answer to these questions we interviewed Luc Hendrickx, Director of Competitiveness of Enterprises and External Relations at UEAPME, the European Association of Craft, Small and Medium-sized Enterprises, an umbrella organisation representing more than 12 million enterprises in the 28 EU Member States.
Some critics in many of the Union’s countries accuse the Single Market to be a drag on business. What is your take on that?
We have to be honest: since 1992, the Single Market has had some negative effects on some SMEs, but in general, if you look at the global picture, most people are benefiting from it. This should not, though, disguise that there are indeed for some companies problems, both at the local and European level.
The positive effects of the Single Market are evident if one looks at current possibilities to export inside the internal market, and the flow of goods and services that before were not available. Although there are consumers who continue to complain about it, differences in prices between countries are slowly disappearing; when there still are some differences, the reason is the different Member States are not yet at the same level. There are many different national regulations that can affect prices, and to eliminate them takes time. But I do not think that anybody in full honesty cannot say the Single Market has had good effects on SMEs. From the moment borders are open, it is a fact of history that consequences are positive.
At UEAPME, do you perceive enough support for SMEs on the part of the EU institutions such as the Parliament and the Commission? What do they miss when dealing with SMEs?
When one looks at the documents adopted and discussed in the last few years by the EU institutions, SMEs will appear everywhere. Everybody states that the small and medium enterprises are the core of the EU’s economy. But in reality, much more can – and should – be done. The problem with the Parliament and the Commission is the need to explain to politicians and policy makers how a small enterprise is working. This is our job, what we call the ‘Think Small First Approach’.
Legislation is still conceived with big companies and organisations in mind, because most of the people in the institutions only know them: very few of the people working in the Commission or the Parliament has direct experiences in SMEs, let alone in micro-enterprises – the majority of companies in Europe. Let me remind you that in 21 millions enterprises in Europe, 19% of them are small enterprises; 50% of them are micro, one-person companies. This is the economic reality of the EU, and this has consequences. So, what we are trying to do is tell them ‘try to make legislation with the smallest enteprises and their characteristics in mind’. The way of working in a small enterprise is by nature much less formal than in a normal one: this goes from health and safety rules to labor relations.
This is the main problem, the thing that is rarely taken into account when legislating for SMEs. Rules have costs and are time-consuming, and institutions have no idea of the administrative burdens our enterprises have to deal with. It is normally seen as the normal consequence of running a business that you have also to do things for the public authority. This is a huge problem.
What are the main problems that SMEs experience so far in their daily operations, especially in the current environment of enhanced competition?
The first problem is excessive red tape. Not to be misunderstood, it is not mainly a question of too much legislation; entrepreneurs do not have a problem with the objectives of legislation. Their problem is the way they have to be implemented in the enterprises. This something we want to change: the ways SMEs are supposed to implement legislation has to be adapted to the needs and specificities of SMEs. This is only normal because if you do not do this, then automatically SMEs will not be able to abide by your legislation.
Globalisation is another key problem, since it begets increasing competition. Then, of course, the lack of financing: SMEs experience a lot of difficulties in accessing credit. One particular case is late payments: in 2011 a EU directive has been introduced, but it is clear to everyone that its shortcomings are visible, so we try to lobby the Commission to make them understand that they should come up with an improved and better directive. The issue is especially important in B2B relations, where we see there is a need for real standards: if you see that big enterprises impose to smaller ones payments later than 180 days, it is clear that small enterprises are financing the big ones. This is not a healthy relation. Payment deadlines of more than 180 days are unacceptable. You cannot say you are trying to improve access to finance for SMEs if then, at the same time, with their money they are financing big companies.
Concerning the lack of internationalisation, there is a fact: not every SME can internationalise, due to the characteristic of their business and their sectors. On the other hand, looking at the data, I think that more than 40% of all enterprises are already active in internationalisation in one way or another. The EU economy is stagnating so our SMEs, in order to be able to remain competitive, have to look outside of the EU and there we see again that by nature, SMEs lack the resources and the staff. Most SMEs remain active at the local level, and approaching the EU market for them is already a big step for which they need a lot of support and guidance.
