From the importance of SMEs in supporting the European economy to the driving role of innovation in global growth
Summary :
– Observation: With the exception of German SMEs, European SMEs have suffered during the crisis, with high bankruptcy rates and severe « Darwinian selection. »
– Diagnosis: Entrepreneurs lack confidence in the future and are not sufficiently export-oriented. This can be explained in part by changing tax policies, weak global demand, and the absence of strict regulations on payment terms.
– Proposed reforms: Encourage entrepreneurs to start businesses, develop intra-industry communication, facilitate SMEs’ access to market financing, and reform taxation at the European level.
The annual country risk conference organized by Coface, one of the world’s leading credit insurance companies, took place on Tuesday, January 27 in Paris. Its first round table focused on the driving force behind the European economy: SMEs.
The panel of specialists brought together representatives of three key players for SMEs—businesses, banks, and the state—with the presence of the CEO of the Public Investment Bank (BPi) France, the Director of Economic Studies at Crédit Agricole (CA), and two business leaders (one French and one Italian).
The speakers began by reviewing the last six years of economic crisis, during which SMEs have faced major difficulties. SMEs have been hit by a double whammy: a slowdown in both domestic and international demand. In Italy, no less than 50% of SMEs have gone bankrupt or filed for bankruptcy. In France, meanwhile, we are faced with a « chicken and egg dilemma »: French SMEs account for 50% of employment and 45% of added value, making them one of the main drivers of the French economy. Their recovery is therefore essential to overcoming the crisis. At the same time, the recovery of overall demand (and thus the end of the crisis) is essential for SMEs to recover.
The speakers agreed that the business world had become more « Darwinian » than in the past, with only the strongest companies surviving. German SMEs, which are larger in size and have greater equity reserves, have, for example, weathered the crisis better than others. This can be explained mainly by a more export-oriented business strategy and specialization in the production of high value-added equipment. However, Isabelle Job, CA’s chief economist, does not believe that the German model can be replicated and applied to other eurozone countries, as it is closely linked to the country’s history and institutional structure. German SMEs owe their success to an efficient federal organization with well-integrated regional states and banks. The compulsory apprenticeship system also ensures that the skills acquired during training are well matched to those required in the workplace (by way of comparison, there are around 1.5 million apprentices in Germany, compared with only 400,000 in France).
After this rather gloomy assessment, the speakers set about diagnosing the sources of the problem. According to Nicolas Dufourq, CEO of BPi France, it is not the financial situation of SMEs that is at fault. BPi’s business boomed in 2014, with a 94% increase in loans to businesses, « a trend that will continue in 2015, » according to Mr. Dufourq. He attributes the vulnerability of SMEs more to their lack of confidence in the future, which has resulted, among other things, in the absence of a three-year strategic plan. « This shows a lack of ambition on the part of SME leaders, even though the potential is there! It’s as if entrepreneurs have been in a kind of nocturnal melancholy for the past six years, » insists Mr. Dufourq.
For Nathalie Kestener, business leader at Restagrafwho has just successfully developed her business in Morocco, entrepreneurs’ lack of confidence is indeed problematic and partly the result of overly unstable taxation in France. She adds that, beyond the absence of a strategic plan, there have also been strategic errors: some SMEs have chosen to establish themselves in declining markets. Finally, she criticizes the lack of effectiveness of « overly political » negotiations between social partners (Medef and CGT), calling on business leaders to negotiate by sector so that they can share their experiences on more technical subjects and help each other. Business processes in Europe also need to be simplified, particularly with regard to reducing payment terms. In her view, the Economic Modernization Act (LME) passed in 2008 provided a general regulatory framework for payment terms and would benefit from being effectively enforced.
In Italy, the managerial system—which is too family-oriented, outdated, and ill-suited to the globalization of trade—is said to be the main cause of the difficulties encountered by SMEs.
After this overview of the difficulties encountered by SMEs, the speakers considered proposals and reforms that could facilitate the development and maintenance of SMEs.
The need to restore entrepreneurs’ confidence in the future returned to the center of the discussion. Methods as simple as door-to-door canvassing can encourage entrepreneurs to get started. BPi already uses this technique and would like to see it become more widespread. Developing communication within the industry would also allow entrepreneurs to share best practices, thereby strengthening solidarity and their sense of confidence in the economy. « In France, we are too individualistic; we need to work more collectively, » according to Ms. Kestener.
