- Observatory: EMCC
- Published on: 13 May 2013
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.
Before the financial crisis of 2008/09 SME restructuring was mainly discussed in terms of promoting growth and availability of workforce, that is business expansion. Initially after the crisis, there was some shift in emphasis to availability of funding as well as bankruptcy and reorganising procedures but growth-orientation of companies remained an important aspect. Availability of specific restructuring instruments for SMEs is limited, but important instruments for financing, business evaluation, financial counselling, business transfer, and internationalisation are available.
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)?• 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?• 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?
Two successive Finnish governments during election cycles 2003-07 and 2007-11 used a policy programme approach to advance some of their agenda. These two governments were headed by Prime Minister Matti Vanhanen, although they had a slightly different party composition. During the last half of the 2003-07 cabinet, one of the policy programmes was called ’Policy Programme for Entrepreneurship’.” The relevant programme during the 2007-11 cabinet had a broader focus and was called ’Policy Programme for Employment, Entrepreneurship, and Worklife’. The latter government and thus its relevant policy programme were caught by the global financial crisis of the 2008/09 which forced a reassessment of the policy up to that point.
One major underlying theme during the period leading up to the 2008/09 crisis was growth of Finnish SMEs, both in terms of turnover and ultimately also in their employment. Although the number of SMEs in Finland has not been as high as the governments have hoped, increasing the number of enterprises has not been seen as the most important goal. Rather, it has been the lack of growth-orientation which has drawn the governments’ attention. According to annual ’Entrepreneurship Reports‘ the number of companies in Finland has been around 250,000 with only a small fraction being large enterprises. Taking the independence criterion into account, SMEs have accounted for about 98% of all enterprises. The majority of those are one-person enterprises and employ others only occasionally. Subsequently, there is a lot of unused potential for employment growth. For example, according to the ’Entrepreneurship Report 2008‘ only 6% of Finnish enterprises could be classified as growth-oriented, citing information from the Global Entrepreneurial Monitor 2007 survey.
For the first electoral cycle under study, government's policy programme included several aspects that were relevant for SMEs in light of restructuring. First, there was an effort to adjust legislation with SMEs in mind. Some administrative procedures were eased and the required amount of capital in joint-stock companies was reduced from € 8,000 to € 2,500. Bankruptcy and insolvency regulations were assessed with SMEs in mind, and a report was prepared to address possible knowledge gaps and the need for advisory services in SMEs on labour law. Second, continuity of enterprises was to be protected by improved procedures for business transfer, either to family members or outsiders. Finally, growth of SMEs was to be supported by appropriate advisory and financing services.
The government in power during 2003-07 also had an ’Employment Policy Programme‘. This programme focused largely on new entrants to the labour market and reemployment of the unemployed rather than on restructuring situations.
For the second electoral cycle and under the same Prime Minister the relevant goals were similar, although some specific goals had already been met during the previous cycle. This second policy programme was designed to secure continuing growth under shrinking domestic labour force. The implementation of this programme was monitored with a table listing goals and updated actions to achieve them.
Development of national economic conditions during Prime Minister Matti Vanhanen's first and early second cabinet was largely favourable. A practice of publishing annual ’Entrepreneurship Reports‘ was adopted, and in these reports the loss of companies was not seen as particularly alarming as long as it was at least offset by starting of new companies. The number of filings for bankruptcy was on the decline from 2002 to 2007 and far below the peak of Finland's severe recession in the early 1990s. The number of companies in reorganisation process remained stable and low. In sum, turnover among enterprises was treated as a natural phenomenon leading to perhaps higher efficiency and an increase in jobs.
The discussion described above appeared mostly in the area of entrepreneurship policy, but employment was also very prominent in its contents. This is highlighted by the fact that the separate policy programmes for entrepreneurship and employment were merged into one (along with quality of worklife) for 2007-11.
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 ‘Policy Programme for Employment, Entrepreneurship, and Worklife’ adopted by Prime Minister Vanhanen's second cabinet (2007-11) was put to test close to its midpoint by the evolving financial crisis. As a halfway evaluation for the government's entire programme was planned at the outset, this became an important point, when the goals and effectiveness of this policy programme in particular could be assessed against the accumulating evidence of financial distress.
First signs of trouble were seen in 2008 when the number of bankruptcy filings increased. A prominent increase occurred in 2009, along with an even prominent increase in the number of companies in reorganisation process. Although there was still a net increase in the number of companies, company and associated job losses became an important issue.
