EMCC European Monitoring Centre on Change

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

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



About
Country:
Sweden
Author:
Jan Persson and Ingrid Broman
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.

Restructuring is accepted as a normal process in Sweden. However SME policy does not specifically deal with restructuring, instead SME support policy focuses more on start/innovation support, loans and development capital. Specific challenges for SMEs in restructuring include the Swedish law concerning employment security (LAS), the demographic development, high taxes and regulations related to restructuring events. Social partners are important actors as an effect of The Swedish Model. During the recession the government made targeted measures towards SMEs including tax reliefs and providing finance for SME-loans. The Job Security Council Trygghetsrådet(TRR) can be mentioned as an example of good practice during restructuring.

QUESTIONNAIRE

The SME definition used by the European Commission is also frequently used by Swedish authorities, however, Statistics Sweden in some reports and data collection uses a definition where small and medium sized enterprises are businesses with fewer than 200 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? Please specify, for example:• If so, since when and at which level (national, regional, sectoral)?• 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?

The on-going trend in Sweden before and after the global recession is that small- and medium sized businesses  create more new jobs than they used to and in comparison to 1998 the proportion of employed in SME companies has increased. This is presented in figure 1.

Figure 1

se1208019q.tmp00.jpg

Source: Svenskt Näringsliv, 2009

*Here, Statistics Sweden’s definition of small and medium enterprises is used; - more than 200 employees are defined as large sized.

As a consequence of the larger impact SMEs have on the Swedish economy, several reports and surveys have been produced in recent years, covering the situation and conditions of Swedish SMEs. At national level the Swedish Agency for Economic and Regional Growth (Tillväxtverket) has, together with Statistics Sweden (Statistiska Centralbyrån, SCB), conducted surveys with over 19,000 SME respondents in 2002, 2005, 2008 and 2011 on the business environment for SMEs in Sweden. The aim was to evaluate the conditions of SMEs and to identify and present perceived threats and opportunities by the enterprises to public authorities, company owners and interest groups. Specifically growth related business expansion is the restructuring phase most emphasised in public and policy discussion and the area where most focus is placed. The growth related policy discussions have most frequently addressed challenges and opportunities when it comes to competition, entrepreneurship, employment regulations, internationalisation and lack of suitable labour.

One tendency observed since the election in 2006 when Sweden changed government, is that there has been a shift from the traditional SME policy focus on providing entrepreneurs with skills, risk capital and expertise, so called ‘production factors’, towards focusing more on incentives and opportunity oriented measures. In contrast to the social democratic government (1994-2006), the conservative government (2006-present) prefers a strategy that opens up many of the public sector monopolies in order to encourage entrepreneurship and thereby increasing competition. (See also the Swedish ERM CAR on ‘Public measures to support self-employment and job creation in one-person and micro enterprises’)

SME policy does not specifically deal with restructuring, instead it is focused on actions to make the SMEs survive and promote growth. The Social Partner - the Swedish federation of small businesses (Företagarförbundet, FF) - made a survey evaluating the new governments’ reforms and policy discussions towards SMEs during 2006-2008 with over 1,700 SME respondents. The most appreciated reforms was the tax reductions for household services while the least appreciated was the increase in pay-roll tax paid by SMEs. The Swedish federation of small businesses in their evaluation concludes several changes were made to support SMEs. These measures might indirectly have an effect on restructuring in SMEs, however the specific restructuring types identified by ERM are not mentioned in this policy discussion.

One challenge for SMEs is linked to the demographic development which gives arise to relocation or acquisition opportunities. Forecasts from the Swedish Federation of Business Owners (Företagarna) have assessed that over 40 % of the SME owners want to sell/leave their enterprises within 10 years due to generation shifts, which will create a need for restructuring. The Swedish Agency for Economic and Regional Growth (Tillväxtverket) assesses the chances for survival during the first five years better for a company with a new owner than for a newly started company. Therefore focus has been placed on what instruments can be used to address this challenge in some cases with specific attention to marginalised groups and women since these groups have been identified having difficulties taking over businesses. In the public debate there has been critique that many SMEs cease to exist where this could have been prevented and that rules regulating acquisitions have to be simplified.

