EMCC European Monitoring Centre on Change

Czech Republic ERM Comparative Analytical Report on ‘Public policy and support for restructuring in SMEs’

  • Observatory: EMCC
  • Topic:
  • Published on: 13 May 2013



About
Country:
Czechia
Author:
Aleš Kroupa
Institution:

Disclaimer: This information is made available as a service to the public but has not been edited by the European Foundation for the Improvement of Living and Working Conditions. The content is the responsibility of the authors.

Programmes focusing directly on the restructuring of SMEs haven’t yet been established in the Czech Republic. The legislative framework for the SME promotion is based on Act No. 47/2002, on support of the small and medium-sized enterprise, under which SMEs are supported through programmes approved by the government. Generally, the business promotion in the country is apportioned among a range of institutions. During the global recession, the government and social partners initiated additional measures to support the restructuring of SMEs.

QUESTIONNAIRE

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:• 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)?

Since 1991 the government annually approves business-promoting programmes, the aim of which is primarily to support small and medium-sized enterprises (SMEs). The legislative framework for the SME promotion has been developed not earlier than in 1992, when Act No. 299/1992 on the state support of small and medium-sized enterprise was adopted. Later the said law was replaced by Act No. 47/2002 on the support of small and medium-sized enterprise, with effect from 1 January 2003. This law also provides a definition of a small and medium-sized entrepreneur, being in line with the EU definition. In accordance with this law, the government submits, once a year, a report on progress of the small and medium-sized enterprises, including an evaluation of support efficiency and economy of utilisation of funds from the state budget pursuant to this law and a plan for further improvement of support efficiency.

The enterprise support started to be developing after 1997, when a system of investment incentives was established, which gradually resulted in foreign investors entering the market. Another milestone in the business promotion in the Czech Republic (CZ) consisted in the country’s accession to the EU, when the CZ has acquired access to new funding resources to support entrepreneurs. The Czech membership in the European Union has brought entrepreneurs opportunities to draw funds from the Structural Funds. In the programming period 2004 –2006 the Operational Programme Industry and Enterprise was opened. Subsequently, the Operational Programme Industry and Innovation for the programming period 2007 – 2013 (15 promotion programmes focusing on companies in the processing industry and services in a varying stage of development) has become the main pillar of the direct support for the small and medium-sized enterprise. In 2007, the national support programmes that had been focusing solely on SMEs and funded from the CZ state budget only (except for the programme Guarantee opened as part of anti-crisis measures) were closed. The method of the SME promotion has changed thus significantly in favour of utilisation of resources from the EU cofunded programmes, extended with a possibility to draw support from national programmes opened for enterprises of any size. (CZ1010039Q)

• 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?

Since the late nineties the government adopts resolutions approving concepts of support for the small and medium-sized enterprise. In the period between 2005 and 2012 the Ministry of Industry and Trade (Ministerstvo průmyslu, MPO) worked out three concepts as follows.

The concept of the SME promotion in 2005-2006 set a target to increase competitiveness and development of small and medium-sized enterprises via eliminating administrative barriers, developing necessary infrastructure, including lifelong learning, and last but not least via direct support by consulting services and financial support from the state budget. The concept reckoned with utilising funds from the Structural Funds as well.

The aim of the 2007 – 2013 Concept is to:

  1. 1. Improve the business environment;
  2. 2. Extend and improve infrastructure for development of small and medium-sized enterprises;
  3. 3. Support small and medium-sized entrepreneurs directly;
  4. 4. Offer tools of direct support for entrepreneurs (cost-advantageous guarantees for bank loans, loans with a reduced interest rate, subsidies and capital inputs) and business infrastructure development and subsidies as a form of their funding.

