EMCC European Monitoring Centre on Change

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

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



About
Country:
Estonia
Author:
Kirsti Nurmela
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.

Most of the measures of support for restructuring are not SME specific in Estonia. The measures that are SME specific concentrate on the growth potential of SMEs and supporting them in innovation, R&D, internationalisation etc. Some estimates on the success of these measures can be found based on evaluations from different authors, although these are mostly not SME specific. Also, there is a regular survey of development trends among SMEs, which provides good insights to the problems that are faced by SMEs. The most recent research report was published in the beginning of 2012. The example of innovation vouchers for SMEs is discussed more thoroughly as one example of an SME specific restructuring support measure.

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)?

In public and policy debate, the term ‘restructuring’ is mostly not used. The discussion evolves around export, innovation, growth of enterprises which can all be part of the restructuring process. Thus, the focus here is on this debate, rather than concentrating only on ‘restructuring’ as such.

Policy documents have included references to restructuring challenges of SMEs in specific around three years before the crisis. When analysing measures for business development in Estonian national level strategic documents, it has been pointed out that simply ‘counting’ measures, there appears to have been a shift towards ‘financial engineering’ measures from 2007 onwards and to some extent from ‘start-up phase’ towards development/growth of companies (including through recruitment) under the business development objective (Männik, Miedzinski, Reid 2011).

In addition, since 2002, every three years a survey on the development of SMEs in Estonia has been undertaken. The first one was published in 2003 (Development of Estonian SMEs (in Estonian)) and the most recent one was published in 2012 (Development of Estonian SMEs 2012 (in Estonian)). The results of the survey have also been discussed in the media. Thus, the policy debate covers both media discussions as well as policy documents. Policy debate mostly remains at national level, due to the characteristics of the measures (national level policy measures).

At the same time, it should be kept in mind that according to the most recent survey on SMEs, 99.9% of all Estonian enterprises are SMEs (Kaarna, Masso, Rell 2012), thus most of the general measures for restructuring are also used by SMEs, even if they are not specifically targeted.

• 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 main focus of policy discussions is in enterprise policy (competitiveness of SMEs), including innovation policies. Restructuring policies that are specific to SMEs are not numerous and mainly address growth (innovation) of SMEs while the measures related to reduction in work volumes and jobs are mostly not SME-specific and fall mostly within the field of labour market policies.

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

As mentioned above, public and policy discussions do not deal with ‘restructuring’ as such, but different parts of the process. The types or phases of restructuring as defined in the current analysis are not explicitly mentioned in SME specific policy discussions. Although in terms of type of restructuring, the SME specific measures concentrate on business expansion and in some cases also on internal restructuring. In terms of phases, the measures seem to be more proactive, preparing companies for growth and innovation. At the same time, these could also be regarded as reactive measures (management of restructuring) since the need for the measures is in large part based on the problems that are already faced by SMEs, according to the SME development surveys.

• 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?

On a wider scale there are two main priorities: internationalisation (export and foreign direct investments) and innovation. The main topics discussed result from these priorities including access to financial resources, exporting capability, administrative burden, improving the skills and competences of workforce in SMEs at all levels (including workers as well as management) and cooperation with R&D institutions. Thus, the SME specific discussions and measures mainly focus on business expansion, rather than redundancies or closure. In case of SMEs as subcontractors, the discussion has been around the idea of how to move out of the subcontracting status through innovation and R&D. Although, the survey of SMEs indicated that only 9% of exporting SMEs are mainly subcontractors while 45% mostly export their own products or services (Kaarna, Masso, Rell 2012).

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

The discussions rather deal with the enterprise perspective, only a few examples are focused on employee perspective (for example, improving the skills and competences of the workforce in SMEs). At the same time, the latter measure is also based on the skills needs of the enterprise rather than individual skills needs.

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)?

In general, during the crisis the focus remains mostly on business expansion and no considerable changes in that perspective could be pointed out. The business reduction discussions have been more general and not specific to SMEs involved in the process.

It has also been pointed out in an analysis of innovation and enterprise support policies in Estonia (Männik, Miedzinski, Reid 2011) that Estonian strategic objectives for innovation and enterprise policy have been relatively stable over the last decade (at least since 2004). While there has been an evolution of new measures and funding patterns (higher funding for infrastructure, new forms of financial instruments, etc.), the core set of measures has been in place for a period of between 6 to 10 years (Männik, Miedzinski, Reid 2011).

