Czech Republic - Why SMEs are essential to European growth

Why SMEs are essential to European growth
Czech European Commissioner responsible for Employment, Vladimír Špidla, talks about small and medium sized businesses.

Land area: 78,864 sq km
Population: 10.23 million
Labour force: 5.3 million
Capital: Prague
Language: Czech
Currency: Czech koruna

The influx of foreign investment to the Czech Republic has exceeded all expectations in recent years. The automotive sector, in particular, is having a major impact on the economy, and therefore on employment. The impact comes not only from equipment manufacturers such as Toyota Peugeot Citroen Automobile Czech, based in Kolín, or Hyundai, outside of Ostrava, but also from the large number of supplier companies.In numerous other industrial and service sectors, the country has also been attracting a large number of very prominent investment projects. In the long-established automotive region of Mlada Boleslav in North Bohemia - home to Skoda - the number of supplier companies grows regularly, with a related impact on labor costs. Increasingly, investors are now heading to formerly less attractive areas, such as South Bohemia.

From May, businesses outside Prague were able to apply for EU funds to implement the Investors in People standard. The project is run by state investment and business development agency CzechInvest, and financed from the European Social Fund. Investors in People is a certified standard that sets out best practice for the training and development of personnel. It was created in 1991 by the UK government in conjunction with leading businesses, personnel, professional and employee organisations. The standard has been adopted in more than 70 countries. Prague businesses cannot apply for EU funds to adopt the Investors in People standard because the region has a higher gross domestic product per capita than the EU average. The money earmarked by the European Social Fund for implementing Investors in People in the Czech Republic stands at Kc 31 million, enough for as many as 50 enterprises to achieve the standard.

When Portugal opened its labour market on May 1 to new European Union countries, including the Czech Republic, it signalled the need for highly qualified people to move there. Spain and Finland also announced the lifting of restrictions put on the 10 countries that joined the EU in 2004, and opened their labour markets at the start of May. Greece is expected to follow suit in the coming months. Britain, Ireland and Sweden are the only "old" EU members to maintain unrestricted access to their labour markets from the beginning of the EU's expansion. Portugal is certainly an untapped market as far as the Czech Republic is concerned. Statistics from Czech news agency CTK show only 10 Czechs officially living and working in Portugal in 2005.

INSIDE THE CZECH REPUBLIC Since the 1989 Velvet Revolution, the Czech Republic has become a highly popular destination, and tens of thousands of foreigners have settled happily, enjoying the country's combination of high living standards and low living costs.

LIFESTYLE Although in most respects life in the Czech Republic has rapidly approached Western standards of living, the cost of living remains substantially lower than in Western Europe. According to the Union Bank of Switzerland average prices of goods and services in Prague are only 43% of those in Zurich.

ACCOMMODATION Prague and all larger cities boast a wide range of rented accommodation, ranging from centrally-located apartments to spacious villas in leafy suburbs. Many real estate agencies offer relocation services for a charge of one to two months rent. The sale and rental prices of residential premises can vary widely depending on the city, location, size and quality.

MEDICAL CARE The Czech healthcare system is founded on public services and financed by predominantly by the public. Czech physicians are at least of the same quality as in Western countries.

TRANSPORT Public transport in the Czech Republic is efficient and reasonably priced compared to Western Europe. Large towns all boast excellent local networks. Foreigners who spend more than 185 days per year in the Czech Republic must obtain a Czech driving licence in addition to their own licence.

ENTERTAINMENT, ARTS AND FOOD Prague and many cities in the Czech Republic are famous for their architecture, museums, theatres, cinemas, galleries, historic gardens and cafes. An wide choice of cultural events is on offer, embracing all types of music and an outstanding theatrical tradition. Many foreign language publications exist in the Czech Republic, including the Prague Post, Prague Business Journal, The Prague Tribune (English) and Prager Zeitung (German). Restaurants in the Czech Republic cater to a range of tastes. In larger cities all types of international cuisine are available, from renowned traditional Czech food to Asian specialities. Alongside the country's famous Czech pubs, larger cities boast an extensive number of pubs and restaurants catering to foreigners, ranging from Irish pubs to Indian restaurants.

SHOPPING Retail in Prague and all larger cities has undergone a revolution in the past decade with many big shopping centres now located around the cities. Concepts of shopping and customer service are now comparable to those of Western countries, and major international retail chains are found in abundance.

SPORT In keeping with its reputation as a highly successful sporting nation, the Czech Republic provides a wealth of sporting opportunities. The most popular sports are ice hockey, football, basketball, tennis, volleyball, swimming and table tennis.

