EMCC European Monitoring Centre on Change

CYPRUS: ERM Comparative Analytical Report on ‘Public policy and support for restructuring in SMEs’

  • Observatory: EMCC
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  • Published on: 13 May 2013



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Yannis Eustathopoulos
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The crisis has engendered in Cyprus new instruments on the issue of restructuring. In comparison with the past, public support seems to have adopted a more comprehensive approach, addressing both the anticipation and management aspects of restructuring. Special attention is attributed to SMEs - whether explicitly or implicitly - with a special focus on micro-enterprises. Overall, the implementation of these new tools by tripartite organisations and cooperatives banks seems to contribute to their accessibility and effectiveness by taking into account expectations and needs of businesses and their employees.

QUESTIONNAIRE

Preliminary note:

According to the last census of establishments and enterprises of the Statistical Service of Cyprus (2005) the size of enterprises in Cyprus remains very small, averaging only 4.7 persons in 2005. Three out of five enterprises employed only one person. Micro-enterprises employing less than ten persons accounted for 94.1% of the total number, small enterprises employing 10-49 persons for 5% and medium sized enterprises with 50-249 employees for only 0.8%. Only 85 large enterprises employing 250 or more persons were enumerated accounting for only 0.1% of the total. This can explain why the term ‘SME’ in the public debate tends to diverge from formal definitions (1-249 people) and is chiefly used to designate micro-enterprises (1-9 employees).

Part 1: Overall policy context

1.1. Has there been public or policy debate on the specific challenges for SMEs and/or their employees in restructuring before the global recession of 2008/09? Please specify, for example:

The public and policy debate on restructuring prior to the crisis has been relatively limited in Cyprus during the last decade. This situation was the result of favourable economic and social conditions:

  • The high economic growth rates that prevailed during the last decade lead to almost full employment conditions.
  • The quality of social dialogue in Cyprus contributed to the achievement of consensual solutions as regards the management of restructuring.
  • Social partner-based mechanisms for the financial support of redundant workers have been working effectively.

In this context, a public debate was present only for major restructuring cases. As observed also in other European countries, monitoring of restructuring in small businesses has been rather weak. This is partly due to the fact that enterprises employing less than 21 employees do not fall under the provisions of the collective redundancies law of 2001 which requires employers to notify the authorities of their intention to proceed to redundancies.

• If so, since when (e.g. up to 3 years before, 3-10 years before, longer), at which level (national, regional, sectoral, all of them) and in which form (‘real’ policy debate mirrored in policy documents or rather public debate mirrored in media, or both)?

One of the main instances of restructuring in Cyprus was that of the mass relocations that took place in the clothing and footwear sectors during the 1990s, when these industries gradually lost their comparative advantage of low-cost labour (see for example the relocation of the clothing company SYNEK from Cyprus to Romania (TN0803056S)). During the 2000s, the debate focused mainly on a limited number of large restructuring cases. These cases often took place in public enterprises and organisations (for example, national air carrier, abattoir, and ports) due to changes in their competitive environment after the adhesion of Cyprus to the EU (ARENAS, 2009). In general, the debate on restructuring in Cyprus before the crisis can be characterised as limited in scope and did not include SMEs.

• Which policy areas (for example, SME policy, entrepreneurship policy, employment policy, social policy, regional policy etc.) were involved? Particularly: Does SME policy specifically deal with restructuring? Does ‘restructuring policy’ specifically deal with SME issues?

The social and economic consequences of restructuring in manufacturing during the 1990s have been absorbed to a large extent by rapid economic and employment growth. This might explain why public authorities did not seem to put any major effort at the time into seeking alternative competitive strategies based on quality and innovation, in response to the Cypriot clothing industry's rapid loss of competitiveness. From a policy point of view, the major restructurings which took place during the first decade of the 21st century have been subject to interventions on a case-by-case basis by the Cypriot government (for example, restructuring of Cyprus Airways).

In sum, the absence of permanent and more structured policies concerning restructuring can be interpreted as the outcome of:

  • The favourable conditions prevailing in the economy and the labour market as mentioned previously.
  • The absence of an integrated entrepreneurship policy despite the progress made by Cyprus since its adhesion to the EU (CY1009039Q). This lag may have hindered the implementation of actions to prevent restructuring (anticipation).