For the period from 2014 to 2020, the upcoming concept, so far not approved by the government, five main targets are envisaged:

  1. 1. Reinforcing the SMEs’ position within the Czech economy and increasing competitiveness in the European and global context;
  2. 2. Strengthening innovation capacity and protection of SMEs’ intellectual property and development of business and innovation infrastructure;
  3. 3. Promoting the business environment and enhancing quality of consulting services for SMEs;
  4. 4. Increasing energy efficiency at SMEs’ business activities;
  5. 5. Improving attractiveness of technical and natural scientific education and assisting in technical intelligence development.

Apart from the Ministry of Industry and Trade, the preparation of concepts was participated by a range of entrepreneurial entities represented by a number of associations, including the Czech Chamber of Commerce (Hospodářská komora ČR, HK ČR). Preparation and the concept itself were highly publicised in the media.

• 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?

Discussions on SME restructuring are mainly held with regard to SMEs’ access to funds and newly also with regard to the method of funding these companies. Recently, this discussion has been prompted by information on establishing a state venture-capital fund which should start its activities in mid-2012. Another topic is an inconvenient qualification structure of workers on the Czech labour market. The experts as well as general public discussed an increase of employees’ flexibility. After the election in 2010, the new government committed itself in the policy statement that in cooperation with social partners it would propose such amendments to the Labour Code that will result in increased flexibility of labour law relations and enhanced motivation of employers to create new jobs. This commitment led to the amendment of Act No. 262/2006, Labour Code, with effect from January 2012 (CZ1201019I). In the long run, a topic for discussions has been and is hiring self-employed tradesmen on employees’ jobs in small and medium-sized companies, that is a replacement of labour law relations by commercial relations with the purpose to reduce the labour cost. Fans as well as opponents of the bogus self-employment can be found both in the expert public and among entrepreneurs themselves. Legislation (Employment Act, Labour Code) includes a provision striving against the aforementioned phenomenon (CZ0808019I, CZ1201029I). In the SME context, an introduction of ‘kurzarbeit’ (short-time working) has also been discussed. Social partners have been advocating ‘kurzarbeit’ for a long time; it was for example included in the set of proposals for Czech economic recovery on which in 2010 social partners agreed with the then government on the national tripartite meeting. Up to now, however, agreement has not been found and different standpoints not aligned (CZ1110019I). In relation to SMEs and the business environment in general, long-term discussions continue regarding investment incentives, the tax burden of entrepreneurs, the level of health and social insurance payments and a voluntary participation in the sickness insurance scheme.

• Did the discussions rather deal with the enterprise perspective or with the employee perspective or both?

The above discussions were joined by representatives of trade unions as well as employers.

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)?

The entire business sector, including SMEs, was paid increased attention in 2008/2009, especially in terms of tax burden and payments of health and social insurance and increased flexibility of labour law relations. ‘The National Anti-Crisis Plan’ worked out by the government in 2009 lists small and medium-sized companies first for obtaining guarantees to support SMEs’ operational financing and export insurance.

In relation to the economic crisis and based on the National Anti-Crisis Plan, the programme Guarantee for operational loans was opened in 2009, financed from the state budget and implemented via the Czech-Moravian Guarantee and Development Bank (Českomoravská záruční a rozvojová banka, a.s., ČMZRB). Its aim is to maintain access to bank loans for SMEs. Originally, the programme was intended for the processing industry, construction and ICT sectors. At the end of 2009 the Programme has been expanded to wholesale, retail sale, tourism and education sectors. Another expansion occurred in March 2010, namely by providing guarantees for investment loans. In response to the economic crisis the Ministry of Industry and Trade accelerated the drawing of funds from the Operational Programme Enterprise and Innovation and at the same time it enabled entrepreneurs to get support based on the ‘Temporary Framework’.

