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Flash EB N o 196 Observatory of European SMEs The Gallup Organization

Analytical Report, page 1

F l as h E u r o b a r o m e t er

Observatory of EuropeanSMEs

Analytical report

Fieldwork: November 2006 January 2007

F l a s

h E u r o

b a r o m e

t e r

1 9 6

T h e

G a

l l u p

O r g a n

i z a

t i o n

This survey was requested by DG Enterprise and Industry and coordinated by theEurobarometer Team of th e European Commission.

This document does not represent the point of view of th e European Commission.The interpretations and opinions contained in it are solely those of the authors.

EuropeanCommission


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The Gallup Organization Flash EB N o 196 Observatory of European SMEs

page 2

Flash EB Series #196

Observatory of European SMEs

Conducted by

The Gallup Organization Hungary upon the request of Directorate-General forEnterprise and Industry

Survey organised and managed by theEurobarometer Team of the European

Commission

This document does not represent the point of view of the European Commission.

The interpretations and opinions contained in itare solely those of the authors.

THE G ALLUP ORGANIZATION


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Table of contents

Table of contents...............................................................................................................................3

Methodological note..........................................................................................................................5

Main findings ....................................................................................................................................6

1. SMEs in Europe ............................................................................................................................8 1.1 The sample of the survey...........................................................................................................8 1.2 Business performance and outlook ..........................................................................................10

1.2.1 Turnover ..........................................................................................................................10 1.2.2 Employment.....................................................................................................................13

1.3 Crafts sector ............................................................................................................................15

2. Constraints on business performance ........................................................................................16 2.1 Overview of reported constraints.............................................................................................16 2.2 Perceived evolution of business constraints .............................................................................19 2.3 Details on business constraints ................................................................................................23

2.3.1 Limited access to finance..................................................................................................23 2.3.2 Labour force too expensive...............................................................................................24 2.3.3 Lack of skilled labour .......................................................................................................25 2.3.4 Implementing new technology..........................................................................................26 2.3.5 Implementing new forms of organisation..........................................................................27 2.3.6 Lack of quality management.............................................................................................28

2.3.7 Problems with administrative regulations..........................................................................29 2.3.8 Problems with infrastructure.............................................................................................30 2.3.9 Problems with purchasing power of customers..................................................................31

2.4 The administrative burden in Europe.......................................................................................32 2.4.1 Favourable change in administrative constraints ....... ....... ....... ....... ........ ....... ....... ....... ...... 32 2.4.2 Evaluation of regulations..................................................................................................33 2.4.3 Time spent with administrative requirements ....... ....... ....... ........ ....... ....... ....... ........ ....... ...35

2.5 Operating within the Internal Market of the EU.......................................................................38

2.5.1 Opportunities provided by the internal market ....... ........ ....... ....... ....... ........ ....... ....... ....... .38 2.5.2 Harmonised standards in the EU.......................................................................................42

3. SMEs in the global economy.......................................................................................................44 3.1 Exports ...................................................................................................................................44

3.1.1 Performance and outlook..................................................................................................44 3.1.2 Export destinations ...........................................................................................................48 3.1.3 Constraints to exports.......................................................................................................51

3.2 Inputs purchased abroad..........................................................................................................54 3.3 Foreign business partnerships..................................................................................................55

3.3.1 Destinations .....................................................................................................................57 3.3.2 Drivers .............................................................................................................................59 3.3.3 Effect on employment ......................................................................................................61

4. Competition.................................................................................................................................62 4.1 Coping with intensified competition........................................................................................62


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4.1.1 Increasing quality .............................................................................................................64 4.1.2 Increasing marketing activity............................................................................................65 4.1.3 Increasing product differentiation .....................................................................................66 4.1.4 Reducing costs .................................................................................................................67 4.1.5 Forming strategic partnerships ..........................................................................................68 4.1.6 Reducing prices ................................................................................................................69 4.1.7 Increasing working hours..................................................................................................70

4.1.8 Looking for new foreign markets......................................................................................71 4.1.9 Reducing production ........................................................................................................72

4.2 The marketing budget .............................................................................................................73

5. Innovation ...................................................................................................................................75 5.1 Income from innovation ..........................................................................................................75 5.2 Constraints of innovation ........................................................................................................77

6. Energy efficiency.........................................................................................................................80

7. Human resources ........................................................................................................................81 7.1 Composition of workforce.......................................................................................................81

7.1.1 Geographic origin.............................................................................................................81 7.1.2 Educational attainment .....................................................................................................84

7.2 Human resource problems .......................................................................................................87

7.2.1 Unfilled vacancies ............................................................................................................87 7.2.2 Recruiting problems .........................................................................................................89 7.2.3 Recruitment strategies ......................................................................................................92

Annex tables....................................................................................................................................96

Technical note ...............................................................................................................................268 Representativeness of the results .............................................................................................269 Margins of error......................................................................................................................270 Exchange rates ........................................................................................................................272 Sizes of the samples ................................................................................................................274

Survey questionnaire ....................................................................................................................276


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Methodological note

The current survey, a successor of earlier surveys of the Observatory of European SMEs, was carriedout in the 27 Member States of the European Union (25 at the time of the fieldwork), as well as in

Norway, Iceland and Turkey in the countries participating in the Multiannual Programme for Enterprise & Entrepreneurship (MAP) 1 under the framework of the Flash Eurobarometer surveyseries. The purpose of this specific contract is the provision of information, through a survey, on thecharacteristics and specificities of small and medium-sized enterprises (SMEs; enterprises with lessthan 250 persons employed) across Europe. For this purpose, the replies of SMEs are compared tothose of large enterprises (enterprises with at least 250 persons employed).

The survey was primarily enquiring general characteristics of firms active in the countries surveyed, perceptions on business constraints, competition and human resources problems and data oninternationalisation and innovation. The survey questionnaire was tested and improved in a pilotsurvey conducted in six countries.

The sample of the survey covered all firms active in the countries surveyed, in any of the followingindustries (with NACE main codes 2): D. Manufacturing, F. Construction, G. Wholesale and retail

(referenced as trade), H. Hotels and restaurants (hospitality), I. Transport, storage andcommunication (transport), J. Financial intermediation (financial), K. Real estate, renting and

business activities (business services), N. Health and social work (healthcare), O. Other community, social and personal service (personal services).

The sample was stratified by country, industry (NACE main codes) and number of persons employed(1-9 categorised as micro-SMEs, 10-49 as small-sized SMEs, 50-249 as medium-sized SMEsand 250+ persons as large-scaled enterprises or LSEs) 3. The sample was selected disproportionallyto have a minimum number of cases in each cell of this three-dimensional matrix.

Overall, Gallup interviewed 16 339 SMEs (17 283 enterprises in total) across the survey area, and14 683 SMEs in the 27 Member States of the European Union (EU), dominantly between the 17 th of

November and 15 th of December 4, 2006, over the telephone. The country breakdown of case numbersand field periods is explained in the Annex of this report. Eligible respondents were top companymanagers, responsible for strategic decision-making, who are typically General Managers, owners or financial managers.

Post-stratification weights were used to restore the artificially distorted proportions according tocompany size and industry sector. When we are discussing EU-wide or other international estimations,results are weighted to correct for the disproportional selection of countries, and the various segmentswithin the countries. The weighting was based on the estimated number of SMEs in the sampled

segments of the total economy.

A technical note indicating the manner in which the Gallup partner institutes conducted the survey is presented at the end of the main analytical report. It provides further detail on interviewing methods,sampling and the statistical margins of error.

