The variable geometry of the European LFR regions

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SME vs large companies (looking into the crystal
ball) CROSSING BORDERS Venturing into the
European Research Area Six countries programme,
Eisenstadt, 30 Oct. 2003
Prof. L. J.Tsipouri
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Historic evidence

• Reemergence of the small firm sector in the 80s
  after a long period of relative decline
• Reemergence related to technology, firm strategy
  and (sometimes) cyclical effects
• Reemergence reinforced by policy support measures
  (sometimes effective, others not)
• Will this trend continue? Be amplified? Or
  reverse?

3
There are not only economic but alsopolitical,
psychological and social considerations in
favour of SME development.The effort here is to
discuss economics only!
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Targets and measurement

• How do we measure convergence/divergence? (share
  of total employment, profits, radical
  innovations)
• Do we want the number of SMEs to grow?
• Do we want their average size or profitability to
  grow?
• Do we want them to become more innovative
  relatively to big companies?

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What are SMEs?

• Limited resources
• Owner/management structures
• No influence on their environment

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Theoretical assumptions
Facts and policies Anticipated ERA effect
The majority of SMEs does not explicitly target growth (or innovation as indicated by CIS-3) No influence
To change SME behaviour one needs to amplify messages (A.O. Hirschman) Major influence the challenge is to foresee in which direction and to what extent/comply with targets
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Which changes will the ERA bring (or at least we
hope it will)

• More RD financial resources
• More and more mobile human capital
• More effective RD
• Shift towards innovation support (plus open
  coordination effects)
• More transeuropean networking (RD, large
  infrastructure)
• All this leads to more competition?

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Types of SMEs
Employment (employees) Turnover (less than in MEuros)
Microfirms Less than 10
Small firms 10-49 7
Medium sized firms 50-249 40
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Big companies and SMEs
Growth MA Demergers Stagnation Bankruptcy
High Tech NTBF1 NTBF2 NTBF3 NTBF4
Medium M1 M2 M3 M4
Low L1 L2 L3 L4
Big firms B1 B2 B3 B4 B5
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SME needs unlikely to be covered by the ERA

• Amplification of messages for the low and medium
  tech range
• Increasing entrepreneurship
• Changes in corporate governance

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SME needs likely to be covered by the ERA

• Human capital/labour market
• Access to infrastructure
• Networking
• IPRs (?)
• All aspects addressed to
• already sensitive SMEs

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The most probable scenariothe ERA will
reinforce vibrations in the market but it is
unlikely by itself alone to affect the overall
balance of SMEs/big companies.It is very likely
though it will reinforce NTBFs