One difficulty facing SMEs in restructuring where workforce reduction is an issue is that it can be difficult to prioritise what is best for the company while following all rules and regulations concerning job security. One challenge constantly debated by politicians, social partners and enterprises is the Swedish law concerning employment security (Lagen om anställningsskydd - LAS). The law is based on a so-called ‘last in first out’ system which is supposed to assure that an employee who has been employed a longer period can’t be dismissed before an employee who has worked for the company a shorter period. This creates challenges for SMEs with a small workforce where sometimes a few workers with vital competence cannot stay during a restructuring due to the legal implications regulating the system. In SMEs the loss of one important employee can really affect the business in a negative way more than in larger companies with several key employees. One theory is that this is the reason for the increase in outsourcing seen in recent years since companies need to become more flexible and avoid the Swedish law concerning employment security in uncertain times can use staffing agencies.

1.2. Did the global economic and financial crisis 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 public debate during and after the financial crisis has not changed because of the crisis. There still is a difference in opinion among politicians, social partners, unemployment insurance funds and the public on which regulations can be reformed in order to simplify SMEs’ business in general as well as managing restructuring. The law concerning employment security and the acquisition regulations are still being criticised by business owners and their interest organisations and focus is still in general placed on what incentives and reforms can help SMEs grow. One regulation specifically criticised is the 3:12 regulations which is claimed to be an unfortunate burden for SMEs making restructuring more difficult. The 3:12 regulations are a set of rules that apply to closely held companies (companies where four or less persons own half of the share value). The rules aim to prevent the owners of the company to pay tax on capital instead of on income derived from owner's labour input. This because tax on capital is lower taxed in Sweden than tax on income. During the financial crisis in 2008, the government made a crisis package in order to moderate the effect of the recession. This action was not specifically directed to SMEs, however, some of the action plans affected SMEs specifically. The Swedish federation of small businesses (Företagarförbundet, FF) investigated in an ex-ante evaluation of the reforms what effect theywould have for SMEs. According to FF the crisis package was a good beginning, however, most of the actions were not specifically dealing with crisis-resistance or restructuring; rather it was actions to manage the increasing unemployment. The best part of the crisis package according to FF was the expansion of the tax reductions for renovation of houses (ROT-avdraget) (mentioned in 1.1 as an appreciated reform) since this would save several jobs within SMEs and the construction business. However their final conclusion was that an investment in SMEs of just over SEK 8 billion (€ 0.88 billion) a year would not hold back the crisis itself nor reduce the risk of closure for SMEs outside of the construction sector.

As can be seen in figure 2, public support to SMEs varied widely throughout the period 2002-2010. After the change of government in 2006 the support net cost went down, however it increased markedly again in 2008-2009 due to the recession. On the other hand, as can be seen in the figure, the increased investments did not continue in 2010, indicating that the overall investments have not increased after the crisis which ended earlier in Sweden than in many other countries.

Figure 2


Source: Tillväxtanalys 2011

It is however important to remember that in Sweden tax reliefs are the most common public support instrument for businesses, more frequently used than it is in other European countries, see table 1. Support in the form of guarantees, loans and equity are rare. This makes it difficult to assess or compare exactly how much the support for SMEs has increased or decreased.

Table 1
Support for industry and services sector, by type of aid instrument, the EU27 Sweden, in %, annual average 2007-2009.
 

Financial support

Tax reliefs

Other

Total

Sweden

18.0

82.0

0.0

100 %

EU 27

51.0

44.0

5.0

100 %

Source: Tillväxtanalys 2011

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?

The social partners are involved in the public debate concerning the conditions for SMEs and the public debate is mostly held at national level. Since trade unions negotiate the central collective agreements on behalf of the employees they are also involved in the restructuring discussions. The main trade union confederations are The Swedish Trade Unions Confederation LO, The Swedish Confederation of Professional Associations SACO and The Swedish Confederation of Professional Employees TCO. Since they operate on behalf of the employees and the employer organisations represent enterprises, these SPs are frequently negotiating concerning improved conditions for enterprises during restructuring. Småföretagarna, Företagarna, Företagarförbundet and Svenskt Näringsliv are some of the employer organisations trying to help SMEs with anticipating and managing restructuring and to overall improve the general conditions for SMEs. They also conduct surveys with their members and affect public opinion by releasing publications where they address for instance the willingness among the SMEs to expand their business and what should be done in order for this to happen. Also The Job Security Council (Trygghetsrådet TRR) offer restructuring support such as networking opportunities for SMEs looking to recruit and employees made redundant. Since the Swedish model is based on strong often member-based social partners managing wage-negotiations and debates on behalf of their interest groups, the SPs usually manage to get attention from the government and public authorities.

