SME skirmish highlights tension over definition debate


This article is part of our special report SME’s Access to Finance.

A fight has broken out over how much smaller companies should benefit from the EU's structural funds, highlighting the issues at stake in a forthcoming debate on the definition of SMEs, which is already the subject of fierce lobbying.

Johannes Hahn, the commissioner for regional development, will next week table rules governing the future direction of the EU's regional development funds. An earlier version of the rules stated that funds should be directed "primarily for SMEs".

The latest draft, however, has dropped the word "primarily" giving rise to fears from the larger business federation, BusinessEurope, that such funds would now only go to smaller companies. The organisation wrote to Hahn on Tuesday (27 September) asking for the word to be re-inserted.

Being classed as an 'SME' brings benefits

The argument highlights how categorisation as an SME can bring benefits, and lobbying over the definition has started well before a Commission debate on the issue next year.

Currently there are three broad parameters which define SMEs.

  • Micro-entities are companies with up to 10 employees;
  • Small companies employ up to 50 workers, whilst;  
  • Medium-sized enterprises contain up to 250 employees.

The Commission announced over the summer that a consultation would start in 2012, opening up all aspects of the definition to debate. Any changes to the definition arising from the consultation would be implemented in 2013, however, Commission officials stress that there is no intention from the outset to change the definition.

The current definition represents a political compromise which ensured that the upper figure of 250 employees was reached for medium-sized businesses.

This was seen as a compromise between the German tradition – where Mittelstand companies often extend to more than 400 employees – and those countries where medium-sized entails far fewer employees.

Larger German and French companies want to be SMEs

EURACTIV understands that a number of French and German companies and industry sectors have begun to lobby for an increase in the definition to the top level of 400 employees, a move that SME groups are fiercely resisting.

A range of other criteria are currently taken into account under different rules, however, and may change the definition of a company for specific tax or regulatory purposes. These finer details are also the subject of fierce debate.

Gerhard Huemer, the director for economic and fiscal policy at the European Association of Craft, Small and Medium-sized Enterprises (UEAPME) said that larger companies are also trying to change the rules which dictate how much share ownership of SMEs they may hold before the smaller company falls out of the definition.

"If they succeed it will lead to abuse as Europe's largest companies will simply set up strings of small subsidiary companies designed to benefit from SME funds and exemptions," Huemer said.

Jeremy Fleming

"I believe that debates about definitions are much less relevant for businesses than policy measures. Nevertheless, we need to make sure that the statistical definition of SMEs established in 2003 still reflects economic realities across the 27 Member States," said the Commission’s SME envoy, Daniel Calleja Crespo.

"I think that [redefining SMEs] is a good idea," according to Danish MEP Bendt Bendtsen, who chairs the SME circle at the European People's Party.

"Some of the nearly big companies are defined as SMEs, and the definition currently covers 98% of all companies. If we really want to support the companies that need the help I would define them as smaller, because the bigger ones find it easier to get access to capital," he said.

"I also believe that and we need separate rules for the micro-companies. They should have an exemption from taxation for the first five years of their existence and no reporting obligations: that would be a better system to help get them off the ground," Bendtsen concluded.

Next year's planned consultation on the SME definition will be an exercise to check whether some changes are needed or not, said Patrick Gibbels, a spokesman for the European Small Business Alliance (ESBA).

He continued: "ESBA does not expect the Commission to radically change the entire SME definition or to cut the larger SMEs out of the definition. What we hope to see next year is an in-depth debate about the often very substantial differences between micro-, small, and medium-sized companies, all falling within the scope the current definition. Just like EU legislation for 'all businesses' is not appropriate, in many cases the same is true for EU legislation for 'all SMEs'."

Gibbels added: "A company of four employees is a completely different animal from a company of 200 employees, yet both are SMEs. These differences should be highlighted better and should be reflected in EU legislation."

The European Commission tabled the Small Business Act (SBA) in June 2008 and it was adopted by EU member states in December of that year.

The initial idea was to put SMEs at the forefront of decision-making and shift the focus of EU job creation policies from large to small businesses, amid fears that competition from low-wage countries in Asia could cause major job losses.

But the current financial and economic crisis has shifted the focus to measures aimed at securing the survival of small businesses, which have been severely hit by the collapse of banks and decreasing liquidity in the market.

An estimated 99% of EU companies are SMEs, accounting for roughly 70% of EU jobs and GDP, and their flexibility is seen as a major motor of future innovation and job creation. 

The EU executive has already revised the Late Payments Directive in line with the commitments given in the SBA, although business groups continue to complain of delays.

  • 2012: Commission to open debate on the definition of SMEs
  • • European Small Business Association web site
  • European Association of Craft, Small and Medium-sized Enterprises (UEAPME) web site

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