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Focus on Chemical Industry SMEs
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November 1995
CONTENTS
See also the introductory speech to the CEFIC-DG III Workshop on SMEs : Role and place of SMEs in the chemical industry - Umberto Rosa, C.E.O. SNIA BPD - 27 September 1996
EXECUTIVE SUMMARY
The chemical industry is a major contributor to employment, technology and wealth-creation in Europe. Small and medium-sized enterprises (SMEs) account for a significant share of its turnover and employment and are an essential factor in its dynamism and entrepreneurship.
Indeed, due to their size and organization, SMEs are particularly responsive to the changing economic climate and evolving technologies. They are therefore a source of flexibility and key elements in industrial clusters.
Effective as they are in their technological watch, SMEs in the chemical industry actively participate in the development of new products and processes. More than in any other industrial branch, in-house innovation is increasingly vital for them amid ever fiercer international competition. By embodying innovation in the chemicals they manufacture, they widely contribute to its dissemination to industry as a whole.
SMEs in the chemical industry face many difficulties which are common with SMEs in other branches: burden and complexity of legislation, stifling administration, lack of management and marketing skills, uneasy access to long term finance and to relevant information sources. Their specificity lies in that they are excessively hindered by the disproportionate burden that environmental legislation imposes on them.
Given the key role of chemical industry SMEs with respect to employment and sectoral competitiveness, an action programme is called for to support their long-term growth and development in an increasingly challenging environment. CEFIC's major policy recommendations to public authorities are summarised below.
Policy recommendations to public authorities
Ensure that the European Single Market is duly completed as soon as possible:
Reduce bureaucracy and simplify the legislative framework:
Support innovation by SMEs and make sure that collaborative R&TD is more easily accessible to SMEs; foster linkages between SMEs and universities; encourage wider participation by SMEs in EU programmes supporting technology transfer
Promote negotiated agreements with voluntary participation, such as the Dutch covenants, as an effective alternative to legislation, especially in the field of environment
Enhance the accessibility to SMEs of third party validation of their management systems by adopting a common approach for all topics concerned (quality, health, safety, environment)
Make SMEs' access to long-term finance easier
Use new information technologies to reach more effectively the population of SMEs and provide them with relevant information on products, markets, processes, legislation, financial and managerial know-how, public funding, etc
Provide support to SMEs:
Lower thresholds in the Regulation on the control of concentrations, so that SMEs can also benefit from a "one-stop shop" merger control
Promote the development of industrial parks, with special attention to the efficient operation of SMEs, especially in the environmental field
Adjust the ceilings used for deciding on the eligibility of SMEs for EU funding: current ceilings exclude too many medium-sized companies in the chemical industry, as a result of the sector's high capital intensity
Raise the standards of education in science and technology and make sure that enough young people undertake such studies.
1. SMEs in the European chemical industry
Contrary to popular belief, small and medium-sized enterprises (SMEs) constitute a major component of the European chemical industry. Indeed, out of the total number of 33,000 chemical enterprises, 98% meet the current statistical definition of SMEs, that is enterprises with less than 500 employees. These account for 44% of turnover and 39% of employment. This means a turnover of around ECU 175 billion and nearly 800,000 jobs (1) The data cited refer to the European Union in 1990. They stem from Eurostat, Enterprises in Europe, 3d Report, 1994, where an enterprise is defined as the smallest legally autonomous unit. If SMEs are defined as enterprises with less than 250 employees - which seems to be the intention of DG XXIII - they represent 96% of the number of enterprises in the chemical industry, and 32% of turnover and 27% of employment.1) .
These figures illustrate that the chemical industry is made up of a mix of large, medium and small enterprises. Chemical industry SMEs play an important role in every European country. They are dominant in certain activities such as for instance paints, cosmetics, speciality chemicals, fine chemicals and raw materials for pharmaceuticals.
2. SMEs and competitiveness
SMEs too often suffer from insufficient management and marketing skills, and from inadequate financing. Due to their weaker bargaining power and to the higher risk involved for lenders, they are characterised by higher working capital requirements and by a greater proportion of short-term finance.
Another major hindrance to the growth and thriving of SMEs is the mushrooming legislative and administrative burden, especially in the field of environment. This is of particular relevance for SMEs in the chemical industry.
The progressive implementation of the European Single Market increases the competitive pressure on SMEs and raises the minimum size to stay competitive. This has brought about an acceleration of their development through investment, joint ventures, mergers and takeovers.