Even though the measures have not changed, the economic crisis brought about loosening in the conditions of the measures that have been favourable towards large enterprises by raising the amount of support provided or making large enterprises eligible for some measures. For example the support measures for enterprises were brought forward and their financial capacity was increased in 2009 and 2010 (including raising the limits of export guarantees by KredEx from EEK 1 billion to EEK 3 billion) and additional measures were implemented in the total amount of EEK 6.1 billion to improve access to financial resources for enterprises (including raising the limit of loan surety from EEK 800 million to EEK 1.5 billion and extending the measure to large enterprises who were previously not eligible).

1.3. Are social partners or employers’ and employees’ organisations involved in public and policy debate on restructuring in SMEs?

The main social partners have not been involved in the debate on restructuring in SMEs in specific. There is an employers’ organisation representing specifically SMEs, who is concentrating on the situation of SMEs – Estonian Association of SMEs (EVEA). Also, the Estonian Chamber of Commerce and Industry (Eesti Kaubandus-Tööstuskoda) has been a partner in enterprise-related policies. However, these organisations do not represent their members in industrial relations or social partnership initiatives.

• 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?

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.

Some conclusions can be drawn from the most recent report on SME development in Estonia (Kaarna, Masso, Rell 2012). According to the research, access to financial resources is among the five most acute problems for Estonian SMEs in their development – it is mentioned as a problematic issue by 34% of SMEs (other problems mentioned include tax burden, finding a market, unpaid invoices and administrative burden, which are not directly related to access to public or social partner based restructuring support). In addition, compared to 2005 and 2008 a higher share of SMEs considers access to financial resources as a problem, which is probably the effect of the economic and financial crisis. Access to more specific measures is described below.

In general, SMEs seem to be relatively well informed of the public support instruments available for them. The share of those who are not familiar with the instruments or who could not assess their awareness remains below 15% and has not changed considerably compared to previous surveys (fluctuation between 10-15%).

Also, based on interviews with enterprises who have received support from KredEx and EAS, the general assessment of the services is positive (the measures have been assessed important for company development and enterprises are satisfied with the measures) (Jaaksoo et al 2012).

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

According to the SME survey from 2011 (Kaarna, Masso, Rell 2012), 31% of SMEs have used different opportunities for additional financing during three years (2009-2011). This has been more popular among small and medium sized enterprises compared to micro enterprises (45% and 47% respectively, compared to a third in micro enterprises). However, it should be kept in mind that additional financing also includes measures that are not publicly provided (for example, loans from private banks, family and friends etc.). Although, the use of state support for additional financing has increased considerably from 3-5% in previous surveys to 15% in 2011. State support is used most often by medium sized manufacturing enterprises. The state support mainly remains below € 25,000.

Around third of all SMEs do not feel the need for additional financing (the share has been 77-78% in previous surveys). Thus, with the economic crisis, the need for such measures has increased considerably. This leaves further 40% of SMEs in 2011 who have not used additional financing (either public or private), but feel the need for this. For instance, the main reason for not taking up bank loans was that their guarantees are not sufficient for banks (35%) and the interest rates are too high (32%).

Another measure that could be stressed here regarding restructuring is the use of business counselling from different sources to help enterprises analyse their difficulties and develop action plans for overcoming these difficulties. According to the SME research (Kaarna, Masso, Rell 2012), in 2011 28% of SMEs say that they are using counselling from outside the company, although during the years the share has decreased. It has been assessed that this could be the result of the increase in enterprises with less than ten employees, who have fewer resources for using these types of services (that is problems of access for micro companies). Also, the decreasing share could be explained by the economic crisis, which has caused a general cut in expenses among all SMEs and use the resources inside the company (Kaarna, Masso, Rell 2012). Third, in 2011 there was no public support instrument for counselling of SMEs available anymore, that previously helped to cover these expenses. This is confirmed by the research results - the sources of counselling are mainly in the private sphere (private consultants, cooperation partners, friends and family) or business organisations. Just 15% have received counselling from the local development centre as opposed to 44% from private consultants (Kaarna, Masso, Rell 2012).

Even though the survey points out some issues with access to public support instruments, it has been pointed out that the satisfaction among SMEs with the support instruments has not been analysed (Kaarna, Masso, Rell 2012).

• 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?

It is difficult to assess access to support instruments compared to large companies, since the SME surveys that provide the most thorough information do not make comparisons with large companies. Although, based on the survey, it could be pointed out that among SMEs, micro companies often take up the available support instruments to a lower extent, thus access to support measures seems to be different depending on the size of the company.

Furthermore, during economic crises, the qualification criteria of different support measures were changed in order to allow more companies to apply. Changes included opening up programmes which were previously targeted to SMEs to large enterprises. Also, maximum amounts of the grants were increased (see some examples in 1.2 above). Theoretically, in case of competition, these changes could put smaller companies in less favourable conditions. Still, the impact of the changes has not been evaluated. In addition, the whole crisis-related support package was targeted at companies which were already actively exporting and had considerable growth potential, and did not include smaller companies oriented to the internal market. At the same time, a couple of small scale sub-measures have been created which are more focussed on smaller companies (for example, training and innovation vouchers).

