1. Making SMEs survive an economic downturn – a Finnish model Juhapekka Suutarinen Adviser, Confederation of Finnish Industries EK International seminar in Tirana, Albania February 2-3, 2012

2. 25.1.2012JSu 2 Making SMEs survive an economic downturn: contents Background: enterprise structure in Finland What is EK and how do we work? Small Business Act defines EU Commissions SME policy Public sector toolbox for SMEs during a downturn Special financing tools often needed when economy slumps Economic downturn separates the wheat from the chaff

3. Enterprise structure in Finland

4. 25.1.2012JSu 4 4 Employees Number and share of enterprises (2010)* N%Cumulative % 1-4227 02286,586,6 5-918 0776,993,4 10-4914 5145,598,9 50-2492 3210,999,8 250-6140,2100,0 Total262 548100,0 Source:Statistics Finland *excluding primary production sectors Number and share of enterprises by size class

5. 25.1.2012JSu 5 Finnish enterprises by size class Size class Number of enterprises (excl. sectors of primary production) 1995200020052010 1-4156142183833196421227022 5-914280156441636918077 10-499351127281308514514 50-2491746220022932321 250-496560576614 Total182015214965228744262548 Share of enterprise base, % 1995200020052010 85,885,585,986,5 7,87,37,26,9 5,15,95,75,5 1,0 0,9 0,3 0,2 100,0 Source: Statistics Finland, Statfin –database

6. 25.1.2012JSu 6 Source: OECD (2009). Measuring Entrepreneurship. A Collection of Indicators. 2009 Edition

7. 25.1.2012JSu 7 Source: OECD (2009). Measuring Entrepreneurship. A Collection of Indicators. 2009 Edition

8. 25.1.2012JSu 8 8 Employer enterprises and self-employed persons in Finland

9. 9 Elinkeinoelämän keskusliitto Finlands Näringsliv Confederation of Finnish Industries 9 EK/Eng/shs11.2004 25.1.2012JSu www.ek.fi/ek/en/index.php

10. 25.1.2012JSu 10 EK represents The entire private sector and companies of all sizes 27 branch associations About 16,000 member companies, of which 96% are SMEs Over 70% of Finlands GDP Over 95% of Finlands exports About 950 000 employees Unparalleled knowledge and information of Finnish business

11. 25.1.2012JSu EK members share of all Finnish companies 2010, % Number of employees Number of EK members Companies in Finland 1 EK share of all companies, % Less than 106 972245 0992,8 10 – 496 23014 51442,9 50 – 2492 0172 32186,9 At least 25060861499,0 Total15 827262 5486,0 1 Source: Statistics Finland, Company register 11

12. 25.1.2012JSu 12 Director General Mikko Pukkinen EK organisation Regional offices Assistant manager Annaleena Mäkilä SME Affairs Director Pentti Mäkinen EK Brussels Head of EK Brussels Tytti Peltonen Director Tellervo Kylä-Harakka- Ruonala Infrastructure Director Timo Kekkonen Innovation Environment & Competences Director Jussi Mustonen Economic policy Director Eeva-Liisa Inkeroinen Industrial relations Director Jukka Ahtela Legislation and trade policy Communication Director Leena Jaakkola Administration Director Markku Järvenpää

13. 25.1.2012JSu 13 EK activities Regional OfficesEK Brussels Energy Supplies Management Logistics Infrastructure Climate Environment Sustainable Development Communications Business Infrastructure Labour and Social Law Business Law Competition and EU-law Corporate Security Trade Policy Economy Taxation Business Cycles Employment Financing Welfare Coordinating Collective Bargaining Development of Working Life Wage Increase and Labour Market Analysis Labour market statistics Legal Affairs and Trade Policy Economic Policy Industrial Relations Education and Training Labour and Immigration Innovation Environment Company Growth and Internationali- sation Foresight Information Society Innovation Environment and Competences SME Affairs

14. 25.1.2012JSu 14 Delegation for Entrepreneurs General Assembly Board Extended Management Group Director General Management Group Committee of Member Federations Business Infrastructure Legal Affairs and Trade Policy Economic Policy Industrial Relations Innovation Environment and Competences SME Affairs Regional Offices EK Brussels Communications Regional Advisory Boards Committees Member CompaniesMember Federations (27) Decision making in EK