The growing globalisation of manufacturing and trade further increases the competitive pressure on SMEs and greatly affects their performance, by confronting them directly with low cost producers from emerging economies. Moreover, unlike larger companies, SMEs rarely have a global dimension and are therefore "trapped" in the cost structure of European economies, with limited possibilities of outsourcing or sub-contracting from low cost countries.
The development of a quality approach and the certification of corresponding quality assurance processes of chemical industry SMEs are essential competitive tools for countering threats from low cost extra-EU production. They are also of utmost importance in the SMEs' relationship with large companies and in their internationalisation process. Certification against international or EU standards is expected to become increasingly important in the near future in the field of environmental management as well.
For all the above cited reasons, SMEs need the implementation of a legislative and fiscal framework which is more appropriate to the features of small business, as well as public support, in order to face successfully the challenge of growing competition and globalisation. This support can take different forms, such as the provision of information on European and foreign markets, the facilitation of transboundary cooperation and business, legislation counselling, technical advice in the process of certification and in solving environmental problems, the development of industrial parks, etc.
3. SMEs and the internal market
SMEs are constituent parts of our market economies and essential players in maintaining a diversified and competitive market structure. They are sources of flexibility for larger businesses, both through capacity and speciality outsourcing.
However, it is widely recognised that their growth is stifled by excessive administrative burdens, by over-regulation and by the lack of completion of the European Single Market. In comparison with large businesses, SMEs find it not only more difficult to overcome those obstacles, but also more costly, as the fixed costs involved represent a higher share of cost prices. This not only reduces their profitability, but also impinges on their scope for investment, growth and job creation.
If SMEs are to thrive, it is therefore essential that bureaucracy be reduced, that the legislative framework be simplified and harmonised across Europe and that the European Single Market be completed as soon as possible. Cost-benefit analyses of both existing and new pieces of legislation should be carried out, with special reference to SMEs.
When this is feasible and does not distort competition, thresholds must be used in order to simplify the requirements or even if possible exempt SMEs from certain obligations, such as in the case of accounts or statistical reporting. Existing thresholds should be adjusted so as to dispense a larger number of smaller businesses.
SMEs still too often find it difficult to gain access to markets. More internal market is therefore a must in order to foster their expansion into new markets beyond national boundaries through trade, investment and co-operation. In relation to this, the following objectives should be considered as having priority: completion of monetary union, removal of remaining trade obstacles (as in the case of hazardous waste management), harmonisation of company taxation (in particular the suppression of double taxation) and design of the statutes of a European SME company.
4. SMEs and competition policy
It is paradoxical that large concentrations, falling within the scope of the Regulation on the control of concentrations, benefit from a simpler, one-channel notification system, while smaller operations have to be processed through several authorities. This might discourage chemical industry SMEs from taking full advantage of the potential of the internal market, despite the fact that chemical business is often transboundary by nature.
Current thresholds of the Regulation should therefore be lowered, so that SMEs can also benefit from a "one-stop shop" merger control, that is a single authority of the European Commission for approving mergers which affect the Common Market.
Should this request not be feasible in the short term, be it for political or for other reasons, policies and criteria applied by the Member States' competition authorities should be harmonised or at least be made compatible.
5. SMEs and the environment
Under Responsible Care, the European chemical industry is committed to seeking a continuous improvement of its environmental performance. The European chemical industry also supports the need for a harmonised and evenly enforced environmental legislation across Europe, which is not the case today. It believes at the same time that the current EU environmental framework is overly regulated.
Negotiated agreements with voluntary participation, such as the Dutch covenants, should be favoured as an alternative to legislation. Indeed, they not only offer more flexibility of implementation to individual companies, but are also thought to be ultimately more effective.
Due to their size and lack of managerial and financial resources, chemical industry SMEs are particularly vulnerable to the burden and complexities of current environmental legislation, which imposes disproportionate costs on them. Though they are confronted with the same difficulties as larger companies, they have insufficient human resources, skill and time available to deal with them. That is why environmental legislation needs to be simplified in line with the conclusions of the Molitor report.
However, simplification is not enough. SMEs need a different kind of public administration, which could behave not only as a "guardian" of the environment, but could also stimulate and promote industrial activity in a sustainable manner.
Goal-setting legislation, with targets determined by public authorities, must be preferred to regulations fixing ways and means by which these goals have to be attained. This would provide operators with more flexibility to choose the most cost-effective way of complying with legislation, which is of particular relevance to SMEs.
