EMCC European Monitoring Centre on Change

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

  • Observatory: EMCC
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  • Published on: 14 May 2013



About
Country:
Norway
Author:
Tom Erik Vennesland
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 Norway, the SME policy debate, both before and after the global recession, has been broad. The more general measures are not aimed at specific phases of restructuring as such. Still, such measures can be relevant in that they contribute to free smaller businesses’ funds and give them better opportunities to avoid closures, as well as better conditions for business expansions. In addition, the government contributes to start-ups, business expansions and internationalisation of SMEs through different loans, guarantees, grants, industrial research- and development contracts and skills programmes from public funding agencies and state-owned companies, such as Innovation Norway and SIVA.

QUESTIONNAIRE

The national ‘definition’ or common understanding of SMEs in Norway is companies with less than 100 employees. Therefore, we find it appropriate to apply the Norwegian national SME-definition in this report.

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)?

There has been policy debate regarding the specific challenges for SMEs and their employees before the global recession in 2008/09. The Norwegian government’s action plan for small businesses was presented in 1999, and was meant to apply for the period 1999-2002. The plan was intended to be the start of a long-term effort to promote entrepreneurship and improve conditions for small enterprises in Norway. The topics raised in the action plan have also been on the government's agenda later. Several of the measures that followed the action plan were related to restructuring, mainly in that they were intended to contribute to facilitate SMEs’ possibilities for business expansions (including the possibility of starting up new businesses).

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 1999 action plan mainly included various measures aimed at making it easier to start up and run SMEs (SME policy). In addition, the government has prioritized entrepreneurship policy in terms of facilitating start-ups and business expansions, both before and after the global recession. Norwegian SME policy has a regional perspective in that there are special programmes aimed at encouraging start-ups and growth in rural areas.

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

The measures mentioned above can mainly be linked to business expansion, including the possibility of starting up new businesses. The action plan also specifically focused on strengthening small businesses’ opportunities for internationalisation.

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?

The envisaged measures, aimed at SMEs, presented in the government’s action plan of 1999 was that 1) requirements for reporting to various authorities/red tape were to be reduced, 2) facilitation of expertise, technology and research should be prioritised, 3) the conditions for recruitment and application of labour to SMEs should be improved, 4) public information should be made more user-oriented and accessible, 5) the availability of venture capital for start-ups and innovative companies should be strengthened, 6) SMEs’ opportunities for internationalisation should be strengthened, 7) tax rules should be better suited to small businesses and 8) the public administration and the education system should contribute to a good environment for general business development and innovation.

These measures are followed up in subsequent measures. That is, through the simplification of the reporting obligation (including the possibility of reporting electronically); various schemes for public financing of SMEs (start-ups, business expansions and internationalisation) and various types of schemes that will help newly established companies to further develop their businesses.

The case of SMEs as subcontractors was, to our knowledge, not a specific topic for discussion during the preparations of the action plan.

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

The discussions mainly dealt with the enterprise perspective, but the government has also been concerned with facilitating policies that create more workplaces, especially in rural areas. Norwegian working environment legislation does not differ much between smaller and larger businesses, in that 99.5 percent of Norwegian businesses have under100 employees. There have not been any extensive discussions regarding working conditions in smaller businesses as such, although the authorities and social partners have put focus on the challenges faced by many small businesses in certain industries.

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 Norwegian measures in relation to the economic and financial crisis were mainly general or directed at industries with special challenges (that is construction and export industries). Many of these measures, including investments in public infrastructure and changes in provisions on temporary layoffs, were beneficial for both SMEs and larger companies in the relevant industries. The changes in provisions on temporary layoffs contributed to saving companies from closures and employees from full unemployment in the industries which were most affected by the financial crisis.

In addition to these more general and industry-specific measures, public funds and start-up scholarships directed specifically at SMEs were financially strengthened, encouraging both start-ups and business expansions for the relevant SMEs that received support.

