Explanatory Memorandum to COM(2011)834 - Programme for the Competitiveness of Enterprises and small and medium-sized enterprises (2014 - 2020)

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Grounds for the proposal

Enterprises, particularly Small and Medium-sized Enterprises (SMEs), are an important contributor to growth and employment in the Union. If the Union is to deliver its Europe 2020 priorities of smart, sustainable and inclusive growth, competitiveness needs to be centre stage.

While regulatory means are at the Union's disposal, including smart legislation and cutting red tape for Union enterprises, some market failures can be addressed effectively via public funding at EU level.

This is already happening. The Competitiveness and Innovation Framework Programme (CIP) provides funding for relevant action. The need to continue and develop such financial support was recognised in the Commission Communication “A budget for Europe 2020”[1]. Now the Commission has proposed a 'Programme for the Competitiveness of Enterprises and SMEs' (COSME) with a total allocation of € 2.5 billion for the period 2014-2020.


General context

Union enterprises face the challenge of being competitive on a global scale. However, they are hindered by market failures that undermine their capacity to compete with counterparts in other parts of the world. As a result, EU SMEs show lower labour and resource productivity and grow more slowly than their counterparts in the United States, for example, and they are less able to adapt successfully to changing framework conditions than larger enterprises in Europe. The difficulties SMEs face have been aggravated by the recent economic and financial crisis and commodity and resource price increases.

While actions to tackle these market failures are primarily the responsibility of the Member States and regions, in some areas there is the clear potential for EU added value. For instance, the Union can assist by strengthening the Single Market, supporting coherence and consistency in national measures, achieving catalytic effects of best practice dissemination, or achieving economies of scale. Beyond guaranteeing the smooth functioning of the Single Market, the EU has a role in improving the business environment to ensure strong, diversified EU enterprises, and SMEs capable of competing on a global scale, while adapting to a low-carbon, resource-efficient economy.

This Programme is being proposed as a means of addressing key market failures that limit the growth of enterprises, particularly SMEs, in the Union. As regards competitiveness and entrepreneurship, the main challenges that Union enterprises continue to face are:

– difficulties in accessing finance for SMEs which struggle to demonstrate their credit-worthiness and find it hard to gain access to risk capital;

– weak entrepreneurial spirit -- only 45% of European citizens would like to be self-employed compared to 55% e.g. in the United States;

– a business environment not conducive to start-ups and growth, characterised by persistent regulatory fragmentation and too much red tape;

– limited capacity of SMEs to adapt to a low-carbon, climate-resilient, energy and resource-efficient economy due to limited financial means and limited expertise;

– limited capacity of SMEs to expand to markets beyond their home country, both within the Single Market and beyond.

These difficulties mean that not enough enterprises are created, and those that are launched are often not viable, or perform poorly in terms of productivity and viability of newly created enterprises. On a macro level, we are witnessing an erosion of the EU economy's competitive edge.

In line with the Europe 2020 strategy, the Programme is designed to create the conditions for European enterprises to flourish and to ensure that SMEs are able to take full advantage of the Single Market's enormous potential, as well as encouraging them to look beyond it. There needs to be a special effort to promote the development of SMEs, a major source of economic growth and job creation in the Union, accounting for more than 67 % of private sector jobs and providing more than 58 % of total turnover in the EU.

Particular attention will be given to improve the competitiveness of enterprises in the tourism sector to implement the new competencies of the Union provided for in the Lisbon Treaty, the reason being the significant contribution of this sector to the Union’s GDP and the high proportion of SMEs active in this sector.


Objectives of the proposal

The Programme aims to achieve the following general objectives:

· strengthen the competitiveness and sustainability of the Union’s enterprises, including in the tourism sector;

· encourage an entrepreneurial culture and promote the creation and growth of SMEs.

Activities funded through the Programme will aim to:

· Improve the framework conditions to make for the competitiveness and sustainability of Union enterprises including in the tourism sector by supporting coherence and consistency in implementation as well as informed policy-making at Union level. The economic and regulatory environment can be improved through benchmarking, the exchange of best practices and sectoral initiatives. SME policy will be developed and SME competitiveness promoted in line with the goals of the Small Business Act (SBA) and the Europe 2020 strategy. Union actions will include reinforcing the use of the “Think Small First” principle in Union and Member State policy-making, identifying and exchanging best practices to contribute to implementing the SBA, and supporting SMEs in making the most of the Single Market's potential. Business sectors, including manufacturing and services, and selected sectors in which there are a high proportion of SMEs will be strengthened.

