Europe’s SME’s need Economies of Scale

In emerging from the pandemic, the EU must do all it can to help small to medium-sized businesses exploit the comparative advantages of the Single Market, writes Dr Cyril Widdershoven.
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By Dr Cyril Widdershoven

Dr Cyril Widdershoven is a veteran global energy market expert and founder of Verocy, a strategic advisory firm.

06 May 2021

As the European Union’s vaccine programme continues to ramp up significantly, business leaders and policymakers across the Single Market can begin to see light at the end of the tunnel, and tentatively start sketching the outline of what long-term economic recovery might look like.

In planning for a sustainable recovery, the EU must overcome the divisions that have plagued it over the course of the pandemic and draw from its strength in diversity. This is of course easier said than done. The pandemic has affected all parts of the Union in wildly different ways, with each industry facing a disparate set of challenges.

However, there are common factors to the economic approaches adopted by those regions which have handled the crisis best. These reside in harnessing the economies of scale made available by the integrated Single Market.

This was perfectly exemplified by the recent ‘European Entrepreneurial Region Awards’, conferred by the European Committee of the Regions. The awards are bestowed on regions deemed to have demonstrated outstanding entrepreneurial foresight and an intelligent growth strategy.

The 2021-2022 edition was centred around the theme of "Entrepreneurship for a Sustainable Recovery". This year’s winning regions were said to have shown the capacity to seize the Covid crisis as a window of opportunity to reset the course of their economic development.

The awards highlighted how the pandemic caused small & medium sized enterprises to rethink their business models and reconsider the resilience of their supply chains.

The regions recognised varied widely in their economic profiles - but all successful regions were characterised by a spirit of enterprise and an effort to find synergies between different sectors.

The affluent French Provence-Alpes-Côte d'Azur was lauded for embedding its SME-strategy into a broader regional development plan which aims at reinforcing the region's "Entrepreneurial-DNA" around a model of sustainable economic recovery.

The region has been hit hard by the current slack in tourism and it expects to be highly impacted by climate change. In this challenging context, regional authorities have sought to reinvent local economic cycles and to further capitalise on its strong regional integration, vibrant start-up ecosystem and high-tech SMEs.

Contrastingly, the Silesian region of Poland - also recognised - has operated as a major hub for mining and metalwork since the 19th century.

However, structural reforms and the intelligent allocation of European funds have initiated a profound modernisation of its various industries and enabled the development of a knowledge-based economy centred around strong interlinkages between universities, research & development centres, and SMEs. This is the Single Market at its best.

These are the kind of integrative approaches capable of elevating SMEs into successful multinationals in the long-term. Many successful case studies have emerged across the EU since the 2004 advent of the Societas Europaea (SE), introduced to enable companies to more easily transfer to or merge with companies in other EU Member States.

As of April 2018, more than 3,000 companies had registered for SE status, making up 18 percent of the Euro Stoxx 50 stock market index of leading eurozone companies. These have included household names such as Airbus, Allianz, BASF, E.ON, Fresenius, LVMH Moët Hennessy Louis Vuitton (and its parent company Dior), SAP, Schneider Electric and Unibail-Rodamco-Westfield.

“In planning for a sustainable recovery, the EU must overcome the divisions that have plagued it over the course of the pandemic and draw from its strength in diversity”

But growing an SME into a European multi-national is not just the preserve of the more glamorous tertiary sector. There are many examples of primary sector and manufacturing firms that have managed the feat in recent years.

One such example is Kronospan, a company whose roots in the lumber industry date back to the late 19th century. Under Kronospan’s owner and CEO Peter Kaindl, the company has harnessed the potential of the integrated Single Market to both consolidate its strength in its native industry while diversifying itself beyond the primary sector.

As European integration began to take shape, Peter Kaindl pushed Kronospan towards owning dozens of wood-based panel manufacturing sites across what was to become the EU, including Latvia, Poland, Czech Republic, Slovakia, Bulgaria, Romania, Serbia, Croatia, and Hungary.

His hands-on approach enabled him to expand Kronospan’s small Austrian and Western European base of his father’s tenure into an international conglomerate with manufacturing centres across Europe - as well as plants and branches in the US - with billions of euros in annual revenue. Peter Kaindl also expanded Kronospan beyond its original core lumber products business into banking and investments, overseeing the purchase ECCM Bank PLC in Malta. Kronospan’s world-wide sales now exceed €4.5bn per year, while it employs more than 11,000 people.

Not every SME in the EU can be expected to achieve such dizzying heights, but it is nevertheless important to have the policies in place to make it a possibility. This is what makes it important to recognise innovative entrepreneurial strategies across different regions of the Union, irrespective of their size, wealth, and competences.

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