1 http://ec.europa.eu/enterprise/enterprise_policy/mult_entr_programme/programme_2001_2005.htm 2

NACE Rev. 1.1, see http://ec.europa.eu/eurostat/ramon/nomenclatures/3 See SME definition at: http://ec.europa.eu/enterprise/enterprise_policy/sme_definition/index_en.htm4 Appointments set up during the fieldwork period were followed up until the 3 rd January, 2007.


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page 6

Main findings

The most important individual business constraint reported by SMEs is the limited purchasing power of customers: 46% of the managers interviewed in the EU reported that this issue was a business constraint in the last two years. Two other business constraints affect a large number of SMEs in the EU: excessive administrative regulations (more than a third 36% of SMEsclaim to have faced difficulties in this area over the past two years) and the issue of theavailability (35% reported problems) and cost of appropriate human resources (33%).

Relatively fewer (29 %) large businesses encountered problems with the purchasing power of their customers within the last two years. Large enterprises were most troubled byadministrative regulations (42%) and the lack of manpower (35%). On top of the widespreadconfirmation of these constraints, the perceived recent change of these constraints is quitenegative as well.

At the EU level, 44% of SMEs consider themselves as operating in an over-regulatedenvironment. On the other hand, 29% are satisfied with the current regulations, and anadditional 12% would even welcome additional measures to achieve the given goals: for

example, financing of public services or a cleaner environment. Hence, on balance, SMEs thatfind regulations fair, or too modest, are only slightly fewer in number than those who think that the regulations go too far.

Overall in the EU, less than one in ten SMEs (8%) reported turnover from exports. However,in some small open economies, SMEs export much more frequently (e.g. in Estonia 23% of companies generate turnover from exports, Slovenia: 21%, Finland: 19%, Denmark: 17%). Atthe same time, SMEs in some of the largest EU countries are not particularly involved incross-border trade. These include Spain (3% have turnover from exports) and France (6%).Overall, the larger the enterprise, the more likely it is to have turnover from exports: almostthree in ten 28% of LSEs, but only 7% among micro-enterprises reported exports. While19% of the turnover of those LSEs which reported export activities came from exports, the

figure for the exporting micro-enterprises was only 5%. However, SMEs are increasinglyinvolved in exports: the reported value of their exports increased in 2006 by 12% (comparedto 2005).

Only 5% of EU SMEs have reported that they have subsidiaries or joint ventures abroad.These foreign business partnerships seem to have a positive direct impact on employment inthe home countries of EU SMEs: 49% of the involved SMEs confirmed that their partnershipdoes not affect employment in their home country, while 18% reported that it increases and3% that it decreases their respective employment in the home country. The main reason for SMEs to invest abroad is the geographic proximity as supplier to other enterprises.

The main constraint that exporters faced is the lack of knowledge of foreign markets (13% of exporting SMEs mentioned this as their prime concern), followed by import tariffs indestination countries and the lack of capital (both 9%).

SMEs in the EU believe that competition in their markets has increased over the past twoyears. Six out of ten managers stated that competition had intensified recently. The perceptionof increased competition is even more widespread among LSEs. To respond to tighter competition, the primary strategy of SMEs is to enhance product quality and intensifymarketing efforts. Increasing working hours, looking for new markets abroad, and especiallycutting production are seen as last resort strategies.

12% of the turnover of EU SMEs comes from new or significantly improved products or services. About 3 in 10 SMEs indicated that they have new products or that they do haveincome from new products. The share of SMEs which reported innovations was higher in theold EU Member States than in the new Member States.


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EU SMEs regard four factors as constituting equally important barriers to innovation: problems in access to finance, scarcity of skilled labour, a lack of market demand andexpensive human resources. The larger an enterprise, the more likely it is to report problems infinding the necessary human resources, and the less likely it is to report difficulties in gettingthe financial resources that are necessary for innovative activity.

Comprehensive systems for energy efficiency (environment management system) are muchless in place in SMEs (4%) than in LSEs (19%); the same applies for simple measures to saveenergy, which are used by 30% of SMEs but 46% of LSEs.

The larger the firm, the more likely it is to hire non-local labour: while 89% of workforce inthe SMEs employing more than one person is local, only 77% of the workforce in LSEs comesfrom the region of the enterprise. LSEs are also the most likely to employ people from other EU countries: 5% of their workforce comes from different EU Member States.

Finding and hiring the appropriate workforce is a challenge for many SMEs in the EU.Especially in the new Member States, a significant number of jobs remain unfilled. Less thanhalf of the SMEs managers said that they have no recruitment problems. Those whichexperience problems reported as a primary problem the availability of an appropriate

workforce; excessive wage demands are a relatively distant second issue.


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page 8

1. SMEs in Europe

The introductory chapter of the report briefly describes the samples used by the Observatory of European SMEs Survey in each country to explore the attitudes regarding various issues presented inthe subsequent sections. Besides giving a background on the national samples, we will discuss theoverall business trends and outlooks regarding turnover and employment.

1. 1 T h e s a m p l e o f t h e s u r v e y

The activity sector of SMEs in our survey reflects the characteristics of the universe 5, defined by main NACE (1.1) codes. The sampling strategy prescribed the minimal number of SMEs required in eachsector, (see sampled sectors on the table below 6) for obtaining the necessary number of cases for within-country sector-by-sector analyses. This report analyses industry sectors only at EU27 level. Thetable contains the weighted distribution of SMEs in the various industry sectors in each of theeconomies surveyed, and in the EU27 zone.

Activity sector, %

D . M

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EU27 SME 13 11 27 7 6 5 22 5 5BE 6 14 32 9 4 1 23 1 10CZ 15 9 28 11 6 1 16 9 4DK 14 10 26 6 7 7 9 11 10DE 9 10 23 8 4 5 27 7 6EE 16 10 17 9 10 10 22 2 4EL 14 11 40 12 6 0 12 0 5ES 10 14 25 5 8 6 22 4 6FR 26 9 20 8 6 3 26 1 2IE 16 10 26 14 5 4 15 6 4IT 13 11 31 6 4 4 21 5 6CY 7 12 25 12 13 11 6 5 9LV 11 6 27 5 6 18 10 8 8LT 16 7 38 5 9 1 16 4 3LU 4 3 30 11 9 7 24 3 9HU 13 11 28 5 4 1 28 4 6MT 18 7 30 13 7 2 14 2 6

NL 5 4 22 4 3 23 27 2 8

5 In several cases, sectors had to be collapsed in order to achieve convergence in the weighting procedure (that istwo or more sectors weighting classes had to be aggregated and a corresponding aggregated target figurewas used for the weighting routine) therefore slight differences from the universe parameters are possible. Seethe Technical and Evaluation Report for exact details on sampling procedure.6 Contrary to the original plan, it was not possible to sample the P. Private households with employed personssegment due to lack of sample source as well as population characteristics in many of the countries involved.


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Activity sector, % (continued)

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10 11 25 9 5 5 27 6 4BG 12 0 58 9 7 0 11 4 0RO 14 8 42 5 7 1 18 2 3TR 15 14 34 6 14 3 5 2 5

NO 14 14 15 3 8 8 16 11 10IS 19 14 17 5 5 6 16 7 11

The target sample of the survey was privately owned and independent SMEs (defined as majority private ownership). 92% of the SMEs interviewed were independent private business entities, 5%were local units / subsidiaries of another business SMEs, and 3% were non-profit or semi-governmentSMEs. The graph below shows the distribution of the different types of SMEs across participating

countries. In the new Member States, the proportion of independent profit-oriented SMEs is slightlyhigher (95%) than in the pre-2004 EU sample (91%).

