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Irene Mandl
Europe is recovering from the most severe economic crisis experienced since World War II, which for most Member States resulted in considerable reductions in economic activity and important increases in unemployment. In order to tackle the challenges related to the effects of the downturn, but also to face more general and long-term trends such as globalisation, demographic trends or environmental developments, the European Union and its Member States launched a strategy of ‘growing to a sustainable and job-rich future’ (European Commission, 2012). The strategy aims at creating a business, labour market and social environment that is conducive to ‘smart, sustainable and inclusive growth’ (European Commission, 2012), which also refers to job creation.
In this context, it has been acknowledged that small and medium-sized enterprises (SMEs), that is companies with fewer than 250 employees, not only provide about two thirds of private sector employment in the EU, but have created around 85 percent of the new jobs in the aftermath of the recession.1 However, bearing in mind the large number of SMEs in Europe and the resulting heterogeneity among them, it becomes obvious that not all SMEs are equally dynamic job creators (Eurofound, 2016; European Commission, 2015) – and some of them do not even intend to grow in terms of employment at all.
In spite of the fact that the topic of growth and job creation ranks rather high on the political and academic agendas, surprisingly little research has been conducted so far to explore the characteristics of companies which contribute more to employment growth than their counterparts. Similarly, limited attention has been paid up to now to the framework conditions that need to be in place to constitute an environment conducive to job creation.
Nevertheless, two issues which are repeatedly addressed in discussions on dynamic job creators are the company age and market orientation. Thereby, it is widely acknowledged that young firms as well as those active internationally show better employment development. However, these two characteristics are rarely discussed jointly.
Traditional entrepreneurship theory establishes that firms start-up locally, orientate themselves at the regional or national market, and only after settling well there, consider international activities. Nevertheless, for about the last two decades, academia has been exploring the business model of enterprises which, shortly after their inception, engage intensively in global markets (for example, Taylor and Jack, 2013; Cavusgil and Knight, 2009; Madsen et al., 2000). These companies are discussed under a variety of names, with ‘born globals’ and ‘international new ventures’ probably being the most common (Eurofound, 2012).
Hence, while this type of enterprises enjoys increasing attention among research, policy interest is only slowly picking up in Europe. One reason for this could be that the potential these firms have as regards their contribution to economic development and innovation is not well known. Discussions on the employment effects of born globals are even more scarce – and this not only among policy, but also from a research perspective.
This book aims to contribute to closing this knowledge gap by providing a range of views from different EU Member States exploring job creation in born globals and related employment aspects. The contributions shed light on the motivations and processes of hiring in such young international businesses, but also discuss the main challenges these enterprises are confronted with in their growth endeavour, in order to discover how they could be (better) publicly supported for the European labour markets to benefit from their employment potential.
The first part of the book focuses on the European level. Chapter 2 provides an overview on the relevance of SMEs in Europe and explores their employment contribution in recent years. It also discusses the main characteristics of SMEs that have a higher job creation potential than others, as well as company-external aspects that need to be in place to make employment growth happen in SMEs.
Chapter 3 introduces the business model of ‘born globals’ by summarising their main characteristics and highlighting their contribution to the European economy and the labour market. This is followed by a more specific discussion on the drivers and constraints for job creation by born globals, as well as by an overview of the processes followed by these companies when hiring staff.
The second part of the book provides some national perspectives. Chapter 4 illustrates the prevalence of born globals in Sweden, their employment contribution and growth ambitions. Similar information is explored in Chapter 5 on Austria, which also discusses born globals’ recruitment practices, barriers encountered and external support required while hiring. Chapter 6 analyses the sustainability and employment development of Estonian born globals, including some indications of job quality in these firms. In Chapter 7, the example of an Irish cluster explores the interrelationships between local companies, large multinational enterprises and born globals, and the resulting effects on innovation activities and employment growth in the region. Chapter 8 illustrates the relevance of knowledge sharing practices within Spanish born globals and their effects on employment development.
The book concludes, in Chapter 9, with a comparative analysis of the individual contributions, and also provides some policy pointers derived from the research.
Note
1https://ec.europa.eu/growth/smes_en.
References
Cavusgil, S. T. and Knight, G. A. (2009), Born global firms: A new international enterprise, Business Expert Press, New York.
Eurofound (2012), Born global: The potential of job creation in new international businesses, Publications Office of the European Union, Luxembourg.
Eurofound (2016), ERM annual report 2015: Job creation in SMEs, Publications Office of the European Union, Luxembourg.