15. 25.1.2012JSu 15 EK Departments Director Mr Jussi Mustonen Director Ms Tellervo Kylä-Harakka- Ruonala Director Mr Jukka Ahtela Director Ms Eeva-Liisa Inkeroinen Labour and Social Law Director of Legislation Mr Lasse Laatunen Business Law Director of Legislation Mr Hannu Rautiainen Trade Policy and International Relations Chief Policy Adviser Mr Simo Karetie Corporate Security Economics Senior Economist Mr Penna Urrila Taxation Chief Policy Adviser Mr Tero Honkavaara Coordinating Collective Bargaining Development of Working Life Wage Increase and Labour Market Analysis Labour market statistics Energy and Climate Chief Policy Adviser Mr Mikael Ohlström Transport and Infrastructure Chief Policy Adviser Ms Tiina Haapasalo Natural Resources and Supplies Management Business Infrastructure Legal Affairs and Trade Policy Economic Policy Industrial Relations Director Mr Timo Kekkonen Innovation and Growth Director of Innovation Ms Hannele Pohjola Education, Training and Labour Director of Education and Training Ms Jaana Lehto Innovation Environment and Competences

16. 25.1.2012JSu 16 Ways for EK to influence national policy and legislation The President of the Republic The Government Ministries The Parliament Committees Political parties Opinions at request Own-initiated statements and recommendations Participation in committees and working groups Hearings Background contacts EK Departments Member federations

17. 25.1.2012JSu 17 Ways for EK to influence in the EU CommissionEuropean Parliament Council Ministries and Finnish EU Mission Opinions by EK and BUSINESSEUROPE at request Own-initiated statements and recommendations Participation in committees and preparatory bodies Hearings in Finland and Brussels Direct contacts in Brussels BUSINESSEUROPE Sector federations EK Departments Member federations

18. Small Business Act defines EU Commissions SME policy

19. 25.1.2012JSu 19 How Small Business Act shapes EU SME policy The Small Business Act for Europe (SBA; COM(2008) 394 ) forms a guideline for both the Commission and the Member States to pave the way for SMEs to prosper The SBA: ˗ anchors the Think Small First principle in law and policy making to strengthen SMEs competitiveness ˗ acknowledges the crucial role of SMEs in the wellbeing of a society ˗ stands on a set of 10 principles and offers a guide for policymakers and legislators in EU and Member States to create a level playing field for SMEs

20. 25.1.2012JSu 20 Principles of the SBA 1(2) The 10 principles are: 2)Ensure that honest entrepreneurs who have faced bankruptcy quickly get a second chance 1)Create an environment in which entrepreneurs and family businesses can thrive and entrepreneurship is rewarded 3)Design rules according to the Think Small First principle 4)Make public administrations responsive to SMEs needs 5)Adapt public policy tools to SME needs: facilitate SMEs participation in public procurement and better use State Aid possibilities for SMEs

21. 25.1.2012JSu 21 Principles of the SBA 2(2) 7)Help SMEs to benefit more from the opportunities offered by the Single Market 6)Facilitate SMEs access to finance and develop a legal and business environment supportive to timely payments in commercial transactions 8)Promote the upgrading of skills in SMEs and all forms of innovation 9)Enable SMEs to turn environmental challenges into opportunities 10)Encourage and support SMEs to benefit from the growth of markets

22. 25.1.2012JSu 22 Where we stand now Launched in 2008 and reviewed in 2011, the SBA is still far from being implemented The Commission has been faithful to most of its commitments Though adopted by the Member States in Dec 2008 Council, they have so far failed to deliver on several actions The 2011 review proposes, in connection with the economic crisis and the Europe 2020 strategy, both new actions and developed existing actions in these areas: ˗ making smart regulation a reality ˗ paying special attention to SMEs financing needs ˗ improving market access for SMEs with a broad approach ˗ helping SMEs contribution to resource-efficient economy ˗ promoting entrepreneurship, job creation, and inclusive growth

23. Public sector toolbox for SMEs during a downturn

24. 25.1.2012JSu 24 The tools in the box Secure access to finance Provide special financial support to exports Encourage innovation Offer diversified possibilities to training and education Increase write-off possibilities for investments Consider other tax incentives for e.g. research & development expenditures, private venture capitalists investments etc. Schedule infrastructure and other public construction projects for downturn periods Contemplate offering turnaround management services to SMEs Provide a possibility for temporary lay-offs

