Select Committee on European Communities Twentieth Report


2 November 1999

By the Select Committee appointed to consider Community proposals, whether in draft or otherwise, to obtain all necessary information about them, and to make reports on those which, in the opinion of the Committee, raise important questions of policy or principle, and on other questions to which the Committee considers that the special attention of the House should be drawn.




1. This Report considers ways in which the development of "Small and Medium Enterprises" (SMEs) might be better promoted in the EU.

2. There are over 18 million individual companies in the EU, of which the large national and multinational companies, whose activities tend to dominate the business headlines, comprise only 0.2 per cent. Under the standard EU definition[1], the remaining 99.8 percent of businesses are classified as SMEs, principally by having fewer than 250 employees. The typical SME is much smaller than that - on average, having only four employees. Nevertheless, SMEs provide nearly two thirds of employment in the EU.

3. The business world is undergoing a revolution. The development of globalisation and the spread of e-commerce have radically changed concepts of the firm, manufacturing, services and general trade that were familiar a generation ago. The driving forces of rapid technological change, freer international financial exchange and the reduction in barriers to trade are found across the world. The transformation they have brought so far seems bound to continue - and no less rapidly. In addition to those global trends, businesses in the EU are subject to further dynamic changes in the development of the European Single Market and the introduction of the Euro.

4. The concept of employment is also changing. This is facilitated by changes in the business environment, but is also driven by choice - to promote a preferred lifestyle (working for oneself and home-working) - or by necessity as a result of unemployment (often through downsizing by large companies).

5. SMEs, particularly the vast majority of micro and small enterprises, are not potted versions of large businesses. Their size allows them a speed of action that big businesses struggle to match. The opportunities for entrepreneurs have never been greater and, in many respects, SMEs are entrepreneurs' ideal base. At the same time, SMEs' small size means that they can face particular challenges in tackling businesses opportunities.

6. SMEs play a vital part in general wealth creation and in employment, in some cases giving rise to new large businesses. They also have a key role in the provision of a wide range of goods and services, often working closely with large enterprises. It is therefore not surprising that the EU and Member States regard SMEs as requiring special policy attention. The question is what form such policy attention should best take in the transformed business and employment environment.

7. Against that background, the Committee considered that a study of the measures available in the EU to promote SMEs would be both timely and useful. However, the importance of the topic is matched by its potential size and complexity. Rather than launch straight into what would be a major full-scale enquiry, we saw the need first to clarify the questions that needed to be pursued in depth. Accordingly, we undertook a short enquiry into what, within EU policies, the European Commission, national governments and their agents were doing to promote SMEs, and what they should or should not be doing for such enterprises. This report sets out our findings, and concludes with our recommendations on the issues that merit more detailed study.

Conduct of the enquiry

8. The enquiry was carried out by Sub-Committee B (Energy, Industry and Transport), whose members are listed in Appendix 1.

9. The call for evidence set out in Appendix 2 was issued in early July 1999. Given the nature of the enquiry, this was deliberately open-ended. Those who gave evidence are listed in Appendix 3.

10. We are grateful to all those who gave oral and written evidence for their thoughtful contributions to our deliberations. We also thank our Specialist Adviser, Dr Shobhana Madhavan, Director of the Centre for Business and the Environment at the University of Westminster, for her able assistance in guiding us through the complications of wide-ranging issues relating to SMEs in the EU.

1   Discussed further in paragraphs 11 and 12, although it should be noted here that this excludes agriculture, fishery, horticulture and forestry - as does the discussion of SMEs in this Report. Back

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