University of Athens Centre of Financial Studies SME vs large companies (looking into the crystal ball) CROSSING BORDERS Venturing into the European Research Area Six countries programme, Eisenstadt, 30 Oct Prof. L. J.Tsipouri

Historic evidence Reemergence of the small firm sector in the 80s after a long period of relative decline Reemergence related to technology, firm strategy and (sometimes) cyclical effects Reemergence reinforced by policy support measures (sometimes effective, others not) Will this trend continue? Be amplified? Or reverse?

There are not only economic but also political, psychological and social considerations in favour of SME development. The effort here is to discuss economics only!

Targets and measurement How do we measure convergence/divergence? (share of total employment, profits, radical innovations) Do we want the number of SMEs to grow? Do we want their average size or profitability to grow? Do we want them to become more innovative relatively to big companies?

What are SMEs? Limited resources Owner/management structures No influence on their environment

Theoretical assumptions Facts and policiesAnticipated ERA effect The majority of SMEs does not explicitly target growth (or innovation as indicated by CIS-3) No influence To change SME behaviour one needs to amplify messages (A.O. Hirschman) Major influence: the challenge is to foresee in which direction and to what extent/comply with targets

Which changes will the ERA bring (or at least we hope it will) More R&D financial resources More and more mobile human capital More effective R&D Shift towards innovation support (plus open coordination effects) More transeuropean networking (R&D, large infrastructure) All this leads to more competition?

Types of SMEs Employment (employees) Turnover (less than in MEuros) MicrofirmsLess than 10 Small firms Medium sized firms

Big companies and SMEs GrowthM&ADemer gers Stagnat ion Bankru ptcy High Tech NTBF1NTBF2NTBF3NTBF4 Mediu m M1M2M3M4 LowL1L2L3L4 Big firms B1B2B3B4B5

SME needs unlikely to be covered by the ERA Amplification of messages for the low and medium tech range Increasing entrepreneurship Changes in corporate governance

SME needs likely to be covered by the ERA Human capital/labour market Access to infrastructure Networking IPRs (?) All aspects addressed to already sensitive SMEs

The most probable scenario: the ERA will reinforce vibrations in the market but it is unlikely by itself alone to affect the overall balance of SMEs/big companies. It is very likely though it will reinforce NTBFs