Managing SMEs to grow
Juhapekka Suutarinen
Adviser, Confederation of Finnish Industries EK
International seminar in Pristina, Kosovo
October 20-21, 2011
Managing SMEs to grow: contents
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Background: enterprise structure in Finland
What is EK and how do we work?
Growth as a chosen strategy in an SME
International markets could make a difference
Mergers and acquisitions as growth drivers
Benefitting from board members’ knowledge and experience
Challenges to financing, and tax systems
How to engage and reward key personnel?
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Elinkeinoelämän keskusliitto
Finlands Näringsliv
Confederation of Finnish Industries
3 EK/Eng/shs11.2004
EK represents
• The entire private sector and companies of all sizes
• 27 branch associations
• About 16,000 member companies, of which 96% are SMEs
• Over 70% of Finland’s GDP
• Over 95% of Finland’s exports
• About 950 000 employees
Unparalleled knowledge and information of Finnish business
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EK organisation
Director General
Mikko Pukkinen
SME Affairs
Director Pentti Mäkinen
Communication
Director Leena Jaakkola
Regional offices
Assistant manager
Annaleena Mäkilä
Administration
Director Markku Järvenpää
EK Brussels
Head of EK Brussels
Tytti Peltonen
Infrastructure
Director
Tellervo
Kylä-HarakkaRuonala
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Innovation
Environment &
Competences
Legislation and
trade policy
Economic policy
Industrial
relations
Director
Timo Kekkonen
Director
Jukka Ahtela
Director
Jussi Mustonen
Director
Eeva-Liisa Inkeroinen
EK activities
Business
Infrastructure
• Energy
• Supplies
Management
Logistics
Infrastructure
Climate
Environment
Sustainable
Development
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Legal Affairs and
Innovation
Trade Policy
Environment
and Competences
• Education and
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Communications
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Training
Labour and
Immigration
Innovation
Environment
Company
Growth and
Internationalisation
Foresight
Information
Society
• Labour and
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SME Affairs
Social Law
Business Law
Competition
and EU-law
Corporate
Security
Trade Policy
Economic Policy
• Economy
• Taxation
• Business
Cycles
• Employment
• Financing
Welfare
Regional Offices
Industrial
Relations
• Coordinating
Collective
Bargaining
• Development
of Working
Life
• Wage
Increase and
Labour
Market
Analysis
• Labour
market
statistics
EK Brussels
Decision making in EK
Member Companies
Member Federations (27)
General Assembly
Board
Director General
Extended
Management Group
Management Group
• Business Infrastructure
• Legal Affairs and
Trade Policy
• Economic Policy
• Industrial Relations
• Innovation Environment
and Competences
• SME Affairs
• Regional Offices
• EK Brussels
• Communications
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Committee of
Member Federations
Delegation for Entrepreneurs
Committees
Regional
Advisory Boards
EK Departments
Business
Infrastructure
Innovation
Environment
and Competences
Legal Affairs
and
Trade Policy
Economic
Policy
Industrial
Relations
Director
Ms Tellervo
Kylä-HarakkaRuonala
Director
Mr Timo Kekkonen
Director
Mr Jukka Ahtela
Director
Mr Jussi Mustonen
Director Ms
Eeva-Liisa Inkeroinen
Energy and Climate
Chief Policy Adviser
Mr Mikael Ohlström
Innovation and Growth
Director of Innovation
Ms Hannele Pohjola
Labour and Social Law
Director of Legislation
Mr Lasse Laatunen
Economics
Senior Economist
Mr Penna Urrila
Coordinating
Collective
Bargaining
Transport and
Infrastructure
Chief Policy Adviser
Ms Tiina Haapasalo
Education, Training
and Labour
Director of Education
and Training
Ms Jaana Lehto
Business Law
Director of Legislation
Mr Hannu Rautiainen
Taxation
Chief Policy Adviser
Mr Tero Honkavaara
Development of
Working Life
Natural Resources
and
Supplies
Management
Trade Policy and
International
Relations
Chief Policy Adviser
Mr Simo Karetie
Corporate Security
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Wage Increase and
Labour Market
Analysis
Labour market
statistics
Ways for EK
to influence national policy and legislation
The President of
the Republic
The Government
The Parliament
Ministries
Committees
Political
parties
EK
Departments
Member federations
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• Opinions at request
• Own-initiated statements and recommendations
• Participation in committees and working groups
• Hearings
• Background contacts
Ways for EK to influence in the EU
Commission
European
Parliament
Council
BUSINESSEUROPE
Sector federations
EK
Departments
Member federations
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Ministries and
Finnish EU Mission
• Opinions by EK and BUSINESSEUROPE at request
• Own-initiated statements and recommendations
• Participation in committees and preparatory bodies
• Hearings in Finland and Brussels
• Direct contacts in Brussels
Enterprise structure in Finland
Number and share of enterprises by size class
Number and share of enterprises (2009)*
Employees
N
%
Cumulative %
1-4
228 517
86,6
86,6
5-9
17 814
6,8
93,4
10-49
14 486
5,5
98,9
50-249
2 334
0,9
99,8
250-
608
0,2
100,0
Total
263 759
100,0
Source:Statistics Finland
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*excluding primary production sectors
Finnish enterprises by size class
Number of enterprises
Share of enterprise base, %
(excl. sectors of primary production)
Size
class
1995
2000
2005
2009
1995
2000
2005
2009
1-4
156142
183833
196421
228517
85,8
85,5
85,9
86,6
5-9
14280
15644
16369
17814
7,8
7,3
7,2
6,8
10-49
9351
12728
13085
14486
5,1
5,9
5,7
5,5
50-249
1746
2200
2293
2334
1,0
1,0
1,0
0,9
250-
496
560
576
608
0,3
0,3
0,3
0,2
Total
182015
214965
228744
263759
100,0
100,0
100,0
100,0
Source: Statistics Finland, Statfin –database
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Source: OECD (2009). Measuring Entrepreneurship. A Collection of Indicators. 2009 Edition
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Source: OECD (2009). Measuring Entrepreneurship. A Collection of Indicators. 2009 Edition
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Employer enterprises and self-employed persons in Finland
180
160
140
120
100
80
60
Employers
Self-employed persons
40
20
0
1998
1999
Source: Eurostat
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2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Growth as a chosen strategy in an SME
Significance of high growth SMEs
• Political interest 1: majority of new jobs created in growth
companies
• Political interest 2: increase of turnover and profit rate peak at
growth companies, meaning more tax revenues
→ Enterprise policy ought to be tuned to support growth in order to
maximize the wellbeing of the society
• Important to identify not only growth startups but also growthoriented companies over the course of entrepreneurial lifecycle