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

As it has been mentioned above, social partners were involved in discussions on selected measures at the tripartite level and participated in the preparation of conceptual documents. Despite repeated disagreement and changes in the political situation (new governments in 2009 and 2010) representatives of entrepreneurs and trade unions prepared a joint document ‘Proposal of short term measures for ways out of the crisis and solutions of its consequences’ containing 21 measures. The document was modified several times and in the extended version of 38 measures subsequently approved by the national tripartite meeting. The measures in the document were divided into five thematic areas, being measures on the income and expense side of public budgets, on business promotion, labour market measures, and measures changing institutional background. By the end of 2010, approximately 2/3 of the measures specified in the document were fulfilled (CZ1002039I). Although not being explicitly focused on SMEs, their impact on them was significant.

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?

Availability and appropriateness of funds for SMEs can be judged based on data from the public consultation evaluation, which took place in order to make a concept for SME support for the period from 2014 to 2020. From 2007 until now, based on the evaluation data, almost 70% of SMEs used subsidies for their development. The other most widely used ways to get funds were a bank loan (64%) and a lease purchase, an instalment sale, or factoring (53.3%). In small enterprises (with less than nine employees) this situation differs markedly and proves the known fact that small companies suffer from difficult access to funds. It can be derived from the survey carried out that about one third of small enterprises had to look for funds somewhere else due to banks’ reluctance to lend to small businesses and their lacking capacity and knowledge to prepare grant applications, and the most frequent ‘other source’ was primarily their own funds, personal loans, loans from family members, etc.

According to the said survey among entrepreneurs, the most convenient way of support seems to be a subsidy, which was described as a convenient form of promotion by more than three quarters of the SMEs. The support provided by the Czech-Moravian Guarantee and Development Bank is viewed by entrepreneurs differently; about the same percentage of SMEs reported this form of support as convenient, or inconvenient. The least convenient form of support was marked by approx. 4/5 of the entrepreneurial respondents to be the use of venture capital. These conclusions result from low awareness of the last quoted form of financing.

• 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 legislative framework for the SME promotion is based on Act No. 47/2002, on support of the small and medium-sized enterprise, under which SMEs are supported through programmes approved by the government of the Czech Republic. The CzechAccelerator and state venture-capital fund could be mentioned as specific instrument. The Investment and Business Development Agency – CzechInvest (Agentura pro podporu podnikání a investic - CzechInvest) helps new projects through the CzechAccelerator platform. CzechAccelerator is a project focused on the technological development of Czech small and medium enterprises in foreign markets. Aim of the project is the development and management experience in the commercialisation activities of their own product. In autumn 2012 a state venture-capital fund should start its operation, as mentioned below.

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)?

Generally, the business promotion in the CZ is not centrally organised and controlled, but it is apportioned among a range of institutions. The key position among these institutions is held particularly by the Ministry of Industry and Trade, having the SME promotion in its scope of activities. These include programmes promoting enterprise, science and research, marketing activities, programmes promoting energy savings and utilisation of renewable resources, programmes promoting a reduction of entrepreneurs’ administrative burden. SME promotion programmes are also implemented by the Ministry of Agriculture (Ministerstvo zemědělství, MZe) and the Ministry of Labour and Social Affairs (Ministerstvo práce a sociálních věcí, MPSV) that provide funds linked to the active employment policy and ESF funds (particularly for educational programmes). In addition, the Ministry for Regional Development of the Czech Republic (Ministerstvo pro místní rozvoj ČR, MMR) is also involved in the implementation of programmes. Other institutions dealing with both direct and indirect promotion of enterprise are state-controlled organisations, such as The Investment and Business Development Agency – CzechInvest (Agentura pro podporu podnikání a investic - CzechInvest), the trade promotion agency Czech Trade, Czech Export Bank (Česká exportní banka, ČEB), Export Guarantee and Insurance Corporation (Exportní garanční a pojišťovací společnost, a.s., EGAP), Czech-Moravian Guarantee and Development Bank (Českomoravská záruční a rozvojová banka, a.s., ČMZRB), Regional consulting and information centres and business and innovation centres, Centre for Regional Development of the Czech Republic (Centrum pro regionální rozvoj ČR, CRR), information web portals – BusinessInfo.