The midpoint assessment of the government's work (politiikkariihi) placed additional emphasis on increasing funding for growth-oriented enterprises by encouraging investments through tax incentives. These incentives could apply to private investors (through capital gains calculations) or enterprises themselves (through an R&D deduction). Additional emphasis was also placed on the predicament of entrepreneurs whose business had failed or who were overly burdened by debt. Enterprises and entrepreneurs were to be encouraged to seek early financial advice and be able to return to entrepreneurial activity sooner than was the case at the time.
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?
There are several social partner central organisations that represent either enterprises or employees or, in some cases, both. The Federation of Finnish Enterprises (Suomen Yrittäjät) represents entrepreneurs of all types, but it does not have a collective bargaining role. The Confederation of Finnish Industries (Elinkeinoelämän Keskusliitto EK) is a collective bargaining partner and also has a designated SME section. It reports that about 96% of its member companies are SMEs. On the labour union side two of the three main central organisations have designated sections for entrepreneurs in the fields that they represent. These two are the Finnish Confederation of Professionals (STTK) and Confederation of Unions for Professional and Managerial Staff in Finland (AKAVA). There is also an association of small business owners (Suomen Pienyrittäjät). All these organisations are national.
Of the organisations mentioned above, the Confederation of Finnish Industries (EK) is very active in the fields of economic policy in general and SME policy more specifically. The EK conducts a survey twice a year regarding the operating environment of SMEs and has participated in public debate by publishing its own SME strategy documents. The emphases in EK's most recent strategy document include achieving growth through a tax policy which supports entrepreneurship and investment as well flexibility in the labour relations adapted to the needs of SMEs. EK is also involved, along with other actors, in supporting SMEs to develop their competitiveness through exports (‘KiVi’ programme).
As a specific organisation representing entrepreneurs the Federation of Finnish Enterprises (SY) is also a particularly active participant in policy debate. It is not involved in all decision-making as it is not a collective bargaining partner in the same manner as the EK and the union organisations mentioned above. SY has recently put emphasis on the predicament of entrepreneurs in financial trouble. It has called for better access to public debt counselling and debt restructuring services for entrepreneurs as these services have been intended only to private individuals. In SY's view, these matters gained visibility and support during the financial crisis, but then unfortunately some of the momentum was lost as the most acute situation passed. In its strategy document for 2011-2015, SY has also called for a more flexible use of fixed-term contracts during difficult economic conditions as companies are then reluctant to hire. SY has participated in developing a special phone help service (‘Talousapu’), which is a low-threshold counselling service particularly for small businesses. The service is currently only operating on a temporary basis, though. SY also has research activities, and in collaboration with government financier Finnvera and the Ministry of Employment and the Economy it publishes a biannual SME barometer survey (‘Pk-yritysbarometri’).
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?• 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?
Support instruments that exist in Finland fall quite evenly into anticipation and management. The variety is such that it is not feasible to make general statement about how accessible they are for SMEs or their employees.
Perhaps the main support instrument from employee perspective - and important from company perspective as well - is ‘Muutosturva’ (’Change Security’). It originated in the collective bargaining process in 2004, but was then codified into law. This instrument includes services as well as responsibilities for both employers and employees alike in possible lay-off situations. The services are provided by public employment offices. The goal of the system is to be proactive in supporting reemployment of those are at risk of being made redundant rather than taking action only after persons become unemployed. Change Security applies to all enterprises to a varying degree, but it does not cover employees with a short job history. An evaluation of the Change Security system published in 2007 found that more problems in its implementation were observed in SMEs. Some of the problems can be attributed to the lack of information and resources in SMEs. As Change Security includes extra time off in order to find a new job, such time may be difficult to arrange in a small business.
Financing instruments are varied and include, for example, funding provided by government financier Finnvera as well as TEKES (The Finnish Funding Agency for Technology and Innovation). By far, the most common source for funding for SMEs is a bank (Pk-yritysbarometri) and a recent Bank of Finland report has raised concerns about the dependence of SMEs on funding particularly from local banks.
Business transfers are of particular importance for small businesses as any event involving the entrepreneur (for example, retirement, poor health) may lead to the cessation of the business (and elimination of jobs) unless a suitable successor or buyer is found. Several general ways of transferring a business are available, but one instrument, ’ViestinVaihto’ (’Passing the Baton’) has been designed specifically for SMEs. It is available through regional Centres for Economic Development, Transport and the Environment (‘ELY-keskus’) for a fee and consists of an expert evaluation of business transfer options.