During restructuring employees need support when made redundant and this has been an issue in public debate where social partners, politicians and workers have been involved. There has been debate concerning whether or not to make the unemployment insurance obligatory instead of keeping it voluntary as it is today. However, the obligatory unemployment insurance is neither investigated enough nor encouraged by the SPs involved today, meaning so-far this is not a recommended action from the SPs. TCO is one of the SPs being very sceptical concerning the obligation since it wouldn’t support a large share of the unemployed. The government is also hesitating on whether or not the obligatory system is good even though this formerly was their position.

The financial crisis challenged the Swedish restructuring model. During the crisis many employees were affected and lost their jobs due to internal restructuring and the issue of the Swedish law concerning job security (LAS) was frequently discussed. In the public debate there is a clash between the one side arguing for an increase in flexibility for the enterprises by abolishing LAS, providing the company with the possibility to manage the restructuring without regard to the last-in first-out rule. On the other side is the argument for providing workers with job security. The opposition and trade unions are in general more in favour of LAS while parts of the government, enterprises and employer organisations such as the SME federation (Småföretagarnas riksförbund – SFR) and The confederation of Swedish Enterprise (Svenskt Näringsliv) are critical. Concerning LAS and the increasing trend in using staffing agencies to avoid the law concerning employment security social partners such as the second largest trade union confederation Unionen have been critical to this development and they demand a better solution to support SMEs in restructuring in order to avoid this development.

One solution suggested by The Liberals people party (Folkpartiet) is a system based on the Danish socalled flexicurity model. This means that more emphasis should be placed on the individuals skills and that LAS should be abolished and replaced by the priority rules based on the competence. The SME federation (SFR) has been in favour of this model claiming this would make it easier for SMEs to handle restructuring. However, this is a reform which hasn’t been investigated enough and politicians as well as social partners are still sceptical to whether or not this model would improve the situations for SMEs and large companies in restructuring.

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?

There is support for companies in general which also can be accessed by SMEs. There are job security councils, unemployment insurance funds, coaches, internationalisation advice, anticipation and management support from different social partners and public authorities. When it comes to anticipation, advice, and managing restructuring the Job Security Council (Trygghetsrådet TRR) supports companies through the transition process in the event of redundancies. TRR is presented further as an example of good practice in part 3. There are other job security foundations and one is TSL offering individual support to blue-collar workers within the private sector made redundant in order to manage the restructuring and support the worker towards a new position. Similar to these security councils are Trygghetsrådet TRS, Trygghetsfonden BAO/Finansförbundet, TFL Trygghetsfonden Fastigo-LO and several coaches offering support during restructuring. All three job security foundations have started in greater extent during the last couple of years to offer workforce training for employees at risk of unemployment or employees that have been laid off.

The Swedish Trade Council (Exportrådet) supports businesses, small, medium and large sized with plans to restructure their business and establish their business abroad. Companies that risk going bankrupt can according to the law of corporate reconstruction file for this and thereby get support from a reconstruction administrator to get the business back on track, this is available for SMEs as well as larger companies. Also as mentioned the tax reduction on restoration, construction and maintenance work on private houses (Rot-avdraget) is a support measure in order to boost the construction sector and to maintain jobs. It is available for the construction sector in which many SMEs are active. When it comes to anticipation the Swedish National Institute of Economic Research (Konjunkturinstitutet) analyses and offers forecasts of the Swedish as well as the international economic situation and these analyses are available for SMEs. The Unemployment Insurance funds are managed by social partners and these funds offer financial support to workers eligible for the insurance after made redundant. SMEs as well as large sized company employees can access this support independent of the size of the business. However, the UI funds are connected to the sector where the employee is.

Another social partner based restructuring support is the insurance created by The Swedish trade union confederation (Landsorganisationen LO) and the Confederation of Swedish Enterprise (Svenskt Näringsliv) for the period in between jobs. The insurance is a part of the collective agreement and provides workers aged over 40 an additional benefit if notice of termination is given due to redundancy.

