Internal Barriers to Growth in SMEs

Abstract

Small and medium-sized enterprises (SMEs) dominate the European business economy, constituting 99.8% of all undertakings in the EU. More interestingly, they account for 58.1% of added value and 66.9% of employment. The development of SMEs is thus crucial to the European economy and at both EU and national levels there have been or are planned further initiatives, such as the Small Business Act for Europe (SBA), to improve the conditions for entrepreneurs and SMEs and promote innovation and growth. Horizon 2020 also actively supports SMEs by providing both direct financial support and indirect support to increase their capacity for innovation. A number of EU initiatives take the form of company law initiatives, aimed at creating a framework that can promote commercial activity. Most recently the Commission has proposed a directive to provide for a single-member private limited liability company (Societas Unius Personae (SUP)). Most initiatives focus on creating better framework conditions for SMEs. However, while a good corporate framework is necessary it is not sufficient. If the goal is to strengthen SMEs’ ability to exploit their growth potential there must be greater focus on the factors within undertakings. Research shows that growth is hampered by a number of internal factors and an understanding of these is a prerequisite for being able to create the right tools for SMEs. The financial crisis, rapid market changes, globalisation, technological developments etc. have put pressure on SMEs. As the Greek philosopher Heraclitus said: ‘The only thing that is constant is change’. But not even Heraclitus could have foreseen the extent and speed of the changes that SMEs face. This creates an urgent need for understanding what hampers or drives growth in SMEs. The aim of this contribution is to shed light on some of the internal factors that can be barriers to growth in SMEs and to discuss some tools that may help SMEs overcome some of these internal barriers to growth. The contribution will draw on the existing literature on rapidly growing SMEs and on SME failures. The contribution will also take account of some new empirical studies of Danish SMEs. Regardless of their country of origin SMEs face the same problems, so it is fair to assume that national empirical studies will, at least to some degree, reflect the general situation.