97 96 96 96 95 95 95 95 95 94 94 94 93 92 92 9 2 9 2 9 2 9 1 9 1 91 91 9 1 9 1 9 0 89 87 87 86 86 8381 78 74

2 2 1 1 4 5 3 5 4 3 4 4 3 5 6 5 6 5 5 2 58 5 8 4 4 8 5 7 8 6 10 7 8 15

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a non profit enterprise: foundations, associations, semi-government

a subsidiary of another enterprise

an independent enterprise

Q1. How would you characterise your enterprise? Is it ase: SMEs, % by country, DK NA not shown

Type of enterprise


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1. 2 B u si n ess p er f o r m a n c e a n d o u t l o o k SMEs were asked to report their turnover, and the number of persons employed by them, for 2005 and2006 (estimated). We also asked them about their views on the future, in particular their expectationsfor the year 2007. This section reports on these findings. 7

1.2.1 Turnover SMEs were asked about their turnover in 2005 and their expected turnover in 2006 8. More than half of the companies decided not to disclose the figure (54% - ranging from 79% in Belgium to 14% inSweden). Generally, managers in Nordic countries were the most willing to share turnover information

and any figure amount related to their business with us.

It seems that the workers of thosesmall SMEs that provided thesurvey with a turnover figure aremore productive. If we divide the2005 turnover by the number of

persons employed in 2005 (see nextsection), we find that in the micro-SME segment, the per-personturnover is clearly above that of theother size classes (251,000 euro vs.160-170 000 in the larger segments).

Such per-person turnover is the

lowest among SMEs in healthcare(59,000 ) and the highest inwholesale and retail (405,000 ).

7 The figure amounts reported over the telephone suffer from a certain bias. While on paper forms managershave time and can look for assistance in answering questions related to their business data (turnover, exports,etc.), over the telephone they seem to be very reluctant to give a top-of-mind figure about their most sensitive

business data. The high lack of reported figure amounts especially affects Chapter 1.2.8 The amount figures were collected in national currency, and for the non-eurozone Member States re-calculatedto euro. The exchange rates are provided in the Technical note in the Annex

Turnover, employment and productivity figures by size-class, % EU-27 *,

2005turnover

(thousandeuro) per enterprise

Number of persons

employed per enterprise,

2005

Per person

turnover, 2005(thousand euro) per enterprise

EU27 SME 1 724 7 241

1-9 persons employed 1 151 4 251

10-49 persons employed 3 657 20 163

50-249 persons employed 16 847 100 162 S i z e c l a s s

250+ persons employed 205 901 1278 170

D. Manufacturing 1828 10 166

F. Construction 1382 7 216

G. Wholesale and retail 2685 6 405

H. Hotels and restaurants 685 8 72I. Transport, storage andcommunication 1290 7 152

J. Financial intermediation 1521 5 308K. Real estate, renting and

business activities 1145 6 180

N. Health and social work 404 7 59

S M E A c t

i v i t y s e c t o r

O. Other community, socialand personal service 2003 7 89

* The averages for the total of SMEs and the averages for the SME sub-categories bysector are based on the replies of all those enterprises which were identified andsampled as SMEs. As some of them did not disclose their number of personsemployed during the survey, the averages for the SME sub-categories by size class are

based on a smaller sample.


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As the graph below shows, the turnover structures in the new and old Member States are verydifferent: more than twice as many SMEs in the NMS12 zone earned less than 150 thousand euro(49%) compared to the EU15 countries (22%). Bulgaria (86%), Turkey (63%), Latvia (62%) andRomania (59%) are the countries with the most SMEs belonging to the lowest turnover category,while only 11% in Italy and 12% in France earned less than 150,000 in 2005.

63 62 59 58 56 55 54 49 46 43 40 40 36 34 30 29 28 27 26 25 24 22 19 17 17 16 16 16 15 14 14 14 12 11

8

24 20 29 26 2619

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22 32 26 3228

2844

27 29 30 34 3330 37 34 41 42

26 3036 36

23 24 28 27

37 6 10 10

10

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24

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17 17 1718 16

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1 2 2 3 1 3 71 3 3 4 5 10 7 12

6 37 9 9 10 10 10

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0 1 1 1 4 4 3 2 3 5 3 2 6 7 4 2 7 6 6 6 8 7 6 10 9 7 10 10 42

23

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more than 5.000.000 EUR 2.000.000 to 5.000.000 EUR 1.000.000 to 2.000.000 EUR 500.000 to 1.000.000 EUR 150.000 to 5 00.000 EUR less than 150.000 EUR

Q7. What was the turnover, that is the annual sales, of your enterpr ise in 2005? Base : SMEs, % by country, only valid responses shown (without DK/NA)

2005 revenuecategories

On the other hand, in the pre-2004 EU countries, more than three times as many SMEs have aturnover of at least 5 million euro (7%) compared to firms in the NMS12 zone (2%).

Turnover outlook

SMEs were asked to report on their expected turnover in 2006 (the fieldwork was carried out in

November-December 2006) and on their outlooks for 2007. The graph below shows the change from2005 to 2006, based on country- (or region-) level (weighted) average turnover for 2005 and 2006.

1 2 4

1 2 4

1 2 4

1 2 3

1 2 1

1 2 0

1 1 9

1 1 9

1 1 7

1 1 7

1 1 6

1 1 5

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Change in revenue, 2005-2006(100 = 2005)

Q6. What is the expected turnover (annual sales) of your enterprise in 2006?Q7. What was the turnover, that is the annual sales, of your enterpr ise in 2005?

Base : those SMEs who gave their turnovers for both years, 100* (q6/q7), averages, by country

From a growth perspective, year 2006 seemed to be better for SMEs in the new Member States; theyreported a 15% increase in turnover in 2006 compared to 2005. On EU level (and according to thosewho agreed to answer for both questions: 41%) 2006 is a better year than the previous one, with 110%

of the 2005 turnover achieved. The highest turnover growth was reported in Estonia (+24), Romania(+24) and Turkey (+24). The lowest growth rates were reported in Portugal and Cyprus (both +4).


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63 62 60 60 60 60 56 52 52 51 51 50 50 49 48 47 46 45 44 43 42 41 41 39 39 38 35 35 34 31 30 30 30 26

15 24 2527 28 27 27 36 35 27 35 39 35 33 39 28 29

2535 42 43

26 35 35 36 30 2946

36 39 4335

26 31 29

67 5 4 6 6

2 6

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7 117

612 12 19

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5 11 7 12 12 11 11 8 5 15 12 12 1226

13 10 17 124 10

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6 7 7 57

0%

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R O I E P

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DK/NA DecreaseRemain about the sameIncrease

Q8. What do you expect regarding the yearly turnover in 2007 com pared to 2006? The turnover of your enterprise in 2007 will increase, remain unchanged, or will decrease?

Base : SMEs, % by country

Expectations regarding the yearly turnoverin 2007 compared to 2006

Just like the recent reports, the outlook for 2007 is rather optimistic as well. On EU-27 level, 41%expect an increase in income in 2007, 35% anticipate no change, and 12% count on decreasingturnover for 2007 (12% are not sure or are unwilling to say). The least optimistic are HungarianSMEs; this was the only economy where more SMEs anticipated shrinking turnover (32%) thanturnover growth (26%). One third or less of the SMEs in Cyprus (30%), France (30%), Portugal (30%)and Germany (31%) expect an improvement in turnover. On the other hand, Romanian (68%), Irish(63%) and Polish (62%) businesses are extremely optimistic: around two thirds of them expectturnover growth for 2007.