· Promoting entrepreneurship, including among specific target groups: Activities will include simplifying administrative procedures, developing entrepreneurial skills and attitudes, especially among new entrepreneurs, young people and women, and promoting second chances for entrepreneurs.

· Improving access to finance for SMEs in the form of equity and debt: Financial instruments for growth, including new equity and debt platforms to provide equity facility and loan guarantees, will enable SMEs to access funding more easily. First, an equity facility for growth-phase investment will provide SMEs with commercially-oriented reimbursable equity financing primarily in the form of venture capital through financial intermediaries. Second, a loan facility will provide SMEs with direct or other risk-sharing arrangements with financial intermediaries to cover loans.

· Improving access to markets inside the Union and globally: Growth-oriented business support services will be provided via the Enterprise Europe Network to facilitate expansion in the Single Market and beyond. This Programme will also provide SME business support in markets outside the Union. There will also be support for international industrial cooperation, particularly to reduce differences in regulatory and business environments between the EU and its main trading partners.


EU added value

The additional value for action at the Union level relies on the following five main sources:

· strengthening the Single Market, by overcoming market fragmentation in areas such as venture capital investment, cross-border lending and credit enhancement as well as informational and organizational constraints which prevent SMEs from taking advantage of the opportunities that the Single Market offers. For instance, the main purpose of the financial instruments will be to improve access to finance to SMEs in a market segment which is not covered by Member States’ measures, which are restricted to investments and support within each country. The focus will be on financing expansion of growth-oriented enterprises that are aiming at international expansion, cross-border activities and to develop a cross-border SME finance market. Only a programme at Union level can fulfil this role.

· demonstration and catalytic effects through the dissemination of industrial and policy best practices. Under the current programme, the best examples in promoting entrepreneurship and SMEs at national, regional and local level can be selected for the European Enterprise Awards competition. The Awards are aimed at rewarding the best measures taken by public authorities for example in the fields of simplification and reduction of administrative burden. Every year around 400 projects have competed in the national competitions and around 56 are selected by their countries to participate in the European Competition where the European jury selects six winners. From the 250 national nominees, more than 30 have won an award and been showcased across Europe as a best practice. Transferring skills and knowledge across frontiers contributes to align Member States' policies, create new partnerships and reduce the gap between European economies. European national and local administrations have the possibility to present their successful initiatives at the SBA Conference, organised every year by the Commission and the Union Presidency. The Conference has become the key event for promoting the exchange of good practices in the Union and beyond. For example, the latest SBA Conference in Budapest attracted 340 participants from EU Member States and from 30 non-Member States. 28 good practices were presented in the work-shops. As regards financial instruments, the role of the EIF facilitates constant exchange of best practices in the areas of both guarantees and venture capital, while the catalytic effect is acknowledged to be particularly high for venture capital.

· economies of scale in areas where it would be difficult for individual Member States to achieve the required critical mass. For instance, in the field of support to SMEs abroad, European added value is created by the bundling of national efforts and, by establishing services that would lack critical mass if provided at national level (for example, through support to IPR enforcement). The China IPR SMEs Helpdesk, funded by the current programme, offers advice which would be otherwise unavailable to SMEs from smaller Member States.[2] Otherwise, Union intervention can contribute to avoid duplication of effort, promote cooperation between Member States and coordination with relevant non-Member States. In the case of tourism, there is clear added value in taking initiative at the Union-level especially in the following areas: the consolidation of the knowledge base by the means of pan-European surveys and studies to better understand the demand and the supply side, without which data comparability and consistency across the Union would not be achieved; the development of joint transnational promotion strategies of Europe as home to high quality and sustainable tourist destinations; the identification of best practices that can benefit specific sectors, such as maritime and coastal tourism; as well as the extension of the tourism season, which could be done better with exchanges between different Member States than by each country individually.

· coherence and consistency in national measures through the exchange of best practices at European level and benchmarking. One of the best examples for the success of benchmarking exercises financed under the current programme is the action for simplification of start-up procedures. Since 2008, the situation and progress country-by-country and year-by-year has been monitored taking into account three aspects of simplification (in respect of which a benchmarking exercise was mandated by the Competitiveness Council): average time, administrative costs and procedures to start-up a limited company. The action consisted of semi-annual expert meetings ("the network of National Start-up Co-ordinators") nominated by Member States. Its purpose was to develop a measurement methodology, track progress and support this progress with the exchange of good practices and information. Since 2002 registration times have dropped by 70% and costs have more than halved. Following the success of this measure, targets have been reviewed by the February 2011 Review of the Small Business Act (SBA).