It should also be noted that very small businesses in Cyprus (including self-employed) are usually low-tech companies operating in saturated markets (for example, retail, catering). In other words, entrepreneurship in Cyprus, especially for very small businesses and self-employed, responds primarily to a necessity rather than to business opportunities associated with innovative industries (Hadjimanolis, 2008). This feature may explain why the claims of bodies representing SMEs have not been so focused on innovation and training policies but insisted on ensuring fair competition through the introduction of regulatory restrictions on the activities of large retail chains and multinational companies. In this context, implementation of entrepreneurship policies for the prevention of restructuring seems to display a secondary role in the public debate for SMEs.

• Did the public and policy discussions deal with restructuring as such or were specific types or phases of restructuring covered?• Which were the issues/contents that have been discussed? Which specific characteristics of SMEs in restructuring were considered in this context? Was the specific case of SMEs as subcontractors a topic for discussions?• Did the discussions rather deal with the enterprise perspective or with the employee perspective or both?

The policy and public discussions mainly dealt with the management of restructurings (for example, level of workers' compensation). The outcomes of restructurings were generally favourable for workers thanks to the good economic conditions and the efficiency of the Cypriot system of labour relations (ARENAS, 2009). Most negotiations indeed were carried out in an amicable environment without any labour disputes. By and large, workers received larger sums of compensation than were required by law (ex gratia payments). In this context, one of the main mechanisms for mitigating the impact of redundancies was the Redundancy Fund. This fund has been established in order to provide payments to redundant workers. Compensation from the redundancy fund has been used in order to sustain the standard of living while searching for another job or as initial funding towards self-employment. A second fund is also in place aiming at managing the impact of restructuring. The Fund for the Protection of Employees Rights in Case of Employer Insolvency covers workers against bankruptcies (all outstanding payments by employers to employees are safeguarded by this fund).

1.2. Did the global economic and financial crisis of 2008/09 cause any change in focus of the above (for example, increased/decreased focus on SMEs and their employees in restructuring, change in policy areas or issues covered)?

Without any doubt, the crisis seems to have induced a drastic change in the quantitative and qualitative features of the policies for restructuring and unemployment. The Ministry of Labour and Social Insurance has implemented - through its departments and organisations - a series of measures on these issues. The Special Prevention and Action Plan which is implemented by the Human Resources Development Authority (HDRA) can be considered as one of the most prominent initiatives for mitigating the impact of the crisis on employment.

1.3. Are social partners or employers’ and employees’ organisations involved in public and policy debate on restructuring in SMEs?• If so, which (types of) organisations and at which levels?

Trade unions and employers do have an active role in public and policy discussions. This is attributable to the fact that various tripartite bodies operate in Cyprus, including organisations dealing with issues such as anticipation and management of restructurings. For example, the Human Resources Development Authority is governed by a tripartite board of 13 members, with representatives of the Government, Employers and Trade Unions. The Cyprus Federation of Professional Craftsmen and Shopkeepers, (POVEK), representing SMEs in Cyprus, is actively participating in various councils (of ‘industrial development’, ‘competitiveness’, etc). It should be noted that POVEK ask for its participation in the Economic Advisory Committee of Cyprus which operates in the context of the activities of the Ministry of Finance.

• What are their opinions, perspectives, recommendations?• Did they succeed in convincing governments or public authorities at various levels of their viewpoints?

The agreement concluded in February 2012 between the social partners and the government is indicative of the well-established contribution of social dialogue to industrial peace despite the current climate of intense industrial and social uncertainty. This agreement includes the support of businesses in order to avoid or minimise potential layoffs. A joint monitoring committee, representing both sides, will be able to make recommendations regarding the adoption of further measures in the framework of statutory procedures and only in exceptional cases where certain enterprises are facing serious financial problems (CY1202019I). Furthermore, it should be noted that there is an explicit commitment from the part of tripartite bodies active in the field of labour market and training policies to be in close cooperation with social partners. In a recent report for the Special Prevention and Action Plan for example, the Human Resources Development Authority states that it will continue to work closely with both the Ministry of Labour and Social Insurance and social partners on issues such as the monitoring of the labour market, the provision of flexible and immediate response to new needs and the prevention of unemployment wherever possible. As it is also stated, the Special Prevention and Action Plan is subject to further improvements which will be developed in consultation with social partners. Last but not least, details on the two main schemes available for micro-enterprises are provided on POVEK’s website.

Part 2: Support instruments

2.1. Please provide an overall assessment about how accessible and suitable public and social partner based restructuring support for companies in general are for SMEs or their employees.• Do SMEs and/or their employees generally have access to the available instruments and are these suitable for their specific needs in restructuring?