Large parts of the EU are facing high levels of unemployment. Increasing globalisation means much more intensive competition to attract business and therefore for jobs. SMEs play an important role in this, as they can guarantee jobs on the one hand, but also face a considerable risk of losing other jobs through increasing competition. The commission, in partnership with the member states, is therefore focussing its policies on growth and employment – they are the key priorities of the “European strategy for jobs and growth”.

So, what can we, as the European Commission, do for SMEs? I will try to answer this by posing two questions: Why a new SME policy? What are the components of the new SME policy?

Why a new SME policy?
Small and medium-sized enterprises are a European asset that we should exploit. The European economy revolves around the craft sector, micro-businesses, family businesses, cooperatives and SMEs. This is proven by familiar statistics: SMEs make up 99 percent of all 23 million businesses in Europe, and employ over two-thirds of all private-sector employees in Europe. This amounts to more than 75 million people.

The commission has therefore set itself the task of developing a framework in tandem with the member states, which will give SMEs scope for greater growth and employment. The “European Partnership for Growth and Employment” assigns a key role to SMEs, and to fully develop this role we have set out future policy areas for the new SME policy in a recent communication adopted in November last year. The aim is to strengthen the SME dimension in all EU policies.

What are the components of this new SME policy?
The new policy adopts a ‘bottom-up approach’. It is based on existing instruments, such as the European Charter for SMEs, the “Action Plan for Entrepreneurship” and the “integrated guidelines on jobs and growth”.

The “Multiannual Programme for Enterprise” and the future “Competitiveness and Innovation Programme” form the financial framework for enterprise policy, mainly for SMEs. In addition, there are of course much larger funds in the EU, such as the structural funds, the research programme and training programmes, from which SMEs can benefit. In the Annual Progress Report (ARP) on Growth and Jobs, the commission has summed up the efforts and policies as presented by the member states in their National Reform Programmes (NRPs).

Most member states highlight the business environment and entrepreneurship among the main issues to be tackled. Regarding SMEs, most programmes do not go far enough to foster a more positive attitude towards entrepreneurship and to encourage more people to start their own business.

There is an important role here for education, for making it easier to transfer existing businesses, and for reducing the stigma of failure. Additional measures regarding access to finance or related targeted measures to improve investment should be considered.

On the other hand, many national programmes highlight actions to make it easier to set up and run a business, promote a more entrepreneurial culture and create a more supportive environment for SMEs. But let me clear about this: much of what can be done for SMEs is carried out at local, regional and national level. The role of the EU is to create a framework to bolster the competitiveness of all businesses, and especially SMEs.

I would like to name five areas in which I feel we need to be particularly active:

One: Innovation and research
SMEs and entrepreneurship go hand in hand with innovation. It is often small businesses that are most innovative, but many have difficulties in gaining access to innovation and research results and intellectual property rights. Through the communication on SMEs and the Action Plan on Research and Innovation, I am therefore urging that SMEs be given better access to the framework-programmes for research and to the 7th programme in particular. Simplified procedures should be introduced for SMEs along with specific calls for tenders, and various SMEs – or groupings thereof – should be given greater opportunities to take part in joint research projects.

The new Innova initiative is intended to involve SMEs and their stakeholders more closely in projects such as clusters and innovation panels. At the same time, the commission is working on simplified rules for aid in the field of innovation which should give the member states more leeway to promote innovation programmes for SMEs

Two: Financial instruments
Funding is an important element for start-ups, but also during the business transfer and growth phases. Our existing financial instruments are already very effective. More than 200,000 SMEs have benefited from the various financial schemes, the majority being businesses with fewer than 50 employees. The problem is often the fact that the end-user is not even aware that this is European money as it is paid out via the user’s own bank. The financial instruments should be better adapted to requirements as part of the new Competitiveness and Innovation Programme (CIP). We are planning new financial products such as the securitisation of bank loans and mezzanine finance. In this instance, we are talking directly with banks and business representatives and we are, for example, setting up a new round table involving representatives from banks and SMEs at the beginning of next year.

Three: Promoting entrepreneurship and improving training
In the EU, there are still too few people who want to become entrepreneurs. According to a Eurobarometer survey, the majority of citizens prefer employee status to founding or running a business. We are therefore urging the member states to promote “business skills” such as risk-taking, initiative and independence early on at school and at university. In addition to business set-ups, the issue of business transfers is becoming increasingly important. In Europe, many enterprises disappear every year due to a lack of business successors. Approximately one third of European businesses will be transferring ownership in the coming 10 years. This means that an estimated 600,000 to 800,000 small and medium-sized enterprises will be changing hands each year, potentially affecting 3 to 4 million jobs.

