Olan McEvoy
Research expert covering the European Union for society, economy, and politics.
Small and medium-sized enterprises (SMEs) form the backbone of the economy in Europe, with almost two-thirds of employees in the EU working for a SME, producing over half of all value added in the European economy. SMEs come in three size-bands, micro-sized enterprises which employ between zero and nine people, small businesses that employ between 10 and 49 workers, and medium-sized businesses that have between 50 and 249 workers. In terms of enterprise numbers, the vast majority of SMEs belong to the smallest size category, with micro-sized enterprises accounting for 22.82 million of the 24.3 million SMEs in the European Union.
While large businesses usually dominate the media headlines, the challenges faced by small and medium sized businesses are equally important for the future of the European economy, with particularly salient issues including the transition to a green and sustainable economy, the harnessing of new digital technologies, and the need for skilled and qualified workers for SMEs, particularly in countries with ageing and declining populations.
These larger SMEs, although fewer in number than micro-sized businesses account for a relatively similar share of employment and value added. For the European Union as a whole, SMEs employed approximately 84.75 million people, and had a combined value added of 4.15 trillion Euro. Among micro-sized and small enterprises, the wholesale and retail trade sector was the most common industry sector, while manufacturing was the most common industry sector amongst medium-sized businesses.
At the same time, tight labor markets have meant that there is an increasing number of positions which companies are struggling to fill, often citing the lack of qualified candidates applying. Nevertheless, the economic outlook for SMEs is far from solely negative, as while Europe's larger businesses may be struggling with remaining internationally competitive in an increasingly fractured global economy, SMEs mainly operate within the European single market, benefitting from the barrier-free cross border trade in goods and services.
While large businesses usually dominate the media headlines, the challenges faced by small and medium sized businesses are equally important for the future of the European economy, with particularly salient issues including the transition to a green and sustainable economy, the harnessing of new digital technologies, and the need for skilled and qualified workers for SMEs, particularly in countries with ageing and declining populations.
Contributions of SMEs to the European economy
Although Germany has the largest economy in the European Union it has only the fourth-highest number of SMEs, behind Italy, France, and Spain, and with a comparable number of SMEs to its much smaller neighbor Poland. This is due to the fact that these countries had a higher number of micro-sized businesses, at 3.56 million, 3.1 million, and 2.65 million respectively. Germany had a far higher number of small businesses, and medium-sized enterprises, however, at 320,693 and 49,237 respectively.These larger SMEs, although fewer in number than micro-sized businesses account for a relatively similar share of employment and value added. For the European Union as a whole, SMEs employed approximately 84.75 million people, and had a combined value added of 4.15 trillion Euro. Among micro-sized and small enterprises, the wholesale and retail trade sector was the most common industry sector, while manufacturing was the most common industry sector amongst medium-sized businesses.
The economic outlook for SMEs in Europe
SMEs have faced strong economic headwinds for several years now, as a series of economic crises have followed on from the outbreak of the Coronavirus pandemic in 2020. Pandemic-related restrictions on business affected many SMEs negatively, as micro and small enterprises are more likely to be in customer facing industries, such as wholesale and retail trade. The inflation and energy crises which hit Europe beginning in 2022 also affected the SME sector negatively, with the surge in the price of vital inputs into the production of their goods and services causing many SMEs financial stress, as in contrast to larger businesses, SMEs may struggle to pass increased costs on in the form of higher prices, due to their smaller market share and power.At the same time, tight labor markets have meant that there is an increasing number of positions which companies are struggling to fill, often citing the lack of qualified candidates applying. Nevertheless, the economic outlook for SMEs is far from solely negative, as while Europe's larger businesses may be struggling with remaining internationally competitive in an increasingly fractured global economy, SMEs mainly operate within the European single market, benefitting from the barrier-free cross border trade in goods and services.
