Females are hardly taking over companies as successors. This needs to be changed and thus the proportion of total female entrepreneurs increased.
Workforce, employees of SMEs, that take over companies in the form of cooperatives – which is quite common in France, Italy or Spain- but almost unheard of in the BSR
Immigrants, that show a much higher entrepreneurship share in their original home countries and often entrepreneurial spirit that can be used also in SMEs of their new home countries (DE, DK, SE, FI)
Skilled workforce that went abroad (brain drain) and is returning or might be interested to return to their home countries and with their gained experience are well-suited as successors (EE, LT, LV, PL)
The important tasks of the promotion and support of SME transfers enjoy different priority in the BSR countries. While there are comprehensive political programs in some countries, these are missing in other countries. The aim of the policy strategy and action program is to create comparable framework conditions and promotions in all BSR countries.
The main output consists of a policy strategy program to strongly support SME transfers to ensure the innovative continuation of the enterprises and the maintenance of the jobs. The program covers relevant fields of action for SME transfers, such as the establishment of the framework conditions, financial support and granting of state guarantees, promotion of entrepreneurship and qualifications as entrepreneurs, support for the establishment and permanent operation of promotion and advisory capacities at the intermediary SME business support organisations.
The program integrates four action plans for the promotion of target groups “SME successors”, which are so far underrepresented and which are essential to achieve the necessary increase in the number of entrepreneurs in general as well as SME successors, especially in all BSR countries.
Political support for SME transfers is inadequate in many BSR countries, and important groups of potential successors are simply excluded in many regions. The purpose of the output is to achieve the positive changes in all SMR countries by implementing a comparable, comprehensive support of SME transfers by the public authorities, and thus to unleash new target groups as SME successors, significantly increasing the number of entrepreneurs.
In all Baltic Sea Region countries, different groups are underrepresented to varying degrees as business successor. This concerns in particular:
These target groups require special support in order to increase the number of potential successor entrepreneurs and to close the entrepreneurial gap. For this reason, specific action plans have been developed for these four target groups as part of the political strategy program. They are attached in the appendix.
Various Baltic Sea Region countries already have comprehensive, effective programs and a well-developed infrastructure to promote and ensure business transfers However, Poland, Lithuania, Latvia, Estonia and Russia still need to develop such infrastructure to catch up with other countries in the region. In these countries, SMEs were primarily founded after 1990, and business transfers were of no great importance in the following years. But now a large and growing number of SMEs have to be handed over to the next generation, as previous owners age and retire, but the infrastructure and programs are still largely missing.
The existing differences between the Baltic Sea Region countries, the different funding programs and experiences should give rise to an intensive exchange of experiences, learning from each other and sharing of best practices. Since this transnational exchange has so far been very sporadic and rather incidental, cross-border cooperation must be systematically organized and promoted. Appropriate strategies can be found in Chapter 5. Ensuring a comprehensive information and consulting network for business transfers.
Given the existing regional differences in the promotion of business transfers and the different national conditions, the current political program includes strategies for four overarching thematic priorities that are of outstanding importance for the entire Baltic Sea region:
In view of the declining population and ongoing global ageing, the economic and social activation of women is of paramount importance. Women make up more than half the world’s population — statistically they also live longer than men and are better educated. Women’s role in family business is invaluable: they support male-owners (mainly wives who advice their husbands/partners in firms’ managing or take over home duties and let men focus on companies), they are non-formally employed helpers (performing specific work in the firm), they provide qualified staff for family firms (as employees on different positions). At the same time, women are characterized by lower level of professional activity then men, as well as lower engagement in management boards in all types of companies, including family firms.
The following issues are addressed in this report:
While preparing the report, several publicly available reports of research results, scientific publications and expert opinions were used, as well as interviews conducted by the INBETS project partners with female successors.
Women and the labour market
Women’s participation in the labour market has been rising for the last years, nevertheless it is still on a lower level than men’s participation. In G20 countries during the past decade the labor force participation numbers show only modest increases in the ratio of women activity relative to men, the highest in Turkey, Germany and Italy. In Turkey – mainly because of cultural changes (women have received more freedom despite the rules of the Islam) and as the implication of international changes (increase in the number of foreigners working and starting families in Turkey). In Germany and Italy – mainly because of the changes in their traditional family models. For many years in those countries women’s activity was centered on homework and family. Nowadays, since there are more and more single households – women are becoming more independent and economically active.
