The Lisbon Strategy from the perspective of SMEs

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The Lisbon Strategy, launched by the Lisbon European Council in March 2000, did not achieve its primary objective of making the European Union (EU) the most dynamic and competitive knowledge-based economy in the world by 2010. Discuss this aspect from the perspective of small and medium sized enterprises (SMEs) with particular emphasis on the Small Business Act and the new EU 2020 Strategy.

The events of the last ten years have put the European Union's (EU) economy to the test. However, while attempting to overcome the ongoing global recession and seeking to come to an agreement on the EU budget under the recent Lisbon Treaty procedure, the EU continues to develop its economic programmes to maintain prosperity and stability amongst the existing member states and to future candidates of the Union. The EU's principal concentration in its enterprise policy is Small and Medium Sized Enterprises (SMEs), which are said to be "a key driver for economic growth, innovation, employment and social integration" [1] . Aiming for a more competitive economy, where high levels of expertise in different sectors of the economy are present, the EU introduced the Lisbon Strategy in March 2000. The question is: has this latter development plan succeeded to reach its goal with regards to SMEs?

In a "think small first" [2] European economy, the EU decided to adopt a common definition for SMEs, which entered into force on 1 January 2005. The European Commission, the European Investment Bank (EIB) and the European Investment Fund (EIF) urge the member states to adhere to this common definition in order to better the European economy and to reduce damages of competition within its internal market. According to the definition, SMEs comprise three different types of enterprises: autonomous because they may be running as an independent entity which may have partnership with other companies on a small scale; partner because there may be a relationship between two or more companies having more than 50% share of the partnership; and linked because one company can be more dominant than its partner. To be considered a SME, one has to make sure that the particular firm in consideration satisfies economic activities in order to be classified as an enterprise. According to the Commission Recommendation of 2003, "a small enterprise is defined as an enterprise which employs fewer than 50 persons and whose annual turnover and/or annual balance sheet does not exceed EUR 10 million" [3] . The EU employs this definition as an instrument to determine new strategies and programmes in order to maintain a continuous rate of success of SMEs for the benefit of the European economy.

In March 2000, the Lisbon Strategy was launched by the Heads of State and the Government of the EU. The main goal of the Lisbon Strategy was to make the European economy the most competitive in the world by 2010. At the time, Europe was competing with the economy of the United States of America (USA), as well as the growing economy of Asia, especially against their growing market of Information and Communication Technology (ICT). Therefore, Europe had to act quickly. Implementing the Lisbon Strategy was not an easy task for the EU member states. Many resourceful ambitions were laid down in the Lisbon Strategy in order to further develop the European economy. However, according to a midterm review presented by the European Council and the assessments of Non-Governmental Organisation (NGOs) such as the European Association of Craft, Small and Medium-Sized Enterprises (UEAPME), the Strategy had failed to accomplish its objectives. This does not mean that no important developments have been established. Looking at the employment rate statistics, a significant change to the rate of employability in the EU could be noted. In fact, whereas in 1999 the employment rate in the EU-15 was 62.5%, in 2005 it had gone up to 64.9% [4] . Nevertheless enlargement and recent events have introduced concerns. It has become a challenging task for all 27 member states to adopt equally the targets of the Lisbon Strategy. The Strategy prioritises its ambitions in five principle areas: "the realisation of knowledge society, the completion of the internal market and promotion of competition, including service and financial services, the establishment of a favourable climate to business and enterprise, building an adaptable and inclusive labour market, and the vigorous promotion of win-win environmental economic strategies" [5] . In simple terms, the Strategy was based on three pillars. The first was to make the EU's economy more competitive with the introduction of a more innovated information society. The second pillar represented the modernisation of the European social model and thirdly it advocates that such developments be implemented in an eco-friendly way possible, such as using renewable sources of energy to power its economy.

After a course of five years, mid-term reviews of the Lisbon Strategy were carried out during the Communication to the Spring European Council, which insisted that further action at the European and national level should be executed because the results showed that the Strategy suffered shortcomings when it came to reaching its main objectives. One can remark that the focus of SMEs was generated during this renewal of the Strategy. The key area of Research and Development (R & D) has not been met. By 2010, Member States were supposed to make it to 3% of GDP spending on R & D, but this target was only reached by the minority. According to the 2009 data on R & D spending, only Denmark and Finland managed to score just over 3%. Today's economy is dependent on knowledge. ICTs were inefficiently used to support R & D. It is advised that the member states should encourage their SMEs to invest wisely in R & D because this may benefit the enterprise's labour productivity growth, as well as its competitiveness in the internal and global market. Although the Lisbon Strategy calls for a set up of a European Research Area, as the European Commission calls it, it fails to indicate its significance and as the statistics depict, not a lot of input has been given on the matter. Due to this reluctance to embrace a change and innovate, the business market lacked initiative.

The Barroso Commission urges the changes that should be implemented as "a new start for the Lisbon Strategy" [6] . However, the Commission relied on the open-method of coordination (OMC). The latter is a tool "which promotes policy innovations of and within member states" [7] so that the knowledge of how to implement policies in a successful manner may be shared in the Union. According to the UEAPME, the OMC is insufficient compared to other European competencies because for starters, it had no binding power over the member states. The Council calls on all member states, as well as the European institutions to work together to revitalise the existing SME policies and/or to come to an agreement on new ones. Nevertheless, before this step is taken, the Member States must simplify and administer their regulatory system because this presents itself as an obstacle for entrepreneurs to build their company, or for existing SMEs to innovate. A complicated regulated system may impose high costs and delays. The Commission had phased in action to decrease administrative burdens on SMEs at an estimated saving of 1.3 billion Euros at EU-level.

