Bursting the Bubble

Nobody knows a SME better than a SME

11 November 2013 | by

The Competitiveness and Innovation Framework Programme, or CIP, has had the largest impact upon the functioning of European Small and Medium Enterprises (SMEs), since they were officially defined in 2003 through a Commission recommendation. Active from 2007 to 2013, the CIP should be recognized as an important step for the European Union’s approach on aiding SMEs with more than just words. Yet as such, CIP is not perfect, and as we approach the switch to COSME in 2014, it is important to consider whether the problems facing SMEs are truly taken into account on the European level. The SME Performance Review produces a yearly report on their importance to the European economy, and it is, quite simply, undeniable. Since SMEs represent roughly 99% of European businesses and employ over 60% of European workers, data collection must be done to ensure that the voice of a small business owner hundreds of kilometers from Brussels can be heard without distortion. In order to truly aid Small and Medium Enterprises in Europe, it seems logical that we work to address road blocks to success identified by SMEs themselves.

While it is a part of nearly every political platform to ‘aid’ SMEs, in preparing for the switch to COSME I was surprised to find that there is not much data regularly collected by the EU about what the chief problems, identified by SMEs, are. Through inquiries at relevant DGs (Directorate Generals) as well as the Observatory of European SMEs and the SME Performance Review, I was consistently directed to one question on one survey. This was the one and only data collection form identified as the way in which the EU or ECB knows what SMEs themselves feel are problems. The biannual Survey on the Access to Finance of SMEs in the Euro area (SAFE) completed through DG Enterprise and Industry in collaboration with the European Central Bank has one 1-10 rating question inquiring as to “the most pressing problem your firm is facing” with 7 problem options. While there are, of course, SME specific conferences held, third party groups which advocate for SMEs, as well as think tanks which formulate SME concerns, that one question  on the SAFE survey is the justification, when inquiry is made, that the EU is consistently aware of problems that SMEs are facing.

Having grown up around family businesses, this method of inquiry into what is actually problematic for SMEs has much to be desired. With the efforts to aid SMEs only projected to increase, as economic integration increases at the European level, the power distance between the EU policy makers and SME owners should be kept at a minimum. No one knows the problems facing an SME as well as those working in SMEs. While policy makers continually mention decreasing red tape for businesses, one must remember to do this regarding data collection as well. The SMEs that the EU should be the most concerned about aiding, will be too busy with their enterprise to convene with others to discuss ideas, and therefore the biannual SAFE surveys – which receive a high number of responses – must be able to truly identify concerns. The family business down the street with 5 employees will most likely not be a member of an advocacy group in Brussels, and will not be able to afford the time needed to go to Brussels themselves to discuss their views. While they could potentially reach out to their Member of European Parliament, this would just increase the number of people the message must be passed between. And for those of you who have played a version of ‘telephone’ as children, you may realize that the message can get lost as more players are added.

While other data can be consulted, such as the value added, employment turnover, profit margins, and other data forms to account for the troublesome areas for major stakeholders, this simple question of “most pressing problems your firm faces” is vital due to the reactive nature of SMEs to economic situations, such as the crisis in 2008. In 2009, the SAFE survey results revealed the category of ‘Other’ to be the third highest ranking concern. But what is that? Well, no one knows what that was, but presumably it was a rise in problems SMEs faced which are not on the short list of 7 potential problems that they have the option of choosing. This question was continually referenced as the way the EU consistently knows changes in problems facing the majority of European businesses, yet when I showed the 7 problem list to small business owners, most laughed, calling it both restrictive and too broad at the same time.

European policy to aid SMEs needs to be adaptive, since SMEs are more reactive to changes in the economy than large scale businesses. As such, having a tool which can accurately encapsulate the problems facing SMEs all over Europe is extremely important, since most true SMEs do not have a substantial amount of advocacy resources. While investigating the changes which COSME will entail, discovering this lack of data through continual reference to a single, quite restrictive question is a bit worrisome.

I am supportive of those who try to represent the concerns of the small business owner at the EU level, but when all investigative inquiries point to one sole 7 problem list ranked from 1-10, as the way in which the ECB and EU tracks the problems identified by SMEs over time, I doubt that the data collected will be enough to truly address what concerns those ‘in the trenches’. While there are myriad Small and Medium Enterprise data forums, the simple question of what do SMEs themselves identify as problematic, is not generally included. We must remember that in trying to aid Small and Medium Enterprises, we cannot overlook the struggling shop owner down the street that is unable to actively participate in discussions at the EU level.

One Comment

  1. This is a very good point. In house mechanisms for measuring what SMEs identify as problems they face is vital. Though there are 3rd parties/think tanks/seminars like you talk about, this type of data is not the same as something collected in house which has no blatant bias. Very Very good point. With the aid to SME on the increase, for justification purposes the in house data collection should be more organized. Maybe some of these 3rd party groups could be used as example for improving the in house mechanism.

What do you think?