European Commission (2012), Europe 2020: Europe’s growth strategy, European Commission, Brussels.
European Commission (2015), Annual report on European SMEs 2014–2015: SMEs start hiring again, Publications Office of the European Union, Luxembourg.
Madsen, T. K., Rasmussen, E. and Servais, P. (2000), ‘Differences and similarities between born globals and other types of exporters’, in Yaprak, A. and Tutek, H. (eds), Advances in International Marketing, Vol. 10, Emerald, Bingley, pp. 247–265.
Taylor, M. and Jack, R. (2013), ‘Understanding the pace, scale and pattern of firm internationalization: An extension of the “born global” concept’, International Small Business Journal, Vol. 31, No. 6, pp. 701–721.
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2SMEs and job creation in Europe
Irene Mandl
2.1 Introduction
The European economy is characterised by a dominance of small and medium-sized enterprises (SMEs), that is companies employing fewer than 250 staff (European Commission, 2003). SMEs constitute over 99 per cent of European business and are increasingly recognised as a job engine for Europe, being responsible for a large share of employment and job creation. Nonetheless, given the heterogeneity of the SME population, not all of them contribute equally to employment growth. Several company external and internal elements influence the job creation behaviour of SMEs. This chapter discusses the economic and labour market contribution of European SMEs (Section 2.2), the individual determinants of their employment growth (Section 2.3), and concludes with a ‘Profile of the job creating SME’ (Section 2.4).
2.2 Economic and labour market contribution of European SMEs
In 2015, the about 23 million SMEs in the non-financial business sector in the EU represented 99.8 per cent of all enterprises (Muller et al., 2016). On average, there were 4.5 SMEs per 100 inhabitants in the EU28. However, the density of SMEs shows some heterogeneity across Member States: while there were 9.4 SMEs per 100 inhabitants in the Czech Republic and between 7 and 8 in Sweden, Slovakia and Portugal, SME density was lower than 3 per 100 inhabitants in the UK, Germany and Romania.
The vast majority of SMEs (92.8 per cent) are micro enterprises (fewer than 10 employees) (Muller et al., 2016). Small (10–49 employees), medium-sized (50–249 staff) and large firms are much less widespread in the EU28 (6 per cent, 1 per cent and 0.2 per cent respectively). SMEs generated €3.9 trillion of value added, accounting for 57.4 per cent of the respective EU value in 2015.
With about 90 million people, SMEs were responsible for 66.8 per cent of the employment in the EU in 2015 (Muller et al., 2016). Micro enterprises offered 30 per cent of the jobs, small firms accounted for 20 per cent of employment and medium-sized firms provided 17 per cent of employment in the EU28. On average, an EU SME employs about four staff members. See Figure 2.1.
Since 2013, the SME sector in the EU28 shows a moderate, but steady recovery from the global economic and financial crisis. In 2014, SME employment grew by 1.1 per cent compared to the previous year, and in 2015 an employment growth of 1.5 per cent was observed (Muller et al., 2016). In 2015, micro enterprises were responsible for more than half of the employment growth within the SME population, and for 37 per cent of overall employment growth. Muller et al. (2016) identify that the recovery was mainly driven by exports, highlighting the potential of economic and labour market contribution by born globals (which are found to be micro enterprises, see Chapter 3). This importance of born globals is supported by available data showing that in 2013 only 1.2 million of the EU SMEs conducted exports (Muller et al., 2016) and the SMEs’ share of total imports was limited to 20–50 per cent across the EU Member States (OECD, 2015).
Furthermore, some heterogeneity regarding job creation dynamism across sectors can be observed. A few sectors, such as advertising and market research, legal and accounting services, office administration and support and other business services, services to buildings, landscaping and employment activities show an employment growth of more than 5 per cent in 2014 and 2015 (Muller et al., 2016). However, these sectors are accountable for a limited share of total employment. Larger sectors (for example retail or wholesale trade and construction) realised a more moderate employment growth.
An analysis of the development patterns of job characteristics in SMEs during the crisis shows an overall trend towards job polarisation – which is in line with the general economic development during this period (Eurofound, 2014). The only sizeable job creation could be observed in workplaces with 11–49 employees, related to the lowest paid job category. While establishments with 11–19 employees realised a net creation mainly for part-time jobs, those with 20–49 employees are also characterised by a net increase in full-time jobs in the lowest paid job segment. After the crisis (2011–2013), workplaces with up to ten employees continued to suffer net job destruction, notably in the lower-paid jobs. In contrast to that, workplaces with 20–49 employees showed a more positive trend, with net job creation realised particularly ...
