WALDEMAR CZTERNASTY*
PAWEŁ MIKOŁAJCZAK**
The influence of structural funds on
the SME competitiveness development
Introduction
A competitive position of Polish SME is
determined by many factors among which
various co-dependencies occur. The participation of SME alone which contribute
the majority of private business sector in Poland is not enough to compete
efficiently of Polish small business on the demanding EU market. Small
companies must create their own competitiveness not only in quantity sense i.e.
by the employment growth but also in the quality sense by expanding the range
of their products, gaining new markets, increasing the skills and experience of
employees. However, the most difficult phase of building SME competitiveness is
first of all new technology and knowledge implementation so a development based
on innovations. The realisation of above tasks the SME sector can achieve only
with the EU structural funds support. The presented remarks generate numerous
research problems. Mostly, they refer to stating the current competitive
position of Polish SME in comparison to their equivalent in other EU countries
as well as the opportunity to use the EU financial resources of SME competitive
actions support funds and previous results of the EU funds use by Polish small
entities in increasing the competitive potential. The above problems will be
the subject of the analysis in this paper.
1. Competitive position of
SME after the EU accession of Poland in view of the statistical research
The Polish accession on 1st
May 2004 was the reason of a big change in the entities’ activity environment,
especially noticeable by small and medium companies. This change for Polish
companies meant the uncertainty growth and risk increase which follows. Before
the accession the expectations of SME where mostly connected the growth of the
EU funds availability, the demand rise of Polish products on the EU markets,
the bigger availability of credits, financial performance improvement, export
opportunities increase so the conditions which allow for the competitiveness
improvement. SME give credit to the
expectations realisation. It indicates the credit balance of the most
important parameters changes. Despite the prices decrease (declared by SME at
24,3%) and the business costs increase (SME 44,7%), which the competition
forced resulting from the accession, high risk put down to functioning in the
EU structures did not reflect in the income, profits, demand or capital
availability drop along with the competitiveness growth (30% of SME declare
so). The above data indicate a big competitive potential of Polish companies
and their adaptation abilities and skills to use the opportunities, especially
as more than a half of SME produces goods and services which potentially are in
the range of interests of the EU markets. It creates very big opportunities
which are still not fully used by SME. This situation results mostly from the
lack of knowledge of the legal solutions in force on the EU markets, especially
the information on the transactional costs (which SME are not able to bear).
Smaller percentage
of SME reached in 2005 sale and profit growth in comparison to 2004. However
this growth concerned only about 30% of entities. But simultaneously a smaller
number of SME were affected by the profit or sale drop than in 2004. Despite
the income and profit dynamics reduction which are the elements of the
competitiveness changes evaluation of SME, the tendencies of those changes
should be assessed positively. The more that they were accompanied by the
growth of the proportion of those companies which reached the exported sale
growth and the market share increase. In 2005 a smaller percentage of entities
(by 7,6%) declared the lack of export contacts. It proves competitiveness
growth of SME operating on Polish market.
Apart from the
positive changes from the point of view of creating SME competitive position
related with the sale income, profits, market shares and export sale also the
number of SME which started new investment or continued the previous ones.
Along a phenomenon was remained of a low level of external financial use. Of 30,8% of SME
which declared the investments growth in fixed assets only 12,8% used the
credit or loans. External financing can be supplemented with the EU funds.
Thus
SME indicate positive changes in competitive “abilities” measured by the
sale incomes, activity profits, export
incomes or the market share growth. However, all the time they improve their
competitive position on the basis of their own financial means, reluctantly
using the external financing sources. High inclination to a conservative assets
financing (more than 50% of own capital) confirms the declared debt level of
SME.
In 2005
there were no significant changes in the assets financing structure. A
conservative strategy in this sphere is not conducive to enlarge the
competitive potential – it limits their development opportunities, stock
structure changes, distribution chains changes, improving the customer service
quality and the quality of offered products and services. This gap can be to
some extent filled by the EU funds
which are a supplement of own capital of a company. Within SOP – GEC (Sectoral Operating Programme on the Growth of the
Enterprise's Competitiveness) in 2004-2006 it
was planned that entities and institutions would use a total sum of 1,7 billion
euro (7,6% of all the sector’s investments in 2004 so on average – 2,5% of
their annual value).