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 available SME specific measures are public measures implemented at national level, although there are only a few examples (including for example innovation vouchers – see section 3 below; KredEx start-up loan).Also, there are no examples of regional measures that would be explicitly targeting SMEs – mostly only national level measures are implemented by local authorities/ organisations. There is no information on any extensive measures offered by social partners that would explicitly support SMEs in restructuring. The social partners mostly concentrate on raising awareness of their members of the available public measures.

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

Considering the SME-specific measures only, the support service providers are concentrated on the national level. The national level activities are mostly coordinated by the relevant strategic documents, including National Reform Programme ‘Estonia 2020’ (in Estonian) and Estonian Entrepreneurship Policy 2007-2013 (in Estonian). Thus, the different support services are well coordinated at the strategic level and are related to the general aims set in these documents. Although, when looking at the general measures as well (that is those not explicitly targeted at SMEs), the picture is more fragmented and there are different actors at local (regional) level as well.

The organisations providing the support are KredEx, which concentrates on the financing possibilities of Estonian enterprises, and EAS, which provides a varied list of services for enterprises to support starting businesses, development of the company, export, internationalisation and innovation.

• Which phases of restructuring do they target?

In terms of phases, the measures seem to be more proactive, preparing companies for growth (internationalisation) and innovation (for example, supporting export potential of SMEs, raising the competences of labour force in SMEs, supporting cooperation with R&D, supporting starting of businesses etc.). At the same time, since the measures also target specific problems faced by SMEs in achieving growth (for example, poor access to financial resources), these could also be regarded in part as reactive measures (management of restructuring) (for example, improving awareness and access of SMEs to financial support measures).

• Which types of restructuring do they target?

The SME specific measures concentrate mostly on business expansion (supporting the growth of SMEs through increasing export potential, improving access to financial measures etc.) and in some cases also on internal restructuring (for example, increasing export activities, R&D development). According to the SBA (Small Business Act) fact sheet for Estonia 2010/2011 (in English), the indicators measuring second chance reveal that Estonia appears to offer relatively unfavourable conditions for honest entrepreneurs who have failed and want to start over again.

• 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?

The few available SME-specific measures target SMEs in general and no specific sub-groups are stressed with the measures.

One example of an SME specific measure targeted at employees was the training vouchers targeted specifically at self-employed, micro and small companies for providing job-related training. However, the implementation of the measure has ended. Most of the measures targeted at employees are not SME specific, but are available for all companies (for example, reaction measure to collective redundancies by Unemployment Insurance Fund).

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

The measures concentrate on supporting the growth of SMEs through innovation, R&D, exporting activities etc. This includes improving the access of SMEs to financial resources through increasing awareness of the available measures as well as providing specific targeted financial measures for SMEs.

• 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?

According to the recent SME survey (Kaarna, Masso, Rell 2012), in general, SMEs seem to be relatively well informed of the public support instruments available for them. The share of those who are not familiar with the instruments or who could not assess their awareness remains below 15% and has not changed considerably compared to previous surveys (fluctuation between 10-15%). Although, medium sized companies are better informed (about half say that they are well aware of the available measures) than small and micro companies (19-22% are well aware of the measures).

46% of those SMEs that are well aware of the available measures say that they are satisfied with the measures and 38% are dissatisfied. However, the reasons of dissatisfaction were not analysed in the research. It is recommended in the research report that this should be more thoroughly analysed, since the share of enterprises who are dissatisfied is relatively high (Kaarna, Masso, Rell 2012).