25. 25.1.2012JSu 25 Tool by tool 1 / 2 Scheduling construction projects –public projects keep the wheels rolling in a labour-intensive industry –launch road, railroad, harbour, public building construction or restoration when private demand in the industry declines Speeding up write-offs –investments slow down when demand fades –shorter period for writing off investments in production facilities encourages execution of strategic plans –helps in maintaining a positive atmosphere among entrepreneurs

26. 25.1.2012JSu 26 Tool by tool 2 / 2 Encouraging innovation, R & D, business angels activities... –if tax incentives have been on the government agenda downturn offers a perfect time to launch dynamic effects Time for updating skills –implement effective lifelong learning measures –modernize social security system to support upgrading of skills –encourage cooperation between educational institutions and SMEs Temporary lay-offs better than redundancy –for an SME it is essential to hold on to its skilled labour force –flexible lay-off possibilities need to be accompanied by sufficient compensations

27. 25.1.2012JSu 27

28. Special financing tools often needed when economy slumps

29. 25.1.2012JSu 29 Access to finance key factor in prosperity of SMEs Economic hardship often implies growing need of finance for SMEs, especially working capital Current economic crisis and new solvency regulations for banks (Basel 2 & 3) form financial challenges to enterprises –secondary sources grow in importance, if there are such In Finland, e.g. insurance companies, pension institutes, Finnvera (a specialized public financing company) and Tekes (the Finnish Funding Agency for Technology and Innovation) offer financing for entrepreneurs

30. 25.1.2012JSu 30 Scarce capital may result in undesirable outcomes Difficulties in finding capital could mean slow growth, or no growth –if working capital dries up the road may even lead to bankruptcy Common problems entrepreneurs face are –high cost of capital –demand for securities and real collaterals –bureaucratic procedures related to many secondary sources The financial system ought to be able to provide capital for enterprises at every phase of life cycle –if private sources are not available public sector should bridge the gaps

31. 25.1.2012JSu 31 Examples of special arrangements in Finland Counter-cyclical financing by Finvera –for companies with up to 1 000 employees –...prerequisites for profitable business once the economic situation improves –for working capital and investment needs –40 % of companies that have obtained CCF say this saved them from bankruptcy Export credit financing (capital goods exports) –arrangement of financing for foreign customers (one stop shop at Finvera) –to ensure the competitiveness of Finnish exporters –similar models already effective in principal competitor countries

32. Economic downturn separates the wheat from the chaff

33. 25.1.2012JSu 33 Anticipation and prioritization Prioritization: –make sure you have a clear strategy which is up-to-date –concentrate on the important issues –communicate with your personnel and interest groups Anticipation: –build a strong balance sheet in order to cope with the challenging periods –be customer-oriented –obtain customers from various trades

34. Success factors apply in a downturn, too Risk tolerance and good planning; customer orientation 25.1.2012JSu 34 Mastering markets (customer relations, marketing, market knowledge, communication) Mastering production (progressive technology, diverse selection of products) Mastering networks (business contacts, distribution chain, corporate image) Mastering strategies (strategic planning, management, international experience of the board)

35. 25.1.2012JSu 35 Board shows direction, management executes In an average SME, the board consists mainly, or totally, of members of management and/or owner family When pursuing growth – or when economy slumps - this is often not good enough According to many studies, wide knowledge and experience are invaluable assets in achieving targeted growth At the same time as putting up their time and effort for board work, experienced entrepreneurs or business angels are often willing to make an investment in a promising enterprise

36. 25.1.2012JSu 36 To make the best use of the board: Take care of sufficient diversity of members – age, sex, background, experience Keep an active contact with board members, even between board meetings Be ready to reward members, and cover their expenses for meetings Remember: the boards main task is not to listen to performance reports but to determine the strategic direction and spar the management

37. 25.1.2012JSu 37 Thank you for your attention! This Presentation has been produced with the financial assistance of the European Commission. The views expressed herein are those of Bosmip 4 and can therefore in no way be taken to reflect the official opinion of the European Commission.