Generally, the general restructuring support measures are available to SMEs as well as large sized companies, however, if the company is small it might be difficult to keep track on all the instruments available and know when and how to use them.

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?

During the recession in 2008 the Swedish government made several targeted measures aimed at SMEs, including increased access to capital and tax reductions for specific sectors. Many SMEs dependent on being or having subcontractors experienced great difficulties and had to manage internal restructuring during the recession. As can be seen in figure 3, support to SMEs increased in 2009. The reason for this was an increasing demand for loans created by a lack of liquidity experienced within SMEs. For that reason the government decided to provide the state-owned enterprise, ALMI, that provides loans to SMEs, with € 180 million (SEK 2 billion). This indicates that the focus to support SMEs has increased. However, the net cost of the assistance to small businesses fell in 2010 despite the fact that greater financial resources were mobilised during this year compared to 2009.

Figure 3

se1208019q.tmp02.jpg

Source: Tillväxtanalys, 2011

Employer associations’ often offer support for SMEs during restructuring events and the NEPAs (national employer peak association) which mainly represent SMEs are (Företagarna) and (Svensk industriförening Sinf). During restructuring events employers can turn to these associations to get counselling on legislation and practical legal advice regarding employment and restructuring.

ALMI is a business enterprise that promotes and stimulates development of competitive and/or new SMEs. ALMIs aim is to create growth and innovation in Swedish business life and they offer advice in innovation, entrepreneurship and established business. They also offer corporate loans, micro loans, financing for companies operating in international markets and tailored funding for innovators. Their advice can be used to anticipate and prepare for restructuring but also to manage the event.

The SME Unemployment insurance (Småföretagens arbetslöshetskassa) is a social partner that specifically assists employees or entrepreneurs from SMEs when made redundant. Only employees or entrepreneurs of companies with less than 250 employees can be members of this UI fund and they can only receive financial support from this UI when made redundant due to scarcity of work. The insurance is voluntary and the cost of being a member is 150 SEK a month (€ 17). The allowance if unemployed depends on prior income and length of employment but generally it equals 80 % of the salary the first 200 days and after that 70 % up until 300 days of unemployment.

The Swedish Trade Council (Exportrådet) in 2009 received a mandate from the government to specifically support SMEs in international business expansion. The support could be sought by small technology companies with up to 50 employees with willingness to enter the international arena. In Sweden, 80 % of the environment technology companies are small with fewer than ten employees and these companies are in general very advanced in their knowledge and therefore competitive internationally. However, they lack knowledge of what markets to enter due to their small size and this was the motive for the support action.

On behalf of the government The Swedish Agency for Economic and Regional Growth (Tillväxtverket) has created and completed a project to increase the chances for women to take over (small) companies. The purpose was to enable and promote ownership change with women buyers to stimulate women entrepreneurship. Several workshops and seminars were held providing support services and mentorship to start-ups run by women.

Further, a national network of women ambassadors was created and since 2009 it is a part of the European Network of Female Entrepreneurship Ambassadors. Because of this investment Sweden is presented as an example of good practice in supporting entrepreneurship in SMEs according to the SBA overview.

Part 3: Good Practice

  • Name of the instrument in national language and English:

Trygghetsrådet TRR (The Job Security Council)

  • Justification for selecting this measure as Good Practice:

TRR is designed as a foundation and it is the largest regulator of the restructuring agreements in Sweden which legitimises it as an important actor when it comes to restructuring. What also justifies TRR as good practice is that it is a successful example of ‘The Swedish model’ where social partners operate taking responsibility for a labour market phenomenon and there is no intervention from the government. The model is based on strong social partners who sign nation-wide collective agreements. Judging by the outcome of this agreement it can be used as good practice.

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

The Job Security Council Trygghetsrådet TRR was created in 1974.

  • Initiator/administrator (organisation):

The initiators are the employer organisation The Confederation of Swedish Enterprise (Svenskt Näringsliv) and the Negotiation and Cooperation Council (Förhandlings- och Samverkansrådet PTK). Together, the employee and the employer organisation are the mandators to TRR and are the actors assigning TRR its task - to help redundant employees.

