EMCC European Monitoring Centre on Change

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

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



About
Country:
Denmark
Author:
Carsten Jørgensen
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.

In Denmark, supporting entrepreneurship and self-employment in micro companies has been an issue during the last decade, but it was the economic crisis that really put a focus on how to avoid unintented restructurings among SMEs. The support measures are mostly concentrated on advice and consultation, but also financial incentives are a possibility. The aim for new support programmes has been to encourage self-employment in micro companies and find ways to close possible traps for their development. From a state point of view restructurings are anticipated and the profit is growth and innovation together with more people in work.

QUESTIONNAIRE

AUTHORS NOTE: EU’s upper limit for an SME of 249 employees is not used in Danish statistics. The upper limit is here 99 employees. 100 and more employees constitute a large company. Thus, in Denmark, support instruments for SMEs are mainly, but not only, directed at small and micro companies, and in particular the latter. As a result, the target group of SMEs within this study will primarily be companies with less than 50 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:• 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)?

During the 2000s, the former liberal-conservative led government formulated a vision that Denmark should be the first among equals as an entrepreneur and innovation society by 2015. This statement was part of a debate about how to inspire people with skills to open a business and how to support those who had already opened a business and had a few employees.

• 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?

It was mostly entrepreneurship policy and growth policy and indirectly employment policy as part of the two former policies that were involved. SME policy in Denmark does not only ‘deal with restructuring’ even if indirectly it could be said that all measures taken to support entrepreneurship is the same as anticipating restructuring. From their own side SME policy is also political lobbyism towards government and social partner organisations with the aim to clarify the problems of SMEs as opposed to the large companies. On the other hand ‘restructuring policy’ is not only limited to SMEs. 99% of all Danish companies are SMEs (less than 100 employees) and in general restructuring policy actually includes all companies, also large, unless otherwise stated.

• Did the public and policy discussions deal with restructuring as such or were specific types or phases of restructuring covered?

The debate can be said to focus on anticipating restructuring and to a lesser degree managing restructuring. However, the Danish economy was dominated by economic growth upturn up to 2008 when the recession hit. Managing restructuring as such was not high on the public agenda. On the other hand, many companies in manufacturing started a wave of delocations during 2007 resulting in mass redundancies, mostly among manufacturing workers. This led to a discussion on increasing the level of further vocational training in order to ensure that Denmark would remain a strong economy in the light of globalisation.

• 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?

In 2007, SMEs as subcontractors were discussed, mainly due to the negative side effects following outsorcing and delocations of production which among others made life difficult for the subcontractors. Another event that brought attention to SMEs as subcontracters was the Structural Reform of 1 January 2007 which was a public sector reform that basically changed the map of Denmark by merging the number of municipalities from 278 to 99 and the number of regions from 14 to five along with the introduction of increased control of performance, quality and budgets. The majority of the SMEs have always been dependant on the municipalities but after the Structural reform came into force, they experienced that the transition phase between what was regional and what was municipal responsibility was highly confusing. The business association of the SMEs, the Danish Federation of Small and Medium-Siezed Enterprises (see also later) complained that the municipal procurement normally directed at SMEs before the reform declined rapidly to the benefit of large contractors. Not only were the number of tenders less, but the tender processes were so slow that it favoured the patience of an at least larger medium-sized or large company. Combined with bureaucratic slowness regarding the final payment, many SMEs sustained from tendering. The municipalities blamed the structural reform, particularly the ‘mess due to moving’ as the main reason for these problems.

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

All in all, the discussions dealt with both an employee and employers perspective. Hence, the enterprise perspective carried greater weight. Measures like ‘further training’ and ‘transferability’ focused on employee development, whilst entrepreneurship concentrated mainly on innovation and growth.

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 crisis increased the focus on ‘managing restructuring’ in general not only SMEs in particular, which in the Danish case means no particular discussion on small companies. However, the banks’ changed their policy towards SMEs following the crisis. Small companies now face greater difficulties in obtaining loans from the banks due to the latter adopting a more strict loan policy. Thus, even if a part of the four bank packages set up by the public since 2009 was meant to make it easier for SMEs to obtain loans this seems not yet to have happened.

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?

