European Union
Small companies are important to the European economy as they account for 99.8% of non-financial enterprises in the European Union (EU) and European Economic Area (EEA), and employ two-thirds of the workforce in the EU.[39][40][3] The majority of European firms are small and medium-sized enterprises (SMEs), employing over 100 million people. Due to the COVID-19 pandemic, a large majority of SMEs saw a decline in revenue during 2020-2021.[42][43][44][45]
Medium-sized businesses (or mid-caps) play an important role in the European economy, accounting for a considerable part of employment and wealth production. According to a recent European Commission analysis, mid-cap companies (250-3000 people) make up about 17% of total employment and 21% of turnover in the EU27 business sector.[46]
Micro firms (with fewer than nine employees) employ 38% of the total workforce, while SMEs with fewer than 250 employees account for 34.4%. Larger (XL) firms with 3,000 or more employees account for 10.1% of overall employment in EU business sectors. According to Eurostat SBS statistics, in 2021, tiny enterprises (0-9 workers) and SMEs (excluding micro firms) employed around 30% and 34.5% of the entire workforce in EU27 business sectors, while bigger firms (250+ employees) contributed for 36.4% of overall employment.[47]
The pandemic has had a greater impact on SMEs than on large businesses, with an average sales loss of 26% versus 23% for large businesses.[48][49] Government assistance appears to have benefited SMEs more than large corporations among the companies that do have overdraft facilities, indicating a successful application of policies to ease financial limitations for SMEs even when they receive help from the banking sector.[48][50] The EIB Group contributed more than €16.35 billion to small and medium-sized firms in 2022.[51]
SMEs were more responsive in altering output during the pandemic, despite the intensity of the shock. In reaction to the crisis, one-third of major enterprises altered their output or services, compared to 37% of SMEs.[48][49]
Large businesses, on the other hand, embraced digitization to a greater extent than small businesses, with 26% boosting their online distribution of products and services, compared to 22% for SMEs. The most significant difference in adaption measures was shown in the chance of expanding remote work, which increased by 25% among SMEs but 50% among large businesses.[48][52]
The criteria for defining the size of a business differ from country to country, with many countries having programs of business rate reduction and financial subsidy for SMEs. According to the European Commission,[53] SMEs are enterprises which meet the following definition of staff headcount and either the turnover or balance sheet total definitions:
In July 2011, the European Commission said it would open a consultation on the definition of SMEs in 2012. A consultation document was issued on 6 February 2018 and the consultation period closed on 6 May 2018. As of, no conclusions or responses have yet emerged.[54]
In Europe, there are three broad parameters that define SMEs: The European definition of SME follows: "The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euro."[56] In order to prepare for an evaluation and revision of some features of the small and medium-sized enterprises definition European Union established public consultation period from 6 February 2018 to 6 May 2018. Public consultation is available for all EU member country citizens and organizations. Especially, national and regional authorities, enterprises, business associations or organizations, venture capital providers, research and academic institutions, and individual citizens are expected as the main contributors.[57]
EU member states have had individual definitions of what constitutes an SME. For example, the definition in Germany had a limit of 255 employees, while in Belgium it could have been 100. The result is that while a Belgian business of 249 employees would be taxed at full rate in Belgium, it would nevertheless be eligible for SME subsidy under a European-labelled programme.
SMEs are a crucial element in the supplier network of large enterprises which are already on their way towards Industry 4.0.[58] According to German economist Hans-Heinrich Bass, "empirical research on SME as well as policies to promote SME have a long tradition in [West] Germany, dating back into the 19th century. Until the mid-20th century, most researchers considered SME as an impediment to further economic development and SME policies were thus designed in the framework of social policies. Only the Ordoliberalism school, the founding fathers of Germany's social market economy, discovered their strengths, considered SME as a solution to mid-20th century economic problems (mass unemployment, abuse of economic power), and laid the foundations for non-selective (functional) industrial policies to promote SMEs."[59] Only around 20% of European SMEs are substantially digitalized, compared to almost 50% of major businesses.[39][60] Small and medium-sized companies make up 56.2% of the non-financial sector. Smaller companies account for more than 60% of the value contributed to the non-financial sector in Belgium, Italy, and Spain, three of the nations worst hit by the COVID-19 pandemic.[39]
With around 338,000 functioning in Bulgaria in 2022, SMEs and mid-caps are major contributors in the Bulgarian economy. They also employ over 75% of the workforce and create 65% of the economy's added value.[63][64][65][66]
The results of an EU survey conducted in 2021 suggest that during the pandemic, in countries with larger fiscal packages, SMEs were on average more likely to experience bankruptcy even after controlling for the size of the shock, the use of bank financing, and country and sector fixed effects. When policy assistance rises by 1% of GDP, the probabilities of bankruptcy for an SME are 2.7 times higher than for a non-SME.[48][67] Credit limitations are especially difficult for SMEs and new businesses to overcome. Credit constraints affect 24% of SMEs and 27% of young businesses.[48]
Medium-sized firms are ahead of SMEs in terms of digital technology adoption, with performance comparable to that of larger enterprises. Over 84% of XL businesses invested in at least one digital technology, compared to approximately 75% for mid-caps.[68][69]
Since the COVID-19 pandemic began in early 2020, SMEs in Europe have suffered unprecedented economic instability and turbulence. In 2023, they faced further challenges, including higher input costs, higher borrowing costs and uncertainty.[70][71]
As a result, the SME value added in the European Union, adjusted for inflation, remains below the pre-crisis level of 2019, and is anticipated to fall further in 2024.[70][71]
Inflation’s impact is more pronounced for small and medium-sized enterprises, with the probability of increased investment rising by 4.3 percentage points compared to a smaller 1.7 percentage point increase for larger firms, as of 2024.[72] Rising energy costs led to a 5.6 percentage point increase in planned investments in energy efficiency, largely driven by SMEs, increasing from 52.3% to 57.9% in 2022.[73]
In the European Union, SMEs have played a significant role in advancing the goals of the Green Deal. Many SMEs increased their planned investments in energy efficiency by 5.6% in 2022, from 52.3% to 57.9%. The European Green Deal's emphasis on energy efficiency aligned with this trend, helping to drive investments aimed at reducing emissions and energy consumption. [73][74][75]
- Micro-enterprises have up to 10 employees
- Small enterprises have up to 50 employees
- Medium-sized enterprises have up to 250 employees.[55]
Poland
The SME sector in Poland generates almost 50% of the GDP, and out of that, for instance, in 2011, micro companies generated 29.6%, small companies 7.7%, and medium companies 10.4% (big companies 24.0%; other entities 16.5%, and revenues from customs duties and taxes generated 11.9%). In 2011, out of the total of 1,784,603 entities operating in Poland, merely 3,189 were classified as "large", so 1,781,414 were micro, small, or medium. SMEs employed 6.3 million people out of the total of 9.0 million of labour employed in the private sector. In Poland in 2011 there were 36.2 SMEs per 1,000 inhabitants.[76]
Nearly seven million people are employed by small businesses in Poland, which accounts for around half of the country's GDP, yet smaller businesses are less likely than larger ones to invest in strategies to combat climate change or boost energy efficiency. In October 2021, the Bank Ochrony Środowiska, a Polish bank that specializes in funding environmental protection initiatives received €75 million from the European Investment Bank (EIB) for these small enterprises.[77]
The Polish bank wants to use at least 50% of the loan for initiatives with a clear emphasis on tackling climate change, such improving building energy efficiency or turning to renewable energy sources like solar power. The money is set to be distributed across Poland, with around 80% of it projected to go to cohesive regions.[77]