The government also initiated the work with a strategy for SMEs in 2008 (strategy presented in March 2012). The strategy was not directly related to the financial crisis, but was intended to pave the way for long term innovation in SMEs through several measures. The overall objective of the strategy was that SMEs shall spend as little time as possible on administrative tasks imposed on them by laws and regulations, and as much time as possible on operating and developing their businesses.

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

Yes.

If so, which (types of) organisations and at which levels?

As part of the work on the industrial policy strategy for SMEs, a government initiated strategic council consisting of representatives from SMEs, as well as employers’ organisations, was established in 2009.

Both the Confederation of Norwegian Enterprise and the Enterprise Federation of Norway (Virke) (the two largest employer confederations in Norway’s private sector) have many SMEs as member companies, and therefore seek to influence the government’s policy towards these, including topics related to restructuring.

The trade unions generally aim to protect their members’ rights, and therefore also engage in issues regarding the viability of SMEs, as well as their member’s wage- and working conditions. The trade unions are also engaged in industrial policy. One example on this is that The Norwegian Confederation of Trade Unions (LO) has adopted an industrial policy programme on the “private services sector”. The majority of the companies in this sector will be SMEs. The same applies to the LO/LO unions committee on travel-business/tourism, which aims to work for all-year-round workplaces in this sector.

What are their opinions, perspectives, recommendations?

NHO has especially emphasised the need to simplify reporting routines for SMEs (including extensions and improvement of the Altinn and Bedin web portal services), to remove the wealth tax and to create conditions more conducive to change of ownership in Norwegian SMEs. As an example, NHO has for many years tried to influence different Norwegian governments to remove the statutory audit for corporations with a turnover less than 5 million NOK (€ 664,300). The statutory audit has been a relatively substantial expense for many of the smaller businesses in Norway. The argument is that such measures would be timesaving and cost reducing for SMEs. In this way, the measures could free smaller businesses’ funds and give them better opportunities to avoid closures, as well as better conditions for business expansions.

LO, on the other hand, has argued that a removal of the audit for SMEs would increase disreputable businesses’ opportunities to commit rule violations (that is financial crime and social dumping) and went against a removal.

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

Many of the measures presented in the strategy for SMEs (2012) came from the different actors in Norwegian business and working life, and the president of NHO said the strategy was ‘a well-structured work-plan on how ambitious goals can be reached‘. Representatives from SMEs, other employer organisations and LO played active parts in the work with the strategy - NHO’s argument won through when the government, as a part of the strategy, removed the statutory audit for corporations with a turnover less than 5 million NOK (€ 664,300). NHO argued that removal of the statutory audit saves many SMEs from relatively large expenses and thereby frees their funds, so that they can focus on their daily operations to secure their income. The removal is linked to restructuring in that it potentially can contribute to prevent closures and facilitate business expansions, especially for the smallest businesses with limited funds.

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

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

Yes. The great majority of businesses taking advantage of access to public support instruments fall in under the national definition of SMEs. The government contributes to start-ups, business expansions and internationalisation of enterprises through different public funding agencies (Innovation Norway, SIVA and The Research Council of Norway). The funding agencies offer loans, guarantees, grants, industrial research- and development contracts and skills programmes often aimed at enterprises that have development-, restructuring- or expansion-projects that are difficult to find adequate risk appetite for in the private credit market. Many of these arrangements are directly or indirectly aimed at SMEs.

The support system is aimed at both SMEs and larger companies. As an example, the public SkatteFUNN scheme, administered by The Research Council of Norway, Innovation Norway and the Norwegian Tax Administration, allows enterprises engaged in R&D activity to apply for a tax deduction. -SMEs and large companies that get their projects approved can claim respectively 20 and 18% tax deduction for costs related to R&D activities.