Source: (Majumdar, Buckley, 2019)
In the period from 2010 – 2018 there can be observed a trend of increasing women’s professional activity in the Baltic Sea Region States (activity rate increased by an average of 4,2 p.p.) – measured among women aged 15-64. The highest increase was noted in Poland – women’s activity rate increased by 14 p.p. (from 58,5% in 2010 up to 72,4% in 2018). The only country from the Baltic Sea Region where it has slightly decreased (by 0,1 p.p.) is Norway. Meaningful changes were observed among women in older age groups: 40-64 and 65-74. Their economic activity rate has increased in all Baltic Sea Region States. Quite interesting is the significant increase of economic activity rate among women aged 65-74 in Estonia, Latvia and Lithuania. It shows a how huge potential that has been unexploited in Eastern European countries so far, and still can be used by employing women and older people.
Employees of a company are not the first alternative coming into one’s mind when searching suitable successor for the business. Those belonging to the company’s management group are in many cases asked for their interest in being a successor, but the lower level an employee is in the hierarchy, the less probably he/she is inquired of his/her interest in becoming a successor. The contemporary entrepreneur may have had conflicts with employees, he may underestimate their capacities or there might be suspects concerning their loyalty to the company.
On the other hand, it can be also difficult for an employee to express his interests in acquiring the business. The social pressure against the colleague wishing to start a trip across the classes, i.e. from worker to capitalist, may be, depending to the country, area and culture, crushing. An employee’s own family may be very critic against plans like that too.
Nevertheless, many aspects are in favor of employees as considerable successors. On the next pages, these will be further discussed.
Background
The contemporary discourse approaching employees as successors is one thread in discussion concerning employee buy-outs (EBO), which started in early 1970’s, when employee ownership was on the fringes of public consciousness (Whyte & Blasi, 1984). The context of this discussion was double sided. On the one hand, the aim was to decrease the power of labor unions. On the other hand, EBOs were seen as a mean to increase the influence of workers into their work conditions. Third point of view to the EBOs was arisen in 1980’s when – during the hot era of rising stock exchange rates and so-called casino economy – a partnership or shared ownership was seen as a way to both protect the company from malicious acquires and to pull together the dispersed shares (Ellerman, 1993). Also financing the business and rewarding loyal employees with optional wins caused by rising rates were presented as reasons for both partial management buyouts (MBOs) and EBOs. The golden era of EBOs started in the beginning of the 1990s, after the collapse of soviet imperium and in the beginning of privatization. The special privatization programs were founded in many former soviet countries and in East Germany, to privatize the former Deutsche Demokratische Republic/German Democratic Republic (DDR)-owned business. (Ellerman, 1993)
In East Germany, the “Treuhand” (the German privatization agency) carried out more than 2000 MBO or MEBO privatizations in big industrial companies. In addition to these, the Treuhand had more than 20,000 further MEBOs of small retail and service firms. The Treuhand encouraged (M)EBOs as a policy instrument that supported the goals of creating SMEs (small and medium-sized enterprises) in the eastern states and of increasing private ownership in East Germany. (Ellerman, 1993)
In other countries, the privatizing was managed in different ways (Filatotchev; Grosfeld; Karsai; Wright; & Buck; 1996). In Poland, which was one of the first socialist countries to conduct a privatization program, privatization worked, but in the other way than was advised by free-market purists and Western advisors. Liquidation, employee/management buy-out and joint venture proved to be much faster and more successful. They could be managed, controlled and approved by local authorities, and that is why they were much less impacted by the unpredictability of Polish politics. (Ellerman, 1993).
The importance of entrepreneurs with foreign origin is growing, as they can be a driving force behind creating jobs for the local economy. For example, there are now more than 740,000 immigrant entrepreneurs in Germany who contribute more than two million jobs to the economy as a whole. Immigrants set up companies mainly in the construction industry and in the area of knowhow and technology-centered services. This development is evidence of a significant modernization of the range of services offered by immigrant-owned start-ups.
Current studies confirm:
Therefore, immigrants, like locals, must be able to take advantage of all the support they need to become self-employed. In particular, bureaucratic and formal hurdles must be removed. They also need additional specific funding, particularly in three areas:
Fast and reliable assessment of competences
Severe shortage of skilled workers and young entrepreneurs in a country can no longer be effectively compensated for by immigration from the neighboring countries. For example, in most Baltic Sea Region countries, the number of younger workers will decrease by up to 30% by 2030. For economic reasons alone, immigrants could be very welcome in many EU countries.
However, excessive reliance on certificates, legal regulations and bureaucratic processes severely hampers the start of self-employment for immigrants. The formal and bureaucratic recognition of qualifications is often a major obstacle.