Even though the areas which the Lisbon Strategy focused on could be employed in the SME sector, one can observe that the priority was given mostly to the big and multinational enterprises rather than to the SME sector. It failed to identify specific requisites for micro-enterprises which hindered the EU's growth. The issue today is that entrepreneurs are not considering Europe as an attractive zone to build a business. To correct this hindrance, "a regulatory climate conducive to investment, innovation and entrepreneurship" [8] must be provided so that the EU can enjoy all the opportunities that this environment provides. With the adoption of the Small Business Act (SBA) in 2008, the Commission presented its recognition of giving SMEs a strengthening role towards the development of the EU's economy and also expanding their potential in the market, by giving it an important position during decision-making processes in the EU. The SBA is set up on the Think Small First principle. The main theory behind this principle is to establish or modify regulation relating to entrepreneurship based on an SME point of view. The Commission seeks the feedback of SMEs in order for policies to be regulated. Consulting small enterprises is a not always straightforward but with the arrangement of a SME envoy within the member state, the national Government would have an individual or a type of administration monitoring the concerns of its small enterprises. At the EU level, the lobbying may be done through DG Enterprise in the Commission. With the SBA a set of ten principles were introduced to aid SME Policy. These principles were to be applied at EU and national level. The argument of the Commission is that regulation based on SMEs may in fact benefit large enterprises. However, if it's the other way round obstacles may disfavour the position of SME in the economy. One of the ten principles of the SBA portrays the situation of an unskilled labour force in the modernisation of SMEs. The EU should invest strongly in education in order to inspire young individuals to earn a living through the skill of entrepreneurship. The existing workers of a particular SME should not suffer the consequences of modernisation. Therefore, it is imperative that the workers learn to adapt with the introduction of further training in a SME.

Nevertheless, a delivery gap was still present. Well-established member states were able to accomplish the ambitious reforms set out in the Strategy. However, the lesser-performing member states lagged behind and unfortunately the delivery gap expanded. The European SBA scoreboard carried out by the UEAPME in 2010 made it very clear that some improvements must be made. A case in point is the aid given to banks and large companies at the expense of smaller firms during the economic crisis. The statistics showed that SME finance was just 45.9%. Bankruptcy is another issue, which the Lisbon Strategy did not coordinate effectively. Thousands upon thousands of SMEs go bankrupt every year and thus, the SBA makes sure that a second chance is given to SMEs, in order to urge entrepreneurs to rebuild the firm, if this situation may arise. According to a report organised by the Commission, maintaining a "successful transfer of business" [9] would be able to preserve the rate of employment in the Union. Access to finance for small firms was legislated with the SBA. Unfortunately, "small firms have faced frozen credit markets and a deep fall in consumer spending" [10] . This has caused many SMEs to close down their business and unemployment to a lot of workers.

The recent recession had re-highlighted the issue of the Lisbon Strategy and its lack of effectiveness. In addition, the Strategy was nearing its deadline. However, the economic problems which were faced by the EU during this time, encouraged reflections of the new Europe 2020 strategy. It is described as the "strategy for smart, sustainable and inclusive growth". Once again, just like the Lisbon Strategy, great expectations are expected to emerge with the Europe 2020 Strategy. First and foremost, it is expected to overcome the obstacles brought about by the crisis and help the EU to become stronger as a Union and at the international level. Its targets are: to have 75% of its population between the ages of 24 and 64 employed; the 3% of GDP is once again put into R & D; poverty is decreased by 20 million individuals; encourage more students to continue studying and achieve a degree; and finally reaching the "20/20/20" climate goals, especially where reductions in emissions are concerned. The Europe 2020 Strategy aims to move away from short-term reforms to more long-term reforms because according to the Council, growth and employment can be maintained.

Europe 2020 took its roots during a different scenario than the Lisbon Strategy. The awareness on climate change and sustaining the environment has been linked to growth and employment. Today, high costs for fossil fuel and/or raw materials may threaten most enterprises, especially those which are small and which really heavily on these services in order to generate their production. Therefore, Europe 2020 has as its objective to promote the use resources of energy, which would also combat climate change and reduce greenhouse gases (GHG). The challenge for SMEs will most likely present itself during the change to low-carbon production. However, the European Commission will ensure its support "to improve the business environment, especially for SMEs, including through reducing the transaction costs of doing business in Europe, the promotion of clusters and improving affordable access to finance" [11] .

The new strategy is also promoting for a digital technology sector in its economy. It stresses the fact that digital technology may benefit a SME in its production and services, not just for the firm itself but it can also become a supplier to larger firms. A secure Digital Single Market is being shaped so that investments can be generated under a well-functioning legal framework in this wide internet-based system. Upgrading to a Digital Single Market may motivate relationships between SMEs globally and establishes once again a competitive position.

Being a member of the EU can bring about many challenges to all the countries, regardless of their size. However, what one can be grateful for is that since it's a Union of 27 Member States, many individuals come together to build a strong democratic institution. A lot of development is still yet to be implemented, but whatever crisis Europe faces, it always raises itself to the challenge.

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