Tools available before the crisis for the management of restructuring, such as the Redundancy Fund, are broadly known in the labour market. Special importance seems to have been addressed to public information initiatives in order to enhance the accessibility and participation to the new schemes of the Ministry of Labour and Social Insurance. In particular, HDRA has been implementing actions such as (a) Operation of a specific information office which assisted a total of 17,714 persons (8,244 companies and 9,470 individuals) in the period 2009-2011 (b) Promotional campaign for the Special Prevention and Action Plan with the inclusion of ads in the print media of employers and trade unions (c) Printing and distribution of advertising material for the available training schemes (d) Upgrading of the website to facilitate visitor's in finding information on the activities and in particular on the Special Prevention - Action Plan. (e) Organisation of a press conference on the results of the evaluation of the Special Prevention - Action Plan concerning both individuals and businesses.

• Are there specific (types of) instruments (for example, targeting specific types or phases of restructuring, offered at specific administrative levels) that are more/less accessible and suitable for SMEs and/or their employees that for larger firms? If so, why?

The Single-company training programmes (Good Practice No 2) aimed at preventing unemployment provides higher funding to small businesses compared to medium and large enterprises (80%, 70% and 60% of costs respectively).

2.2. Do there exist specific public or social partner based support instruments explicitly targeting at SMEs and/or their employees in restructuring? Please specify, for example:• If so, by whom are they offered (public vs. social partners/employers’/employees’ organisations) and at which administrative levels (national, regional)?

The tools aimed exclusively at SMEs deal with the anticipation of restructuring. Also, the promotion of anticipation measures of the HRDA’s Special Plan focused on industries that have been most hit by the crisis. Information sessions were implemented in all districts of the country with the participation of managers from companies, especially in the Hotel and Construction Industries. Last but not least, HRDA has been conducting continuous meetings with companies to which it explained the possibilities and ways of implementing enterprise-based training.

Two tools can be mentioned which explicitly refer to micro-enterprises. The first tool is named ‘Strengthening the competitiveness of micro enterprises with 1-4 employees’ and is provided by HRDA. The second tool is provided by Cooperative Banks and is named ‘Cooperative Plan for the financing of very small enterprises’.

• Are the activities of different support service providers coordinated? If so, how and how well does this work?

Contrary to other HRDA’s schemes, the tool addressed to micro enterprises (good Practice No 1) is not delivered in cooperation with the Public Employment Service. This is due to the fact that the tool is addressed to the owners or managers of existing businesses and does not concern actions for employees or the unemployed.

• Which phases of restructuring do they target?

The micro-enterprise plan of HRDA focuses solely on prevention by strengthening competitiveness performance. The plan of the cooperative banks is addressed both to existing micro-enterprises (anticipation of restructuring) and new micro-enterprises as a tool for (re)integration in the labour market (management of restructuring).

• Which types of restructuring do they target?

Expansion and internal restructuring.

• Do they target SMEs in general, or specific size classes, sectors, regions, legal forms, roles (for example, as subcontractors) etc.? Do they target employees of SMEs in restructuring?

HDRA scheme:

All micro-enterprises of Cyprus with one to four employees are eligible. The actions concern the owner of the business.

Cooperative banks scheme:

Broad eligibility for micro-enterprises with some exceptions (for example, military industry, tobacco industry). The plan deals with financing of projects.

• What type of support do they provide? What specific challenges for SMEs in restructuring do they address?

HDRA scheme:

The support takes the form of counseling and training provided to owners to improve their business’ performances such as (a) skills for identifying needs and weaknesses of the business (b) managerial skills (c) preparation of a medium-term business plan. This scheme is described in more details in the third part of the CAR (‘Good Practice’).

Cooperative Banks scheme:

The Cooperative Central Bank - for and on behalf of the Cooperative Movement in Cyprus - has signed a loan agreement of € 8 million with the European Investment Fund under the European Microfinance Facility ‘Progress’, in order provide loans with favorable interest rates and flexible repayment schedules to very small businesses. Furthermore, the Central Cooperative Bank and the Cooperative Movement contribute to this plan with € 8 million so that the total amount allocated to individuals and small businesses reaches € 16 million. The funding is intended for (a) Purchase, renovation / replacement / expansion of fixed assets (b) Investment in intangible assets (for example, Research and Development) (c) Working Capital (d) Costs associated with starting a business. The Loans are of a maximum amount of € 25,000 at a favourable rate. The maximum loan duration is 8 years.