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1.2.2 Employment

In a structure similar to the turnover question, the survey asked managers to report on the numbers of persons they employed in 2005, 2006, and on the expected trend in the number of employed personsfor 2007.

An average European SME employs 6.8 persons (on EU-27 level, only 6% did not answer thisquestion). SMEs report the largest number of employed persons in Slovakia (12.5 persons), Estonia(10.4 persons) and Malta (9.7 persons). On the other hand, SMEs are the smallest on average inTurkey (with 4.7 persons employed), Cyprus (5.1) and the Czech Republic (5.2). ( This 2005 number of

persons employed figure was used for the subsequent breakdowns where we analyse various attitudeswithin various size classes. )

1 2 , 5

1 0 , 4

9 , 7

9 , 5

9 , 3

8 , 5

8 , 1

8 , 1

7 , 9

7 , 9

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6 , 9

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E U 1 5 N

O

E U 2 7

E U 2 5 S

E B E

P T

B G

N M S 1 2 E

S

N M S 1 0

E L

H U I T P

L C Z

C Y

T R

Q3. How many persons, including part time workers, were employed in your enterprise on average in 2005? Base: SMEs, averages, by country

Number of persons employed, 2005

As we said, SMEs were asked to report on the number of persons employed they had in 2006, as well.The graph below shows the change from 2005 to 2006, based on country- (or region-) level (weighted)average of persons employed for 2005 and 2006.

1 3 8

1 3 5

1 2 9

1 2 6

1 2 4

1 2 3

1 2 1

1 1 9

1 1 8

1 1 6

1 1 4

1 1 2

1 1 2

1 1 1

1 1 1

1 1 0

1 1 0

1 0 9

1 0 9

1 0 9

1 0 9

1 0 8

1 0 7

1 0 7

1 0 6

1 0 6

1 0 6

1 0 5

1 0 4

1 0 3

1 0 3

1 0 3

1 0 2

1 0 2

1 0 1

S I R O S K E

L D K I E L

V F I I S L U

A T

B G

N M S 1 2

P T

N O P

L

N M S 1 0

C Z

T R E

E I T N L

E U 2 7

E U 2 5

E U 1 5 B

E M T S E U

K F R

D E

E S

C Y

L T

H U

Q3. How many persons, including part time workers, were employed in your enterprise on average in 2005 ?Q4. How many persons, including part time workers, were employed in your enterprise on average in 2006 ?

Base: those SMEs who gave their employee size for both years, 100* (q4/q3), averages, by country

Change in number of persons employed, 2005-2006(100 = 2005)

Reportedly, 2006 brought a higher employment for the European Union SMEs (+7 %). The mostemployment growth in the SME sector was detected in Slovenia (+38%), Romania (+35%) andSlovakia (+29%).


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page 14

46 41 39 38 37 37 35 33 33 30 30 30 29 27 27 27 22 22 21 21 19 18 18 17 17 17 17 16 16 15 14 137 4

38 46 48 50 57 50 56 54 55 57 57 63 62 59 65 5664

607 2 7 4 72 73

67 68 69 67 72 69 70 6573 7 3 7 8

7 0 68

63 7

48

66 6 6 7

67

514 5

4

3 4 6 710 10 9 13 9

210 16 8

11 722 26

2 6 2 3 514

3 1 1 1 5 5 5 3 212

4 3 4 1 3 2 2

48

3751498 5 44

1 6 16

0%

25%

50%

75%

100%

R O

L T P

L E E S I T

R L V E

L B G

L U

N M S 1 2

N O I S

N M S 1 0

N L

M T

S K

B E

E S F

I D K

S E

E U 2 7

E U 2 5 I T P

T A T

F R

E U 1 5 H

U C Z

D E

C Y

U K I E

DK/NA Will decrease Will remain about the same Will increase

Q5. What are your expectations regarding the number of employees in your enterprise in 2007? Will it increase, remain unchanged, or will decrease?

Base: SMEs, % by country

Expectations regarding employmentin 2007 compared to 2006

In contrast to turnover expectations for 2007, SMEs expect much more stability regarding the number of persons employed. Almost seven in ten SMEs (67%) do not anticipate significant changes in thenumber of persons employed in 2007.

Those who do expect change are overwhelmingly optimistic, with 18% expecting increasedemployment, and 10% expecting a decrease (5% could not tell). Again, outlooks seem to be even moreoptimistic in the new Member States, some of which are the most optimistic of all the 30 countriesinvestigated. In Romania, 48% anticipate increased employment, 46% do so in Lithuania, and 41% inPoland. On the other hand, the number of pessimists outscored optimists in the UK (22% anticipate adecrease and 7% an increase in employment) and Ireland (26% vs. 4%).

A brief statistical note might provide additional explanations regarding the accuracy of amount- andexact figure reports. There is no statistically significant correlation between the reported change inemployment and the reported change in turnover for 2005 and 2006. On the other hand, there is astrong, significant ( 0.628** ) correlation between the positive outlooks for 2007 regarding income andemployment.


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1. 3 Cr a f t s se ct o r

Crafts is a somewhat vague category that describes artisan (or at-least labour intensive), small-scale production of various goods and services, from everyday items such as food products to precious itemssuch as jewellery or artwork. Very often, SMEs in this sector produce goods characteristic of thenational cultures in which they operate. In some countries, this sector is clearly defined by nationalregulations (e.g. in Belgium, Germany, France, Italy, Luxembourg, Austria, Poland, Slovenia marked with lighter grey on the chart below), while in other countries, SMEs may or may not definethemselves as belonging to the crafts sector.

51

33 33 33 33 32 31 30 30 30 29 29 29 28 28 28 27 26 26 25 22 21 20 19 19 19 19 17 17 17 16 15 136

4539

6559 64 65 66 69 65 59

69 70 7 1 67 68 72 7 3 7 0 75 7 7 7 9 7 768

7 9 7 6 79 82 83 80 84 84

78 93

2 1 1 4 4 1 1 4 0 2 0 313

2 5 2 1 0 3 0 2 92

52

64 70

38233 3 510 4 1210

0

25

50

75

100

T R F

R I S C Z I E L

U N L

D K

M T

E U 1 5 U

K I T E E

E L

D E

E U 2 5

E U 2 7 S K A

T S E S I

L V

C Y

P T B

E

N M S 1 0

R O

N M S 1 2

N O E

S F I

B G P

L L T

H U

Yes No DK/NA Belonging to crafts sector

Q10. [in BELGIUM, GERMANY, FRANCE, ITALY, LUXEMBOURG, AUSTRIA, POLAND, SL OVENIA] Does your enterprise belongto the crafts sector of your country?

OR Do you think that your enterprise belongs to the crafts sector o f your country? Base: SMEs, % by country

On average, slightly over a quarter of European SMEs consider themselves belonging to the craftssector (28%). Such self-identification is more widespread in the pre-2004 EU than in the newer Member States. The lowest proportions of crafts SMEs were recorded in Hungary (6%), Lithuania(13%) and Poland (15%) while the majority of SMEs in Turkey claim to be part of this sector (52%),and a great number of companies declared belonging to the crafts sector in France (51%) and Iceland(33%) as well.

