BUSINESS

Brexit talk: The effect of EU membership on small and medium-sized Greek enterprises

VASSILIOS STOURAITIS *

TAGS: Business, Economy, Analysis

With the issue of the repercussions of Britain leaving the European Union growing in debate, the role of the EU as a lure for SME exporting is more and more a matter of argument and the same goes for small Greek firms. Within the context of SME internationalization for UK SMEs the EU common market is viewed as a significant motivator by 81 percent of UK SMEs and this is because of the advantages it bestows on the SME; red tape and border bureaucracy has been reduced, and trade within the EU has risen by 30 percent since 1992 (European Commission, 2007). Nevertheless, many of the developments in the EU common market are not favorable to Greek or UK SMEs necessarily, as policies are criticized as being ineffective for SMEs, leading to a debate on whether SMEs are triggered by EU membership or simply proximity.

Governmental export promotion policies’ results, while at times positive have been heavily criticized for their inefficiencies and lack of targeting. However, most SMEs noted regulation as one of their biggest barriers in the EU despite the advantages in trade. Meanwhile Greek SMEs in manufacturing have been hit hard by the recent crisis, can they afford to direct their efforts to the EU market regionally? What attracts them there? What would be the equivalent cost of the Brexit to Greek SMEs?

The overall performance of Greece in internationalization is much lower than the EU average, mainly because of the time required for transactions outside the European Union. Although improvements have been made, Greek SMEs still need about 15 to 19 days for import and export activities respectively, whereas the EU average is 11 days for both.

Small and medium-sized enterprises are the most rapidly growing segment of international trade and critical to economic growth, accounting for approximately 50 percent of global GDP and 60 percent of global employment. Small firms accounted for 99.3 percent of all UK private sector businesses (and employ more than 1 million people in Greece), 48 percent of private sector employment and 33 percent of private sector turnover (United Kingdom Department for Business Innovation and Skills, 2015). SMEs within the EU contribute more toward net job creation than their larger counterparts.

Regardless of opportunities, trade flows continue to be concentrated within regions rather than between regions. Sixty-three percent of Europe’s exports remain within Europe (Eurostat, 2014). In general, SMEs have fewer resources (particularly financial) to adapt to turbulence and crises and are thus the most affected by them, they therefore have to adapt to these situations using varied strategies such as exporting to face the challenges. Export barriers (and inversely motivators) can determine the internationalization path and speed of the SME. Greece, according to EU data, has a large number of “second chance” firms compared to the EU average, i.e. firms which have reinvented themselves or are ex-failures. In the current climate, this strategy is dangerous and provides a negative environment for new entrepreneurs and new exporters. Greece has a large number of new entrepreneurs, but to what extent EU membership has affected them is still a matter of research.

Within the market entry strategy, exports represent a most common, and often initial, stage which allows SMEs to gain international experience, grow and to reduce uncertainty in foreign markets. Therefore, exports are regarded as a best, and most recurrent, basis for SMEs to begin internationalization as the international expansion of SMEs is regarded as a process whose activities develop incrementally over time. The strategy of firm internationalization can be seen as a relevant predictor of performance, particularly during market turbulence.

Research has shown that EU membership is a strong instigator and motivator toward exporting regionally for inexperienced SMEs both Greek and UK, first-time exporters and risk-averse exporters. EU membership has encouraged potential non-exporters to initiate international activity, particularly since Eurostat shows only 4 percent of SMEs are known to have a specific export plan. The result of the Brexit debate raises questions about the regional future of new and old SMEs and how this trigger will be substituted and by what. Has Greece fully realized the potential of EU membership for its SMEs? To what extent Greek SMEs have realized the potential of the EU membership is an issue worth researching.


* Dr Vassilios Stouraitis is consultant for the Food and Agriculture Organization of the United Nations, with a PhD in International Business Strategy from the University of Reading.

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