In 2005
SME changed their attitude to investments in R&D, as well as to the
investments in new products and services. This fact positively influences the
competitive potential in medium-term. A significant importance on the SME
competitive potential comes from the increasing expenditures on the environment
protection. Admittedly they generate costs but alongside they create the image
of SME as a socially responsible company which can be a significant element of
creating a competitive position on the European market and the companies which
take the requirements of sustained development aspect into consideration are
more willingly invited to the cooperation (PKPP Lewiatan 2006, p. 13-20).
The
fact that gradually smaller percentage of SME declares the lack of interest in
R&D investments, investments in new products and services and investments
in environment protection is optimistic. Despite the short time of observation
the changes are very important which indicates that the understating and need
of innovations as well as responsibility for the environment protection while
creating the competitive position on the market is much bigger. A fact that the
changes are noticeable from 2005 and they took place in conditions of the
competitiveness growth is very important. It motivates SME to behave the way
they were not willing to – not seeing any justification for them – before the
Polish accession.
However
a growing competition on the market does not limit the opportunities of the
sale incomes and profits’ growth. It also allows the enlargement of the market
share (12% of SME) along with the sale income growth. It means the expansion of
the market and its absorption. It is accompanied by the increased number of SME
which export goods. Simultaneously within the exporting group a share of the
entities that increase the export incomes grows. It shows the growth of the
competitiveness strength of SME – in 2005 they managed to expand Polish market
as well as successfully compete on foreign markets. The companies themselves
feel the growth of competitive strength and want to use it to improve their
performance and to strengthen the market position and to increase the company’s
value is reflected in the in the undertaken investments and their structure.
In 2005
the investments were 22,5% of SME started the investments, comparing to 24,6% a
year before (a drop by 8,5%). However, simultaneously 8,5% of more SME
continued the investments started in previous years. In 2005 also a bigger
number of companies continued the investments and undertook the new ones. As
the effect the share of non-investing companies dropped from 51% in 2004 to
42,7% in 2005. However, a number of companies which do not see any need of
investments is still big and it must be remembered when analysing the reasons
of a lack of potential use which exists in the SME sector in Poland[1].
In 2005
57,3% of SME made some investments (so by 17% more than in 2004). On one hand
it constitutes an effect of the economic situation improvement which in 2004
was quoted as a main barrier of not undertaking any investments. But on the
other hand – when considering the investments’ structure – a number of
companies was also influenced by the conscience that without investments in new
technologies and products, in the services quality improvement, the development
of distribution chains it will not be possible to create the competitive
advantage on the Polish market and even more on the European market. Among the
main four areas of investments realised by SME in 2005 almost 1/3 included the
investments in machines’ purchase linked to the implementation of new technologies
and 3/4 concerned the investments of an innovative character (including e.g.
employees’ training). However the investments in R&D were important only
for the small percentage of SME (3,7% indicated R&D as one of the main four
areas of investment; 0,9% concerned R&D as the main investment area). Of
course the investments in R&D are not and cannot be the main SME investment
direction, however the proportion of companies indicating R&D as one of the
main four investment areas is very small and shows that R&D for majority of
SME is an unfamiliar sphere in their need (PKPP Lewiatan 2006, p. 21-22).
To a
great extent it is an effect of the fact that for 16 years of market economy in
Poland it has been impossible to create such relations between the R&D and
business sphere which would lean towards the cooperation between them – the companies do not see the added value
in financing the research on new solutions because it is linked with high costs
and risk. They are also not prone to investments in their own R&D centres which seems to be fully justified by the
scale of SME activity. On the other hand in the R&D sphere there does not
exist any need to commercialise the carried research because the current
financing system did not favour such needs (we must wait for the effects of the
Law on innovative activity finance passed by the Parliament which implements
the financial instruments which decrease the costs and direct investment risk
within the R&D sphere in the SDL).
It is
to a great extent an effect of the fact that during the 16 years of market
economy Poland has not managed to create such relations between R&D sphere
and economic activity which would inclined to cooperation – the companies see
no added value in financing the works on because it is related with high costs
and risk. They are also reluctant to invest in their own R&D centres which
seems to be fully justified in case of SME by the scale of their activity.