As Table 8b in the Annex shows, self-identification with the crafts sector is the highest in the microSME segment (employing less than 10 persons), where almost three out of ten SMEs say they belongto that sector (29%). More than half of SMEs active in the manufacturing sector say they are part of the crafts sector (57%), and such reports are also very frequent in the construction industry (47%).


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page 16

2. Constraints on business performance

The Enterprise Observatory Survey tested nine potential constraints that European SMEs are typically burdened with. The tested constrains were:

- Limited access to finance

- Labour force too expensive- Lack of skilled labour - Implementing new technology- Implementing new forms of organisation- Lack of quality management - Problems with administrative regulations- Problems with infrastructure, e.g. roads, gas, electricity, communication, etc.- Problems with the purchasing power of customers

Managers were asked to assess whether or not they have faced any of these constraints over the pasttwo years. The interview also clarified how they perceive the evolution of each of the issues theyfaced: i.e. do they perceive the situation to have been improving or deteriorating in the recent past?

2 .1 O v er v i e w o f r ep o r t e d co n s t r a i n t s

The most important individual business constraint reported by European SMEs was the limiteddemand: 46% of the managers interviewed in the territory of the current European Union told us thatthe limited purchasing power of their customers constituted a difficulty over the last two years.

Beyond the constraint of a limited demand, two problem areas emerge as affecting most European businesses: the problems of stringent administrative regulations (over one third of SMEs claim to havefaced difficulties in this area over the past two years, 36%) and the issues of the availability (35%report problems) and cost of appropriate human resources for the enterprise (33%).

Constraints/difficulties encountered in the last two years (%)

Q21 . Did your enterprise encounter any of these constraints or difficulties in the last two years? Base: SME s

Almost every fourth European SME reported having difficulties related to infrastructure (23%). A

similar proportion reported having only limited access to appropriate finances (21%). 17% and 16%,reported constraints that are temporary by nature: implementing new technologies and new forms of


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organisation, respectively. Finally, about one tenth of the managers interviewed reported problemsstemming from the lack of a management system of the appropriate quality (11%).

Did your enterprise encounter any of these constraints or difficulties in the last two years?*

Size class Activity

E U 2 7 S M E

1 - 9

1 0 - 4

9

5 0 - 2

4 9

2 5 0 +

D . M

a n u f a c

t u r i n g


i o n

G . W

h o l e s a

l e a n

d r e

t a i l

H . H

o t e l s a n

d r e s t a u r a n

t s

I . T r a n s p o r

t , s t o r a g e a n

d

c o m m u n

i c a t

i o n

J . F i n a n c

i a l i n t e r m e d

i a t i o n

K . R

e a l e s t a t e , r e n t

i n g a n d

b u s i n e s s a c

t i v i t i e s

N . H

e a l t h a n

d s o c i a l w o r k

O . O

t h e r c o m m u n

i t y ,

s o c i a l a n

d p e r s o n a l s e r v

i c e

Limited access tofinance

21 20 20 18 16 23 22 20 23 25 15 17 26 33

Labour force tooexpensive 33 32 33 32 27 37 37 33 40 39 18 28 26 42

Lack of skilled labour 35 33 44 46 42 45 50 32 41 36 25 27 21 36

Implementing new

technology17 16 15 18 21 18 16 18 19 15 18 16 17 11

Implementing newforms of organisation

16 14 17 20 26 14 15 17 18 15 14 13 17 21

Lack of qualitymanagement

11 10 12 16 16 13 14 11 16 9 8 8 10 14

Problems withadministrativeregulations

36 35 38 40 38 36 39 35 40 36 34 34 43 34

Problems withinfrastructure e.g. road,gas, electricity,communication, etc.

23 22 23 24 23 22 22 26 30 33 17 17 22 24

Problems with the purchasing power of customers

46 46 41 38 29 49 42 53 47 38 42 40 41 45

Average 9 26 25 27 28 26 29 29 27 30 27 21 22 25 29

* The averages for the total of SMEs and the averages for the SME sub-categories by sector are based on the replies of all thoseenterprises which were identified and sampled as SMEs. As some of them did not disclose their number of persons employed during thesurvey, the averages for the SME sub-categories by size class are based on a smaller sample.

Obviously, the various segments of the European economy are differently affected by each of these problems. However, the main patterns are prevalent in almost every size segment and industrycategory (e.g. the purchasing power of customers is the most often reported constraint, while the lack of quality management is the least often reported constraint in most segments and industries). As thetable above shows, the constraint levels of the various enterprise segments are very similar. Eventhough these figures are just arithmetical average of a non-exhaustive list of potential business

difficulties (with prominent problem areas, such as taxation, missing), they show that the concerns arespread relatively even throughout the EU economy.

However, there are noteworthy differences within the particular problem areas by company segmentsand industries.

Large enterprises in the EU are the least concerned about the issue that generally troubles manyEuropean SMEs. Only 29% of LSEs encountered problems with the purchasing power of their customers (while 46% of the SMEs are affected by such difficulty). LSEs are most troubled byadministrative regulations (38% with almost as many among the SMEs sharing this concern: 36%) andthe lack of manpower (42%, vs. 35% among SMEs).

9 The arithmetic average of % of enterprises experiencing each of the constraints investigated


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page 18

On the other hand, the purchasing power of customers is a prime concern of the smallest enterprisesegment. Almost every second manager leading businesses with less than 10 persons employed reporthaving encountered such difficulties in the recent past (46%). According to managers in most industrysectors, this is the most important problem. This was especially true of managers in trade (wholesaleand retail) where 53% reported difficulties with the purchasing power of their customers.

Only in the construction sector does customer purchasing power drop down to second place in the list

of concerns of SMEs. This sector is most affected by constraints related to the lack of skilled labour,half of managers (50%) pinpointed human resource problems as the issues most affecting their

business performance. This concern is especially prevalent in the small (10-49 persons employed)enterprise segment (44%), while micro- enterprises are the least troubled by this issue (33%). Of allsectors in the EU, privately owned healthcare reported the least difficulties in hiring appropriate

personnel (21%). Healthcare sector SMEs, on the other hand, are by far the most challenged by thevarious administrative regulations they have to comply with (43%).


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2 . 2 P er c ei v ed ev o l u t i o n o f b u si n ess c o n s t r a i n t s

After having clarified the issues that concern businesses in Europe, the survey inquired aboutrespondents perceptions regarding the recent change (over the past two years) in the constraints theyencounter.

The overall picture is skewed by a handful of Member States (see graph on page 22), while for themajority of Member States the situation has improved. SMEs that report having faced difficulties withadministrative regulations dominantly believe that the situation is further deteriorating (on EU27 levelthe perception of deterioration outscores the sum of improvement and stability by 30 percentage

points). The same can be said about those SMEs that reported constraints on the demand side (-25),and expensive labour costs (-16).

