Entrepreneurship in Europe

1) OBJECTIVE

To trigger a debate in the context of the Lisbon strategy on an environment which is conducive to starting and developing businesses, following the intention expressed by the Commission at the Barcelona European Council in 2002 to present a Green Paper on entrepreneurship.

2) ACT

Commission Green Paper of 21 January 2003 on Entrepreneurship in Europe [COM (2003) 27 final - Not published in the Official Journal].

3) SUMMARY

Background

1. The Green Paper should be viewed in the context of the Lisbon European Council which took place in 2000. The objective defined was to make the European Union (EU), by 2010, "the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion".

2. Given the importance of entrepreneurship and the spirit of enterprise for a more competitive and dynamic Europe, the Commission wishes to spark off a debate on the role played by the spirit of enterprise and how it can be reinforced.

3. The Green Paper first of all looks briefly at the definition and importance of entrepreneurship. It then studies the conditions required to encourage business start-ups and guide enterprises towards growth, before going on to examine the outlook for possible activities in this field.

4. In the spirit of the new open coordination method, the Green Paper gives numerous examples based on best practices in the Member States on how to reinforce entrepreneurship.

Definition and importance

4. Entrepreneurship is an individual's creative capacity, independently or within an organisation, to identify an opportunity and to pursue it in order to produce new value or economic success.

5. This creativity is vital for the competitiveness of enterprises in existing or emerging markets, whatever the sector concerned. New entrepreneurial initiatives boost productivity. In forcing other firms to react by improving the efficiency of their organisation, production, services or markets, they increase competitive pressure. The beneficial outcome is a general increase in the competitiveness of the economy. In addition, new enterprises, and especially SMEs, create a host of new jobs and thus reduce the unemployment rate.

6. The November 2002 Eurobarometer statistics, on the other hand, show that Europeans prefer employee over self-employed status (45%), in contrast to the USA where a clear majority (67%) would sooner be self-employed. The differences between European countries are very marked, with the countries of southern Europe, the United Kingdom and Ireland more inclined towards entrepreneurship.

Challenges to increasing the number of entrepreneurs, helping companies grow and appreciating entrepreneurial spirit

7. Entry barriers: Europeans consider administrative obstacles to be the main barrier to starting a business. Furthermore, business start-ups have problems in getting the capital they need.

8. Risk and reward: The risks associated with entrepreneurship are not adequately offset by the prospect of reward. A failed entrepreneur faces the stigma of failure. Bankrupts who have acted honestly should therefore benefit from legislation allowing non-viable firms to be liquidated as quickly as possible and new businesses to be set up. Another hurdle is the changeover from the status of employee to that of entrepreneur, which often entails reduced social protection. A social protection system tailored to the needs of entrepreneurs could make entrepreneurship more attractive.

9. Fostering skills: Education and training are factors which have a long-term impact on entrepreneurship. The aim is to encourage people to grasp the career opportunities offered to them. Programmes promoting entrepreneurship could be developed in schools and universities.

10. Making entrepreneurship accessible to all members of society: Entrepreneurship should be promoted among under-represented groups, such as women. Ethnic minorities display a strong predilection for entrepreneurship and a greater potential. Business support services seem to be less well adapted to their specific needs.

11. The regulatory and fiscal environment: Regulation is often not sufficiently differentiated according to firm size, and therefore particularly affects smaller firms which have fewer resources. The motto should therefore be 'think small first', with regulations being made simple and appropriate or administrative assistance being provided. In 2002, an SME Envoy was appointed within the European Commission to ensure that the interests of small and medium-sized enterprises are properly taken into account. Tax rates influence the creation and expansion of enterprises. Tax reforms in recent years have contributed towards a clear trend in reducing the tax burden on labour in the European Union, but labour taxes in a large number of Member States remain high.

12. Access to resources: In certain regions and sectors, recruitment difficulties are mounting up because the growth of demand for highly skilled workers has outstripped the growth of supply. Remedial measures could include life-long learning, encouraging mobility or recruiting more people from other countries. Many SMEs are facing difficulties because banks are less and less inclined to offer risky loans. It would therefore be useful to develop risk capital markets as an alternative to bank lending. The European Investment Fund, for example, has already taken steps in this direction.

13. Internationalisation and the exploitation of knowledge: The tendency shown by SMEs to expand and internationalise should be boosted by taking advantage of the advice offered through local and regional networks, other companies (particularly large international enterprises), personal relations and intermediaries. These networks offer entrepreneurs the opportunity to share their experiences in expansion, and to gain access to knowledge, partners and advice.

14. Intrapreneurship and corporate venturing: Results from R&D and innovation in large firms, universities or research institutes can also allow their employees to set up their own businesses using the knowledge they have acquired. Firms are positive about this intrapreneurship, but the initiative is often left to the employees. In addition, cooperation among SMEs should be further developed as it is in their own interests. It is through such cooperation that the critical mass can be reached with which to conquer larger markets.

15. The importance of entrepreneurship for society: Building an entrepreneurial society involves everyone. Attitudes towards entrepreneurial initiative, and failure, must be made more positive. The onus of achieving this objective falls to those on whom today's and future entrepreneurs depend. It is also necessary to highlight the role played by enterprises which make up the social economy and provide services to the wider community.

The way forward

16. A coordinated approach: The horizontal nature of entrepreneurship calls for a coordinated approach. This especially applies to public authorities at all levels. The latter should coordinate more closely with business owners in order to define the priorities for strengthening enterprise and entrepreneurship.

17. Open coordination method: Some Member States outperform others in promoting entrepreneurship. It would be useful for the former to inspire others under the open coordination method, whereby the Commission creates platforms to allow Member States to exchange their best practices.

18. There are three key approaches to be borne in mind in order to boost entrepreneurship: it is first of all necessary to dismantle the obstacles hampering the development and growth of enterprises, such as red tape and a lack of finance. Secondly, the benefits of entrepreneurship should be compared with the risks involved, for example by developing actions to encourage tax reforms and to help company transfers. Finally, action should be taken to create an "entrepreneurial society", e.g. through measures to encourage young people at school and university to develop their skills in this field.

Last updated: 18.10.2007