A non-government business promotion is provided by the Chamber of Commerce of the Czech Republic (Hospodářská komora ČR, HK ČR), the Agrarian Chamber of the Czech Republic (Agrární komora ČR, AK ČR) and associations of entrepreneurs.

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

In autumn 2012, a state venture-capital fund, ‘Czech development, closed investment fund’, whose establishment has been decided by the CZ government, should start its operation. The specialisation of the fund will be decided by the Ministry of Industry and Trade. Based on preliminary information, the Fund should invest into companies focusing on for example biotechnologies, nanotechnologies, robotics, science, or information technologies. An investment must be at least 30% cofunded by a private investor. CzechEkoSystem under the management of CzechInvest will help find companies in which the Fund could invest and will also assist in the project preparation. Activities of the said entities will be coordinated by the Ministry of Industry and Trade.

• Which phases of restructuring do they target?

As far as the state fund is concerned, for the time being details have not been published regarding typology of development stages, address, sector and legal form, or companies in which the Fund is planning to invest.

• Which types of restructuring do they target?

See above.

• 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?

See above.

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

Based on the available information, the Fund should work similarly as private venture-capital funds.

• 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?

Currently available is only the information mentioned above (2.1.) generated for drafting the SME promotion policy for the period from 2014 to 2020. The research specifies the significance SMEs attribute to each type of promotion, including venture capital, and what is their opinion on the targeting of the state promotion for SMEs in the future.

Part 3: Good Practice

  • Name of the instrument in national language and English: program Záruka, - záruky za provozní úvěry, programme Guarantee – guarantees for operation credit
  • Justification for selecting this measure as Good Practice: In the framework of anti-crisis measures, the Ministry of Industry and Trade under programme Guarantee helped in 2009 1,435 SMEs.
  • Date of launch of the instrument and end date (if applicable): 2009 - 2010
  • Initiator/administrator (organisation): the Ministry of Industry and Trade (administrator)
  • Other involved actors and their roles: Czech-Moravian Guarantee and Development Bank (grantor)
  • Source of funding: Support is provided by the Guarantee Fund, created from the state budget and f the European Fund for regional Development
  • Target group/eligibility/coverage: SMEs
  • Phase of restructuring targeted: management
  • Type of restructuring targeted: expansion, internal restructuring
  • Purpose/content/characteristics/description of services provided: The programme responded to the current development needs of SMEs during the economic crisis. The programme was aimed at supporting SMEs in manufacturing, construction, telecommunications and informatics, and was later expanded to retail, wholesale, tourism and education through loans.
  • Outcome of the instrument (e.g. number of beneficiaries, effects): The programme helped in 2009 1,435 SMEs to obtain loans of more than CZK 9 billion for operating and investment activities.
  • Strengths/success factors of the measure: as above was mentioned
  • Weaknesses/bottlenecks of the measure: ----
  • Was the instrument formally monitored/evaluated? If so, please specify (by whom, how, what were the finding and how were the findings used etc.) Instrument was monitored in the annual report ‘Zpráva o vývoji malého a středního podnikání a jeho podpoře’ (Report on the Development of the Small and Medium Enterprises and its support) prepared by the Ministry of Industry and Trade.
  • Weblink: http://www.mpo.cz/dokument68939.html
  • Information sources used for filling this section: Reports on the Development of Small and Medium Enterprises and its support 2006 – 2010, The National Anti-Crisis Plan, 2009, The Support of the Entrepreneurship in the Czech Republic, Ministry of Industry and Trade 2006, Concept of support of SMEs in period of 2014 - 2020, www.mpo.cz, www.businessinfo.cz

Commentary

The SME promotion is generally viewed mainly as a direct support, that is, provision of funds. Discussions on SME restructuring are mainly held with regard to SMEs’ access to funds and newly also with regard to the method of funding these companies.

Aleš Kroupa, Research Institute for Labour and Social Affairs

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