SMEs AND REGIONS. Draft

Transcription

1 1. ROUNDTABLE OF ECONOMIC DEVELOPMENT PRACTITIONERS SMEs AND REGIONS Draft Introduction 1. Business Development 2. Survival Rate 3. Entrepreneurial Growth Companies (EGCs) 4. Business Transfer 5. Shared Regional Issues INTRODUCTION Businesses and SMEs in particular are important to regions in the sense that they provide the bulk of employment. Regional stakeholders are important for SMEs because they deliver a wide range of support services aimed at facilitating their development, consolidation and growth. Worth recalling in this respect is that the 23 million EU SMEs employ 75 million people. In all regions, ten different types of businesses coexist that require specific attention from local authorities: 1. newly-developed companies; 2. spin-outs and spin-offs of large businesses, research centres and universities; 3. start-ups (less than five years in existence); 4. locally-rooted companies (micro-businesses and craft companies); 5. entrepreneurial growth companies; 6. innovative businesses and companies leveraging RTD outcomes; 7. companies in the process of being transferred; 8. subcontractors; 9. companies at risk of bankruptcy; 10. multinationals. This typology also needs to reckon with the specific features of the sectors in which SMEs operate. The needs of businesses operating in industry are not the same as those of companies providing services. Equally, business needs differ according to the specific industries in which companies are active. The needs of an SME operating in the biotech

2 2. sector for instance, are self-evidently different compared to those of a subcontractor in the automotive industry. In addition to mainstream service provision, it is possible to develop specific support for each of the above categories (see matrix in Annex 1). Regions being all culturally different, it is useful for each to develop a product mix that combines mainstream and more or less specialist region-specific measures reflecting the regional social and economic fabric or specific geographical features (including island, peripheral, low-population density status, the presence of urban regeneration areas, industrial conversion in process, etc.). In addition, all regions should deploy a barometer measuring business sensitivity to trade globalisation, ranking regional companies according to exposure to cost-based or innovationdriven competition. Regions should also constantly evaluate the opportunities available for craftsmen, as crafts naturally tend to be relatively protected against the effects of globalisation. It is worth noting from the start that business support service provision, both public and private, is far from inconsiderable as a factor of regional business dynamism. CHAPTER 1 BUSINESS DEVELOPMENT Regional business development rates depend on structural and cyclical factors including: Culture: entrepreneurship and innovation, disposition toward money and success, perception of business inherited from the regional business and industrial history; Framework conditions: tax environment, bureaucracy, welfare and unemployment benefit systems, stigmatisation of failure, relative quality of advisory services for prospective business developers, nature of support (too often defensive as opposed to proactive or innovative); Prospective business developer psychology: risk avoidance, talent, creativeness, lifestyle, quality of relations with other business managers; Public SME support schemes: fragmentation of operators, sclerotic support organisations paralysing schemes by promoting client-centred approaches as opposed to dynamic intermediary bodies that are able to provide high value-added services; Economic cycles: in times of recession, business developers emerge of necessity; in periods of growth, only the ones who are able to leverage market opportunities do so. As illustrated by the findings of annual GEM (Global Entrepreneurship Monitor) surveys, entrepreneurship still varies strongly across regions but remains quite stable over the years. In order to remove obstacles and barriers to entrepreneurship, many regions have developed schemes to raise awareness of entrepreneurship among the local population or specific target groups (researchers, academics, students, unemployed people, women, BEMGs, workers whose jobs are facing restructuring/downsizing, etc.). However, relatively fewer regions have deployed genuine regional entrepreneurship strategies. Below is a possibly non exhaustive list of initiatives launched in regions to increase the business development rate: Awareness campaigns in schools: fictive businesses, meetings with businesspersons, Media campaigns; Entrepreneurship seminars;