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)?• Are the activities of different support service providers coordinated? If so, how and how well does this work?• Which phases of restructuring do they target?• Which types of restructuring do they target?• 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?• What type of support do they provide? What specific challenges for SMEs in restructuring do they address?• 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?
Services intended for SMEs also fall quite evenly into anticipation and management instruments. Anticipation instruments have to do with general development of operations, financing, business transfer, or internationalising the business. As Finland is a quite small domestic market, it is difficult to achieve strong growth without exports. Management instruments are more for acute financial crises.
Services are mainly offered by the Ministry of Employment and the Economy but through the regional Centres for Economic Development, Transport and the Environment or local Employment and Economic Development Offices (‘TE-toimisto’). The number of companies using some of the services has been quite low, though, in some cases less than 100 per year.
‘Talousapu’ (‘Financial Help’) provides a low-threshold opportunity to seek help when business experiences financial problems. Financial Help is a phone counselling service, essentially free. Service is confidential (anonymous, if desired) as entrepreneurs often find it difficult to ask for help. The service was launched in October 2009 largely due to the financial crisis. Early experiences demonstrated the need for the service as calls totalled about 200 per month. The Financial Help service also includes a specific section on ‘Yritys-Suomi’ (‘Enterprise Finland’) online service. These pages include further information and tools on financial planning as well as business development. Entrepreneurs can, for example, create a debt plan. Financial Help is for the time being funded by Ministries of Finance and Employment and the Economy as well as financier Finnvera. It is operated by the SME Foundation (joint public-private partnership; ‘PKT-säätiö’)
One group of instruments is related to internationalisation of business, that is exports. Here, different actors are involved. An instrument called ‘Globaali’ is available through Centres for Economic Development, Transport and the Environment for a fee and consists of expert evaluation and counselling. ‘Export Partnerships’ involve a joint export effort of at least four companies and are run by Finpro, a consultancy organisation specialising in international networking. There is also a ‘KiVi’ programme, which will be described below in more detail as a good practice.
Part 3: Good Practice
- Name of the instrument in national language and English
- Justification for selecting this measure as Good Practice
- Date of launch of the instrument and end date (if applicable)
- Initiator/administrator (organisation)
- Other involved actors and their roles
- Source of funding
- Target group/eligibility/coverage
- Phase of restructuring targeted
- Type of restructuring targeted
- Purpose/content/characteristics/description of services provided
- Outcome of the instrument (e.g. number of beneficiaries, effects)
- Strengths/success factors of the measure
- 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.)
- Information sources used for filling this section
‘Kilpailukykyä viennistä ja ja kansainvälistymisestä - KiVi’ (‘Increased competitiveness from exports and internationalisation‘) is a programme that aims at improving SMEs' opportunities to expand into export trade. It is presented here as a good practice, since it has been specifically designed for SMEs (although not exclusively, all interested enterprises can participate), it has demonstrated its ability to attract interested participants, and it has been named a good practice by the EU commission on two occasions. The programme is a public-private partnership, based on a simple low-threshold concept and therefore very accessible to SMEs.
KiVi originated in 2005 and has taken place in four series of events. The fourth series or ‘tourney’ was completed in spring of 2012 and the fifth one is being planned for 2013. The programme also includes an Internet site where all the materials from the events are compiled and distributed. The programme is organised by the Confederation of Finnish Industries EK and the Ministry of Employment and the Economy in collaboration with regional Centres for Economic Development, Transport and the Environment, the Federation of Finnish Enterprises, and chambers of commerce as well as other organisations. The internet site is maintained by the EK and the ministry subsidises each regional event (rent, coffee service). Otherwise, the participants cover their own costs.
KiVi is perhaps a rare restructuring instrument in that it is primarily focussed on business expansion, that is providing growth opportunities through exports. This is important in a country such as Finland, which has a relatively small population and subsequently a small domestic market. The programme consists of presentations on available support services for internalisation and companies’ experiences in using them as well as an opportunity to network and receive personal consultation. As events are regional, they can be tailored to suit regional needs. Participation in these information events is free of charge and during the fourth ‘tourney’ 2011-12 the 15 events drew an average of 100 participants surpassing the previous average of about 1,000 participants per ‘tourney’. In addition to business participants, almost 30 collaborating partners participated (for example, chambers of commerce, financing organisations, business networks). KiVi has not been formally evaluated, but there is a feedback mechanism in place.
Simo Virtanen, Finnish Institute of Occupational Health