The focus is not only internationalisation as such, but many SMEs are subcontractors: this mean they might not export in a direct way, but being a supplier of a bigger company they are in fact exporting their products. We have brought this issue to the Commission; it is also a learning way, because many companies that started as suppliers in this way were able to get accustomed to internationalisation.
What are the concrete steps that UEAPME is suggesting to make the institutions’ action more responding to the SMEs’ needs?
In this regard, until some time ago the Small Business Act for Europe (SBA) was under scrutiny and many proposals were made, but unfortunately the Commission has confirmed that they will not come up with a renewed version. Of course we are not happy about it.
Nevertheless, in the last years the policy of the Commission regarding SMEs has a little bit changed: the current EU’s policy line is to integrate SMEs’ issues in every EU policy. However, this cannot be a substitute for what we call a substantial horizontal EU policy towards SMEs. We have always said that the SBA is a basis for such a policy. What is lacking is the whole issue of employment and training. The principles of the SBA, such as ‘Think Small First’, are still there, so they should continue to be applied not only at the EU level, but also at the national and local level. We think though that it should be revised and we need a better action plan for what concerns, for example, cross-border services, VAT action plan, measures to facilitate the establishment of business in other Member States, market relevant European Standards. The last point is of particular importance for us. So much so that we even have established a sister organization, SBS (Small Business Standards): it is very important to have common standards for SMEs to stay competitive.
Furthermore, we have to continue our work on trying to obtain a fair balance between SMEs’ interest and customer protection. This remains a problem. We think that currently there is certainly not a balance between the rights of customers and those of SMEs. Then, another big issue is the one of skilled man power: there is the crisis, there is a lot of unemployment; nevertheless there is a big problem in finding skilled workers. Once again, the SBA is for us not a fetish but it has shown its functionalities and it contains all the policy lines on SMEs that are necessary, so we should certainly build on it.
The digital single market strategy has recently been unveiled by the European Commission. If ideally it is going to boost the birth and growth of new technological startups, how is digitalisation affecting and helping traditional, established SMEs?
SMEs normally are always a bit behind on new evolutions. The whole issue of digitalisation is a good case in point of the problems SMEs experience. Even if personal computers have been around for a long time, so far normally an entrepreneur was exposed to computers and the digital world not through his/her job, but through his/her children, who came with their computer at home and slowly the entrepreneur understood its potential. Normally, small enterprises are a bit reluctant towards technological innovation, and therefore in our organisation we try to do our utmost to train enterprises. This has a lot to do also with the digital single market: on the issue of Cloud computing, UEAPME has led a very interesting project concerning cloud computing, ‘Cloud in SMEs’. We have also done a lot of campaigning trying to convince SMEs to do the step to the cloud.
Digitalisation is indeed a challenge for small and medium size enterprises, due to their scarce resources. But life is evolving: traditional SMEs have to adapt to those new technologies. In fact, a lot of the problems we see today are not new, they only appear in a new context. The whole issue of digitalisation will help SMEs in becoming competitive. It allows companies to stay always updated on the different versions of softwares. Also, digitalising is also a way to attract young people: to stay in the market and renew the workforce, it is important to be able to have those technologies in house. It has a cost of course, because you need to be trained: technological evolutions are going so fast that they need a constant training. On the other hand we are also not well aware of the consequences of digitalisation: look for example at how fast 3d printing is evolving; it is amazing how products can be made in a personalised, customised way. And then we see that the legislation is not adapting to these technologies: this is a clear challenge both for policy makers and for us, because we have to prepare entrepreneurs to meet their challenges.
In all this, the Digital Single Market is a priority for the Commission, as it is for us. What we need is correct information, so there is a lot to do for our business organisation on information and awareness raising of small and medium-sized enterprises. The whole topic of data protection, for example: it is very technical, so we cannot do it alone. The European Commission has a huge role to play, in setting up awareness-raising campaigns, in order to allow our SMEs to deal with these problems. These trainings though, needs to come in ways that our SMEs will understand: again, the basic problem is that SMEs have limited resources, so we have to come with the real message, tailored to the needs of the smallest enterprises.
This interview was originally published on issue #7 of the print edition of The New European magazine. You can read it here.