One organisation, the Danish Federation of Small and Medium-Sized Enterprises in Denmark (Håndværksrådet, HVR) is a pure business association that promotes and serves the interests of SMEs. HVR mostly represents small employer associations whose members conduct their own collective bargaining with the unions. Among the traditional social partners, no organisation has a unilateral focus on SMEs, neither from the perspective of trade unions nor employers. Neither do collective agreements in Denmark regarding wage and working conditions make a distinction between employees in SMEs and large companies. It has also been mentioned in the debate that the Danish flexicurity system is an anticipating factor in itself regarding restructuring or rather the effects of restructuring (see also later).

• What are their opinions, perspectives, recommendations?

The vision of the SME organisation, HVR, is to support entrepreneurship and lobby in favour of SMEs’ interests at national and European level. HVR have a seat in the important body, the Danish Export Council and is an active member of UEAPME.

• Did they succeed in convincing governments or public authorities at various levels of their viewpoints?

It is difficult to point at one success story, but it is known HVR has a saying in the policy debate. HVR has often raised the voice against ‘undeclared work’ because it is a threat to the existence of the small companies. In this connection HVR have had a certain success in so far as the authorities from time to time focus on this issue. In July 2012 a new law that opened for sanctions against buyers of undeclared work was passed – to the great satisfaction of HVR.

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.

In so far as the Danish flexicurity model allows easy access to hire/fire combined with a relative high welfare support and an active labour market policy, it has been mentioned in the debate that this is the main and best ‘anticipating restructuring support instrument’ in Denmark. With respect to employee protection, the collective agreements and the (EU-based) legislation provides a safety net regarding mass redundancies.

However, the actual support measures/programmes for SMEs are in the hands of the public authorities - as part of either growth policy or as part of an active employment policy.

• Do SMEs and/or their employees generally have access to the available instruments and are these suitable for their specific needs in restructuring?

SMEs have access to general support measures directed at all companies, for instance regarding research and development. Most of the support measures concerning restructuring of companies are also suitable for SMEs.

• 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?

SMEs have access to instruments in particular directed towards one-person companies, micro-companies and small companies regarding anticipating restructuting. All entrepreneurship support is implicitly, and in some cases explicitly, targeted at SMEs. The administration and monitoring of the provisions regarding the support instruments towards all companies, including SMEs, are in practice in the hands of the five Regional Growth Houses.

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)?

We have an example from collective bargaining. In 2011, the employer association of small and medium-sized crafts companies, ‘Dansk Håndværk’ (Danish Crafts) and the largest union in DK, called 3F (United Federation of Danish Workers) signed a collective agreement that aimed to fight ‘social dumping’ - DK1103019I

Apart from this, nearly all support instruments, schemes and programmes are provided by the government, mainly at national and regional levels.

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

The regional authorities in the Growth Houses coordinate the support measures, which are decided at national level. The aim of the measures are national, but there is left a little room for different adaptations in practice among the five Growth Houses.

• Which phases of restructuring do they target?

Anticipating as well as managing restructuring.

• Which types of restructuring do they target?

They mainly target ‘business expansion’, but they also target ‘internal restructuring’, including ‘delocation’ and not the least measures to prevent ‘company closure/bankruptcy’.

• 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?

They do not target employees of SMEs in restructuring in particular. The bulk of the schemes also appears to target ‘knowledge-companies’ or innovation companies within technology including green technology and IT-based technology. Traditional SMEs in crafts and small industry have a special possibility – a programme that supports the employment of a young academic.

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

The main types of support instruments include consultation and to a lesser extent financial support. One – rather large- programme – the continuing vocational training programme - aims at increasing the level of education and ease the job search for individual employees that have been part of a mass redundancy. This is, however, not only aimed at SMEs. The challenges of the SMEs that the support measures address are mainly connected to growth: To support new companies and to increase growth and employment in small companies through innovative solutions. One example is a project that supports newly established SMEs in sales and promotion techniques.

• 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?

The generel trend seems to be a greater awareness among SMEs and their advisors of the existence of public support instruments. This could be a side-effect of the economical crisis, since it is known that the number of applications for information about and/or support increased significantly during 2009 and 2010. The strengths are that they support a culture of innovation, entrepreneurship and self-employment. The weakness is maybe that the traditional crafts or SMEs that do not focus on innovation are ignored.

