sme development issues in europe

7/31/2019 SME Development Issues in Europe

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SME Development Issues in Europe

Paper to the 7th

SMEs in a Global Economy Conference 2010

Professor Robert BlackburnSmall Business Research Centre

Director of ResearchFaculty of Business and Law

[email protected]://business.kingston.ac.uk
mailto:[email protected]://business.kingston.ac.uk/http://business.kingston.ac.uk/mailto:[email protected]


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Importance of SMEs in EU: sector estimates

2008


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Growth of Number of SMEs in EU 27:non-financial businesses by size class 2002=100


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Fed into collapse in confidence and real economy

Reduction in demand for goods and services

Global trade particularly hit

Some regions affected much more than others

Implications for SMEs??

Year EU 27 Change GDP Change Employment

2007 2.9 1.7

2008 0.8 0.9

2009 -4.1 -2.3

Source: EIM 2010


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Recession literature shows

There is no single recession effect on SMEs

Impact varies by industry, country, region and firm type

Causes of the recession shapes the depth & duration of

the downturn i.e. 2008 GFC

Limits of extrapolating experience of previous recessionsto current crisis e.g. 1991 -> 2008 no!

Links with globalisation

growing interconnectedness of economic activity shapes

business opportunities, but also entails new threats

Need to differentiate between

i. established firms: coping strategies

ii. new firm formation: types of start-up


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Impact on start-up?

% ofnecessityentrepreneurs in Total Entrepreneurial Activity(GEM 2009)

Suggests no fixed patternin effect of recession on typeof start up across different economies

Effects of recession have a time lag?

Requires sharper focus of effects on SME population


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Risks of starting a business (EU 27)

Perhaps fear of bankruptcy and uncertainty feeding through to TEA?


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Business Churn: 2006-2009

Shows a slight reduction in business entry rates in most countries

Increase in exit rates

Outcome= Net-entry rates of firms is downwards

Hence, recessionary effects feeding through but not dramatic collapse

Need more fine-grain evidencelets look at the UK case


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The UK Case

Demonstrate key issues in relation to GFC

Shift towards one-person enterprises Finance remains important issue

Established firms adopt variable strategies


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UK GDP Change 2007-2009

Six consecutive quarters of decline: from April 2008 -6.2%

What of the impact on SMEs and their responses?


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Context: broader measures and environment

UK government wide number of schemes Introduces special measures to support SMEs

in recession

Predominantly finance instruments But, new Government expenditure cutbacks

Reduce massive public sector deficit

More is yet to come with ComprehensiveSpending Review (end Oct 2010)


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UK Evidence: Size of enterprises and dynamics 2008-09

4.8 million private

sector enterprises Only 6,000 employed

more than 249 people

75% had no employees

2008-09 number of

enterprises withemployeesdeclined by17,000

Number of enterprises

with no employees

increased by 68,000 Hence, rise in one-

person businesses

Why?Source: BIS 2010


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(but not as easy as some economies!): see World Bank: The Costs of

Doing Business

WORLD BANK DOING BUSINESS REPORT 2010 Top ten country

rankings - Overall ease of doing business

2007 2008 2009 20101 Singapore Singapore Singapore Singapore2 New Zealand New Zealand New Zealand New Zealand3 United States United States United States Hong Kong4 Canada Hong Kong Hong Kong United States5 Hong Kong Denmark Denmark UK6 UK UK UK Denmark7 Denmark Canada Ireland Ireland8

Australia

Ireland

Canada

Canada

9 Norway Australia Australia Australia10 Ireland Iceland Norway Norway

UK is a relatively easy place to start a business


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Why rise in one-person enterprises?

Historically, recession-push Identified in 1930s & 1970s recessions

Employees leaving enterprises (large & small)

Suggests that the rise may be a blip rather than astructural change?

Although there has been a steady trend

Data suggests that this has accelerated

Maybe a combination of structural (eg. technology)

and cyclical effects

What ofestablished firms...?


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Existing business responses: types of strategic adaptation

retrenchment

investment

ambidextrous

Adaptation


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Banks in the firing line


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Bank base rate of interest at record low

Hence, rate of interest for SMEs now historically low


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Impact of recession: UK survey

evidence

Two stage design

online/mail survey of 343SMEs (March-August2009);

in-depth interviews with26 (June-August )

Sample composition

mainly micros (3/4), earning


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Strategies to Increase or Maintain Business Performance Since Start-2008


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Strategies to Increase or Maintain Business Performance Since Start 2008

Actions Taken Recession-affected

(%)

Not

Recession-affected

(%)

Changes in sales and marketing:

Increased sales effort 61.2 42.0

Reduced selling prices, or held price rises below

inflation

31.3 11.6

Changes in employment:

Reduced numbers employed 37.9 10.1

Introduced wage/salary freeze 22.9 7.2

Introduced new working practices 22.9 8.7

Increased numbers employed 11.9 36.2

Changes in products and/or services offered:

Reduced the range of products/services offered ! 9.7 1.4

Changes in finance:

Invested personal savings 22.5 10.1

Reduced investment expenditure 14.1 4.3

Changes in owner/manager behaviour:

Personally worked longer hours 59.9 43.5

Cancelled personal holidays 26.0 8.7

N 227 69

Source: Kitching et al 2009. Only stat sig differences in table.


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Existing business responses: types of strategic adaptation

retrenchment

investment

ambidextrous

Adaptation


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Conclusion

SMEsimportantto EU and

UKeconomy

GFC leadsto slow-

down ofeconomy

Represents ashock to the

environment

Impacton start-

ups: slowdown

UK newfirms: shift

to one-person

enterprises

Impact onUK SMEs:

existingfirmschanges inpractices

Effectsstill on-going

and taketime

Future alsocontingent on

Govtinterventions


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Implications for research and practice

Effects of recession varied: why? Future research needs to be on owner-manager

strategies

Focus of attention on micro firms Public-policy needs to address cultural barriers

to re-starts (honest bankrupts)

Implications forAsia-Pacific

Has weathered the GFC, but would same pattern

emerge if economic shock?


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Thank you

Questions and discussion......

http://business.kingston.ac.uk/robertblackburn

http://isb.sagepub.com/

[email protected]
http://business.kingston.ac.uk/robertblackburnhttp://isb.sagepub.com/mailto:[email protected]:[email protected]://isb.sagepub.com/http://isb.sagepub.com/http://business.kingston.ac.uk/robertblackburn

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