Part 3: Good Practice

  • Name of the instrument in national language and English: Innovatsiooniosakud (Innovation vouchers)
  • Justification for selecting this measure as Good Practice: The measure is one of the few ones that is specifically targeted towards SMEs in supporting their growth and advancement. Also, the measure has proven to be rather popular among SMEs. Due to the success of the measure, the budget allocated for the vouchers was increased to € 2.9 million in 2010 from the initial budget of less than € 1 million.
  • Date of launch of the instrument and end date (if applicable): The measure was launched in February 2009 and will run until 2013.
  • Initiator/administrator (organisation): Enterprise Estonia (EAS) and Ministry of Economic Affairs and Communications (MKM)
  • Other involved actors and their roles: -
  • Source of funding: European Regional Development Fund (ERDF)
  • Target group/eligibility/coverage: Vouchers are available for Estonian SMEs, preference is given to those SMEs who have no prior experience in cooperation with other institutions in innovation development.
  • Phase of restructuring targeted: The measure concentrates on anticipating restructuring (supporting the activities of enterprises with potential for innovation development).
  • Type of restructuring targeted: The measure could be seen as targeted towards business expansion (developing new products and services for growth potential) or internal restructuring (reorienting towards activities which are more R&D intensive).
  • Purpose/content/characteristics/description of services provided: The purpose of innovation vouchers is to tighten cooperation between enterprises and innovation partners outside the companies – it is seen as beneficial to enterprises as well as universities and other innovation partners who can offer more services that are suitable for the needs of enterprises. Innovation vouchers support SMEs in analysing innovative solutions for development, testing new materials, gathering knowledge on technologies etc. The partners for SMEs are universities, test labs or experts of intellectual property. The vouchers are provided up to a total extent of € 4,000 per applicant or € 16,000 in case of a joint application (no more than € 4,000 per joint applicant). Up to 100% of expenses are eligible for aid, including expenses on consultations, counselling, development and implementation of new solutions, research on feasibility and cost-benefit aspects, testing of products, registration of patents, design solutions etc.
  • Outcome of the instrument (e.g. number of beneficiaries, effects): according to EAS, the number of projects which had been approved for innovation vouchers has increased gradually from 112 in 2009 to 188 in 2010, reaching 265 in 2011.
  • Strengths/success factors of the measure: There is no formal evaluation of the measure available, although it is referred in the Peer Review of the Estonian Innovation System (in English) that the innovation voucher measure together with product development grants, competence centres and clusters are good examples of measures targeting dual, even triple, policy targets in three policy areas – education, innovation and research. However, their cumulative effect on knowledge circulation is unclear as there is no evaluation data on performance and impact available.
  • the report mentions that the experience of innovation vouchers is encouraging in terms of reaching and engaging companies that are not yet performing research, development and innovation activities.
  • Weaknesses/bottlenecks of the measure: As pointed out in the Peer Review of the Estonian Innovation System (in English), attention in research, development and innovation (RDI) measures is on demand side measures and public-private partnerships. For instance, innovation vouchers present themselves as lucrative options to stimulate RDI and growth while leaving the policy maker and implementer free of the daunting task for trying to forecast for example the key technology areas that should be funded, and leaving the researchers and business people in charge of what they know best. It is referred in the report that innovative capability is not something that can be readily bought, but it has to be developed over time gradually. Thus, more long term measures and forecasting capability is also important.
  • Was the instrument formally monitored/evaluated? If so, please specify (by whom, how, what were the finding and how the findings were used etc.): The instrument has not been formally evaluated.
  • Weblink: http://www.eas.ee/en/for-the-entrepreneur/innovation/innovation-voucher (in English); http://www.eas.ee/et/ettevotjale/innovatsioon/innovatsiooniosakud/uldist (in Estonian)
  • Information sources used for filling this section:

Commentary

In Estonia, the term ‘restructuring‘ as such has not been widely used, although discussions evolve around different individual components of restructuring, mostly focusing on the growth aspects of SMEs. The measures related to reduction in work volumes and jobs are mostly not SME specific and fall mostly within the field of labour market policies. Also, the measures implemented are mostly not SME specific but are general measures available for all companies. Furthermore, in the economic recession, concentration on SMEs was reduced even further while the conditions for several measures were loosened improving access of large companies to these measures as well. Thus, restructuring in Estonia is mostly not SME specific on concentrates on all companies in general. Although, due to the high share of SMEs in the Estonian economy, they make use of the more general measures as well. A recent analysis of the beneficiaries of EAS and KredEx support measures indicated that just 5% and 1% of the beneficiaries in the sample of the analysis were large enterprises (Jaaksoo et al 2012).

Kirsti Nurmela, Praxis Center for Policy Studies

References:

  • Jaaksoo, K., Kitsing, M., Lember, K., Rebane T. (2012) ‘Interim evaluation of entrepreneurship and innovation policies’. Ministry of Economic Affairs and Communications. http://www.mkm.ee/public/Ettevotlustoetuste_loppraport.pdf (in Estonian)
  • Kaarna, R., Masso, M., Rell, M. (2012) ‘Development trends of SMEs’. Praxis Center for Policy Studies. http://www.mkm.ee/public/VKE_aengusuundumused_aruanne.pdf (in Estonian, Executive Summary in English)
  • Männik, K., Miedzinski, M., Reid, A. (2011) ‘Evaluation framework for innovation and enterprise support policies in Estonia’. A report to the Ministry of Economic Affairs and Communications, Republic of Estonia.
Useful? Interesting? Tell us what you think. Hide comments

Add new comment