Part 3: Good Practice

  • Name of the instrument in national language and English:

Early Warning ordningen – The Early Warning project.

  • Justification for selecting this measure as Good Practice:

The EW project was launched in 2007 and thus in place and operational when the financial and economic crisis hit Denmark. Since then, the EW has provided professional advice to more than 2,200 small companies in crisis. It is mainly a’fire and ambulance service’, but there are elements of both anticipating and (in particular) managing restructuring. It is a public-private project and it was evaluated in late 2010. The project seems to have been a success.

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

The project was launched in ultimo 2007 as a pilot project and run until the end of 2010

  • Initiator/administrator (organisation):

The project was developed by the Danish Business Authority (Erhvervsstyrelsen) and it is administrated by the Regional Growth Houses, which are set up under the Business Authority

  • Other involved actors and their roles:

There are 100 competent voluntary business leaders (CEOs, company owners, economists, lawyers, etc, from SMEs as well as large companies) distributed throughout the country involved in the project. Furthermore, around 15 consultants regarding economic restructuring are employed in the Growh Houses with the task to support this project.

  • Source of funding:

The project is funded by the national budget and is free of costs for the SMEs that apply for support.

  • Target group/eligibility/coverage:

SMEs in economic crisis.

  • Phase of restructuring targeted:

Mainly managing restructuring. Will also depend on the time of company’s application. If the company faces closure the support could be to help to minimise the damage.

  • Type of restructuring targeted:

Internal restructuring or bankruptcy/closure

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

Early Warning aims to help small businesses to overcome financial difficulties: Either by reversing the negative trends or to close down the company before debts become unnecessarily large. The services provided are advisory consultation and/or for instance support from a solvency lawyer. When a company has applied for support, the consultation begins in the Growth House through internal experts and hereafter the above mentioned experts are drawn in according to the need. Early Warning gives a competent evaluation of the companies' situation - including assessments of survival potential and the nature of the problems.

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

Since 2007, 2,200 small companies have been consulted by Early Warning. In 2010, an impact measurement was carried out. EW-companies were compared with a control group concerning turnover and value added 2008-2010:

EW-group had a decline in turnover of 8.9%, while the control group had a decline of 15.4%

EW-group had a decline in value added of 7.5%, while the control group had a decline of 18.6%

Fewer small companies have had to close down and those that face company closure, do it with 20% less debt to the state

  • Strengths/success factors of the measure:

To support small companies in economic difficulties and to prevent them from company closure and/or to mitigate the effects of restructuring or company closure

  • Weaknesses/bottlenecks of the measure:

Social psychological factors. Loss of identity for male owners in particular when their role as manager is questioned. Some small company owners contact EW too late because of lack of recognition of the seriousness of the situation. They are not rejected, but the possibilities of ‘rescue’ have narrowed down. In some cases, it is the spouse that takes contact. Others have difficulties in firing the few employees in the small company, because they are all very close and therefore wait until it is too late to mitigate the effects of a restructuring. Others, especially in micro companies, fear the reaction of the spouse.

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

Yes, for the findings, see also above. The instrument was evaluated by ‘eStatistik’ for the Danish Business Authority in 2010. The evaluation showed that the EW had been used by many small companies and that is was considered beneficial to small companies and not the least for society. The project will most probably be prolonged or made permanent. Furthermore it has shown to be a an example of a good public-private cooperation.

Oxford Research, December 2009: Anticipating and managing restructuring - Denmark. National background paper. National restructuring seminars A.R.E.N.A. European Commission

The Danish Business Agency

Centre for Entrepreneurship and Small Business Studies (CESFO): Årsrapport 2011 (yearly report)

Commentary

The public awareness of restructurings has increased as a result of the crisis. An instrument that was not used for decades, work-sharing in companies, became a broadly used tool to maintain workplaces.

During the crisis the government introduced new methods to monitor the labour market with the aim to spot changes earlier. The existing support measures were evaluated for red tape and new measures were introduced.

The anticipating support measures directed at SMEs have been strengthened the last years, and it seems that they have been a success. Some are still pilot projects but they have the potential to be permanent.

Carsten Jørgensen, FAOS, University of Copenhagen

Useful? Interesting? Tell us what you think. Hide comments

Add new comment