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Atlantic Review of Economics 

            Revista Atlántica de Economía

Colegio de Economistas da Coruña
 INICIO > EAWP: Vols. 1 - 9 > EAWP: Volumen 4 [2005]Estadísticas/Statistics | Descargas/Downloads: 8140  | IMPRIMIR / PRINT
Volumen 4 Número 03: SME Support Programs in Europe: Granting and Evaluation criterion.

Antonia Madrid Guijarro
Universidad Politécnica de Cartagena

Domingo García Pérez de Lema
Universidad Politécnica de Cartagena

Antonio Calvo-Flores Segura
Universidad de Murcia

Reference: Received 15th January 2005; Published 25th February 2005. ISSN 1579-1475

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Resumen

Este artículo tiene como finalidad analizar la situación de los programas de apoyo para las PYMES en Europa. Identificamos los principales programas de apoyo para este tipo de empresas y analizamos los criterios generales utilizados para la concesión y evaluación de estos programas por parte de las diferentes agencias, realizando una encuesta telefónica. Nuestra muestra está formada por 44 agencias incluidas en EURADA, que representan una cobertura del 33,3%. Los resultados muestran que el programa de apoyo que aumentará en un número cada vez mayor de agencias es aquel relacionado con "la innovación y el desarrollo tecnológico", y el programa que disminuirá cada vez más en las agencias es aquel relacionado con la "reestructuración de las empresas en declive".

Abstract

The aim of this paper is to analyze the situation of the support programs to SME in Europe. We identify the main support programs to this kind of firms and analyze the general criterion used to grant and evaluate these programs by the different agencies using a phone survey. Our sample is formed by 44 agencies included in EURADA which represent a coverage of 33,3%. The result show that the support program that will be increased in a higher number of agencies is the one related to "innovation and technological development", and the one that will be decreased in a higher number of agencies is the one related to "reestructuration of declining firms".


1.- INTRODUCTION


   The Small and Medium Enterprises have drawn the attention of many papers due to their great capacity to generate employment, and their role in the economy as a source of wealth.

   The SME structural weaknesses limit their survival and decrease their competitiveness. Although Public Administration have devoted a huge effort to improve the SME environment with many support programs, it remains necessary to continue developing actions focused on improving their bureaucratic environment, their internal and productive organization, their investment in intangible and cooperation agreements that promote the innovation, as they are crucial elements to respond to the two big challenges for the SME: the technological development and the market globalization.

   The aim of this paper is to analyze the situation of the support programs to SME in Europe. To do this, we identify the main support programs to SME and analyze the general criterion used to grant and evaluate these programs. To achieve this objective, we have carried out an empirical study where the population is composed by the Development Agencies included in EURADA. Our sample is made up by 44 agencies which represent a coverage of 33,3%. The paper is organized as follows. First, we review the economic literature about the granting and evaluation criterion of the business support programs; second, we show the methodology of the empirical study and the characteristics of our sample, and, finally, we present the main results.


2. GRANTING AND EVALUATION CRITERION OF THE SUPPORT PROGRAMS


   In order to achieve a rational use of incentives by governments, it is needed, among other aspects, an engagement in strategic planning, monitoring performance by companies that receive incentives, and assessment of return on investment for public funds (Friedman, 1994). In general, economic literature considers that public administrations should elaborate economic criterion in order to grant and to assess public funds.

   In this context of efficiency, there are two factors that should be considered. Firstly, an activity sectorial factor, which emphasizes the decision making process in relation to which activity sector should receive incentives. And, secondly, a within-sectorial factor related to which type of firms should receive the incentives.

   From a sectorial point of view, Thurow and Reich (1989) and Caves (1976) point out that incentives should be addressed to high added value industries. From a within-sectorial point of view, Storey, Keasy, Watson and Wynarczyk (1987) consider that policy makers should elaborate selective policies in order to avoid business failures and to promote a higher growth. Support Policies have been framed in the sense of picking winners. In relation to this discrimination there is empirical evidence suggesting that policy makers prefer the best firms (Lipsky, 1980; Branstetter & Sakakibara, 1998; Klette, et al. , 1999; Roper & Hewitt-Dundas, 2001; Venetoklis, 1999). This choice allows public administration to justify easily that subsidies are effective, due to the fact that the probability of failure decreases because of the selection criterion.

   In fact, a huge number of papers, such as Sakano and Obeng (1997), point out that subsidies should be used as incentives to those firms that operate efficiently. They recommend to take into account the efficiency as a criterion to grant and evaluate subsidies. This point of view is also supported by Besley (1989), who claims that, when firms are efficient at the same level, the policy to grant subsidies should be uniform, but when efficiency differs from one firm to another, an uniform subsidies plan supposes the same treatment for efficient and inefficient firms. The ideal situation, according to this author, is to grant subsidies only to the efficient firms.