· the unique expertise acquired by EU institutions:

– This is the case of the EU financial institutions, the European Investment Bank (EIB) and the European Investment Fund (EIF), whose experience in designing and implementing SME-friendly financing schemes is unparalleled. The experience gained by the EIF over more than 10 years constitutes a uniquely valuable asset. It has acted since 2007 as an investor in 19 CIP-supported venture capital funds, often in a cornerstone role, leveraging over €1.4 billion of total investment in growth-oriented SMEs. As regards historical performance, under the first generation of EU venture capital (the ETF Start-up Facility under the Growth & Employment Initiative from 1998-2000) over 98% of the money invested has already been, or should ultimately be, paid back from beneficiaries, including Skype (voice-over IP telephony), Vertaris (paper recycling) and Solaire Direct (Photovoltaic structures).

– The Enterprise Europe Network has achieved tangible results by putting emphasis on promoting the internationalisation of SMEs (in the Internal Market and beyond) through providing information on Union matters as well as the possibility to feed into the decision making process. Its role is especially important in overcoming information asymmetries faced by SMEs and alleviating transaction costs associated with cross-border activities. The value of the Enterprise Europe Network is constituted by the shared methodologies, instruments and tools used, qualified service providers mandated and (co-) financed by their regional / national authorities.


Coherence with other policies and programmes

It is essential that the specific interests and circumstances of SMEs are taken into account in the design of all Union policies and funding programmes. The future financial framework will be designed to facilitate the participation of small enterprises in funding programmes, by simplifying rules, reducing the costs of participation, accelerating award procedures and providing a “one-stop shop” to make life easier for beneficiaries of Union funding.

Due to its importance for the achievement of the Europe 2020 goals, the improvement of the business environment for SMEs is mentioned in six out of seven Europe 2020 flagship initiatives: An Industrial policy for the Globalisation Era, Innovation Union, Youth on the Move, A Digital Agenda for Europe, Resource Efficient Europe, An Agenda for new Skills and Jobs. Of particular relevance for the new Programme is the flagship initiative “An industrial policy for the globalization era” which outlined a new strategic approach, addressing European competitiveness as well as the creation and growth of small and medium-sized enterprises and the promotion of an entrepreneurial culture.

The proposed new Programme will also provide a tool which can serve other policy objectives. The Enterprise Europe Network will provide a vehicle for links with other programmes and initiatives, in terms of “top-down” diffusion of information, promoting them, as well as “bottom-up” collection of feedback from stakeholders. It will continue to provide information, advice and support to SMEs on environmental programmes and compliance. Synergies with other programmes will be maximised. For example, the guarantee activities proposed in the new Programme will operate alongside guarantee activities funded under the Union Structural Funds and the Progress Microfinance Facility. The Venture Capital instruments will complement the ones provided under Horizon 2020 - the new Framework Programme for Research and Innovation. The Programme will also avoid overlaps with other programmes, in particular in the areas of entrepreneurship promotion and skills. Careful consideration will also be given to the complementarity of the new Programme with the proposed Partnership Instrument. It will be essential that the external action of the Union be complementary to the external dimension of the internal agenda of securing sustainable growth and jobs in Europe.


Management of the Programme

As announced in the Commission Communication 'A budget for Europe 2020', management will be largely outsourced.

– The financial instruments will be operated by the European Investment Bank Group on behalf of the Commission;

– Other actions may be managed by an executive agency, building on the positive experience with the Executive Agency for Competitiveness and Innovation (EACI) in the current multi-annual financial framework. A cost-benefit analysis will be carried out.

Outsourcing for the CIP has proved especially successful with regard to simplification, as the EACI, as a result of its specialisation, has streamlined and developed procedures adapted to SMEs.

SME-related parts of other future spending programmes might also be externalised to the EACI. They may include parts of Horizon 2020, making that agency a “one-stop-shop” for SMEs willing to access Union funding programmes. The use of one executive agency would also lead to a streamlined use of IT tools and electronic portals, thus further contributing to easier access for SMEs.