SMEs need assistance in getting access to the relevant information (e.g. complete BAT list, classification of dangerous goods and labelling), but also with the implementation of legislation as well as voluntary agreements. Solutions are to be sought in the efforts of regulators, in the support provided by chemical industry associations, and in the promotion of networking between SMEs and large companies, especially at local level.
Such networking is particularly important in the field of product stewardship, when SMEs are suppliers or customers to larger companies. In such cases, both parties share a common interest to look after health, safety and environmental issues.
6. SMEs and innovation, education, information
In the light of the current globalisation and the growing competition from emerging economies, flexibility remains an important asset. However, this is no longer sufficient to stay in the race. More intense internal innovation and R&TD have henceforth become major priorities for SMEs in the chemical industry.
Public financial support for collaborative R&TD at the European level is provided through a sequence of five-yearly Framework Programmes. Despite efforts by the EC to make these programmes user-friendly for SMEs, they still remain overly bureaucratic and time consuming in their management.
The chemical industry's SUSTECH programme has secured the participation of some SMEs, but efforts need to be strengthened to encourage an even wider participation. Linkages between SMEs and universities should be better developed to improve technology transfer and innovation.
In the field of training and education, special attention must be devoted to the specific needs and difficulties of SMEs. The latter are more vulnerable than larger companies in the face of the currently declining standards of education in science and technology across Europe, as they cannot afford to devote resources to in-house training. They are also more exposed to possible shortages of scientists and engineers in the chemical industry.
Information is still too often inadequately conveyed to SMEs, so that a large proportion of their population is ultimately not reached. A more extensive use of electronic communication and new information technologies should improve SMEs' access to relevant information on markets, products, processes, legislation, public funding, scientific, financial and managerial know-how, etc.
FOCUS ON CHEMICAL INDUSTRY SMEs
- DEVELOPMENT OF SELECTED TOPICS -
CONTENTS
SIMPLIFICATION OF ADMINISTRATIVE PROCEDURES
General remarks
The improvement of the business environment contitutes a responsibility of Governments and public administrations. This is particularly important for SMEs which suffer more than other businesses from administrative burdens and legislative requirements, stifling their innovation capacity and their growth.
The European Commission is involved in solving this important matter. It has produced two reports on administrative simplification in the Community. Henceforth, EC legislation should be developed in such a way that its impact on business is taken into account.
UNICE has set up a working group to study the simplification of procedures.
Proposals
Public administrations can foster the competitiveness of enterprises by reducing the amount of red tape. Less red tape means more certainty for investors, lower costs, less delays.
Administrative procedures which could be simplified should be identified on the basis of experience accumulated within the chemical industry.
CERTIFICATION TO INTERNATIONAL STANDARDS
The European Commission clearly stated the importance of a "Quality Promotion Policy" in its paper (DOC. CERTIF. 95.1 / 2.17.95) "A European Quality Promotion Policy or the Way of Europe towards Excellence", with a special focus on the competitiveness of SMEs.
The European chemical industry has long grasped the importance of quality assurance certification. It is in pole position in terms of number of companies certified (more than 3000 certifications in Europe, 30% from SMEs). Chemical industry SMEs are involved in this process but need assistance with certification, especially the smallest ones.
Quality Assurance Certification in chemical companies obviously means enhanced efficiency and quality in all chemicals consuming industries, i.e. the whole industrial structure. A wider culture of quality and certification is a prerequisite for correct and effective environmental prevention and, ultimately, for sustainable development.
Areas of intervention
Specific guidance and assistance for chemical industry SMEs, so as to focus companies on the most critical documentations and procedures to achieve certification against ISO 9000 standards.
Promotion of the "Quality Assurance and Certification Culture" (as a first step towards Total Quality Management) among top management and workforce alike, not only for traditional aspects but also for Health, Safety and Environmental (HSE) ones.
Intensified collaboration with ISO and CEN for a better co-ordination of activities so as to eliminate needless proliferation and overlaps which increase costs. This task should be facilitated by the new "status" of CEFIC as "associated member" of CEN (7/2/95).
PROTECTION OF THE ENVIRONMENT
Background
Responsible Care is a global initiative of the chemical industry and as such:
Responsible Care is a commitment by a company to seek continuous improvement in all aspects of Health, Safety and Environmental protection using programmes developed by national chemical industry associations.
In order to fulfill such a commitment, companies need to operate through appropriate management systems. In the area of environment, such management systems are described inter alia in EU Regulation n 1836/93 on the Eco-Management and Audit Scheme (EMAS) or in the future international standard ISO 14001. These instruments, which include a procedure of verification/certification, make it possible to demonstrate officially the successful use of such management systems.