3 3. Business fairs; Business plan competitions; Mentoring with/without financial support or in the form of "proof of concept" subsidies for innovative business development projects; (pre)incubation, provision of enterprise real estate; Business development subsidies, bank loan guarantees and other forms of financial support for business development; Implementation of specific schemes supporting business development among specific target groups: unemployed people, migrants, women. New PPP (Public-private partnership) models should emerge, notably with universities and business schools. Recourse to ESF support should be more systematic to increase business development compared to present levels. CHAPTER 2 BUSINESS SURVIVAL RATE Self-evidently, no effort must be spared to ensure the survival of newly-developed businesses. The average life-expectancy of businesses is observed at 5 to 7 years. It is therefore advisable to examine the best ways of extending it in order both to preserve jobs and avoid the negative personal and other consequences of bankruptcy even though the economic theory developed by Schumpeter tends to show that in terms of entrepreneurial dynamism, regions stand to benefit from a cycle of business deconstruction/construction. With a view to helping businesses survive, government can deploy: Business retention schemes; Methods for early identification of susceptibility to bankruptcy; Business transfer instruments (see Chapter 4 below); Business opportunity reviews for micro-businesses and crafts. CHAPTER 3 ENTREPRENEURIAL GROWTH COMPANIES (EGCS) In a globalised economy, only companies with stated international ambitions are likely to survive. This requires them to be both innovative and able to generate constantly increasing turnovers. Europe is trailing the US, notably in terms of its ability to encourage the development of gazelles (EGCs) despite the presence of a wide range of business support providers. There is even reason to regret that too many businesses accommodated in incubators fail to create more than a dozen jobs or the conditions for an Initial public offer (IPO). Below is a more or less exhaustive list of measures taken at regional level to support business growth: support for business innovation and research efforts; development of and support for clusters and other business networking formats; improved access to sources of finance and venture capital; range of available support services in the form of advisory (referral) services; creation of interfaces between universities / research centres and companies (voucher system);

4 4. provision of support in the recruitment of skilled staff; support with internationalisation and the development of strategic transnational partnerships. CHAPTER 4 BUSINESS TRANSFER Due to demographic trends, many companies set up in the 60s and 70s are now facing the prospect of a transgenerational transfer. There is growing recognition of the magnitude of this issue. The tools to be developed to face it are quite similar to those needed for business development. However, there are other specific tools to put retiring businesspersons in touch with potential buyers: databases of businesses available for takeover; mentoring and other advisory services for prospective buyers; marketplace-type forums where sellers and buyers can meet. CHAPTER 5 SHARED REGIONAL ISSUES 5.1 SME Financing In all EU regions, businesses face difficulties when it comes to accessing finance, whether from banks or other investors (formal or informal venture capital suppliers). It is increasingly clear that: there are four equity-gaps, respectively in the following ranges (i) 10, ,000, (ii) 500,000-1,000,000, (iii) , and (iv) million (3 rd pool for equity among hi-tech companies); The asymmetric nature of information available respectively to businesspersons and investors is inadequately addressed by public authorities: even though investment readiness schemes have demonstrated their usefulness in those regions where they have been delivered, the concept remains too confidential or misrepresented; Widely-available proof-of-concept and repayable short-term loan schemes are useful instruments; The role of BANs (Business Angels Networks) lacks universal recognition; nor is their potential fully leveraged; Seed funds are almost non-existent or inadequately resourced. The same is true of university spin-out/spin-off funds. Regions should formalise the commitment of universities to fulfil their third role as a partner for economic development in addition to their educational and research roles; Cooperation among business angels, co-investment funds managed by BANs and seed and venture capital funds needs to be stimulated at regional level as part of delivering an SME finance supply chain; SMEs leverage more fully the financial support they receive when it is backed by soft support. Regions should benchmark their equity, venture capital and support service provision supply chains when it comes to financial support.