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Choosing growth as a strategic path 1/2
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Determining factors for an entrepreneur:
1) Willingness to expand business
– Attitude
– Controlled risk-taking
– International vision
2) Ability to grow
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Knowledge
Innovativeness
Resources
Networks
Realism
Choosing growth as a strategic path 2/2
3) Competitive edge and factors for success, e.g.:
– Know-how of personnel and successful incentives
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Effective cost control
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High quality
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Innovative ideas, brand
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Customer relations, company location
4) Market potential
– Clear market focus
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Demand for products / services
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Recognisable customer desire
International markets could make a difference
Growth from abroad
• In Kosovo as in Finland home market is limited
• Quest for new business opportunities means expanding abroad
– especially technology-oriented products for niche markets
– support for internationalisation from public or private sources available
– subcontracting for main suppliers
• Geographical expansion is a conscious choice
– Export (Import)
– Establishment of a sales or production unit abroad
– Cooperation and networking
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Success factors
• Risk tolerance and good planning; customer orientation
• Mastering markets (customer relations, marketing, market
knowledge, communication)
• Mastering production (progressive technology, diverse selection
of products)
• Mastering networks (business contacts, distribution chain,
corporate image)
• Mastering strategies (strategic planning, management,
international experience of the board)
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Potential hurdles
• Costs and difficulties of marketing
• Finding functional distribution channels
• Regulations and standards of products
• Location of customers
• Legislation and regulations on the targeted market
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Mergers and acquisitions as growth drivers
When organic growth is not enough
• Growth through mergers and acquisitions (M & A) used as an
accelerator
• 2/3 of Finnish growth companies have used M & A’s, in most
cases to
– benefit from synergy
– find new sales or marketing channels, or customers
– expand their product or service selection
• Typical entrepreneur using M & A’s to grow owns or has owned
several companies in his / her career (serial or portfolio
entrepreneurs)
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Succeed or fail in an acquisition
• What to go after:
– target company operates on the same – or close enough – industry,
market, or phase of supply chain
– the target’s goals and business strategy supplement those of the buyer
– target company is already familiar to the management
• Details that need special attention:
– overcome the opposition for change in the target company
– use enough resources on thorough planning of acquisition process, and
set a timetable
– acknowledge your own deficiencies !
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Benefitting from board members’
knowledge and experience
Board shows direction, management executes
• In an average SME, the board consists mainly, or totally, of
members of management and/or owner family
• When pursuing growth this is often not good enough
• According to many studies, wide knowledge and experience are
invaluable assets in achieving targeted growth
• At the same time as putting up their time and effort for board
work, experienced entrepreneurs or business angels are often
willing to invest in a promising enterprise
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To make the best use of the board:
• Take care of sufficient diversity of members
– age, sex, background, experience
• Keep an active contact with board members, even between
board meetings
• Be ready to reward members, and cover their expenses for
meetings
• Remember: the board’s main task is not to listen to performance
reports but to determine the strategic direction and “spar” the
management
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Challenges to financing, and tax systems
Access to finance key factor in enterprise growth
• Growth implies need of finance, and high growth normally
requires financing from outside sources
• Current economic crisis and new solvency regulations for banks
form financial challenges to enterprises
– secondary sources grow in importance, if there are such
• In Finland, e.g. insurance companies, pension institutes,
Finnvera and Tekes (the Finnish Funding Agency for Technology
and Innovation) offer financing for entrepreneurs
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Scarce capital may result in undesirable outcomes
• Difficulties in finding capital could mean slow growth, or no
growth
– if working capital dries up difficulties may even lead to bankruptcy
• Common problems entrepreneurs face are
– high cost of capital
– demand for securities and real collaterals
– bureaucratic procedures related to many secondary sources
• The financial system ought to be able to provide capital for
enterprises at every phase of life cycle
– if private sources are not available public sector should bridge the gaps
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Tax incentives could be considered
• Incentive for research, development and innovation (R&D&I)
– e.g. tax deduction from salaries related to R&D&I
– under discussion in Finland; would benefit especially SMEs
• Higher write-off rate for investments
• No tax on profit as long as it stays within the company
– Estonian model: allows more room for investments and company
development
• Incentive for business angels’ capital investments in SMEs
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How to engage and reward key personnel?
Importance of personnel ought to be seen from a company’s
reward and bonus system
• Growth requires skills
– be prepared to reward growth-supporting skills
– consider having all personnel groups under a performance-related
payment scheme
• Growth entrepreneurs view rewarding and bonuses as a key
driver for change and a means of communicating company
values to the personnel
• Reward and bonus system should contain both monetary and
non-monetary parts
• Company-level decisions on pay raises
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Thank you for your attention!
This Presentation has been produced with the financial
assistance of the European Commission. The views expressed
herein are those of EK and can therefore in no way be taken to
reflect the official opinion of the European Commission.
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