12 11 9 8 8 7 5 4

40

25

4539 39 41 42

3630

4462

51 51 49 48 57 65

14

42

0

25

50

75

100

L i m i t e d a c c e s s

t o f i n a n c e

P r o

b l e m s w

i t h

t h e p u r c

h a s

i n g

p o w

e r o f

c u s t o m e r s

L a c

k o f q u a l

i t y

m a n a g e m e n t

P r o

b l e m s w

i t h

i n f r a s t r u c t u r e

e . g . r o a d

, g a s

,

e l e c t r

i c i t

y ,

c o m m u n

i c a t

i o n

,

L a c

k o f s k

i l l e d

l a b o u r

I m p l e m e n t i n g

n e w

f o r m s o f

o r g a n

i s a t

i o n

I m p l e m e n t i n g

n e w t e c h n o l o g y

L a b o u r

f o r c e

t o o e x p e n s i v e

P r o

b l e m s w

i t h

a d m

i n i s t r a t

i v e

r e g u

l a t i o n s

Increased

Remainedabout the same

Decreased

Q22. How did these business constraints change during the last 2 years? Base : SMEs, % among those who report such difficulty , DK/NA not shown

Evolution of business constraints, EU27

Regarding the problems with lack of skilled labour, the situation is somewhat less unfavourable, butstill deterioration outscores the sum of improvement and an unchanged situation by 4 percentage

points. SMEs do not predominantly count on a worsening situation in problems related toinfrastructure (-3), organisational change (0), or introducing new technologies (+2) 10.

Finally, SMEs give somewhat more positive however still fundamentally gloomy reportsregarding the difficulties associated with limited access to finance (where the sum of improvement andand unchanged situation outscores the perception of further deterioration by 9 points) and lack of quality management (+14). But even in these aspects, as the graph shows, only a handful of SMEsreport improvement; most experienced stagnation.

As the table below suggests, contrary to the rather similar average incidence rates of all constraints,the average perception of change is markedly different in the various enterprise categories. (The tableshows the percentage point difference between improvement and stagnation on one hand, anddeterioration. This strategy was chosen to accentuate continuing unfavourable tendencies. For thedetailed frequency distribution for each answer category, please refer to the respective Annex tables).

Clearly, the situation is least improving in the segment of medium-sized enterprises in the EU; theseare reporting the most unfavourable recent change in their situation with a -6 balance score. In the

10

The calculated percentage point differences might differ from similar figures that are derived from theillustrations or the Annex tables by 1 percentage point, due to rounding. The +/- figures are calculated on a non-rounded basis.


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page 20

other SME size classes enterprises are split in assessing the recent trend, with about as manywitnessing improvement as deterioration or stagnation, while LSEs dominantly do not expect further deterioration (+8). Among the industry sectors, difficulties seem to be especially increasing in thehospitality and the financial services sectors (-17 and -16, respectively).

How did these business constraints change during the last 2 years? Did business constraints increase,stay unchanged or decreased?(EU27, net difference between (% decreased + % unchanged) and % increased shown, negative figures showdeterioration)

Size class Activity

E U 2 7 S M E s

1 - 9

1 0 - 4

9

5 0 - 2

4 9

2 5 0 +

D . M

a n u f a c

t u r i n g


i o n

G . W

h o l e s a

l e a n

d r e

t a i l

H . H

o t e l s a n

d r e s t a u r a n t s

I . T r a n s p o r

t , s t o r a g e a n

d

c o m m u n

i c a t

i o n

J . F i n a n c

i a l i n t e r m e d

i a t i o n

K . R

e a l e s t a t e , r e n t

i n g a n

d

b u s i n e s s a c

t i v i t i e s

N . H

e a l t h a n

d s o c i a l w o r

k

O . O

t h e r c o m m u n

i t y ,

s o c i a l a n

d p e r s o n a l s e r v

i c e

Limited access tofinance 9 16 14 4 32 11 4 17 7 -1 -8 18 -3 -7

Labour force tooexpensive -16 -13 -14 -20 -3 -14 -18 -15 -36 -14 -23 -12 3 -15

Lack of skilled labour -4 0 0 -4 -10 -8 -2 -2 -15 3 2 1 -3 -16

Implementing newtechnology

2 10 4 2 -7 7 -7 11 -14 1 -11 0 5 0

Implementing newforms of organisation

0 7 19 1 8 -8 -7 12 -9 4 -24 5 0 -18

Lack of qualitymanagement 14 27 25 16 50 18 15 11 -4 34 0 24 61 -14

Problems withadministrativeregulations

-30 -27 -38 -30 -10 -28 -24 -33 -32 -27 -37 -31 -43 -17

Problems withinfrastructure

-3 6 10 2 39 -3 0 -3 -6 -8 -1 -9 11 16

Problems with the purchasing power of customers

-25 -25 -16 -21 -29 -24 -21 -24 -45 -10 -40 -24 -5 -40

Average -6 0 0 -6 8 -6 -6 -3 -17 -2 -16 -3 3 -12

* The figures for the total of SMEs and the figures for the SME sub-categories by sector are based on the replies of all those enterpriseswhich were identified and sampled as SMEs. As some of them did not disclose their number of persons employed during the survey, thefigures for the SME sub-categories by size class are based on a smaller sample.

In some areas, an overall tendency of further deterioration is observable: for example in the burdencreated by administrative regulations or by purchasing power problems: all size classes and the total of SMEs in all industries dominantly report an increase of those burdens.

As we said, the picture is quite homogenous; those who experienced constraints witnessed either stability or further deterioration. Investigating the difference between perceived stability andimprovement on one hand and improvement on the other, reveals different patterns in the variouscountries.


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We find relatively positive assessment of the trends (meaning that the dominant perception is not further deterioration) in each problem area in Slovenia, Sweden and Turkey. We find the opposite inBelgium, France, Italy, Luxembourg and Malta, where the problems have been increasing in eachaspect surveyed.

How did these business constraints change during the last 2 years? Did business constraints increase, stay

unchanged or decreased?(SMEs, net difference between (% decreased + % unchanged) and % increased shown, negative figures showdeterioration)

BE BG CZ DK DE EE EL ES FR IELimited access to finance -40 29 24 62 32 54 41 -2 -53 53

Labour force too expensive -30 -23 -21 20 19 -67 -7 -10 -46 -37

Lack of skilled labour -24 12 11 -10 16 -33 42 -3 -47 6

Implementing new technology -51 14 29 -1 -4 8 53 -5 -34 11

Implementing new forms of organization -22 65 19 17 5 -10 50 0 -43 43

Lack of quality management -34 58 54 25 41 30 58 21 -57 30

Problems with administrative regulations -39 -16 -13 -5 -45 9 24 31 -48 -13

Problems with infrastructure -46 -22 28 -36 -9 1 57 15 -39 -18

Problems with the purchasing power of customers -43 -38 6 31 -27 47 -47 -2 -64 31

Average -37 9 15 11 3 4 30 5 -48 12

IT CY LV LT LU HU MT NL AT PLLimited access to finance -16 20 37 44 -30 -13 -36 42 18 33

Labour force too expensive -29 -19 -43 -57 -22 -76 -43 -15 -4 -7

Lack of skilled labour -20 19 -36 -36 0 -13 -26 2 14 -15

Implementing new technology -9 -44 39 26 -20 -3 -18 -3 -2 56

Implementing new forms of organization -16 1 39 42 -37 5 -22 -25 -22 65

Lack of quality management -12 3 11 64 -59 24 -11 27 48 58

Problems with administrative regulations -47 -18 45 36 -25 -63 -31 -1 -27 28

Problems with infrastructure -17 11 30 54 -21 -24 -45 -46 1 31

Problems with the purchasing power of customers -49 -29 -23 32 -53 -30 -54 6 -21 4

Average -24 -6 11 23 -30 -21 -32 -1 1 28

PT RO SI SK FI SE UK TR NO ICLimited access to finance 33 25 40 40 35 40 45 20 27 65

Labour force too expensive 19 -7 25 -4 -1 32 -1 3 -34 -21

Lack of skilled labour 34 13 29 11 17 26 22 2 8 12

Implementing new technology 12 14 37 61 -13 43 21 9 25 1

Implementing new forms of organization 24 33 29 65 -7 29 20 22 10 42

Lack of quality management 53 48 50 49 27 66 40 27 24 67

Problems with administrative regulations 52 14 18 12 12 5 -47 37 -27 10

Problems with infrastructure 24 33 20 16 26 41 -14 24 2 18

Problems with the purchasing power of customers -38 12 24 28 35 41 17 6 29 63Average 24 20 30 31 14 36 11 17 7 29


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page 22

In the next subchapter, we will go into the fine details of the patterns presented in this table. Tocomplete this overview of the constraints experienced by European SMEs, we created an overall map

presenting the current situation and the recent experience of change.