• Is there some information about how well they are known among SMEs and their advisors and about how they are generally assessed by the SME sector? What are their strengths and weaknesses? Are there recommendations for improvement?

POVEK is promoting through its website the existing instruments for micro-enterprises. Based on its recommendations however, POVEK is proposing further development of support programmes for micro-enterprises employing up to five employees as well as the creation of permanent centres wich will provide consultancy services to SMEs.

Part 3: Good Practice

Good Practice 1:

  • Name of the instrument in national language and English:

Ενίσχυση της ανταγωνιστικότητας των Μικροεπιχειρήσεων με απασχόληση 1-4 άτομα.

Strengthening the competitiveness of micro-enterprises with 1-4 employees.

  • Justification for selecting this measure as Good Practice:

This scheme provides individualised support to micro-enterprises in order to anticipate restructuring by fostering managerial and business skills of owners.

  • Date of launch of the instrument and end date (if applicable):

N.A

  • Initiator/administrator (organisation):

The Human Resources Development Authority (HDRA).

  • Other involved actors and their roles:

HRDA has awarded the project to a consortium of private consulting firms (TALOS and IMH) for the districts of Larnaca, Limassol and Paphos. For the district of Nicosia, the project was awarded to a consortium made of four consulting firms (MKR MANSYSTEMS BUSINESS CONSULTANTS LTD, EEO GROUP A.E, ENOROS CONSULTING LTD, EPIMORFOSIS CONSULTING LTD).

  • Source of funding:

The Project is implemented within the framework of the Operational Programme ‘Employment, Human Capital and Social Cohesion’ 2007-2013. This is a cofunded project (85% from the European Social Fund and 15% from The Human Resources Development Authority). Participation to the programme is free of charge.

  • Target group/eligibility/coverage:

Enterprises with one to four employees / Broad eligibility and national coverage.

  • Phase of restructuring targeted:

Anticipation of restructuring. The project aims to provide specific training services to micro-enterprises employing one to four people in order to enhance competitiveness. The goal is to ensure first the survival of very small businesses through the elaboration of specific business tools (for example, business plan) and secondly to provide specific skills and knowledge for their future expansion.

  • Type of restructuring targeted:

N.A

  • Purpose/content/characteristics/description of services provided:

The scheme implies both individual and group training.

A) Business plan:

The following set of action is implemented in the first part of the scheme:

  • • Identification of business needs and weaknesses.
  • • Elaboration of a programme for the development of the owner’s managerial skills.
  • • Preparation of a business plan for future development.

The above services are provided by specialised consultancy firms and training organisations. By participating in the project, micro-enterprises are expected (a) to gain an understanding of their current position in the competitive environment and (b) to acquire tools and skills in order to ensure that their efforts for the expansion and improvement of their business will be implemented on a more comprehensive and rational basis.

B) Team Training:

Along with individual actions, owner/managers of micro-enterprises participate in team training. The main objective of the programme is to provide further managerial skills. The number of participants in each programme can be from 10 to 20 people. Each programme lasts 20 hours and is completed within four weeks. Training includes the following topics:

  • Strategic planning (4 hours).
  • Sales and Marketing (4 hours).
  • Organisation and Human Resources Development (4 hours).
  • Production management (4 hours).
  • Financial management of micro-enterprises. (4 hours).
  • Outcome of the instrument (e.g. number of beneficiaries, effects):

By the end of 2011, a total of 366 companies joined the project. The total estimated cost for this year was € 762,910. s. In the medium-term (2014), the objective is to reach a participation of 1200 businesses with a budget of € 3 million.

  • Strengths/success factors of the measure:

N.A

  • Weaknesses/bottlenecks of the measure:

N.A

  • Was the instrument formally monitored/evaluated? If so, please specify (by whom, how, what were the finding and how were the findings used etc.)

N.A

  • Weblink:

http://cyprus-small-business.com/index.htm

http://www.hrdauth.com/easyconsole.cfm/page/mikres

  • Information sources used for filling this section:
    • HDRA, ‘Special Prevention - Action Plan: Summary report until June 30, 2012 and planning of future actions’.
    • HDRA, ‘Presentation of the summary report for 2011 on the Human Resources Development Authority’s activities from the Chairman of the Board’.

Good Practice 2:

  • Name of the instrument in national language and English:

Μονοεπιχειρησιακά προγράμματα κατάρτισης με στόχο την πρόληψη της ανεργίας.

