Study examines SMEs

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The findings of a survey of Spanish small and medium-sized enterprises (SMEs) was published in summer 2002. It examines the nature of Spanish SMEs and how they adapt to a changing competitive environment, compared with similar firms in other EU countries. The issues covered include industrial relations and recruitment. Employers are optimistic about maintaining and creating jobs, but call for relations of cooperation and trust with workers.

The Institute of Business Management and Organisation (Instituto de Dirección y de Organización de Empresas, IDOE) at the University of Alcalá has conducted a study, in collaboration with the University of Strasbourg, France, on the 'Development and competitive capacity of SMEs in Spain' ('Desarrollo y capacidad competitiva de las empresas PYMES en España'). This study, commissioned by the European Union's Observatory of European SMEs, aims to determine the characteristics of Spanish small and medium-sized enterprises (SMEs), and how they adapt to changes in their environment, in comparison with European SMEs in general. The Spanish part of the comparative study was based on a questionnaire sent to 650 companies, of which 116 responded (a rate of 17.8%, which the authors consider highly representative). A total of 770 responses were collected for the whole of Europe. The main results for Spain, published in summer 2002, are highlighted below.

Structure of companies

Some 85% of the Spanish SMEs analysed are family-owned, and take the form of corporations (Sociedades Anónimas, SAs). Most are not quoted on the stock exchange and are not subsidiaries of other firms. This structure is similar to that of SMEs in Belgium, Finland, France, Greece and Italy. It differs, however, from that in countries where many SMEs have the legal status of limited companies, as in Germany, Ireland, the Netherlands and the UK.

Spanish SMEs have made great commercial efforts aimed at focusing on exports. Among the companies examined, 50% of sales are made abroad, which indicates that these SMEs are facing the challenge of globalisation and are established in an international network. However, 50% of the SMEs surveyed take considerable risks, as in many cases they depend on one or two customers for more than 50% of their turnover. The greatest opportunities for development are found to be in the markets of Spain, the rest of the EU, Latin America and - to a lesser extent - North America and Africa.

Spanish SMEs generally consider that they must seek new markets and develop new technologies through their own individual efforts rather than by creating new subsidiaries or through joint ventures. The rejection of joint ventures is said to be a cultural characteristic of Spanish entrepreneurs that differentiates them from those of many other European countries.

Companies' environment

Of the Spanish SMEs surveyed, 48% considered that competition had intensified in the previous year as a consequence of the appearance of new competitors, rather than other reasons such as quality requirements or the development of new products. However, despite the increasing competition,. Spanish SMEs have increased the number of units sold, indicating that they have made considerable sales efforts.

There is some similarity between what is happening in Spain and in the rest of Europe with regard to increasing competition. However, there are differences in the analysis. In Europe, 53% of SMEs surveyed consider that increased competition is due to the influence of current competitors. In Spain, 33.8% of companies state that increased competition is due to the appearance of replacement products and 20% that it is due to new quality requirements.

Operating costs and competitiveness

The greatest cost concerns for the Spanish SMEs surveyed are labour costs and the cost of raw materials. On the other hand, they feel that there have been no significant changes in fiscal charges at regional, national or European level. Nor do they expect advantages or disadvantages from fiscal measures.

Spanish SMEs accept that EU Economic and Monetary Union (EMU) leads to greater competitiveness, as a result of greater transparency when exchange rates are removed and management costs are reduced. The companies also praise the stability policy of the European Central Bank with regard to interest rates. They feel that the main threat in this area stems from the fluctuation of the euro against the US dollar and the economic instability of Latin America, though Spain has relatively few investments there.

The Spanish SMEs examined consider that their strong points in maintaining or improving their competitiveness lie in innovation and creativity, original products and design. Their weak point is prices. In the production process, companies believe that their competitive advantage stems mainly from their experience and knowledge of the business (64.8%), the quality and skills of their workforce (44%), technology (31.9%), and the organisation of production. There is no single factor that provides a competitive advantage in the area of logistics: though the companies surveyed state that their relationship with suppliers is very important (55.6%), other factors are also influential, such as meeting delivery dates (43.3%), a rapid response to unexpected orders (37.8%) and good computerised management of flows of goods and products (32.2%).

Rate of change

The Spanish SMEs included in the study perceive a rapid change in technological innovation and in the generation of new products. In recent years, customers have been more demanding and have requested diversified products. Spanish companies tend to adapt foreign technologies in order to develop new products and services, whereas this is not considered important by other European companies surveyed. This difference is because research and development (R&D) is not generally a strong point for Spanish companies.

Spanish SMEs have greatly rationalised and optimised their resources, which has increased profitability, according to the study. The report also states that many companies have already modernised their facilities and production processes. However, one of the difficulties stressed by the SMEs is that of obtaining finance, which makes modernisation difficult.

Industrial relations and recruitment

According to the Spanish SMEs surveyed, the key issues for their organisation include the existence of a pleasant working climate, the limitation of labour disputes, the development of a company culture and the improvement of internal communications to generate trust. These elements are said to be easier to achieve in small and medium-sized enterprises than in large ones. However, one disadvantage of SMEs is the difficulty in recruiting staff qualified in R&D, innovation, development of internal communication and network construction.

In general, the SMEs considered are recruiting workers or at least maintaining their workforces. They find it difficult to recruit qualified staff (a problem mentioned by 51.1% of the companies) and there is an increase in voluntary departures by staff. According to the study, there is a direct relationship between the difficulty of finding qualified staff and voluntary departures. Resignations are also related to the firm's cash budget: the better their cash budget the more likely SMEs are to retain qualified staff.

Commentary

The Spanish fabric of production, characterised by an abundance of SMEs (which employ the majority of workers), has been a constant concern for politicians, employers and economists since the 1970s. Five structural defects of Spanish capitalism were then identified: the atomisation of industry into small and very small companies; the lack of industrial and financial concentration; the technological and organisational backwardness of companies; their lack of competitiveness - as a result of operating in a closed market, which generated a complacent and insufficiently enterprising attitude; and the lack of a democratic tradition among small entrepreneurs, which made them reluctant to accept modern industrial relations involving dialogue with trade unions.

Since the 1970s, companies have changed slowly. In the mid-1980s, large companies were modernised. Smaller companies were then modernised during the 1990s. However, some old problems are still present, and new ones have appeared, such as the strong dependence of SMEs on large companies. This phenomenon was accentuated in the 1980s as a consequence of decentralised production and outsourcing by large companies. Today this dependence of SMEs involves major risks. Many analysts suggest that there is a need for SMEs to diversify customer portfolios, to achieve greater freedom of action and to create networks of companies for commercial development and technological innovation.

Technological backwardness is a persistent problem faced by SMEs. In the atomised productive fabric of Spain, the responsibility for research and development should also be borne by national and local governments. Large companies have sufficient capacity and financial resources to carry out their own research projects and to develop new products, but the low level of institutional support for R&D in SMEs leads them to seek competitive advantages in labour costs, through low pay and temporary employment. A tendency towards complacency is also still present. (Antonio Martín Artiles, QUIT-UAB Group)