The message contained in CEFIC's Position Paper

Umberto Rosa
CEFIC Board Member
C.E.O. SNIA BPD

Bruxelles, 27 September 1996

On behalf of the European chemical industry I would like to welcome all of you and in particular those entrepreneurs who accepted our invitation.

This workshop, joining the European Commission and CEFIC, has remote roots. It comes from the convinction of most of us that the SMEs network and its development are the central problem of the European industrial policy. And this is true in all countries, not only in mine; in all sectors, not only in the chemical one. And this not only for evident competitiveness reasons. Because the spirit of entrepreneurship ­ and SMEs express it perfectly ­ is the most genuine and distinctive character of the western culture. And it is the best antidote against the risk that Europe becomes an aged and bureaucratic area of the world, loosing any creativity.

In general terms, the problems of the chemical industry are not perceived by the public. So it is not surprising if the role played by the small chemical company is totally ignored.

***

We asked a representative sample of the Italian population to give us their opinion regarding the following statement:

"The chemical industry is a sector made up primarily of large companies"

Only 19% of the respondents disagreed with this statement.

Well! The majority of Italians are wrong, because in the Italian chemical industry there are a lot of small and medium sized companies (SMEs). They represent about 50% of the production and employees.

As everyone knows, Italy is perceived in the industrial milieu as the country of SMEs, but if they had said that this is an Italian trait and not an European trait, they would have also been wrong about that. In Europe, there are at least 33,000 chemical companies and 98% of them are statistically classified as SMEs (that is they have less than 500 employees).

These small companies account for 39% of the European chemical workforce, 800,000 jobs and 44% of the chemical turnover, about 175 billion ECUs.

The good running of this network of SMEs is extremely important for the European industrial development. In fact:

• chemical SMEs are essential clients and natural partners for major companies;
• during the past few years, they have strongly contributed to limiting the effects of employment cuts in the major companies;
• they play an important role in transferring to the rest of the industry the benefits of the innovations developed along the chemical chain.

As a matter of fact, they survive through the ability to serve their clients, offering new solutions to their new problems.

***

In fact, manufacturing companies don't buy from the big producers of basic chemicals, but from the thousands of often very small producers of specialties and fine chemicals.

Within the chain of the chemical industry, it is often a chemical SME which plays the role to convert innovation into applicable solutions.

This peculiar role of the network of the chemical SME as a key factor for the competitiveness of the European industry as a whole, is not understood.

***

This lack of awareness has important negative consequences and serious risks. In making policy proposals for the chemical industry ­ which often means innovation and environment ­ no one thinks of our small and medium sized companies or at least does not immediately think of them.

Environment is a typical case. An environmental policy conceived only looking at large chemical companies, runs the risk of creating administrative bonds (and costs) often insurmountable for the smaller structures.

But that which creates difficulties for the small companies in other sectors, creates overwhelming problems for the chemical entrepreneur, slowing down his "innate" flexibility and his capacity to adapt.

In 1995 we, at CEFIC, decided to face the SME's problems. I lead a task force that in less than six months prepared a Position Paper entitled "Focus on Chemical Industry SMEs" that served to dialogue with the European Commission and that has been sent to all of you.

The goals are clear:

• to give greater visibility to SMEs problems,
• to drive the actions of CEFIC and various chemical Associations,
• to create a basis for an industrial policy for the competitiveness of chemical SMEs.

***

The Italian colleagues who participated in the workshop to discuss the CEFIC Position Paper have identified three major areas of problems:

• the relationship between large and small companies, bureaucracy and the environment,
• innovation,
• internationalization.

***

Let's start with the relationship between big and small companies. In few other sectors this relationship is so critical as it is in the chemical industry:

• first of all because we are often dealing with a relationship between two companies in the same sector, two chemical companies.
• secondly, because whereas in other sectors small companies are subcontractors of big companies, in the chemical industry this relationship is often reversed. It is a small paint company that buys resins or pigments from a large international group.

Without a lively innovative chemical downstream, the European basic chemical industry risks to lose its leadership position.

But be careful. There isn't much future for the European chemical SMEs without a presence in the Continent of a strong "big chemical industry". The message is clear: we need to grow together, by finding new partnership forms and by asking the European Union new supporting schemes and a particular sensibility.