Society therefore needs to value male and female entrepreneurs more highly – the EQUAL programme has funded several partnerships across the EU to promote business creation by women.

Four: Reducing red tape for businesses in Europe
It is well known that cumbersome administrative procedures and unnecessarily complicated legislation are a greater burden on SMEs than on large businesses. The smaller the business, the greater the burden in terms of time and money. The commission has therefore withdrawn unnecessary proposals for legislation which SMEs have problems in implementing on account of particular bureaucratic hurdles. Over one-third of all proposals discussed in the Council and the European Parliament since 1 January 2004 were withdrawn because they are unnecessary or no longer relevant. This shows not just that the commission is able to stop unnecessary legislative proposals after close scrutiny, but also that a review of these proposals confirms the need for around two-thirds of them.

The impact assessment on future laws must also contain a so-called “competitiveness test”, which highlights specific constraints for SMEs. No new proposal submitted by the commission should impose a burden on SMEs. To ensure that this is the case, it will be necessary to find special rules for SMEs and create exemptions or set up a special contact point for them. Another important aspect is the obligation to consult all parties concerned by all the proposals set out in the commission’s work programme. It is also one of the tasks of the SME envoy to ensure that the views of SME representatives are heard here too.

Five: SMEs have benefited from the European internal market
There are, however, areas where obstacles still exist or where better use can be made of the internal market. This is particularly the case with European standardisation and public procurement, but also applies to taxation.

Standardisation
Some 1,000 new European standards are adopted annually by the various standardisation committees. Studies here have shown that SMEs in particular have problems in understanding and applying EU Directives and standards. We propose greater participation by SME representatives in these committees and a more intensive dialogue between all parties involved.

Public procurement
The public procurement market amounts to some €1.5 billion per annum. The bulk of this is still national, and only some five percent of all contracts published in the EU Official Journal are awarded to foreign tenderers. Here too SMEs are clearly underrepresented. The commission urges the member states to improve access for SMEs and to ensure that there is greater awareness among SMEs about public procurement.

Taxation
Indirect taxes and different national regulations form a further obstacle to the development of SMEs. Since simplification and the commission’s proposal to introduce a “one stop shop system for VAT” would undoubtedly make life easier for SMEs, the commission is pressing for rapid adoption.

The pilot project on “Home State Taxation” seeks to facilitate the taxation of SMEs that wish to set up branches in a neighbouring country. Here again, we are calling on the member states for their support, since direct taxation remains firmly competence of member states, not the EU or the commission.

There is often also uncertainty over the application of internal market rules and a lack of information about opportunities in other markets, particularly among SMEs. The Euro Info Centre network, with over 330 centres inside and outside the EU often hosted by Chamber of Commerce or federations, is intended to help out with queries on EU regulations and programmes.

The SMEs deserve our attention, because the success of Europe’s fight for jobs and growth relies on their ability to thrive and grow. The commission is therefore ready to listen to their requests and address their needs.

(In miniscule text) First delivered at a seminar on SMEs in Prague on 11 April, 2006.

SIDE PANEL
So you want to do business in the Czech Republic…
The Economic Chamber of the Czech Republic is an association of large, medium and small businesses in regional chambers and trade associations.

The chamber’s main task is to support the entrepreneurial climate and the development of trade and it focuses most of its products and services on this task. A comprehensive range of professional services in all areas relating to trade, industry and commerce is available to all representatives of the business community in the Czech Republic.

The Economic Chamber of the Czech Republic is becoming a natural and trustworthy part of Czech economic life and for thousands of companies it has become a place where important services can be found. It meets the needs not only of Czech, but also of foreign businesses. It is a partner for the support of mutually beneficial relations and a place where contacts can be made.

The Czech Republic is well known for its high level of culture, qualified workforce, advantageous geographical location in the centre of Europe, favourable taxation system, and extensive transport communication network. During the course of your business activities in the Czech Republic you will often require help and advice from someone who is familiar with the environment and who has been active in it from the very beginning. That is why the Economic Chamber of the Czech Republic can be your first point of contact and your partner when entering the Czech Republic. The Economic Chamber of the Czech Republic is an independent, legal institution which, like the Chamber of Commerce and Industry in your home country, provides a full range of services to its members and other domestic business groups, as well as interested parties from abroad.

The chamber can help you if:
• You are looking for a business partner in the Czech Republic.
• You need more information about Czech business partners
• You need help arranging your business trip to the Czech Republic.
• You need legal, customs, certification and other services.
• You want to participate in trade fairs in the Czech Republic and get more information about them.
• You need the services of a translator or interpreter into/from Czech.

[Go Back]