For Mr. Regina, Italian entrepreneur at Manifatture Sigaro Toscano, the SME financing system also needs to be reformed: facilitating their access to private capital markets and allowing companies to securitize their debt. The European Union could also play a role by going further in building the banking union and combating tax fraud.
Finally, the speakers called for a reduction in the regulations that weigh on entrepreneurs and the burden of corporate tax rates (which can be as high as 85% in Italy).
To conclude the round table, the audience was asked to choose what they considered to be the most significant constraint on SMEs at present. The audience had a choice of four options. The results of the vote were close, with each option receiving around 25% of the votes. However, high taxation came out slightly ahead, followed by access to finance, then weak overall demand and long payment times in last place.
What technological innovations can accelerate global growth?
Summary :
– What technological innovations are promising today? New information technologies, robotics, nanotechnologies, research into energy storage systems, connected objects.
– However, there are obstacles to innovation in France: regulatory and ethical provisions (ban on GMOs or protection of personal data).
– The impact of these innovations on the real economy also raises concerns, foremost among which is the massive destruction of jobs.
This round table on the digital economy examined the characteristics of the technological and digital revolution, as well as its obstacles and risks in terms of job losses.
Eric Labaye, president of the consulting firm McKinsey, identifies four major technological transformations that are likely to have a significant impact on economic growth. The first is the technological revolution in the field of information technology, such as the automation of the knowledge economy, mobile internet, and cloud computing (lowering the cost of access to software). These innovations can be applied in sectors as diverse as production processes and healthcare. The second major innovation is robotics. Today, it enables the provision of high-level services (personal assistance, calculations, etc.), brings the production process closer to the consumer with 3D printing, and enables the production of autonomous vehicles. The third major field of innovation is nanotechnology, which has been developing steadily since the 2000s. Finally, the fourth significant technological revolution is the advances in energy storage, which would make it possible to make better use of renewable energies.
Frédéric Potter, head of Netatmo, an innovative company specializing in the production of connected home devices, reminds us that innovation also happens on a smaller scale. These « connected gadgets » also have a significant impact on our daily lives. He also encourages entrepreneurs to enter the promising digital market, asserting that it is risk-free. Even in the event of failure, the experience gained in creating and launching an innovative project is highly valued in the job market and internationally. Furthermore, it is not uncommon for abandoned or unviable projects to rise from the ashes.
Frédéric Potter nevertheless deplores the existence of barriers to innovation in France. He describes these as regulatory, citing the ban on the use of GMOs, the ban on exploring the subsoil to exploit unconventional energy sources, and the limits on the development of nuclear power. Philosopher Luc Ferry also points to the existence of a certain French mentality that tends to favor the interests of citizens over those of consumers, to the detriment of innovation. For example, Big Data has developed rapidly in the United States, while in France it has come up against the principles of precaution and personal data protection. Big Data could, however, have positive repercussions in terms of combating terrorism, managing air traffic, and preventing disease.
However, these prohibitions do not reflect a deliberate desire to stifle innovation, but rather raise sensitive ethical and societal issues.
Furthermore, these innovations raise fears, some justified, some less so, about their impact on the real economy (capital and labor). GE director Clara Gaymard points out that technological innovation creates value in the real economy by optimizing machine performance (e.g., connected aircraft parts) or improving human capital (e.g., DNA sequencing techniques to prevent genetic diseases).
For philosopher Luc Ferry, however, innovation has a perverse effect. Contrary to economist Schumpeter’s idea that innovation is a process of creative destruction, Luc Ferry refers to « destructive innovation. » According to the economist’s thesis, innovation leads to the destruction of a previous activity, which becomes obsolete, but simultaneously generates the creation of new products, new production processes, and new needs. According to the philosopher, innovation is certainly destructive, while its creative potential is uncertain. He cites the example of the massive job losses linked to the discovery of Gutenberg’s printing press, or more recently, linked to the arrival of Amazon in relation to bookshops, or Kayak and Trip Advisor in relation to travel agencies.
The round table ended once again with a question to the audience: « Do you think 2015 will be the year of the digital revolution? » The answer is « no, » by a large majority. Indeed, technological and digital advances will undoubtedly revolutionize the economy and modes of production in the future, but it is more likely that this transformation will occur in the next decade.