A
bigger share of SME is still accompanied by still a higher level (42,7% of SME)
entities which did not invest in 2005. The most common reason of not
undertaking any investments of SME is a bad market economy. Indicating this
reason shows that there exists the inability to create opportunities by a
significant number of small entities. It is not a tactic which allows to build
the competitive advantage. Waiting with the investments or the economy
improvement and demand growth leads to the situation when the entity is always
late, and is overtaken by those who risked to “forestall the market” and who
modernise their manufacturing machinery. They can also be overtaken by the
import. Regarding bad economy and limited demand by the SME as a development
barrier including the one based on investments mostly is not and external
barrier of a demand character. It is definitely the inability of SME to create
opportunities – looking new markets, exploring new products, searching new
distribution chains. Therefore in most cases these are internal barriers which
result from lack of knowledge.
The
problem is that most of SME lack the skills. The competitive position of an
entity is created apart from the market position by financial performance
including the debt level, net profit and cash flow as well as the level of
equity, management quality and technological innovations as well as capital
connections. The competitive strength of SME grows. The incomes and profits of
30% of SME increased in 2005 as well as the market share (12% of entities),
exporters appear[2].
The
companies invest more, however they rarely reach for the external finance when
implementing the investment activities. They start to see the significance of
R&D or environment protection investments but it is a very slow process.
But still they base their activity on offering the products and services on a
low price. In 2004 the proportion of SME which indicated the price as a basis
of their competitive position grew in comparison to 2003 by 11,8%. In 2005 this
growth was almost the same – 11,6%. In 2005 the research results carried out on
the SME standing in 2004 allowed to conclude that the price is of a much too
big significance in creating the competitive position of Polish companies
because Polish firms are not able to win in medium and long-term the price
competitiveness with the companies from China or India. It shows the short-term
of SME operating, of a lack of competitive position creating strategy in a
longer term. Apart from that this tendency can be an effect of Polish accession
and of SME apprehension which concerns the competitiveness intensification on
Polish as well as on the EU market (PKPP Lewiatan 2006, p. 25).
Conclusions
formed in such way enable to advance a thesis that if such a visible tendency
to base a creation of a competitive advantage will be held in coming years than
it will lead SME to a loss of existing advantages and market position. The more
that it was accompanied by the tendency of goods and services quality decrease
which were delivered to the market (by 10,5% smaller share of entities than in
2003 declared in 2004 the significance of that factor in forming the
competitive position on the market). It was also accompanied by the drop of an
already low share of innovative character of goods and services as a
factor on which SME would like to base
(a drop from 1,8% to 1%). The research results in 2006 intensified all those
tendencies. The position of price as a main factor which allows to build the
competitive advantage reinforced, the significance of goods quality, quality of
service and professional knowledge and skills and innovative character of goods
and services dropped. A few issues must be mentioned:
1) There is an
increase of a number of SME which search for the foreign sales markets
2) Entering those
markets requires in most cases to use an agent firm which are located there and
that means offering such a price so that a final price on the market and which
includes an agent margin is attractive for the specific market.
3) Low R&D
investments in Poland, a lack of system solutions which allow to commercialise
the research results caused that Polish entities do not possess new products
and services. They offer niche goods and services but then the demand is not so
big and to increase it they have to offer a competitive price or the goods
which are not of a innovative, modern character, such products which have
existed on particular markets for a long time – known to potential customers
and to sell them they must offer something which distinguish them – low prices.
4) The lack of
innovation diffusion support and in case of SME most of all of innovation
process transfer caused that the modernisation process of products and
services’ offer is very slow.
Leaving
for many years the whole burden of costs and risk of innovations’
implementation on entities without the opportunity to use a cheaper credit,
possibility to exempt a part of borne pro-innovative costs, unavailability of
capital financing the project of a higher risk, lack of guaranty credit
guaranties system, etc. did not activate Polish entities in pro-innovative attitudes – they became
one-way orientated – to lower the costs and offer the products and services of
a low price. Also the tendencies of the consumer goods and services demand
change should be analysed which are visible on highly-developed markets.
Changes are evident which result in an increase of a role of goods sold by bog
trade entities on their own behalf rather than the producer’s brand. This
tendency supports the significance of a price when creating the competitive
advantage by the producers and it means that when selling most products and
services the price becomes permanently very important. With regard the high
position of price on the list of factors which influence the competitive
ability must be accepted. However it does not mean that the weakening of other
factors which might create the competitive position of entities – improvement
of goods quality and consumer services, specialisation, goods and services
modernisation etc. – must be accepted.
