June 14, 2013

SMEs worked in EU and can work in India too!

Pedigreed European brands – from Rolls Royce to BMW, from Armani to Marks and Spencer – all evoke awe inspiring respect and admiration. And that’s the case with many expensive European brands glittering in the lives of the rich and famous across the world since many decades (from Rajiv Gandhi’s classic Rolex to Saudi King Abdullah’ pristine fleet of Rolls Royces). These brands, marketed globally by a horde of European MNCs, also got visible support from governments in Europe under the premise that the larger these iconoclastic brands and MNCs grew, the more would grow Europe’s employment base. But as has now been evidenced empirically, contrary to common perception, MNCs and such brands have really not turned out to be the proverbial gold mines for European economies.

Far from it, as the situation stands now, multinational enterprises employ less than 1 per cent of the European industrial workforce; greater than 99 per cent of the workforce is employed in Small and Medium Enterprises (SMEs). That is a humungous difference and shows that SMEs are the real backbone of job creation in Europe contributing to 2/3rds of all private sector rosters and more than half of business value-added in EU. Even in R&D and innovation charts, the place of SMEs in Europe is right at the top. They are mostly micro-firms providing jobs to a few more than a handful per unit; and yet, the spread of the SME segment is so wide that it has emerged as the previously unheralded citadel of the European economy. Especially now, when the chips are down, SMEs are coming out to be veritable saviours and sustainers of the employment landscape in the continent. As big venture investments are hard to come by, EU is depending to a large extent on furthering the promise of SMEs and especially the potential of startups and entrepreneurships to take the economy forward and create jobs. It’s not as if the Union did not realize this. In 2006, the Competitiveness Council (responsible for promoting SMEs in EU) set a number of goals to be achieved through SMEs (like simplifying processes of commencing a start-up, cheaper and faster start-ups, and larger volumes of start-ups); by December 2008, the targets were renewed with more ambitious benchmarking. The policy efforts also tried to reduce bankruptcy rates, and doing away with impediments faced by budding entrepreneurs – like high entry barriers and taxation. The stress is now being given on certain specific business lines, like crafts and micro-enterprises, education and training entrepreneurship, audiovisual media, social economy and women entrepreneurs.

Even when seen globally, SMEs have a major role to play. Going by an OECD report, the SME segment accounts for over 50-55 per cent of the total GDP and employs around 60 per cent of workforce in developed nations while employing 95 per cent of total workforce in developing and under-developed countries. In many developed nations, SMEs were gradually made more competitive and productive by giving them topmost priority. Unlike what happens in India, SMEs were included in their national development strategy. Such initiatives allowed SMEs to gain momentum and attract huge investments. In UK, in 2001, a unique SME development policy was pioneered titled ‘Think Small First’ and was embedded with the national policy.

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