***

What about the bureaucratic burden. The reality of global competition shows what the challenge is going to be in the coming years: the future struggle between the over­regulated areas of the world and areas that are regulation free or almost regulation free.

Europe and United States are starting to think about this question: how to maintain and guarantee the regulations, without penalizing the companies and their ability to compete.

In Italy a recent study shows that the cost of the administrative burden is 115,000 ECUs for each small or medium size company. 740 ECUs per employee in medium companies, but 1,900 ECUs per employee in small companies. To these same numbers comes a survey on SMEs in The Netherlands.

The Molitor Report, compiled by a group of independent experts for the European Commission, has clarified once and for all the connections between bureaucratic burdens and economic and social objectives. Excessive European regulations slow down growth, reduce competitiveness and are penalizing in terms of new employment. They, in fact, frustrate the business culture, hinder innovation and reduce investments.

***

This is the best moment to build together (companies, Associations, European Commission) a real environmental policy for chemical SMEs. Last year was important for us because voluntary instruments entered for the first time, with full rights, in the European Environmental policy. And in first place was Ecoaudit (that is the EMAS Regulation).

On behalf of the European Commission, Federchimica has studied the applicability of Ecoaudit to small and medium sized businesses.

There are three main points:

• SMEs must be convinced that Ecoaudit is not a "game" limited to large companies;
• SMEs do not need the same degree of formality as large companies: they need a simplified environmental procedure,
• they cannot be left alone to face the problems.

How to provide practical and valuable assistance at a reasonable cost is a challenge for our National Association.

***

A few months ago the European Commission approved the document: "An industrial competitiveness policy for the European Chemical Industry". As the study points out, the case of chemical industry, because of its complexity, it can be taken as a model for further interventions in other industrial sectors.

As to the environment, it is suggested to promote those instruments such as the negotiated or voluntary agreements, unilateral industrial initiatives (such as Responsible Care), and economic incentives.

In other words, we must use the tools of the voluntary agreements to oppose the tendency, both at national and European level, to use the top­down approach.

But be careful! It's relatively easy for a large company or for a close group of large companies to sign a voluntary agreement autonomously.

But what of the thousands of small companies of a sector or of a country? What can a single small company do?

The only defence we have is our spirit of alliance. This is a first priority task for CEFIC and the National Associations if they want to play an active role in favour of their associates.

Otherwise there will be voluntary agreements for the large companies and taxes for the small ones!

We have to remember, however, that voluntary initiatives have a hardly bearable cost, especially for smaller enterprises. That is why our first objective has to be a significant simplification of red tapes which may make the work of entrepreneur easier.

***

Within the European Union our sector has remained one of the few ­ if not the only one ­ which can boast of a world wide leadership.

This is a leadership we need to defend, because it is a leadership that is in danger.

At this point we need to ask a question. Is there a "European space" for chemical SMEs?

I am firmly convinced that there is, and that European dimension is becoming even more important for these companies than for others.

Primarily because this gradual building of the European Single Market will increase the competitive pressure on SMEs and raise the minimum size needed to stay competitive.

While large companies have the world as a reference point for their strategies, SMEs are "trapped" within the cost structure of the European economy; so it is even more important for them to have a Europe that must be more competitive, more flexible, and more dynamic.

For their strategies, Europe is therefore the natural place for effective internationalization and for an efficiently cooperation with all the other companies.

In between the threats and opportunities, a definitive and critical phase has now opened. A phase in which there is little time to pro­actively drive the development of the chemical industry and of our companies, in the process of European integration.

Within the next four or five years, globalization of the market will make the European marketplace "secondary" we will be able to develop only defence policies.

But a defence policy is manageable to defend large companies. The small ones tend to disappear without anyone even being aware of it. For this reason CEFIC has asked for a European policy for the SMEs of the chemical industry, in a way to help these companies to become the major players in the integration of Europe. Also because these companies need to be taken into consideration from the beginning, when the environmental regulations or research programs are being planned, and not afterwards when it is too late.

***

I hope this meeting will be considered as the first step of an action plan, as the beginning of a project aimed to exert a political pressure in favour of SMEs. This implies that you have to be propositive, in terms of ideas and of the means to carry them out.

To pass from the protest phase to the definition of active and realistic proposals.

I wish you a good work.