   In this sense, Rosentraub and Przybylski (1996) conclude that the subsidies established to improve the economic advantage based on a low cost factor are only effective if technology is stable. Furthermore, an incentive used to decrease the cost of the factor will have to be increased in the future when new technology redefines the new comparative advantage. Any firm that gets a grant has a lower interest to identify new technologies, in that subsidies satisfy the immediate need. Porter (1985) considers that these subsidies focused on the improvement of the comparative advantage will only generate temporal benefits. This author thinks that the advantages of an economy do not come from comparative advantage in production factor but from the capacity to innovate and to manage.

   All this is justified due to the fact that support programs addressed to activities with a high potential should maximize the probability to produce benefits for the rest of the economy (Beaver and Jennings, 1995). Some benefits would include:

   a) The creation of employment/ reduction of unemployment. Fostering and nurturing high-potential ventures should lead, as quickly as possible, to the creation of a maximum number of jobs.

   b) Addressing the disadvantaged competitive position of those small firms who could be in a position to compete effectively with larger firms and who are thought to possess a generic advantage vis-a vis their contemporaries.

   c) The more effective deployment of limited public resources by concentrating upon those most likely to succeed.

   d) The maximization of returns from the use of public resources leading to income taxation.

   e) The multiplier effect- successful firms need more resources from other firms and hence place more orders, generate more business and circulate more money in the economy.

   f) The provision of role models and mentors for others firms to copy and work with.

   g) The promotion of innovation and the provision of help to cover risk, uncertainty, and higher costs.

   The European Commission in its document "Counting the Jobs" considers that it is necessary, in a evaluation framework of the public aid, to measure some impacts such as:

   - Increase in business turnover
   - Increase in export
   - Increase in SME survival rate
   - Increase in R&D
   - Increase in investment
   - Increase in new business starts
   - Increase in firms productivity and competitiveness


3.- METHODOLOGY


   To carry out the empirical study we have chosen as our population the 130 development agencies included in the EURADA web-page. The information has been gathered through a questionnaire addressed to the person who is in charge of the SME policy in each agency. This questionnaire was sent by e-mail and telephone calls were done in order to achieve more answers. To verify the validity of the questionnaire several meetings took place, with the person responsible for the different development agencies. The field work started on 5th November 2003, and finished on 8th March 2004. We have to point out, that in the different phases of this research, the information has been used anonymously and in aggregated terms. Finally, we got 44 cases (see table 1) representing an answer ratio of 33,8%. The questionnaire is composed by several parts:

   PART 1:

   - General information about the region:

   1. Its population and contribution to the European GDP
   2. Sectorial distribution of its GDP

   - SME difficulties in each region

   PART 2:

   - Identification of the SME support programs and their tendency for 2004.
   - Criterion in the granting decision making process.
   - Criterion in the evaluation of the effects of the different programs.

   In order to analyse the results we have considered the following groups:

Region: UE15 and new incorporations
Size: Small (regions with less than 1.200.000 inhabitants) and Large (regions with more than 1.200.000 inhabitants)
Industrial Intensity: Less (regions with manufacturing contribution to GDP lower than 25%) and More (regions with manufacturing contribution to GDP higher than 25%).

   The methodology used to analyse the differences between the groups is based on non-parametric tests due to the small sample size. In particular, we conduct Mann-Whitney tests for independent samples and the Pearson Chi-Square test.


4.- RESULTS


   For SMEs the most important problems are those related to "financial weakness", "innovation" and "market position". Contrary, the problems related to "location", "quality", "qualification of the staff" and "technical development" are considered by the agencies as less important (table 2).

   The statistical tests show significant differences between the countries included in the UE15 and those that will be included in the following years. In this sense, in the countries of new incorporation, SME "financial weakness", along with "economic activity turbulence", "bureaucratic problems" and "taxation", are problems more valued than in those included in the EU15. However, the problem related to "recruitment of qualified workforce" is more valued by the agencies located in the UE15 (table 2).

   In the same way, the assessment of these problems varies according to the industrial intensity in each region. In the regions whose industrial intensity is higher (more than 25% of their GDP comes from manufacturing), "economic activity turbulence" and "management and organization problems" are weaknesses more valued than in those regions whose manufacturing contribution to the GDP is less than 25% (table 2).

   In relation to the support programs to SME organized in the different regions, the results show the following points (table 3):

   - The support program about "new start up" exists in all the polled agencies (100%).

   - Secondly, the most used programs are those related to "innovation and technological development" and "internationalization".

- Finally, the less used programs by the agencies are those related to "restructuring of declining firms" and "environmental support".