Therefore the tips regarding the lack of system solutions supporting the
quality improvement process and products’ modernisation are still valid.
Even
the bill on supporting the innovative activity itself which target was to
induce the companies to involve more in R&D activities which results would
find commercial application and the solutions included in the act are not
efficient enough (Dz. U. Nr 179, pos. 1484). Its implementation needs public finance
and generates the need for public finance reform thanks to which the amount of
means destined for the pro-development targets will increase. The only factor
apart from the price which significance in 2005 compared to 2004 grew was the
entity’s location. SME more and more suffer from transport costs (the increase
of oil price), information availability costs and most of all the lack of
infrastructure, not only roads but also internet access (not more than 80% of
SME have an internet access).
It is
worth to look closely into free most important factors which create, in the
opinion of SME, their competitive position on the market. It appears that the
share of indicating price as the important factor but second or third factor in
total grew to a greater extent than the share of indicating price as the most
important. It proves the significance of price in building the competitive
position of SME. Simultaneously the total ratio of indicating goods quality as
first, second and third creating competitive position though smaller than in
2004 largely growing in comparison to the price. The same phenomenon can be
seen in case of customer services quality and specialisation. A significance of
other factors also grow although much smaller than in 2004 (apart from the
innovative character of goods and services). However, visibly smaller role is
played by the tight specialisation, professional knowledge and skills. The
importance of location (in total, as the first, second and third factor) grows
which proves the issues concerning this factor formed above. The low
significance of an innovative character of goods and services is alarming as it
probably results from the lack of pro-innovative way of thinking of SME. It was
not created by the system supporting actions which also was mentioned before.
Taking into consideration the influence of three – not one – factor it is
visible that admittedly the price position as a factor that creates competitive
position of SME is not threatened but the significance of other factors such as
goods and services quality, customers service, the ability to adjust goods and
services offer to customers’ needs and tight specialisation is also big.
The
investment analysis carried out by SME in 2005 shows that they were mostly of a
pro-innovative character. Most of small entities invested in tangible assets
related to new technologies implementation, introduced new products, invested
in the improvement of products’ quality, financed the development of new
distribution chains. SME clearly see the need to implement innovations – new
products, new technologies, new system of management etc. Restrictions for a
bigger inclination to innovations are costs and risk. SME visibly show that the
factors which would visibly increase the innovations are decreasing the costs
and risk by the support of innovative investments from public funds as
introducing tax allowances and preferable conditions of credits (PKPP Lewiatan
2006, p. 28). Taking into consideration the fact that the research which results are
the basis of this analysis was carried out in March and April 2006 the lack of
SME knowledge on the existing opportunities to use tax allowance and preferable
credits (technological credit) for innovative investments which were
implemented by the Law on innovative activity support (it became valid in the
beginning of 2006). The responsibility of this lack of knowledge should be
partly blamed on SME themselves of which more than 57% declares the need for
the innovation growth but on the other hand they cannot gather the information
which would let them implement the innovations. It also partly concerns the
administration institutions which show low efficiency in passing the
information to the public opinion on available pro-innovative solutions.
In the group of the
most important factors which limit SME inclination to invest we can distinguish
also shortage of demand on Polish market for innovative products. It means that
SME define the recipient of their goods and services as such for whom the basic
criterion of consumption decision is price and the same price elasticity of
demand (the vulnerability of product/service demand compared to price change)
that customers show is high. In such situation the risk of implementing
solutions which will increase the production and delivery costs and the same
will force price growth is big and it is difficult to expect that SME will take
such risk. A strong connection here is visible between the main in SME opinion
factor that creates their competitive position – the price.
A
significant factor that limits the SME inclination to innovative solutions is
the shortage of knowledge on innovative solutions which SME could use. A
question if SME at all endeavour after the information on available innovative
solutions or if they only state the lack of that knowledge remains open. The
answer to that question would let the construction of informative policy (via
R&D centres which possess or could possess the economically required
solutions and via public administration qualified to support SME) which would
react to the demand of SME[3].
2. Sectoral Operating Programme on the Growth of
the Enterprise's Competitiveness as a source of supporting small business
Entities’ activity
in its beginning as well as a further functioning is dependent on the financing
opportunity. Financial means can come from different sources (A. Skowronek-Mielczarek 2002).