Responsible Care calls for the use of Indicators of Performance as a necessary tool for demonstrating in an objective way the improvement achieved.
Responsible Care requires companies to develop appropriate Communication with all interested parties.
Problems
The above aspects of Responsible Care can pose problems for SMEs due to :
Moreover, the EMAS legislation has not been conceived with the pecularities of SMEs in mind from the outset (though things are improving now), resulting in an excessively complicated approach from an SME viewpoint.
As a frequent consequence SMEs have difficulties:
Small affiliate companies or sites of large corporations have basically the same kind of problems as SMEs have. However, in the case of the former, the corporate organisation very often gives guidance and provides the support of experts (e.g. environmental auditors). SMEs are therefore much more dependent on external assistance.
Proposals
The issue of guidance documents to help companies implement Responsible Care is one of the basic responsibilities of the national federation of chemical industries. The federation must identify precisely the specific needs and constraints of SMEs and adapt its guidance accordingly.
As some expertise (e.g. impact assessment, audit of the management systems, performance evaluation, etc.) cannot be maintained economically within some SMEs, the federation should be in a position to make recommendations for external solutions.
Large companies should help in sharing their experience but also by providing assistance through experts.
All possibilities of external funding at national or EU level must be exploited, be it for training, piloting of projects like EMAS or the development of specific programmes.
BEST AVAILABLE TECHNOLOGIES (BAT)
Background
Authorisation of new installations as well as supervising existing ones will in future use BAT as an important (perhaps decisive) benchmark (BAT defined as end-of-pipe and in-process reduction of gaseous, liquid or solid emissions).
BAT are presently set up by different mechanisms. EC/DG XI is now trying to set up a European mechanism for developing, storing and updating BAT notes which will allow sufficient industry access.
Problems
Proposals
Detailed proposals
IPPC AUTHORIZATION
Background
Problems
Proposals
National Federations and authorities should do everything possible to avoid complicated legislation when EU Directives are implemented.
Federations must give advice and support to SMEs
Transport of dangerous goods (e.g. development of Tremcards)
The idea is to make compliance with the transport regulations on dangerous goods easier for the small users like SMEs.
CEFIC has developed the Tremcards system which allows compliance with marginal 10.385 of ADR concerning the instructions in writing to be given to the driver by the consignor/producer. This certainly helps the small user to comply with this requirement.
Besides the restructuring of ADR in which CEFIC is heavily involved and which aims at making compliance with this regulation easier, other tools might be developed, pursuing the same objective.
It should be noted that compliance with regulations is certainly the first step in a well-managed prevention programme to avoid accidents during transport.
General remarks
The European Commission has already strengthened its effort in R&TD. In 1993 alone, the EU contributed ECU 2.5 bn to this activity. In the next five years, total financing under the Fourth Framework R&TD Programme will exceed ECU 13 bn. The European chemical SMEs participation in this initiative has so far been minimal, but under the umbrella of CEFIC's SUSTECH programme strenuous efforts are being made - with the support of DG XII - to locate SMEs in the chemical sector and to secure their participation in the programme.
Indeed, DG XII has part-funded a series of exploratory projects with European industrial associations - including CEFIC - aimed at identifying SMEs, ascertaining their need for R&TD support and developing methods to enable their participation in EU programmes.
Problems
Participation by the chemical industry in collaborative R&TD projects sponsored by the Framework Programmes is low in comparison with other sectors. This is the case for companies of all sizes - including SMEs.
With the progress of the SUSTECH Programme, we now have some means of developing collaboration in R&TD not only between chemical companies, but also between chemical companies in other industrial sectors and with academic institutions. The joint CEFIC - DG XII project will produce ideas for increasing the involvement of SMEs, as in its current design SUSTECH is not tailored specifically for SMEs.
Proposals
CEFIC has already taken specific actions in the programmes' preparation and support, to sponsor the SMEs' needs in the R&TD field to the European Commission. These initiatives should be supported on a continuing basis and not be connected just to the Fourth Framework Programme.
Moreover specific actions should be launched regarding :
TRAINING - EDUCATION
General Remarks
SMEs in general have the same need for a well-educated and trained workforce as large companies and are therefore suffering from the current fall in the standards of education in S&T across Europe. Whilst large companies can devote resources to "in-house" training this is not possible for SMEs.
The EU funds programmes to promote the mobility of teachers and students and the teaching of foreign languages.
Problems
SMEs share the problems of all companies in the chemical industry :
Proposals
CEFIC's initiatives in the field of EIP should be strongly supported :