Small and medium-sized enterprises (SMEs) play a more dominant role in the European economy than the United States’, a new report has found. Whereas SMEs, defined as firms with fewer than 250 employees, accounted for 31% of the EU export market in manufactured goods in 2005, they only accounted for 13% in the US. “The relatively larger role that European SMEs play in European exports can be explained by the fact that historically the US market has been more integrated than Europe’s and has produced comparatively larger firms than in Europe,” the report says. The study, which compares SMEs’ export activities and describes barriers and costs they face, was commissioned by US Trade Representative (USTR) Ron Kirk. Its data sources included Eurostat, the US Department of Commerce and the OECD.

SMEs’ share of total sales in the EU was 39.6% in 2005, but only 19% in the US. In 2006, 57% of jobs in the manufacturing sector in the EU were provided by SMEs, compared to just 37% in the US. The same pattern of SMEs being more prevalent in Europe emerges in the various industrial sectors sampled. For example, for exports in the chemicals sector, the ratio of SMEs’ exports to large firms’ exports was 35:66 in the EU and 12:88 in the US. For food products and beverages it was 40:56 in the EU versus 14:86 in the US; for rubber and plastic products 49:48 in the EU versus 8:92 in the US; and for textiles 61:36 in the EU compared to 11:89 in the US.

The report stresses how the predominance of SMEs in Europe is largely explained by the EU’s historically more fragmented market. Factors at play here include the EU’s 13 currencies and 23 official languages, compared to just one in the US, as well as more diverse consumption patterns in Europe. Another cause is the US having developed mass production technologies in the late 1800s and early 1900s, such as Henry Ford’s car production line, which encouraged the growth of larger firms. The current phase of market integration in the EU began later - in the 1950s. “Although the pace of European integration has been rapid considering the associated institutional barriers, its economic integration is not yet comparable to that in the US.”

EU and US government policies to support SMEs are also compared. The report notes that SMEs in Europe can draw from a larger number of sources for assistance: the European Commission, national and regional authorities. EU SMEs also get more financial support to take part in international trade fairs than their US counterparts. On the other hand, US firms find it easier to get pre-export financing and short-term credit than their EU counterparts. Another difference is that many EU member states support inbound foreign investment believing it indirectly helps SMEs through supply chain linkages, whereas US policies focus mainly on promoting exports.

The report is available at www.usitc.gov/publications/332/pub4169.pdf