With regards to internationalisation, Innovation Norway assists Norwegian enterprises abroad through its 30 international offices in different countries. An evaluation of Innovation Norway from 2011 showed that the funding agencies’ services affect SMEs in the early internationalisation process stages in a good way. The same evaluation points out that Innovation Norway’s more general assistance services are of good quality, while enterprises in general are less satisfied with the more sector-specific services.

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 public funding agencies predominantly focus on assisting SMEs in various ways. As an example, Innovation Norway has a special focus on assisting SMEs that are preparing for introduction of their services or products to international markets. Innovation Norway’s offices abroad offer advice and consultative services to SMEs at reduced rates (50%). The public funding agency also helps SMEs to pave the way for international networking through creating meeting places and hosting conferences, courses and study tours. Such services will be of special interest for SMEs with less administrative resources than larger companies.

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:

Yes.

Government-owned SIVA - The Industrial Development Corporation of Norway - is, amongst others, responsible for running so-called incubator programmes. In this programme, smaller/developing businesses are linked to a large company or a university-/research environment. The aim is to assist the development of new companies (SMEs). In addition to the already mentioned SkatteFUNN scheme, there are a few government grant programmes that are mainly or fully aimed at SMEs. As an example, Innovation Norway’s start-up grants covers up to 50 % of the costs involved in developing a business idea and establishing a business.

A number of other instruments are targeted at assisting entrepreneurs and smaller enterprises in the start-up- and commercialisation phase.

If so, by whom are they offered (public vs. social partners/employers’/employees’ organisations) and at which administrative levels (national, regional)?

The incubators (SIVA) are placed in different regions all over the country, are partly owned by SIVA and partly owned by either larger private enterprises with premises where the incubator is situated, municipalities, counties or universities.

Start-up grants and other measures explicitly targeting SMEs are mainly run by Innovation Norway, and financed by the State.

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

A majority of the support programmes for SMEs are run by Innovation Norway, SIVA or The Research Council of Norway, or jointly by these public agencies/state-owned companies.

Which phases of restructuring do they target?

SIVA’s incubator-programmes and Innovation Norway’s variety of financial and advisory support instruments are first and foremost targeted at anticipation of change, as the two organisations’ mandate is to contribute to value-creation, in light of globalisation and increased competition, by facilitating growth through business-, district- and regional development.

Which types of restructuring do they target?

SIVA’s incubators mainly target business expansion by supporting newly started SMEs through the start-up- and commercialisation phase. SIVA in most cases requires that the potential member enterprises have business ideas with the potential to reach national and/or international markets. SIVA’s focus on facilitating business expansions (and internationalisation) also implies that some of SIVA’s affiliated enterprises will go through different forms of internal restructuring as their businesses expand.

Innovation Norway’s various services mainly target start-ups and business expansions.

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 incubator- programmes are mainly aimed at SMEs that run R&D activities and industrial enterprises with great potential for growth. The incubator-programmes only indirectly target the employees of SMEs. According to the managing director of SIVA “-incubation results in solid jobs and added value, something we need more of-“.

Entrepreneurship grants, and Innovation Norway’s other measures explicitly targeting SMEs, are partly general, partly aimed at entrepreneurs and smaller businesses in certain sectors, in areas outside the cities, female entrepreneurs etc.

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

SIVA offers premises and arenas for incubation and follow-up. SIVA also offers its affiliated enterprises consulting in business development, financing, competency- and capital networks and administrative services.

Innovation Norways start-up grants mainly address economic challenges in the start-up phase.

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?

To our knowledge, there are no figures indicating how well known SIVA’s incubators are among SMEs and their advisors. An evaluation of SIVA from 2010 showed that 60 % of representatives of enterprises already affiliated with an incubator reported that SIVA’s services are important for their businesses’ development. Furthermore, almost 50 % reported that the locations offered by SIVA are important for their businesses’ opportunities for survival and business expansion. The report concludes that both affiliated enterprises and customers have great expectations to what SIVA can, and should, contribute to. Therefore it is recommended that SIVA is given larger resources. Since 2010, the Norwegian government has followed this recommendation.