Single-company training programmes aimed at preventing unemployment.

  • Justification for selecting this measure as Good Practice:

Compared with former policies which focused essentially on the management of restructuring, this scheme deals with anticipation.

  • Date of launch of the instrument and end date (if applicable):

From 1/1/2009.

  • Initiator/administrator (organisation):

The Human Resources Development Authority.

  • Other involved actors and their roles:

N.A

  • Source of funding:

National funds.

  • Target group/eligibility/coverage:

All businesses in Cyprus are eligible. The following criteria for accepting applications have been defined:

  • Necessity of training.
  • Availability of an appropriate programme to meet training needs.
  • Knowledge and experience of instructors.
  • Appropriate training methods and tools.
  • Phase of restructuring targeted:

Anticipation of restructuring.

  • Type of restructuring targeted:

N.A.

  • Purpose/content/characteristics/description of services provided:

HRDA provides support to employers for maintaining their staff rather than proceeding to redundancies by taking advantage of idle time for training and upgrading knowledge, skills and vocational qualifications of their workers. The subsidies granted to businesses can reach 60%, 70% or 80% of total training and wage costs of participants for large, medium or small enterprises respectively.

  • Outcome of the instrument (e.g. number of beneficiaries, effects):

From 2009 to 2011, a total of 164 companies implemented 2,674 training programmes with participants reaching 18,174 employees. The total estimated cost of the programme was € 2,536,526. From January 1 to June 30 (2012), a total of 13 companies participated in the programme (228 training programmes implying 1,106 workers). The total estimated cost was € 96,404. The vast majority of businesses participating in this scheme belong to the hotel and food industry.

  • Strengths/success factors of the measure:

N.A

  • Weaknesses/bottlenecks of the measure:

N.A.

  • Was the instrument formally monitored/evaluated? If so, please specify (by whom, how, what were the finding and how were the findings used etc.)

The Human Resources mandated on July 2010 a study entitled ‘Assessing the Impact of the Special Prevention - Action Plan on Human Resources and Business of Cyprus from 2009 to 2010’. The purpose of this study was to assess the effects of the various actions included in this plan on its beneficiaries (individuals and businesses). Field surveys have been used in order to assess the effects of the plan. The main findings / recommendations of the Final Report were presented in March 2011 to the Board of HRDA and a press conference has been also held on this issue.

  • Weblink:

http://www.hrdauth.org.cy/easyconsole.cfm/page/project/p_id/100/pc_id/276

  • Information sources used for filling this section:

HDRA, ‘Special Prevention Plan - Action Plan: Summary report until June 30, 2012 and planning of future actions’.

Commentary

The crisis has been a catalyst for the strengthening of policies in Cyprus related to restructuring. While the public debate, mechanisms and policies for restructuring before the crisis were primarily dealing with their impact on the labour force, policies implemented since 2009 seems to attach an increased importance to anticipation issues. Social partners are implicated in the elaboration of these tools as they participate in the Board of the various tripartite organisations which are in charge of their implementation (for example, HDRA). This in turn strengthens the effectiveness of the above policies. Attention seems also to be paid to the specific needs of SMEs. First, various programmes are explicitly addressed to SMEs and more precisely to micro-enterprises (which can be considered as the equivalent of SMEs in the Cypriot public and policy discussion). Secondly, schemes which are available for all business, independently of their size, provide increased funding to small businesses compared to large and medium enterprises (that is Single-company training programmes aimed at preventing unemployment). Overall and despite the adverse global macroeconomic environment, Cyprus’ public organisations seem nowadays to be much more active and adequately prepared to face the challenges of the current crisis compared with previous historical experiences of mass restructuring (that is, 1990s). Last but not least, the cooperative banks also seem to display an active role as regards financial support of micro and small enterprises. These initiatives need to be monitored and assessed because of the privileged relationship of cooperative banks with the local economy, labour market and small production units.

References:

  • ARENAS (2009), National Seminar on Anticipating and Managing Restructuring / Republic of Cyprus / National Background Paper, ITC ILO.
  • Hadjimanolis, A. (2008), ‘Entrepreneurship policy in Cyprus’, Int. J. Entrepreneurship and Small Business, Vol. 6, No. 4, pp.562-582.
  • HDRA, ‘Summary report on the results of the Special Prevention – Action Plan until June 30, 2012’.
  • Statistical Service of Cyprus (2005), Census of Establishments 2005.

Yannis Eustathopoulos, Cyprus Labour Institute (INEK-PEO).

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