5 5. Public-private partnership formats need to be initiated to increase the amount of private money invested in SME finance. 5.2 Working Capital In the services economy, it may prove useful to rethink State aid rules when it comes to supporting the working capital of SMEs. 5.3 SME Internationalisation In the global economy, it is essential to help local businesses in their efforts to become exporters and go international. Worth adding in this respect is that in the case of support provision to innovative businesses, the international dimension needs to be mainstreamed right from initial contacts. 5.4 High Value-Added Support Services In the knowledge-based economy, it is increasingly important to encourage regions to invest in the provision of high value-added services and in the reinforcement of specialist organisations. High value-added services can be grouped into seven broad categories (non-exhaustive list): the protection of intellectual property rights; accelerated commercialisation of research project outcomes; detection of dormant projects in research centres and universities as well as large companies; improving the quality of demand for finance emanating from SMEs (via investment readiness schemes, business angels networks, etc.); boosting the growth (turnover and employment) of businesses accommodated in incubators; ensuring that the staff of university / research centre / business and investor interfaces are themselves genuinely entrepreneurial and/or that their remuneration is performance-based; appropriation by subcontractor SMEs of management methods that help reassure large principal contractors (6sigma, LEAN, co-development, etc.). setting up and coordinating multi-industry or multidisciplinary platforms to promote innovation as well as applied research. 5.5 Skills With a view to increasing their competitiveness or to resisting to the pressure of competition, SMEs must increasingly invest in innovation, design, qualité as well as in the knowledge of the markets. This supposes to permanently invest in staff training. Training must be available to intermediary bodies as well as businesspersons. There is a need to develop training regarding the identification of unexpressed business needs, the matching of businesses with investors (investment readiness) and specialist organisations providing high value-added consulting services. Consultancy vouchers granted with specific conditions for use attached are an effective tool. RDAs increasingly identify weaknesses among the majority of regional SMEs when it comes to marketing and reckoning with global markets.

6 ICT ICT is gaining importance in all enterprise's activities (administration, commercialisation, production, distribution, ). Small enterprises have to adapt themselves to this evolution. The regions should therefore be encouraged to promote the ICT absorption capacity by those enterprises. 5.7 Critical Mass The absence of a critical mass of solvent demand for high value-added services is also one of the weaknesses of regional systems aimed at supporting entrepreneurship. It would be useful to develop mechanisms for improved detection of high value-added services in strong demand among SMEs, which are all too often latent or poorly formulated by this category of businesses. This absence of a critical mass may be due either to fragmented service provision (available public resources are spread among a large number of providers) or to the dominion of grants over loans or equity participation in investment funds. At present, four equity gaps are identifiable at regional level in different amounts of finance needed by businesses: 10, ,000; 500,000-1,500,000; 5-7 millions; 20 million- 50 million The first one is due to the lack of an adequate number of operators in the business angels industry. The second and third exist because of a shortage of operators on the seed capital market. The last one is mainly caused by the excessively modest size of regional venture capital funds; indeed, the latter frequently only have a few million euros (often less than million) in assets under management. This lack of a critical mass is also explained by a fragmented field of operators and piecemeal or scattered public funding available to companies. According to the findings of a report 1 published by CDJ (Centre des Jeunes Dirigeants d'entreprises, F) in March 2007, there are 730 different public schemes in France spending around 65 billion (i.e. 4% of GDP) or more than 2,800 per job. However, SMEs receive only 9% of this massive amount and a scant 3% is used to support research. This situation is not specific of France: Advantage West Midlands (UK) identified more than 500 business support schemes in its region. 5.8 Spin-outs of large regional enterprises In the face of global competition, RDAs should more carefully investigate spin-out opportunities among existing large companies. Indeed, large businesses increasingly outsource certain activities, and these represent a substantial reservoir for the development of new businesses. In The Netherlands, this realisation has led to the emergence of business campuses around large groups such as DSM, Philips and OCE. 1 Le Monde, 24 March 2007.

7 Annex 1: Typology Matrix of Businesses and Support Services Info / Awareness Bankruptcy risk Financial Services Basic Services High Value-Added Services Grants Loans Seed Venture Capital Newly-developed X X X Guarantee Advisory Audit Intel Internationalisation Start-ups X X X X X X X locally-rooted / small X X X X X X Entrepreneurial growth X X X X X X X X X X X Facing transgenerational transfer X X X X X Spin-offs X X X X X X X X X X X X Leveraging RTD / innovation X X X X X X X X X X X Subcontracting X X X X X X At risk of bankruptcy X X X X Internationalising X X Clusters IP MARIANNE/EURADA/TABLE RONDE/ PME et Territoires-E