In a context of stimulation of innovative processes of SME a significant role
is played by the Sectoral Operating Programme on the Growth of the Enterprise's Competitiveness (SOP – GEC) which financed from one of the EU structural
funds– European Fund of Regional Development. The mentioned programme
operating in 2004-2006, assumed the influence on the Polish economy competitive
position improvement operating in the conditions of an open market. SOP – GEC states aims, priorities and
actions concerning policy realisation in the sphere of enterprise and
innovations including SME sector by using R&D resources and benefits linked
with using new technologies, including
informative and supporting environment protection ones.
An accepted
strategy of reaching the aims of SOP –
GEC which is the improvement of competitive position of companies in
Poland in conditions of the Uniform
European Market which assumes the need to create a strong environment of
institutional business activity support and transformation of an existing
economy into an economy based on innovative entities which hold a strong
competitive position on the Uniform European Market (competitiveness – data
base). Two Priorities were established which are as follows:
·
enterprise development and innovation growth by strengthening the
business environment institutions,
- a direct companies’ support.
Such a definition
of SOP – GEC means that the
support was directed and focused on two groups of receivers. First of them
consists of institutions of a widely implied business surrounding which
includes mostly the institutions which support business development, technology
transfer centres, research – technology and industrial parks, technological
incubators, R&D institutions operating in cooperation with the companies or
for their needs and public administration institutions which are important from
the point of view of new information technology use when running a business.
Another group of support receivers within the Programme are the existing
companies and new created ones based on the advanced technologies
implementation and having a significant market potential. Targets as well as
required results of SOP – GEC, its
priorities and actions were stated on the basis of results created for the SOP
– GEC needs „Diagnosis of an actual Polish economy situation”. The diagnosis as main problem areas needing
intervention indicates a low Polish economy competitiveness on the
international market and low level of indicators characterising the potential
and economic standing of Polish companies. In “Diagnosis...” a special stress is put to: a low export potential
of Polish economy, low level of innovation of Polish companies (a lack of
advanced technologies use, scientific research), restrictions in an access to
external financial means, low level of investments, lack of modernisation
actions in the companies as well as an unfavourable situation of SME sector was
highlighted in the view of big companies and foreign entities which run their
business in Poland.
Meeting the
companies’ needs which are to secure the complex support in efficient
adjustment to quickly changing conditions of running a business, sustaining and
increasing their competitive position, a main target of the above mentioned
Priority I was assumed the simplification of companies’ functioning in an
Uniform European Market by supporting the business surrounding which provide
services for companies (MENIS – database). Taking into consideration a
relatively short time of SOP – GEC
implementation– 2004-2006, the most urgent needs and conditions in which the
companies are run and the level of financial means, partial targets of the
Rpirity I were formed:
- stimulation of enterprise and innovative actions
by an access to high quality services provided by the business surrounding
institutions,
- simplification of investment financing,
- preparation of a modern infrastructure to run a
business,
- development of enterprise by strengthening the
links between R&D sector and the companies,
- increasing the efficiency of innovation implementation,
including the technology transfer,
- increasing the access and range of on-line public
services use (MGPiPS 2003).
Priority II characterised as an direct support of companies is
orientated to rise the companies’ competitiveness by supporting the investments
improving their technological and organisational level as well as investments
within Labour Safety, Fire- and Security Protection and environment
protection, the competitiveness improvement by knowledge investment and
providing high quality advisory services.
3. Increasing the entities’ competitive potential in
Poland as a result of SOP – GEC use – activity 2.3
Financial
means within Sectoral Operating Programme on the
Growth of the Enterprise's Competitiveness activity 2.3, which basic aim was to
support the competitiveness and innovations of SME were fully used.
Beneficiaries of almost a half of allocation (48%) were medium entities, 44% of
means went to small companies and 8% to micro-entities employment of which did
not exceed 10 people. Medium companies applied for the refund of 505 400
PLN.
Diagram 1. The level of
activity 2.3 use and the company size
Source: Own source
The county in which
the biggest number of applications appeared was Great Poland (11%) of a total
number. Following counties are: Mazovian and Silesian county (10%) and Little
Poland and county of Łódź region (9%). Only 3% of investment projects were
implemented in Lubuski, Zachodniopomorski, Opolski and Świętokrzyski region.
