While efforts to make it easier for Europeans to set up their own company are starting to pay off, a majority of EU citizens continue to hold back for fear of going bust. The Commission is now proposing taking action to reduce the stigma attached to business failure and encourage non-fraudulent bankrupts to make a fresh start.
After just two years, the EU's SME policy is already showing signs of success, according to a Commission report published on 8 October.
The average cost of setting up a new company in the EU-15 has fallen from €813 in 2002 to €554 in 2007. Red tape has also been cut so that the time needed to deal with all the administrative procedures of registering a company has been reduced from 24 days in 2002 to about 12 days today – although it remains above the one week target set in 2006 (EurActiv 26/03/06).
Despite this, Europeans remain reluctant to start their own business. A recent Eurobarometer poll shows that only 28% of Europeans are keen to become entrepreneurs, while 49% of EU citizens have never even thought of setting up a company – almost double the US figure.
Although attitudes towards entrepreneurship are more positive among the younger generation and in new member states, three quarters of EU citizens are doubtful of the feasibility of establishing their own company, due to a lack of available financial support and the complexity of administrative procedures.
Also, while less than one in five Americans are concerned about failure, nearly half of Europeans fear that their business might fail and they would lose everything.
In response to these trends, the Commission is proposing action to help entrepreneurs avoid bankruptcy, reduce the stigma of business failure and provide a second chance for non-fraudulent bankrupts.
The Commission communication "Overcoming the stigma of business failure – for a second-chance policy" invites member states to:
- Disassociate bankruptcy from fraud – seeing as only 5% of bankruptcies are fraudulent – and advertise the benefits of making a fresh start;
- modify bankruptcy law so that fraudulent and non-fraudulent bankrupts are treated differently, with legal proceedings made simpler and faster for the latter;
- provide early support for viable enterprises in difficulty, including affordable expert advice and financial support to prevent bankruptcies;
- adapt insolvency laws in order to provide the opportunity to restructure and rescue a company rather than focusing solely on liquidation;
- encourage banks to be less cagey towards restarters, especially regarding access to loans;
- ensure that public procurers do not discriminate against former non-fraudulent bankrupts in tenders, and;
- provide technical and psychological support for restarters.
The European Commission underlined the need for a "second-chance policy" for entreprenerus: "The age of industrialisation was possible thanks to the development of the steam engine, an invention which brought James Watt and his business partner close to bankruptcy. Very often learning, discoveries and research findings need stamina and several attempts need to be made - as does entrepreneurship. Still today, many people do not realise their entrepreneurial ambitions because they are afraid of the stigma of failure present in our society."
According to the employers' group BusinessEurope, there is still a long way to go to free SME growth potential: "In the US, firms on average increase their employment by 60% by their seventh year, while employment gains amongst firms in Europe are in the order of 10 to 20% only. It is generally more difficult for European SMEs to grow than for their US counterparts," underlined the group, pointing the finger at Europe's regulatory, administrative, fiscal and financial environment, which is "not improving sufficiently to allow Europe to surpass or even equal the entrepreneurial potential of competitors elsewhere in the world".
The European Association of Craft, Small and Medium-sized Enterprises (UEAPME) said that it was time to apply the "think small first" principle properly. "Instead of carving out an endless series of exceptions for micro- and small enterprises, legislation should be conceived for smaller realities since the very beginning," said Director for Enterprise Policy and External Relations Luc Hendrickx. He further stressed the need to take into account the heterogeneity of SMEs, including specific sub-groups such as craft and micro-enterprises.
UEAPME also welcomed the Commission's intention to tackle the stigma of business failure, "which hampers innovation and prevents honest restarters from being given a second chance".
EuroCommerce, which represents European retailers and traders, said that the low number of young people wishing to become entrepreneurs in the EU compared to the US is "of high concern", and stressed the need to improve access to finance, develop venture capital and create a more SME-friendly legal environment. "We need to ensure that this does not remain a wish list and is followed by concrete actions delivering results," said Secretary General Xavier Durieu.
Arnaldo Abruzzini, secretary-general of the Association of European Chambers of Commerce and Industry (Eurochambres) said: "Today, a risk-taking attitude is still missing in the EU, whether in administrations, schools or companies. Therefore, fostering an entrepreneurial mindset, and thus a risk-taking attitude, is a precondition for an innovative society. Cooperation between the business community and educational institutions can contribute to making this happen."
He highlighted the problem of financing SMEs: "Start-ups have no resources except their brilliant ideas. Yet, banks do not take into account ideas, i.e. Intellectual Property Rights (IPR), as assets to grant loans. It is time that the Commission develops an IPR strategy – and particularly an improved patent system – that allows businesses to transform their ideas into financial assets."