While migration of workers is not a new phenomenon, it has undoubtedly become easier and more popular since the EU has made free movement of labour one of the four economic freedoms for EU citizens, as described in Article 45 of the Treaty of Lisbon. At the same time, demographic challenges within the EU, namely population ageing and decreasing fertility rate have caused an overall decline of labour force and a notable competition for skilled workforce. Specifically, the lack of small and medium-sized enterprises (SME) successors has been addressed within the INBETS project. Skilled workforce who has emigrated abroad, what is commonly referred to as brain drain, represent a highly valuable target group in order to close the SME successors gap. Studies show, that returning migrant workers bring back a combination of human, financial, and social capital accumulated abroad (Wahba, 2015):
It is for these reasons, that the return of migrant workers to their home country result in a valuable transmission of knowledge, ideas, contacts and social norms, which may be highly beneficial to SMEs. Furthermore, studies show that return migrants are more likely to set up small and medium-size businesses than non-migrants. However, return migrants have to deal with many hurdles when setting up their businesses, above all the many administrative and institutional barriers.
While there are comprehensive political programs in some countries, these are missing in other countries. The aim of the policy strategy program is to create comparable framework conditions and promotions in all BSR countries. As there is a large lack of funding for certain target groups of entrepreneurs throughout the BSR, the strategy program will include specific action plans.
1. Development of:
a) a policy strategy for the comprehensive promotion of SME transfers at regional, national and international level.
b) 4 action plans for the promotion of new target groups of potential successors that are so far underrepresented and need to be addressed:
♦ Females are hardly taking over companies as successors. This needs to be changed and thus the proportion of total female entrepreneurs increased.
♦ Workforce, employees of SMEs, that take over companies in the form of cooperatives – which is quite common in France, Italy or Spain- but almost
unheard of in the BSR
♦ Immigrants, that show a much higher entrepreneurship share in their original home countries and often entrepreneurial spirit that can be used also in
SMEs of their new home countries (DE, DK, SE, FI)
♦ Skilled workforce that went abroad (brain drain) and is returning or might be interested to return to their home countries and with their gained
experience are well-suited as successors (EE, LT, LV, PL)
2. Intensive consultation of the strategy program and of the four action plans with regional and national policies and administrations in all countries as well as consultations at EU level. Political and administrative cooperation is ensured through all project partners and associated partners (see 4.5 and 4.7). Co-operation takes place within the framework of bilateral consultations and negotiations as well as workshops and conferences (see A5.2 / O5.2 and A5.3 / O5.3).
3. Publication of the strategy program and contribution to policy and administration at regional, national and international level. In the development and implementation of the strategic program, all associated partners provide important consultations and indispensable impulses. At two international consultations, the programs are intensively discussed with other stakeholders and possible implementations prepared.
4. The business support organisations (PP2 – 8) and the 50 SME chambers/institutions covering all BSR countries, are included in the development, a dvising and implementation of the strategy program, since they are well connected on a political level and also act as political representation are takeover administrative tasks in their regions. Within this framework, they will be intensively involved in the implementation of the strategy program during the project period and beyond.
PP1 Baltic Sea Academy and the transfer partner Hanse-Parlament will also coordinate and support these important tasks of their member organizations and support the realisation of the strategy on BSR and EU level.
The main output consists of a policy strategy and action program to strongly support SME transfers to ensure the innovative continuation of the enterprises. The program covers all relevant fields of action for SME transfers, such as the establishment of the framework conditions, financial support and granting of state guarantees, promotion of entrepreneurship and qualifications as entrepreneurs, support for the establishment and permanent operation of promotion and advisory capacities at the intermediary SME business support organisations.
The program integrates four action plans for the promotion of target groups “SME successors”, which are so far underrepresented and which are essential to achieve the necessary increase in the number of entrepreneurs in general as well as SME successors, especially.
Political support for SME transfers is inadequate in many BSR countries, and important groups of potential successors are simply excluded. The purpose of the output is to achieve the positive changes in all SMR countries by implementing a comparable, comprehensive support of SME transfers by the public authorities, and thus to unleash new target groups as SME successors, significantly increasing the number of entrepreneurs.
Increased capacity of innovation actors and improved conditions for this non-technological, but dearly needed, innovation is realised. The output is developed jointly by the different target groups and is used jointly in all BSR countries.
In the development of the output, local, regional, national, international and EU levels of policy and administration are involved in all countries with project and associated partners. (see 4.5 + 4.7). This cooperation, which also promotes multi-level governance on a sustained basis, is carried out in bilateral negotiations and consultations with the respective project partners in all countries and regions, as well as with all partners at workshops and conferences.