   Again, statistical tests show significant differences according to the criterion UE15. In this sense, a higher percentage of agencies (100%) localized in the countries of new incorporations chooses "training support programs", while this percentage decreases 63,3% in the case of agencies included in UE15. Another interesting result is that regions included in the UE15 use in a higher proportion (56,7%) support programs for "restructuring of declining firms", this percentage decreasing to 16,7% for agencies located in the countries of new incorporation (table 3).

   According to the size criterion (number of inhabitants), the results show that larger regions use in a higher proportion support programs to "investment" (90%) than smaller regions (60%). Likewise, more industrial intensity regions use "innovation and technological development" support programs in a higher proportion (100%) than less industrial intensity regions (76,5%) (table 3).

   The trend of most of the programs is "increase" or "stable". In this sense, the support program that will be increased in a higher number of agencies is the one related to "innovation and technological development", and the program that will be decreased in a higher number of agencies is the one related to "restructuring of declining firms" (table 4).

   In relation to the granting criterion, the most valued factor is "feasibility of the project: business plan", followed by "firm innovation" and "new employment due to the investment". The less valued factors are "type of property" and "company´s age" (see table 5). The assessment of the different factors is very homogeneous in the different polled agencies since there is no significant difference between the different groups (ue15, size and industrial intensity) (see table 5).

   The most valued criterion used to evaluate the effect of SME support programs is "increase in firm´s productivity and competitiveness" followed by spillover effects such as "increase in new business starts" and "increase in employment". The less valued factors are "deadweight" and "displacement" effects (see table 6). Statistical tests show significant differences according to size criterion. Agencies located in small regions value in a higher rate the "increase of employment quality" and "displacement effects" than those located in large regions.























References

Beaver, G y P.L. Jennings (1995). Picking winners- the art of identifying successful small firms. International Review of Strategic Management, 6, pp. 91-106.

Besley, T.J. (1989). Commodity taxation and imperfect competition: A note on the effects of entry. Journal of Public Economics, 40 (3), pp. 359-367.

Binks, M.R., y J. Coyne (1983). The Birth of Enterprise, IEA Hobart Paper Nº 98.

Birch, D.L. (1979). The Job Generation Process, Cambridge, MA, MIT Press.

Branstetter, L. y M. Sakakibara (1998). Japanese Research Consortia: A microeconometric Analysis of Industrial Policy. Journal of Industrial Economics, 46, pp. 207-233.

Caves, R.E. (1976).Economic models of political choice: Canadas´s tarill structure. Canadian Journal of Economics, vol. 9, pp. 278-300.

Friedman, M. (1994). Governments can use incentives rationally. Economic Development Review, Fall, vol. 12, Issue 4, pp. 25-29.

Klette, T.; J. Moen y Z. Griliches (1999). Do subsidies to commercial R&D reduce market failures?. Microeconomic Evaluation Studies, NBER, Working Paper 6947.

Lipsky, L. (1980). Dilemmas of the individual in public services. New York: Russel Sage Foundation.

Porter, M.E. (1985). Competitive advantage. Creating and Sustaining Superior Performance. Free Press. Nueva York. (Traducción: Ventaja Competitiva. Creación y Sostenimiento de un Desempeño Superior. CECSA. México, 1999, 18ª edición).

Roper, S. y N. Hewitt-Dundas (2001). Grant assistance and small firm development in Northern Ireland and the Republic of Ireland. Scottish Journal of Political Economy, Vol. 48, nº 1, Febrero, pp. 99-117.

Rosentraub, M. S. y M. Przybylski (1996). Competitive advantage, economic development, and the effective use of local public dollars. Economic Development Quarterly, noviembre 1996, vol. 10, issue 4, pp. 315-331.

Sakano, R. y K. Obeng. (1997). Subsidies and inefficiency: stochastic frontier approach. Contemporary Economic Policy, Julio 1997, vol 15 issue 3, pp. 113-128.

Storey, D.; K. Keasey; R. Watson and P. Wynarczyk (1987). The Performance of Small Firms. Londres, Croom Helm.

Venetoklis, T. (1999). Process Evaluation of Business Subsidies in Finland A quantitative Approach. European Group of Public Administration, cape Sounion, Grecia, 1-4/09/1999, University of Tampere, department of Administrative Science, Finlandia.

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About the Authors

Autor: Antonia Madrid Guijarro
Dirección: Universidad Politécnica de Cartagena
Correo electrónico:
antonia.madrid@upct.es

Autor: Domingo García Pérez de Lema
Dirección: Universidad Politécnica de Cartagena

Autor: Antonio Calvo-Flores Segura
Dirección: Universidad de Murcia

 

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