A priority for the Commission in this Programme, as in other programmes within the context of the Multiannual Financial Framework (MFF), is to simplify the regulatory environment and facilitate access to funds for EU enterprises, particularly SMEs, as far as possible. This approach is applied in the Competitiveness and SME Programme (COSME) by basing it solely on the rules of the Financial Regulation, without any derogation. This provides for simple, coherent and standardised administrative procedures for enterprises to access funds.

The revision of the Financial Regulation will help to make it easier for small enterprises to take part in funding programmes, for example by simplifying rules, reducing the costs of participation, accelerating award procedures and providing a 'one-stop shop'" to make access to Union funding easier. A new system of lump sums is proposed.

These features meet the needs stakeholders expressed in the public consultation on the future of the Competitiveness and Innovation Framework Programme (CIP):

· simplify administrative procedures and the procedures of the Enterprise Europe Network, through simplifying the preparation of proposals

· make more use of lump sums, flat rates

· drop the requirement to name staff employed on a project

· simplify administrative documents to be submitted for contracts

· drop the need for private beneficiaries to provide bank guarantees.

The Programme will respond to these suggestions by making maximum use of the new Financial Regulation, and will make a point of further simplifying reporting requirements, that will include more extensive use of online reporting. Furthermore, to allow for an improved access to funding for SMEs, the rules for participation and eligibility of all future Union funding programmes will be aligned to the greatest extent possible.

Financial instruments as such are simple to use for enterprises as they address their bank or venture capital fund with an ordinary financing request and not with a project proposal as for grant finance. As regards the financial instruments to be implemented by the European Investment Fund (EIF) or other appropriate financial institutions, the Commission proposal for the equity and debt platforms and the revised Financial Regulation will govern the financial instruments’ administrative requirements. The rules will be simplified to the greatest extent possible, to strike a balance between reporting obligations on intermediaries and beneficiaries on the one hand, and sound financial management, including audit requirements, on the other.

In addition, the simplified procedures developed by the EACI will be taken over by the Commission for similar types of projects. Best practices will be shared as regards, for example, simplifications the Agency introduced in grant agreements, contracts and procedures. Further simplification might include more flexible implementation modalities for grant agreements to avoid the need for amendments at a later stage.




Consultation with interested parties

The CIP will come to an end on 31 December 2013. In the context of the impact assessment process for a successor programme, the Commission organised a public consultation, addressing a wide audience, including public and private organisations and individuals, consisting of four steps:

– an online survey (including a specific survey on financial instruments[7]), that ran from 8 November 2010 to 11 February 2011;

– a public conference on 25 January 2011;

– meetings with representatives of Member States in the Entrepreneurship and Innovation Programme (EIP) Committee and in the Joint Meeting of the CIP Committees;

– a meeting of the CIP Strategic Advisory Board on 2 February 2011.

The consultation confirmed that many parts of the current programme are working well, and that there is wide support for maintaining a Union programme to support SMEs and create a favourable business environment. Issues concerning access to finance for SMEs were also discussed at meetings of the SME Finance Forum held in September 2010 and March 2011.


Evaluation of the current programme

Under the current CIP, evaluations are carried out both at the level of specific programmes and at the level of the framework programme. Most actions of the proposed Programme are a continuation of actions under the Entrepreneurship and Innovation Programme under the CIP.

The main findings of the EIP evaluations are summarised below.


Interim evaluation

The EIP interim evaluation[8] assessed the initial outcomes of the EIP, with a focus on the setting up of the Enterprise Europe Network and the impacts of the financial instruments funded under the EIP and its predecessor programme. The evaluation confirmed that the objectives of EIP had efficiently addressed the most important barriers and constraints facing European SMEs, such as regulatory and administrative burdens and limited access to finance. The financial instruments supported by EIP are needed because of market failure, addressing the financing constraints that start-up and growing SMEs face across the Union. EIP financial instruments were seen as an innovative approach to addressing market failures in SME financing.

Recommendations for further improvements included:

· developing a standard set of monitoring indicators to record and report programme progress;

· improving the Enterprise Europe Network's feedback function;

· simplifying the structure of the EIP to improve links between individual actions and global EIP objectives.


Final evaluation

The EIP final evaluation[9] assessed the relevance, efficiency, effectiveness, information and awareness, utility and sustainability of the programme, with a specific focus on its main components: financial instruments, Enterprise Europe Network, and innovation. The evaluation entailed extensive consultation of stakeholders and beneficiaries through surveys and interviews.

