The Competitiveness of Small and Medium Enterprises in Adverse Economic Environments

Abstract

Small and medium enterprises (SMEs) are the backbone of most economies and in particular of the economies of the European countries. They represent 99% of all businesses in the European Union. They considered in total one of the biggest employers as they provided two thirds of the total private sector employment in the European Union (EU), where by EU we refer to the 28 countries of the European Union. These are Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom. Furthermore, SMEs have a significant contribution from a social perspective; they provide employment to the vulnerable members of the society, such as less experienced, less educated and lower income workforce. However, SMEs were hit by the financial crisis with a notable number of them going out of business and suffering job losses. The latter were heavily concentrated in the Member States which were affected the most by the sovereign debt crisis. At the same time, compared to the large enterprises, SMEs appeared to be more resilient than large enterprises, particularly regarding employment. Consequently, a question that arises is how can SMEs weather the crisis and maintain their competitiveness in adverse economic environments. In this paper an attempt to address the issue of SME competitiveness in adverse economic environments is made, by investigating the relationship between the appropriate enterprise competitiveness metrics, as measured by their capacity to compete (quantity and cost requirements, time requirements, certification and standards, competitors), to connect (ICT requirements, linkages with customers, linkages with businesses, linkages with institutions) and to change (financing requirements, skills requirements, intellectual property requirements, innovation requirements) and country statistics, including the competitiveness of each particular country, as measured by the unemployment rate, the unit labor cost, the total employment growth, the GDP (in billion USD), the GDP growth, the GDP per capita (in USD) and the competitiveness indicators (in terms of relative consumer prices and relative unit labor costs). The methodological approach relies on the use of linear regressions. In doing so, we expect to derive the country policies and dynamics that can help SMEs maintain their competitiveness and comparative advantages in periods during which the economies are not performing as well. This is quite important, in securing not only the viability but also the growth of SMEs, taking into consideration the importance of their contribution to the economies of their countries of domiciliation as exhibited above.