Speech by Mr. Christos Papoutsis, Member of the Commission, Responsible for Energy, Enterprise Policy, Commerce, Tourism and Social Economy"SME 2000 – How to meet the challenges through communication, innovation and co-operation" at the SME Forum

Leipzig, 20 - 21 May 1999

Mr. President,

Dear Ministers,

Ladies and Gentlemen,

It is with great pleasure that I open this important SME-Forum on behalf of Commissioner Papoutsis who regretfully could not attend himself. It gives us the opportunity for a short overview of the European Commission's effort to promote its enterprise policy. In the last few years SME policy has moved into the centre of attention of policy makers, governments and business organisations. This Forum is an example of the importance attached to this policy, and is jointly organised by the German Presidency and the European Commission.

The Forum will focus on the challenges SMEs face in the next century, including the processes of innovation, communication and co-operation and the development of the information-society.

Enterprises are operating in a more and more changeable environment. New customers, markets and technologies spring up at shorter and shorter intervals. This brings new possibilities. But it also requires a response. To start a new business and survive the first difficult years depends on an ability to react quickly to the changes in the business environment.

To-day European enterprises have to develop new products, processes and services to take part in the growth in new markets and to compete not only on the basis of price and costs, but also through new ideas, design and better organisation. SMEs have to compete through innovation.

Know-how is one of the most important ingredients in innovation. There is nothing new in that. The new thing is that know-how will be established, used and be out of date more and more quickly. Information technology makes it possible for all new enterprises to acquire and work on the latest knowledge, no matter where they are established.

Enterprises therefore compete by the speed with which they are able to convert knowledge into innovation. An important task for business support services is to create an optimum framework in which SMEs are effectively assisted to address these problems. They require reliable information and advice, access to suitable finance, appropriate training and often specific assistance, when venturing into new markets.

This is all quite a challenge, but we can take heart that things are moving in the right direction. In particular enterprises should be encouraged by the improved assistance that they are increasingly receiving to take the process further. It is important in this to continue to learn from what is happening in the Member States at national, regional and local levels.

In these matters we can see from the Commission's Concerted Action Programme that the Member States and the Business Organisations can and do learn a lot from each other through the exchange of good practices. Innovation, is vital to the competitiveness of SMEs. They may well have specific needs in relation to innovation and, therefore, a strategy tailored to the needs actual of SMEs is important.

In order to be innovative, SMEs need to be creative, need to be able to find ideas internally and externally. The introduction of technology is of course a significant source for innovation. As the economy becomes more knowledge based, competitiveness is progressively determined by intangibles, such as know-how, human resources or market intelligence. Innovation in terms of management and organisation is becoming increasingly important, since it is a complex process, divided into several stages and involving many new relationships.

This is why I believe it is essential that we help SMEs to understand and control this process. In order to get access to relevant information on co-operation opportunities and on adapting management, SMEs need to be in contact with competent partners, such as technology brokers, trainers and financial institutions. The Commission has recognised the need to dedicate particular attention to SMEs and innovation in several Community policy areas. Within its research policy, the 5th Framework Programme for Research and Technological Development includes a horizontal programme with the objective of promoting innovation and encouraging the participation of SMEs.

The aim of this specific programme is to improve industrial competitiveness, sustainable growth, social development and job creation. The intention is to demonstrate new ways of orienting innovation and growth more effectively towards employment and to help SMEs to contribute to job creation. 363 million Euro have been allocated for this programme.

As innovation frequently requires partnerships with enterprises, research institutes and other organisations, the Commission attaches great importance to encouraging networking and co-operation. My services of DG XXIII are currently carrying out, for example, a pilot study on networking of SME clusters and technology poles. Effective networks involve actors participating because of identified mutual benefits. They can be made up of enterprises of a sector, a region or locality, a supply chain, or a number of partners sharing an interest in the same technology or production method. Participation in networks allows SMEs to share information, to organise joint events and have access to support services.

Co-operation, in the form of clustering goes beyond networking. In this situation, a group of companies with a shared business interest seek to establish a stable co-operation network allowing joint commercial activities among the participants, which may lead eventually to some restructuring of supply chains.

As I mentioned earlier, we should not only examine technological innovation, but also innovation induced by intangible elements. The use of sound management tools for the production process, based on quality assurance, has become an important tool in staying ahead of competitors. Quality management and production management should therefore be promoted among SMEs. Adequate training methods adapted to SMEs on strategy, management and organisation structures and geared towards innovation should be developed and disseminated. SMEs are confronted with an increasing need for highly specialised knowledge, for example on technology and on market developments, which they cannot always afford to have available in-house.