The findings of the evaluation have been encouraging. The EIP was seen as being on track to achieve the anticipated impacts, addressing the needs, problems and issues it was designed for and doing so in a particularly efficient way at European level.

Its objectives were seen as highly relevant to enterprise needs and in line with the Europe 2020 goals. The programme was evaluated as benefiting end-users, in particular SMEs, in an effective way. The EIP measures, particularly the financial instruments, were found to have effectively created conditions for real replication in the market.

The following recommendations were made on how to further improve the implementation of the EIP:

· develop a systematic management process for pursuing cross-cutting objectives within the programme and linking the high-level objectives to single financed actions and measures,

· make links with other elements of Enterprise policy more explicit, eg with references to the priorities of the Small Business Act or relevant Europe 2020 Flagship Initiatives.

· develop the monitoring system and indicators, which, while a valuable contribution in assessing the performance of the programme, still need fine-tuning.

There is already more focus on performance measurement and on performance indicators in the current programme and this will have a prominent place in the new Programme. The latter will take into account the above recommendations, in particular by strengthening the intervention logic of the Programme, linking it more closely to the strategic priorities of the Union.


Impact assessment

An impact assessment covering the instruments of the Programme was carried out and it accompanies this Commission proposal. The impact assessment considered four options:

– Option 1, Business-as-Usual, would cover the same competitiveness- and SME-related elements as the EIP is expected to cover in 2013.

– Option 2 would discontinue all current financial interventions.

– Option 3b would maintain the current scope of intervention with a balanced budgetary expansion.

– Option 3c would mean a focused budgetary expansion, with financial support restricted to the financial instruments and the Enterprise Europe Network.

The impact assessment has concluded that modest budgetary expansion is the preferred option, as it would provide a balanced approach in terms of supporting efficiency gains, critical mass, coherence and effectiveness, and tackling market and regulatory failures.

Following the opinion of the Impact Assessment Board, the report was improved as follows:

– evaluation findings and stakeholders' views were better detailed in the text;

– social impacts were assessed to a greater extent;

– policy coherence and coherence with other EU programmes was further assessed and explained in the report.




Legal basis

The proposal is based on Article 173 and Article 195 of the Treaty on the Functioning of the European Union.

It contains the following provisions:

– Article 1 establishes the Programme;

– Article 2 defines the overall objectives and Article 3 the specific objectives;

– Article 4 describes the Programme's budget;

– Article 5 concerns the participation of third countries;

– Articles 6, 7, 8 and 9 describe the Programme's fields of actions;

– Article 10 defines the annual work Programme for implementation;

– Article 11 defines the scope for support measures to be undertaken by the Commission;

– Article 12 describes provisions for monitoring and evaluation;

– Article 13 describes the forms of financial assistance;

– Article 14 provides information about the implementation of the financial instruments;

– Article 15 describes provisions for the protection of the Union's financial interests;

– Article 16 sets out provisions on the committee;

– Articles 17, 18 and 19 describe delegating acts, the exercise of the delegation and provisions for the urgency procedure;

– Article 20 sets the date for the entry into force of this Regulation.


Subsidiarity and proportionality principles

The proposed EU intervention is in line with the Lisbon Treaty, as it will specifically target policy failures such as the lack of coordination and effective networking and market failures such as information asymmetries which can only be tackled at EU level. Setting out a coordinated and consolidated policy is seen as being very valuable in bringing key stakeholders together, sharing knowledge, ideas and concerns, and in helping to raise awareness within and across governments and in the wider community.

None of the measures considered under the future Programme calls for EU-level measures to replace national initiatives, or binding decisions at EU level. EU intervention is designed to make national measures work better, by giving an EU dimension to them, by better coordination and the removal of cross-border obstacles to cooperation either by private actors or public authorities. Cooperation of national and regional actors and structures is encouraged by means of “horizontal” networking rather than “vertical” centralisation.

EU action has to be proportional, in other words, efforts and means deployed have to be fully justified by the goals. In this respect, given the challenges the EU economy faces, the size and scale of EU action is expected to generate positive impacts across Europe through crowding-in and multiplier effects. Because of budgetary constraints, the proposed EU-level measures have been carefully selected to demonstrate EU added value.

Based on the above analysis, it can be concluded that the proposed EU-level intervention to promote entrepreneurship and competitiveness is fully justified, especially taking into account SMEs' needs.



The financial appropriations for implementing the Programme for the period from 1 January 2014 to 31 December 2020 shall amount to EUR 2.522 billion.[10]