The graph below gives a summary measure of all constraints encountered, and the recent trends in the perceived constraints. The EU-27 average defines a point to which we might measure individualcountries, especially the EU Member States. The grey dashed lines showing the EU-27 average

define four squares on the graph, each showing different characteristics compared to the EuropeanUnion benchmark.

-60

-50

-40

-30

-20

-1 0

0

1 0

20

30

40

50

101520253035404550

DK

NO

NL

ES

IC

FI

LU

UK

SE

LV

AT

BG

IE

EEDE

EU27

CY

FR

BE

ITHU

MT

TR CZ

LT

EL

PLPT

SI SK

Current level of constraints & recent change of situation

R e c e n t c h a n g e

( a l l c o n s t r a

i n t s e x

p e r i e n c e

d ,

a v

e r a g e

)

Incidence of constraints(all 9 constraints, average) Base: SMEs

The upper right square is the most advantageous one, where SMEs face only a few obstacles, and mostof those who do face obstacles do not consider their situation to be further deteriorating. Especially

Nordic countries (Norway, Denmark, Iceland, Finland and Sweden) are in this situation, along withthe UK, Spain and the Netherlands. In the upper lefts square we find those countries where SMEs areconstrained more than the EU average, but their situation has not been deteriorating further. Thecountries belonging to this group are predominantly new Member States (Czech Republic, Slovakia,

Slovenia, Lithuania, Poland, and Romania) accompanied by Greece and Portugal. Turkey is thenegative extreme in the reported number of problem incidences.

In the bottom right cubicle we find those economies where a relatively low proportion of the SMEsface the difficulties we investigated, but they dominantly report a worsening situation (Luxembourgand marginally by Cyprus)

Finally, the most disadvantageous location on this map is its bottom left square with countries whereSMEs are not just troubled by the various constraints, but have been experiencing further deteriorationin their situation: France, Belgium, Italy, Hungary and Malta.


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2 .3 D e t a i l s o n b u s i n e ss co n s t r a i n t s

After presenting the overall picture and highlighting some of the key findings of this questionsegment, we provide detailed analyses of each constraints incidence and recent evolution in thecountries covered by the survey.

2.3.1 Limited access to financeLimited access to finance is a problem for 21% of enterprises in the EU. Like many of the other constraints, limited access to the necessary finances is a problem especially for the new Member Statesof the EU. Besides Turkey (where 45% of SMEs encounter such difficulties) the inability to properlyfinance the business and its development is especially widespread in Malta (35%), Hungary (29%),Belgium (29%), Lithuania ( 28%), Poland and Slovakia (both 27%). On the other hand, only 7% of SMEs report similar constraints in Finland, 9% do in Denmark and 11% do in Spain. Estonia is theonly new Member State that reports favourable conditions (only 12% have encountered suchdifficulties).

29 28 25 25 23 21 21 21 20 20 20 20 18 17 17 15 15 14 14 14 14 14 13 13 13 13 11 10 10 9 5 3 2 0

3731 31 41 36 44

5639

49 45 4663 58

51 54 5244 50 44 49 40 40 45 39 31

6447 56

32 3756

2620 28 30

27 40 24 36 2723

3330 33 33 16 29 27 25 38 32 38 26 44 45 35 46 56

2340 32

57 4935

67 7 7 7 0 60

33

1741

0

25

5 0

7 5

1 00

N L

T R

A T

E L

R O S I I E

N O

S K

D E

P T I C

D K

S E

U K

L T

N M S 1 2

P L

N M S 1 0

L V

E U 2 7

E U 2 5

C Z

E U 1 5

H U

E E

C Y F

I

I T

E S

B G

M T

F R

B E

L U

Decreased Remained about the same Increased

35 29 29 28 27 27 26 25 25 25 24 23 23 23 22 22 21 21 21 21 21 21 20 20 20 19 18 18 17 14 12 11 9 7

48 60 65 66 63 68 65 65 65 7 2 59 7 0 66 67 7 2 7 1 71 7 1 7 47 7

65 67 7 2 7 1 79 7 9 82 7 4 77 7 9 7 7 84 87

45

6861

0

25

5 0

7 5

1 00

T R

M T

H U B

E L T P

L S K

N M S 1 0

N M S 1 2

E L I T P

T D E

C Z

L U

R O S I S E

E U 2 7

E U 2 5 F

R I S B G

L V

E U 1 5 C

Y U K

N O I E A

T N L

E E E

S D K F

I

Yes No

Q21. Did your enterprise encounter any of these constraints or d ifficulties in the last two years?a) Limited access to finance

Base: SMEs, % by country, DK/NA not shown

Limited access to financeConstraints/difficulties encounteredin the last two years:

Evolution in the past two yearsQ22. How did these business constraints change during the last 2 years?

a) Limited access to finance Base: SMEs, % among those who report such difficulty , DK/NA not shown

The difficulties are reported to be increasing especially in Luxembourg (where the difference betweena improved or unchanged situation on the one hand and a further deterioration on the other hand was -90 percentage points among affected SMEs), France (-53), Belgium (-40) and Malta (-36). The most

positive perception on the development was detected in Iceland (+65), Denmark (+62), Estonia (+54)and Ireland (+53). The only country where the perception of improvement outscored the perception of further deterioration was the Netherlands. On the EU-27 level, the problem seems to continue, with a

balance score of -9.

Limited access to finance is not the primary concern of most SMEs, but there are evident differences

between the various segments. The smaller an enterprise, the more likely it is to have experienceddifficulties in connection to financing (SMEs: 21%: LSEs: 16%). SMEs active in the financial sector


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page 24

are the least likely to suffer from insufficient access to finances (15%). Appropriate financing is themost difficult to obtain in the personal service sector (33%), healthcare (26%) and the transportationsector (25% report problems).

In most SME segments, the situation has not been deteriorating over the past two years. As alreadyindicated, the SME average shows a +9 percentage point balance. The corresponding figure for LSEstroubled by insufficient access to finance is +32. Among industry sectors, those in the best (financial

services: -8) and worst situations personal services: +7) report a balance showing further deterioration.The least recent deterioration is reported in the trade and business services sectors (+17, +18,respectively).

2.3.2 Labour force too expensiveToo expensive labour is a problem for 33% of SMEs in the EU. Especially Hungarian managers areconcerned about the excessive costs of labour in their country (71% say that they have encountereddifficulties in this regard over the past two years), followed by their Belgian (46%), Italian (45%) andCzech (43%) colleagues. In the non-EU countries of the survey this constraint was particularly high inTurkeu (61%). By far, Bulgarian SMEs are the least troubled by disproportionate labour costs (10%

report such difficulties), and only one fifth or less of SMEs report such business constraint in the Netherlands (16%), Iceland (18%), Denmark (18%), Romania and Norway (both 19%).