Introducing more flexible organisation structures, can lead to a competitive advantage, a development, which merits further attention.

I would like to stress that all these issues, networking and co-operation, technology transfer and methods allowing SMEs to increase their intangible capital will continue to be at the centre of the Commission's enterprise policy, especially as it affects SMEs.

Ladies and Gentlemen,

I turn now to Communication issues and particularly to electronic commerce. In the Commission we consider it urgent to take measures to ensure that enterprises in the distributive trades in Europe keep up with their competitors in the United States and elsewhere in this regard. Firm action is called for.

Incorporating electronic commerce into day-to-day business practices is going to be a key factor for increased competitiveness in the sector during the next decade. The arrival of electronic commerce, which is like a new "industrial revolution", is going to entirely reshape the way we trade and distribute goods.

Electronic commerce is a formidable tool for companies to streamline and rationalise their back office procedures while offering new ways for marketing and distribution. The impact of electronic commerce in the sector risks being uneven, at least during the next two to three years. Small companies will have to overcome a number of obstacles that particularly concern them.

Lack of training, high telecommunication tariffs, lack of visibility and credibility in the electronic market are just some of the more important problem areas.

Electronic commerce and the Internet offer for the first time in history the possibility for small companies to group together in a cheap and efficient way. This opens unparalleled opportunities for SMEs to reduce fixed costs while at the same time improving service to customers. Besides creating new "niches" for retailers and other distributors, electronic commerce could also give a lifeline to shops in rural areas and in less attractive urban areas.

However, small companies still face a number of legal, cultural and organisational barriers when they try to take advantage of the opportunities for networking which electronic commerce opens up. If correctly implemented throughout the sector, electronic commerce could lead to a much more level playing field as between large and small companies. It could improve customer satisfaction. It could contribute to the survival and development of the European rural and urban landscape.

To a certain extent, the responsibility for clearing the way for the sector to take advantage of electronic commerce lies with the European Commission and the Member States. The Commission is currently examining the obstacles that exist and is considering what legislative and other measures are necessary to turn electronic commerce into a competitive tool for companies in general and for SMEs in particular. As well as the legislative initiatives, a number of awareness raising, development and structural adjustment measures will be on the Commission's agenda in the next year or two.

Far from being just something that will arrive in the future, electronic commerce is already bringing growth and prosperity to the commerce sector and to the economy as a whole.

In addition, a number of traditional service sectors such as the media, banking, insurance, car sales will be reshaped, making possible the arrival of new entrants from other sectors and challenging existing market structures. Although it is for the private sector to regulate itself and to adapt to these changes, the public sector has a duty to ensure equal access to electronic commerce for all enterprises and a smooth integration of the new phenomenon into our social and cultural framework.

Ladies and Gentlemen,

The two important topics, innovation and electronic commerce, demonstrate that reinforcing the competitiveness of the commerce sector can be achieved through interdependent, carefully targeted actions. The development of electronic commerce implies a grouping of SMEs in the commerce sector. Conversely, it is clear that such groupings cannot operate efficiently without the new technologies.

There is room for optimism here in the chances presenting themselves to SMEs and in the support that they are being given.

I find this very encouraging, along with the more general signs that the message about the importance of SMEs is getting across. As far as the European Commission is concerned, I have already mentioned the increased weight given to SMEs in the 5th Framework Programme for Research and Technology Development.

But we also see the same tendency in the new orientations of the Structural Funds which we have recently adopted. For the period of 2000-2006 the role of SMEs and their contribution to growth and employment has been fully recognised. A key theme will be 'competitive enterprises for employment creation'. Within this objective providing support to SMEs is identified as a priority and this also includes effective business support services.

As we look ahead to the next century, therefore, the prospects for SMEs certainly are challenging and exciting. But we can also be proud that over the last decade, and particularly over the last five years, we have improved our understanding of the processes at work and shaped an environment that will give European SMEs a better chance of achieving great success in the new global economy.

I firmly believe that the Santer Commission has achieved almost all of its goals. One of these goals was to do its utmost to help our SMEs, to create a better business environment for them. We had always in mind the importance of SMEs to Europe's economic growth and to job creation. I sincerely hope that the Prodi Commission will continue on the same line in the benefit of SMEs and our economy.

I wish you also success with this forum and I hope that you will be able to continue the examination of the themes of communication, innovation and co-operation with the same spirit of optimism.

Thank you !