A survey from 2010 showed that 96 % of leaders in Norwegian enterprises have knowledge of Innovation Norway. Leaders of SMEs established before 2005 reported knowing Innovation Norway better than entrepreneurs and leaders of newly established businesses and larger enterprises. An external evaluation from 2010 showed that Innovation Norway’s funding package and other services have a positive effect on the level of activity and the value creation in the recipient SMEs. Enterprises that receive support from Innovation Norway have higher growth than Norwegian businesses in general. 55 % of enterprises, that had received support directed towards internationalisation, reported that the support had led to increased exports. The report concludes that Innovation Norway, to a greater extent, should prioritise business development and innovation in central areas of the country. Furthermore, the report concludes that a greater proportion of Innovation Norway’s funding package should be directed towards innovative projects with the potential for national or international business expansion.

Part 3: Good Practice

  • Name of the instrument in national language and English:

Innovasjon Norges landsdekkende Innovasjonslån / Innovation Norway’s Nationwide Innovation Loan Scheme.

  • Justification for selecting this measure as Good Practice:

Innovation Norway’s nationwide innovation loan scheme is specifically aimed at SMEs holding innovative business ideas with great potential for commercialisation and internationalisation. In 2012, NHO recommended the government to increase the annual allocations for the scheme from todays 0.5 billion NOK (approximately € 68.5 million) to 2 billion NOK (approximately € 273, 6 million). According to an official NHO-document the increase is necessary because “-the scheme is the most cost-effective and accurate instrument for several innovation projects realised in the width of the Norwegian business sector-”.

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

The loan scheme was established by the Norwegian government in 2008. The scheme represented a further development of the former nationwide risk-loan scheme. The new scheme was to a larger extent directed towards innovation and internationalisation, as well as towards the early commercialisation phases in the enterprises.

  • Initiator/administrator (organisation):

The Norwegian government’s Ministry of Trade and Industry (Nærings- og Handelsdepartementet) and Innovation Norway.

  • Other involved actors and their roles:

No.

  • Source of funding:

Mainly the Ministry of Trade and Industry.

  • Target group/eligibility/coverage:

The innovation loan is primarily a service for SMEs in all industries and sectors throughout Norway, but it also applies to larger enterprises. The innovation loan scheme is intended to stimulate investments in innovative enterprises.

During the global recession in 2008/09 Innovation Norway also opened up for using the instrument for capital appreciation in enterprises that had liquidity problems.

Innovation Norway’s lending activities shall primarily be focused on geographical areas and businesses in sectors where there is a need for a supplementary financer and adviser. The funding agency’s statistics from 2011 shows that the loans granted by the agency largely have been in line with this.

  • Phase of restructuring targeted:

The innovation loan mainly targets anticipation of change.

  • Type of restructuring targeted:

The scheme is used by SMEs (and some larger enterprises) to projects and financing directed towards start-ups, business development and expansion, and internationalisation.

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

The scheme is used to part finance different commercially- and socio-economically profitable SME-projects that are difficult to find sufficient risk appetite for in the private credit market. The loan usually constitutes 50 % of the capital in a project and the repayment period is adjusted to the loan’s purpose. The interest rate is somewhat higher than in the private credit market.

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

In 2011, Innovation Norway received applications for innovation loans/guarantees for approximately 670 million NOK (approximately € 91.6 million), spread over 150 applications. 92 % of the enterprises that were deemed to have a high enough (potential) innovation level had their loan applications granted. Overall, Innovation Norway granted innovation loans to a value of 320 million NOK (approximately € 44 million) in 2011. The average SME receiving support from Innovation Norway is in the service sector, manufacturing- or the primary industries and has one to five employees.

  • Strengths/success factors of the measure:

In addition to the fact that the loan stimulates private capital flow to the loan recipients, a customer impact survey, conducted by Innovation Norway in 2006, showed that 70% of the enterprises (former loan recipients) meant that the supported project increased the degree of innovation in the enterprise, while over 80% meant that the project had led to increased exports.