10 10 10 8 8 8 7 7 7 7 6 6 5 5 5 5 4 4 4 4 4 3 3 3 2 2 2 1 1 1 1 0 0 0

39

20

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35 34 3 3 3 3 3 3 3 3 3 3 3 3 32 29 28 25 25 2 3 2 3 2 3 19 19 18 18 16 10

26 3753 5 2 5 3 5 0 5 3 5 7 57 58 63 53 61 62 63 63 63 63 59 6 4 7 0 7 1 7 2 7 4 68 7 2 68 7 3 79 75 81 7 5 85

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Yes No

Q21. Did your enterprise encounter any of these constraints or d ifficulties in the last two years? b) Labour force too expensive


Labour force too expensiveConstraints/difficulties encounteredin the last two years:

Evolution in the past two years Q22. How did these business constraints change during the last 2 years? b) Labour force too expensive

Base: SMEs, % among those who report such difficulty , DK/NA not shown

Most of the affected SMEs in Hungary consider the situation to be further deteriorating (here the

balance of a perceived recent intensification of the problem vs. other perceptions is minus 76 percentage points), as do SMEs in Estonia (-67) and Lithuania (-57). Reports are not as unfavourable,on the other hand, from Sweden (+32), Slovenia (+25), and Denmark (+20). On the EU-27 level, thesituation is deteriorating, with a balance score of -16.

The problem of labour costs is more or less equally important for all sectors and segments. However,the LSEs are somewhat less concerned than SMEs (27% versus 33%) as are companies active in the


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field of financial services (18% think that expensive labour has been a constraint for them in the recent past).

Labour costs are the most important problem for the personal services (42%) and the hospitality sector (40%). The issue of disproportionate labour costs seems to be further deteriorating in most SMEssegments, especially in the hospitality sector (-36), the financial sector (-23) and in the construction

industry (-18). Managers in the healthcare (+3) sectors are, however, more likely to report stagnation.

2.3.3 Lack of skilled labour Lack of skilled labour is a problem for 35% of SMEs in the EU. It is an eminent concern for almostthree quarter of managers in Lithuania (72%).At least half of SMEs have encountered such difficultiesin the past two years also in Turkey (60%), Estonia (60%), Greece (54%), Romania (53%), andFinland (51%), as well. The non-availability of appropriate manpower is a problem least widespread inthe Netherlands (20%), Hungary (22%) and Germany (26%).

16 15 14 14 14 11 11 11 10 10 9 9 8 8 8 8 8 7 7 6 6 6 5 5 5 4 4 4 4 3 3 3 2 1

5536 41 37 47 42 46 37 31 24

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56 5848 46 41 38 47

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60 60 54 53 51 47 44 42 42 42 42 41 40 40 40 39 39 39 37 37 36 35 35 35 34 34 33 32 30 28 28 26 22 20

2438 40 42 49 51 53 53 55 48 55 59 59 58 56 57 56 61 56 56 55 61 61 62 63 63 67 62 66 7 0 66 71 7 1

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Yes No

Q21. Did your enterprise encounter any of these constraints or d ifficulties in the last two years?c) Lack of skilled labour


Lack of skilled labourConstraints/difficulties encounteredin the last two years:

Evolution in the past two years Q22. How did these business constraints change during the last 2 years?c) Lack of skilled labour


On the European Union level, slightly more managers claim that the constraint has been intensifyingover the past two years (-4). The issue of the scarcity of skilled manpower is reported to beincreasingly problematic especially in the Baltic States; in Lithuania as well as Latvia (the difference

between perceptions of stagnation or improvement and further deterioration is -36 percentage points in both countries) and in Estonia (-33). The situation is the least discouraging in Greece (+42), Portugal(+34), Slovenia (+29), and Sweden (+26).

The lack of skilled labour is more prevalent among LSEs (with 42% of managers mentioning it),compared to SMEs (35%, and specifically to micro enterprises: 33%). Especially the construction(50%) and manufacturing sectors (45%) report limited access to skilled labour. The recent change is

perceived to be most unfavourable in the hospitality sector (-15) and in the personal services sector (-16).


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page 26

2.3.4 Implementing new technologyImplementing new technologies is a problem for 17% of SMEs in the EU. In no Member States morethan about one third of SMEs consider implementing new technology to be a constraint. Taking alsointo account the results for non-EU countries of the survey, Turkish respondents are most affected bysuch difficulties (35% say they encountered this in the past two years), followed by Portuguese (31%),Romanian (27%), and Lithuanian managers (25%). On the other hand, Austrian (9%), Icelandic (9%)and Bulgarian (9%) SMEs are the least troubled by the consequences of implementing newtechnologies.

17 16 15 14 14 13 13 12 11 9 8 8 8 7 7 7 7 7 7 5 5 5 4 4 4 3 3 2 2 2 2 2 1 0

61 36 53 62 63 41 45 41 3452 53 55

38

6343 42 42 40

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3045 44 51 45

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31 27 25 23 23 23 22 22 21 20 20 19 19 18 18 17 17 17 17 17 17 17 15 15 15 14 14 13 12 12 11 9 9 9

63 6667 7 3 68 72 7 3 7 2 7 8 69 7 5 7 3 80 7 2 73 76 7 3 7 2 7 7 77 78 84 83 83 7 3

85 83 7 8 7 6 83 86 7590

35

7664

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Yes No

Q21. Did your enterprise encounter any of these constraints or d ifficulties in the last two years?d) Implementing new technology


Implementing new technology Constraints/difficulties encounteredin the last two years:

Evolution in the past two years Q22. How did these business constraints change during the last 2 years?d) Implementing new technology


One might think that by definition, these constraints are temporary, and diminish over time. Lookingat our results, this is definitely not the case. The overall perception in the EU is that these problems didnot decrease, just on the contrary, a slight majority say they increased over the past two years; with a

balance score of (-2). In several countries, such problems seem not to worsen (especially in Slovakia:+61, Poland: +56 and Greece: +53), while a deteriorating tendency was detected in several others

(especially in Belgium: -51 and Cyprus: -44 ).

Implementing new technology affects the various enterprise categories rather similarly: 17% of theSMEs and 21% of the LSEs report such problems. The hospitality (19%) and the financial sector emerges (18%) as the group where technology updates cause relatively the most problems. Theconstraints caused by recently introduced technologies are worsening the most in the large scaleenterprise segment (-7, as opposed to the overall result of +2 in the SME sector) and the hospitalitysector (-14). The situation is reported to be relatively more favourable by the trade (+11), healthcare(+5), and manufacturing (+7) sectors.


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2.3.5 Implementing new forms of organisation

Being a concern for 16% of SMEs in the EU, organisational change unlike any other constraintinvestigated is somewhat less likely to pose a problem in the new EU Member States than in the oldones. Taking into account the results for the non-EU countries of the survey, Turkish SMEs (39%),Belgian (26%), Portuguese (26%) and Greek (24%) SMEs have mostly reported that implementingnew forms of organisation resulted in difficulties in their business operation in the recent past. On theother hand, Hungarian, Danish, Bulgarian (all 7%), Norwegian, Polish and Swedish businesses (all8%) are the least likely to suffer from the negative effects of organisational turmoil.

21 19 18 18 18 17 16 15 15 14 11 11 10 10 9 9 9 8 8 8 7 7 7 7 5 5 5 5 5 4 3 2 2 0

50 6047 52 51

3452 55

44

17

69

47 53 5672

2840

5738

284 1 4 1 39

51 4530

analytical report en

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