In vast majority (73,8%) the companies gained the
support for modernisation activities of changing the product or production
process. Almost every fifth beneficiary realised the investment linked to
implementing or commercialisation of innovating technologies or products. Only
0,1% of companies made a purchase of R&D results or industrial rights. It
shows that the level of cooperation of small business and research centres is
still very low.
Undoubtedly a
positive effect of SOP-GEC 2.3 implementation can be observed in the area of
newly created posts which are the result of investments within this programme
(up to 13 287 new posts) which constitutes on average 11,1 posts in SME. A
positive effect of a described activity in realising one of the assumptions of
the EU horizontal policy which is making the chances of men and women equal, is
also worth indicating. The effect of implementing projects of SME was an
increase of employment level by 3676 women calculated as fulltime posts.
However it covers not even 30% of posts taken by men.
Diagram 2.A change in an
employment magnitude as a result of SOP-GEC 2.3 implementation
Source: Own source
As a result of
implemented investments supported by the refunds the turnovers of the companies
changed. It was observed that entities reached an average 23% net income rise
in comparison to the previous year (before gaining the support), micro and
small entities (an increase of 22%), medium (23%). Also in an export sphere
beneficiaries of 2.3 activity could reach an average 25% increase of export
value in comparison to the previous year. Micro and small companies 19% and
medium ones 25%. It was worth stressing that the companies that made the
investments in the sphere of innovative technologies noted the highest growth
(38%). An observed export growth among the companies which achieved a non-returnable
support for modernisation which led to a significant product or production
process change seems to be of an extreme importance (an average increase of
20%). Those investments constituted, as it was mentioned above, the majority of
implemented investments (PARP - database).
Conclusions
In the paper it was
shown that the competitive position of SME does not match the level of western
European companies. It is still generated by the low price based on the cost of
quality of offered products and services (also customer services). Insufficient
expert knowledge and skills and innovative character of goods does not favour
creating a permanent competitive advantage of small business. Little
investments in R&D in Poland, a lack of system solutions which would allow
the commercialisation of research results caused the situation in which Polish
companies do not offer modern products and services. A lack of support of
innovation diffusion and in case of SME most of all the innovation transfer and
absorption process caused that the process of
modernisation of stock and services offer is very slow. Still an important
issue is a very high level of investment financing from own sources along with
a lack of external sources. Hence it is necessary to find the external sources
of financing which support innovations of SME simultaneously improving their
competitiveness on the EU market. This gap can be to some extent filled by the
EU funds means which are a significant supplement of own sources. Within SOP –
GEC (Sectoral Operating
Programme on the Growth of
the Enterprise's Competitiveness) in 2004-2006 almost the whole planned budget was used by
the companies and institutions of business surrounding. Apprehension is aroused
by the disproportions of the number of applications submitted by the entities
in particular counties. Still dominant are regions of a high industrial level
among the beneficiaries of the EU funds.
Summary
The influence of structural funds on the SME competitiveness development
An insufficient competitiveness
level of Polish SME on the European market
needs as it was indicated in the paper a significant support of the EU
funds. Their use will allow to abandon current rules of generating the
competitive advantage by Polish small entities on the basis of implementing low
price strategy. The result of a wide use of the EU support will be a
stimulation of actions on the product quality rise, ecological adjustments and
implementing highly innovative technological solutions.
References
1. Skowronek-Mielczarek A. (2002), Źródła
zewnętrznego finansowania małych
i średnich przedsiębiorstw w Polsce, Szkoła Główna Handlowa, Warszawa.
2. Konkurencyjność małych i średnich
przedsiębiorstw (2006). Raport z badań. „Monitoring kondycji sektora SME
2006”, PKPP Lewiatan, Warszawa.
3. Sektorowy Program Operacyjny Wzrost
Konkurencyjności Gospodarki (2003), lata 2004-2006, Ministerstwo Gospodarki
Pracy i Polityki Społecznej, Warszawa.
4. Dz. U. Nr 179, poz. 1484. Ustawa z dnia 29
lipca 2005 r. o niektórych formach wspierania działalności innowacyjnej.
5. http:// www.konkurencyjnosc.gov.pl
6. http:// www.fundusze-ue.menis.gov.pl