TRR is the administrator, committed to support employees in restructuring situations.

  • Other involved actors and their roles:

The employer organisation for non-profit organisations (IDEA) and the Co-operative Negotiation Organisation (KFO) have also adopted the restructuring agreement after negotiations with their trade union counterparts.

  • Source of funding:

TRR is financed by the 32,000 member companies as insurance for their employees.

  • Target group/eligibility/coverage:

The target group are the affiliated companies and their employees. The goal is to support employees dismissed due to redundancies or at risk of becoming so, on their way to a new job. More than 32,000 companies with a total of 700,000 employees, mainly white-collar workers in the private sector, are connected to the TRR. In general, the restructuring agreement only covers employees associated to PTKs agreement areas.

  • Phase of restructuring targeted:

Anticipation and Management

  • Type of restructuring targeted:

Internal restructuring, business expansion, bankruptcy, closure.

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

To the company TRR offers support before a restructuring, giving advice through counselling and education to the managers of the company, the CEOs, and the local trade union representatives. Further, they offer a recruitment service in order to match candidates with the employers’ skill needs. They also arrange career fairs with potential employees chosen by the TRR consultants for their suitability for the recruiting company.

To the employee TRR places a lot of focus in adjusting to every employee’s individual competence in order to offer advice, counselling and coaching. The purpose is to support workers made unemployed due to scarcity of work in finding a new position.

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

When it comes to results, TRR can be mentioned as good practice since they during the last decade have supported 175,000 redundant employees (from small- medium- and large sized enterprises) and nine out of ten of those who purposefully looked for a new career succeeded. Of the redundant employees using support from TRR, to find a new position seven out of ten have succeeded in finding a job with the same or higher salary.

  • Strengths/success factors of the measure:

The measure is an agreement between the same social partners who agree on a large part of the central collective agreements which makes the measure accepted as legitimate. It is also a strength that the agreements are negotiated by these actors since it might encourage them to take into account what result the central wage negotiations will bring. This can create an incentive to argue for wage moderation and thereby increase employment and reduce risk of companies having to restructure due to too high wages.

  • Weaknesses/bottlenecks of the measure:

TRR focuses on white-collar workers connected to PTK which makes the measure not cover all employees made redundant due to restructuring. Further, it is not specifically aimed at SMEs.

  • Weblink:

http://www.trr.se/

  • Information sources used for filling this section:

http://www.trr.se/

http://www.svensktnaringsliv.se/multimedia/archive/00027/LAS_rapporten_SvN-PT_27615a.pdf

Commentary

Specific challenges for SMEs in conjunction with restructuring are not a big part of the overall policy context in Sweden. The discussions that exist take place from the enterprise perspective and deal mainly with ways to promote growth. This discussion has not changed because of the economic crisis. The focus on SMEs’ abilities to grow and hire employees instead of helping them when reducing staff is accentuated by the fact that there are few specific support instruments towards helping SMEs in these situations.

Jan Persson and Ingrid Broman, Oxford Research

Bibliography

  • Dagens Nyheter, Reinfeldt tveksam till obligatorisk a-kassa, 2012.02.22 link
  • Företagarförbundet ,Alliansen i halvtid, 2008 link
  • Företagarförbundet, Alliansens krispaket, 2008 link
  • Newsmill. Jan Rejdnell om småföretagen, tusentals småföretag lägger ner i onödan,link
  • Swedish agency for growth Policy Analysis (tillväxtanalys), State Aid to the Swedish Industry 2010 link
  • The confederation of Swedish enterprise (Svenskt näringsliv), Smått om små företag, 2009 link
  • The confederation of Swedish enterprise (Svenskt näringsliv),Faktiska konsekvenser om turordningsreglerna och LAS link
  • The Swedish agency for Economic and Regional Growth (Tillväxtverket), Tillväxtmöjligheter och hinder för svenska små och medelstora företag 2011 link
  • The Swedish federation of business owners (Företagarna) Generationsskiftet – Lägesbeskrivning 2007 link
  • The Swedish Agency for Economic and Regional Growth, (Tillväxtverket) Ägarskiften - Insatser som ökar möjligheterna för kvinnor att ta över företag, 2011 link
Useful? Interesting? Tell us what you think. Hide comments

Add new comment