NHO points out that Innovation Norway’s contribution to economic development based on regional conditions is an important regional policy instrument.

  • Weaknesses/bottlenecks of the measure:

The Norwegian Auditor General has questioned whether Innovation Norway’s overall funding package should be directed towards more risk-prone projects to a greater extent than it is today. A review from the Auditor General showed that Innovation Norway has placed a greater emphasis on corporate profitability, and that this may be at the expense of support directed towards start-ups and more radical innovation projects. The Auditor General has also argued that Innovation Norway’s funding package should be more directed towards projects with potential for internationalisation.

NHO, Innovation Norway and SMEs calls for an improved financial framework for the innovation loan scheme.

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

No. According to white paper 22 (2011-2012) The Ministry of Trade and Industry will take the initiative to evaluate the innovation loan scheme in the near future.

  • Weblink:

http://www.innovasjonnorge.no/Finansiering/Innovasjonslan/Faktaark-innovasjonslan/

  • Information sources used for filling this section:

Norway: ERM comparative analytical report on public support instruments to support self-employment and job creation in one-person and micro enterprises:

NO1108039Q

NHO on the change in provisions on temporary layoffs during the financial crisis:

http://www.nhoservice.no/article.php?articleID=3115&categoryID=243

NHO on research policies and instruments to stimulate growth in the sector (in Norwegian):

http://www.nho.no/getfile.php/bilder/RootNY/filer_og_vedlegg1/Opptrapping%202030.pdf

Evaluation from Menon (2010) on Innovation Norway’s role in the capital market during the global recession in 2008/09 (in Norwegian):

http://menon.no/upload/2011/09/26/insrolleunderfinansuroenmenonno_82010.pdf

Evaluation from NIBR and Oxford research (2010) on SIVA:

http://www.regjeringen.no/upload/NHD/Vedlegg/rapporter_2010/SIVArapport.pdf

Press release from the Norwegian government on the introduction of the innovation loan (in Norwegian):

http://www.regjeringen.no/nn/dep/nhd/Pressesenter/Pressemeldingar/2007/innovasjonslan-til-nyetablerarar-og-opps.html?id=484682

Innovation Norway’s annual report from 2011 (in Norwegian):

http://www.innovasjonnorge.no/Documents/Om%20oss/%C3%A5rsrapporter/%C3%85rsrapport_helt%20ferdig.pdf?epslanguage=no

Innovation Norway’s annual report from 2010 (in Norwegian):

http://www.innovasjonnorge.no/Documents/Om%20oss/årsrapporter/Årsrapport%202010.pdf?epslanguage=no

The Ministry of Trade and Industry’s White Paper number 22 (2011-2012): “-Instruments for growth – on Innovation Norway and SIVA-” (in Norwegian):

http://www.regjeringen.no/pages/37862379/PDFS/STM201120120022000DDDPDFS.pdf

NHO on Innovation Norway (in Norwegian):

http://www.nho.no/getfile.php/bilder/RootNY/filer_og_vedlegg1/Evalueringen%20av%20Innovasjon%20Norge.pdf

The Government’s strategy for SMEs presented in March 2012 (in Norwegian):

http://www.regjeringen.no/upload/NHD/Vedlegg/Rapporter_2012/102377_NHD_SMB_Web.pdf

Commentary

As indicated above, Norway has seen policy debates on SMEs in restructuring both before and after the global recession in 2008/09. Many of the measures presented in the government’s action plan for SMEs from 1999 are being followed up today, and the government’s strategy for SMEs from 2012 has been outlined in close collaboration with social partners representing SMEs and their employees. Many of the measures – such as less red tape - are not necessary aimed at restructuring phases as such, but will be relevant also in such situations.

Tom Erik Vennesland, Fafo Institute for Labour and Social Research

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