Traditional SMEs face an uphill recovery

“The future looks relatively bright” for SMEs, the European Commission concluded in a report, but the manufacturing sector is lagging behind. [EASME]

Small and medium-sized companies in traditional sectors have lost the momentum to prepare for the next industrial revolution, Industry 4.0.

For the first time since the financial crisis hit Europe six years ago, SMEs are creating jobs again. The “tentative green shoots of growth” of 2013 gained strength last year, adding more than one million jobs (1.3%), according to the 2015 SME report, presented on Thursday (19 November).

This positive trend is expected to gain momentum in the next two years, thanks to an improved macroeconomic environment, adding 1.7% new jobs by 2016, while the number of companies will continue growing across the EU.

“The future looks relatively bright,” said Costas Andropoulos, head of unit for competitiveness and innovation.

However, the manufacturing sector is lagging behind, with employment levels 11% below the pre-crisis period.

Moreover, from the outset of the crisis, less technology-intensive SMEs lost a higher proportion of their jobs than more technology-intensive SMEs.

Although the technology-based industries did not create new jobs, this is not necessarily because of a structural feature of the EU economy, known for its powerful traditional industrial base, in particular in countries like Germany.

“There is no reason or indication to assume that, for example, technology-intensive manufacturing firms and construction firms could not replicate the employment expansion observed in knowledge-intensive services firms” like business services or accounting, the report says.

The European Commission, experts and small firms are concerned about the existing barriers and obstacles within the Internal Market that impede the SMEs taking full benefit of the 500 million person market. Meanwhile, a challenging future is looming.

>>Read: ‘Industry 4.0’: How European companies can really benefit

El?bieta Bie?kowska, Commissioner for Internal Market, Industry, Entrepreneurship and SMEs, said on Thursday (19 November) during the European SME annual assembly, that she shared the companies´ “critical” point of view concerning the Single Market.

“Many obstacles” are still in place when companies export across the EU, while the long time required to settle disputes affecting small businesses is “unacceptable”. Many things must change “without delay”, she said.

There is no time to lose, as manufacturing is entering into a new industrial revolution driven by the digital revolution (Industry 4.0), experts and entrepreneurs told EURACTIV.

The upcoming radical changes could pose serious challenges for the traditional SMEs, unless senior managers embrace the digital transformation at the strategic level, and “not as something outside the room for the IT guys”, explained Robin Knowles of Digital Leaders organisation, which helps businessmen to acquire the skills required for the new period.

“The new wave will bring thousands of opportunities for startups, but those [managers] in their ’50s need to get on board of this transformation,” he said. “What they need to think is whether their companies are relevant in a digital age.”

>> Read: Moedas: Europe’s industries have to go digital

In the process of rethinking the whole business, Knowles recommended three interconnected elements: leadership to see the change needed, the talent within the company to drive the change, and the budget to reward a successful transition.

In this context, Chris Haley, head of Startups and New Technology Research at Nesta, the UK’s innovation agency, added that the “competitive advantage” in this new industrial era will be in the companies that can be “nimble”.

In his view, growing companies “stop exploring new areas and just exploit” what they have on the plate. That is the reason why big companies team-up or absorb startups, because “they are more nimble”.

This continuous exploration mode and cooperation will be even more necessary in an Internet-based industrial age which allows people to better find the winner-takes-all solutions.

In order to avoid sectors dominated by two or three big companies, SMEs would need to find and connect niches of customers with shared interests across the globe. But SMEs need to be well-equipped for this new Industrial era, and therefore conditions have to improve.  “If we do not create conditions in which they can thrive, then it will be for our detriment”, Haley warned.

Nora Khaldi knows how difficult the conditions are in Europe nowadays, even when you have a million euro idea in your pocket. Nuritas, the company she co-founded, combines two very different worlds: food and computing.

By using artificial intelligence, the firm identifies molecules with health benefits. The promising field, that could help to produce breads that lower, stress or food to address diabetes, has attracted some of the big investors behind Facebook and Dropbox.

However, her disruptive approach was not understood by funding agencies in Europe. “We have understanding elsewhere, in America and Singapore, which is terrible for Europe,” she lamented. “Europe is more traditional, you have to follow certain patterns.”

That is why Khaldi believes that Europe should tear down internal barriers, as technology has turned the world into a truly global market where even the smallest SMEs will have to compete.

“There is no way for a European SME to be a worldwide competitor if they do not introduce technologies and work with data. There is no other way to survive and to be competitive,” she stressed.

>>Read: SMEs largely wary of digitalisation in Germany

Donald Storrie, head of unit at Eurofund, an EU agency, emphasised that the issue of SMEs in the globalized world is “critical”. “It is of huge importance that companies realize that from day one they have to do global,” he said.

In Storrie’s view, Commission initiatives, such as the Digital Single Market, could play a “very important role” in the internationalization of these companies to support the transition of 4.0.

In a world becoming more turbulent, issues like trust and the managing of complexity will be key.

Engimedia is an example of the potential opportunities for the entrepreneurs capable of navigating in unchartered waters. In only four years, the Spanish startup has become a 40 people company by offering a “platform to secure your communications that adapts to your needs”, explained Gerard Vidal, its founder and CEO.

In a technology-driven world, no matter if you are a young startup or a consolidated SME, the only way not only to survive but to thrive is, as the African proverb says, to keep running.

SMEs accounted for 71.4% of the increase in employment in 2014 in the non-financial business sector, which includes all sectors of the economy except for ‘financial services’, ‘government services’, ‘education’, ‘health’, ‘arts and culture’, ‘agriculture, forestry and fishing’.

SMEs are ubiquitous, and in 2014 accounted for 99.8% of all enterprises in the non-financial business sector in the EU28. For every km2 of land surface the EU has an average of 5 SMEs. Moreover, in 2014 SMEs employed almost 90 million people - 67% of total employment, and generated 58% of the sector’s value added.

Almost all SMEs (93%) are micro SMEs employing less than 10 people. About three quarters of SMEs are active in the five key sectors: ‘wholesale and retail trade’, ‘manufacturing’, ‘construction’, ‘business services’ and ‘accommodation and food services’.

It is estimated that one out of five EU SMEs experienced a net growth in terms of employment during the crisis years. This represents a relatively large sub-segment of approximately 4 million of the total 22,3 million SMEs in the EU.

The job-creating SMEs were primarily those providing services, in particular in knowledge-intensive services. Besides, young SMEs of no more than nine years of age were the main net employment creators in recent years.

European Commission


European Digital City Index

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