What Do SMEs Need to Play their Role
in the Lisbon Process
- Answers to Growing Competition
Dr. Klaus-Heiner Röhl
Portoroz/Slovenia, April 23rd 2005
1
What Do SMEs Need to Play their Role in the Lisbon Process
 5 Years after: the Lisbon Agenda in Crisis
 Growing Competition in a Growing EU
 Business Financing: Answers to Basel II
 A View on Regulation
 Strengthening Qualification and Human Capital
 Innovation and SMEs
 Conclusions
What Do SMEs Need to Play their Role in the Lisbon Process - Answers to Growing Competition
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5 Years after: the Lisbon Agenda in Crisis
 the Lisbon goal to make Europe the “most dynamic and
competitive knowledge-based economy in the world“ is stalled
 many European Countries stagnate in spite of high growth in
the world economy
 the Kok report states the deficits that hinder Europe in
reaching the Lisbon goals, but could be more outspoken
concerning the conclusions
What Do SMEs Need to Play their Role in the Lisbon Process - Answers to Growing Competition
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5 Years after: the Lisbon Agenda in Crisis
 By trying to fulfil all goals at the same time – more competition,
less regulation for businesses, more R&D, better education,
more social and regional equality, and more environmental
regulation – the EU in fact wasn’t able to move at all
 “more of the same” won’t be enough to bring the Lisbon Agenda
back on track
 the EU and its member countries must concentrate on
competitiveness, better regulation, business financing,
qualification, and innovation
What Do SMEs Need to Play their Role in the Lisbon Process - Answers to Growing Competition
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Growing Competition in a Growing EU
 the EU enlargement with 10 new member countries in 2004 has
led to more competition from eastern Europe
 in fear of even stronger competition on the labour market, the
Commission’s proposal for a directive on services has been
rejected by the public in the “old” member states
but:
 often, alleged “wage dumping” is a scapegoat for national failures
 the common market for services can’t be postponed indefinitely
What Do SMEs Need to Play their Role in the Lisbon Process - Answers to Growing Competition
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Growing Competition in a Growing EU
 in Germany, minimum wages as introduced in the construction
sector are discussed for other industries
 minimum wages based on collectively agreed wages could lead
to even higher unemployment in east Germany
 in tradable goods, minimum wages can drive businesses to low
wage countries instead of keeping wages up
 high growth in the new member states in combination with low
birth rates since 1990 might ease the migratory pressure in a
few years
What Do SMEs Need to Play their Role in the Lisbon Process - Answers to Growing Competition
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Business Financing: Answers to Basel II
 the agreement of the Basel II Committee allows for extensive relief
for SMEs
 the retail sector for loans to smaller businesses with a volume of up
to 1 million € provides relief for 90 percent of SMEs
 the possibility to alleviate SMEs from their risk burden must be
implemented fully in EU legislation:
the lower weight of risk by SMEs and securities recognized by banks
must be taken into account without restrictions
the proposed capping of the bank equity reduction allowed by Basel II
will lead to higher interest rates for SMEs and should be abolished
What Do SMEs Need to Play their Role in the Lisbon Process - Answers to Growing Competition
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Portfolio of a Bank with high SME orientation
Anteil am Kreditvolumen in Prozent
25
Percentage of Credit Volume
20
15
10
5
C
CC
B
BB
-
BB
+
BB
B
A-
A+
AA
AA
A
0
Standard & S&P-Risikoklassen
Poor’s Risk Classes
Taistra, Krämer-Eis
What Do SMEs Need to Play their Role in the Lisbon Process - Answers to Growing Competition
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Business Financing: Answers to Basel II
 with Basel II, equity capital plays a decisive role in financing
businesses as the equity ratio defines the rating of a business
 without good rating, interest rates for credits are excessively high
 SMEs must earn profits to build up equity through internal financing
 in addition, the possibilities for external equity financing must be
improved
 tax and institutional barriers preventing SMEs from access to the
capital market must be eliminated
What Do SMEs Need to Play their Role in the Lisbon Process - Answers to Growing Competition
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A View on Regulation
 Business sector surveys reveal the heavy burden bureaucracy and
excessive regulation impose on companies
 Though most burdensome regulation is made by member
countries, the EU should avoid additional bureaucratic demands
on companies
 Our recommendations for reducing bureaucracy:
1. more efficient procedures
2. creation of incentives and competition
3. less detailed regulation
4. benchmarking for better regulation
What Do SMEs Need to Play their Role in the Lisbon Process - Answers to Growing Competition
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Labour
Market Regulation – OECD index of barriers
Table 2: Labour Market Regulation - Index of barriers
Country
United States
United Kingdom
Canada
Ireland
New Zealand
Switzerland
Hungary
Denmark
Japan
Czech Republic
Slovak Republic
Finland
Poland
Austria
Netherlands
Italy
Belgium
Germany
Norway
Sweden
France
Greece
Spain
Portugal
– (Employment Protection Legislation, EPL) –
2003
1998
Change
Change 1998 to
1998 to 2003
2003 in Percent
0,7
0,7
0,0
0,0
1,1
1,0
0,1
10,0
1,1
1,1
0,0
0,0
1,3
1,2
0,1
8,3
1,3
0,8
0,5
62,5
1,6
1,6
0,0
0,0
1,7
1,5
0,2
13,3
1,8
1,8
0,0
0,0
1,8
1,9
-0,1
-5,3
1,9
1,9
0,0
0,0
2,0
2,5
-0,5
-20,0
2,1
2,2
-0,1
-4,5
2,1
1,9
0,2
10,5
2,2
2,4
-0,2
-8,3
2,3
2,3
0,0
0,0
2,4
3,1
-0,7
-22,6
2,5
2,5
0,0
0,0
2,5
2,6
-0,1
-3,8
2,6
2,7
-0,1
-3,7
2,6
2,6
0,0
0,0
2,9
2,8
0,1
3,6
2,9
3,5
-0,6
-17,1
3,1
3,0
0,1
3,3
3,5
3,7
-0,2
-5,4
Summary indicator of 18 basic items in three main areas: "regular employment regulation", "part time
employment" and "collective dismissals"; Assigned scores from 0 (no regulation) to 6 (highest possible
regulation)
What Do SMEs Need to Play their Role in the Lisbon Process - Answers to Growing Competition
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Lower regulation leads to higher employment
Employment ratio
100
90
80

70







60

R2 = 0,3866



 





50

40
0
1
2
Regulation density
3
4
OECD; own calculations.
What Do SMEs Need to Play their Role in the Lisbon Process - Answers to Growing Competition
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Strengthening Qualification and Human Capital
 better education and human capital endowment are important to
strengthen competitiveness and earning high wages
 in the OECD countries, adults have spent close to 12 years in
formal education on average
 Countries with highest education levels in the EU are Denmark, the
Netherlands and Germany
 Portugal, Italy and Spain show the lowest education levels
 the new EU members have already higher formal education levels
than some old members, but their qualifications might be
depreciated in part as they date from socialism
What Do SMEs Need to Play their Role in the Lisbon Process - Answers to Growing Competition
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Strengthening Qualification and Human Capital
Years of formal education in OECD countries
What Do SMEs Need to Play their Role in the Lisbon Process - Answers to Growing Competition
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Strengthening Qualification and Human Capital
Level of education attained by adult population
What Do SMEs Need to Play their Role in the Lisbon Process - Answers to Growing Competition
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Innovation and SMEs
4,3
Sweden
3,5
Finland
3,1
Japan
R&D Expenditures as a
percentage of GDP
 The Lisbon goal stands
at 3 percent of GDP,
while the EU average is
1,9 percent
 The US, Japan and
Korea show higher R&D
expenditures than all but
2 EU Countries
2,6
Korea
2,6
United States
Germany
2,5
Denmark
2,5
France
2,3
Belgium
2,3
2,2
Austria
Netherlands
1,9
United Kingdom
1,9
EU
1,9
Lisbon Goal
1,3
Czech Republic
Italy
1,1
Ireland
1,1
Spain
1,0
Hungary
1,0
0,9
Portugal
0,7
Greece
Slovak Republic
0,6
Poland
0,6
0,0
OECD 2004
What Do SMEs Need to Play their Role in the Lisbon Process - Answers to Growing Competition
1,0
2,0
3,0
4,0
5,0
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Innovation and SMEs
 the EU recognized the growing importance of R&D and innovation
in the Lisbon Agenda and its 6th Framework Program
 SMEs “officially” play a growing role in European R&D financing
 but at the same time, surveys show a shrinking ratio of SMEs active
in innovation
 SMEs have problems with conditions for participation in EU
projects (number of partners from different countries, complicated
applications)
 the answer: Make it more simple!
What Do SMEs Need to Play their Role in the Lisbon Process - Answers to Growing Competition
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Innovation and SMEs
SMEs in the EU’s 6th Framework Program R&D
million Euros
2003
SME-Funds in total1)
SME-specific
Programs
2004
2005
- not specified -
FP 6
2.125
185
105
105
430
Collective Research
30
35
35
100
CRAFT
155
70
70
330
1) SME-specific Programs plus 15 percent of funds for 7 thematic areas
ZENIT, Cordis, European Commission
What Do SMEs Need to Play their Role in the Lisbon Process - Answers to Growing Competition
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Innovation and SMEs
necessary steps to strengthen the European R&D environment are:
 adjustment of the EU aid framework to the new circumstances
 fast introduction of the Community patent
 less segmentation of R&D areas like basic research, applied
research and development within large businesses and SMEs
 better networking of companies with research institutions and
universities, e.g. through research bonuses awarded in a simple
procedure
What Do SMEs Need to Play their Role in the Lisbon Process - Answers to Growing Competition
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Conclusions
 in order to bring the Lisbon Agenda back on track, the EU and its
members should focus on the central growth-inducing factors
strengthening competitiveness
reducing barriers to startups and simplifying regulation for businesses
strengthening qualification of the workforce and human capital
formation
supporting innovation and R&D through simplified programs
avoiding measures detrimental to the stated goals
What Do SMEs Need to Play their Role in the Lisbon Process - Answers to Growing Competition
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