Reduction of Administrative Burdens for SMEs

Introduction

In an effort of evaluating its own regulatory system on effectiveness and cost, the European Union (EU) has put on top of its political agenda the alleviation of administrative burdens (AB) on businesses (Alemanno, Den Butter, Nijsen, & Torriti, 2013). The range of the AB imposed on businesses can have significant consequences not only for business costs but also for the overall competitiveness and growth of the economy (Ntaliani, Costopoulou, & Sideridis, 2012). Research has shown that the ABs on small enterprises are significantly greater in comparison with larger ones: On average, where a large enterprise spends €1 per employee to comply with a regulatory duty, a medium-sized enterprise might have to spend around €4 and a small enterprise up to €10 (European Commission [EC], 2007). Counting more than 20 million firms, small and medium enterprises (SME) have become the backbone of Europe’s economy. They comprise about 98% of all enterprises, most of which are micro enterprises.

In 2007, the EC launched an Action Programme to reduce the ABs on business imposed by EU legislation by 25% by 2012, a goal met and exceeded. Legislation has been simplified and codified. This strategy was part of the efforts to generate growth and jobs. SMEs’ contribution to economic growth is also dependent on their productivity, which in turn, is reliant on other factors (EU, 2012), such as ABs (Ntaliani et al., 2012). As stated by the EC, businesses have fewer resources and need to invest to remain competitive (Ntaliani, Costopoulou, Luccini, & Sideridis, 2011). In this light, ABs more severely affect SMEs. Although there are different types of administrative cost imposed to business by legislation, SMEs rank ABs as the second most important individual business constraint and believe that administrative regulations will continue to deteriorate (Costopoulou & Ntaliani, 2010).

Administrative costs regard the costs incurred by businesses in meeting legal obligations to provide information on their action or production. In economic literature, there is no standard definition of ABs (Nicoletti, Scarpetta, & Boylaud, 2000). Arendsen, Peters, ter Hedde, & van Dijk (2014) state that the term AB is a too vague concept to many businesses. However, according to EC (2010), ABs are the part of administrative costs, which are not incurred irrespective of the legislative obligation and do not regard normal operating activity for business. Another definition refers to ABs as the cost imposed on businesses, when complying with information obligations stemming from government regulation (Standard Cost Model [SCM] Network, 2005). Moreover, according to the agency theory, ABs regard part of the bonding costs. Bonding costs consist mainly of compliance costs, which also include the costs of informing the government, namely, ABs (Alemanno et al., 2013). The systematic measurement of the administrative costs is the prerequisite for reducing bureaucracy and safeguarding the prosperity of businesses.

Reducing ABs of businesses has not been an easy task for governments. As described in the following section, various models have been proposed for measuring the ABs of businesses. Moreover, many e-government initiatives have contributed to the reduction of ABs, because one the objectives of e-government is to make government policies more efficient providing better access to public information and lower ABs in a cost-effective manner. In this direction, a European initiative titled “Rural-Inclusion (RI): e-Government Lowering Administrative Burdens for Rural Businesses” (www.rural-inclusion.eu) has been established to reduce rural SMEs’ ABs. The particularity of this initiative is that it has measured a specific part of the ABs. It has examined the ABs of the informational phase of a public service. In the context of this work, the notion of ABs is defined as “the costs incurred by rural SMEs on finding information in order to perform a public service.” Therefore, these ABs concern only the informational phase of a public service, namely, finding information for the public service that is necessary before performing/executing it. Such information is acquired by an SME by following three steps for identifying the following:

The process of searching for and retrieving this knowledge, either performed by the SME or by an expert (e.g., accountant, lawyer) on the SME’s behalf, costs in terms of time and money. In many cases, this process can be repeated several times throughout a year, due to change of laws and regulations or in need of clarifications (Ntaliani et al., 2011).

This article deals with the measurement and reduction of ABs, as defined in this study, of SMEs in rural areas. The next section presents the background of this work: an overview of models for measuring ABs; practices for alleviating ABs; and a description of the RI initiative. Subsequently, a method for measuring the ABs for the informational phase of public services is proposed. Then, the Greek case of rural SMEs in Chios Island is examined, presenting the measurement results for two public services. The AB reduction achieved is due to the usage of the RI innovative infrastructure and collaborative training tools by SMEs. Finally, the article presents the findings of this research.

Background

Administrative simplification and burden reduction for businesses have been a political priority in EU and in most Organisation for Economic Co-Operation and Development (OECD) countries. Measuring ABs is a key to their reduction. Therefore, a number of models for measuring ABs have been proposed by different countries according to their needs (Den Butter, De Graaf, & Nijsen, 2009; Riedel, 2009; Tang & Verweij, 2004; Torriti, 2009; Weigel, 2008). In the following, representative models of countries’ initiatives are described.

The model “Measuring Total Costs of Regulation” has been developed by the Swedish Board of Industry and Commerce for Better Regulation (its Swedish acronym is NNR) in an attempt to investigate ways on determining and quantifying regulatory burdens in terms of costs. The model determines not only information costs but also various types of regulatory costs (NNR-Swedish Board of Industry and Commerce for Better Regulation, 2006). The French Ministry of Administrative Reform has used the “Measuring Costs of Delays” model. To calculate ABs for businesses caused by permit regimes in France, the costs arising from administrative delays have been calculated (Frick, Ernst, & Riedel, 2009b).

Another model is titled “Measuring Irritational Effects.” It has been developed by Poland and has focused on the “Act on the General Safety of Products,” as well as six other regulatory statutes, so as to determine objective and subjective ABs (Frick, Ernst, & Riedel, 2009a). The Dutch Ministry of Economic Affairs has used the “Measuring Substantive Compliance Costs for Proposed Regulations” model. It focuses on additional costs incurred by the compliance with substantive costs (Ministry of Economic Affairs, 2006).

The SCM is used by many EU member states and OECD countries as standard methodology to calculate ABs (Nijsen, 2009). It is the most popular method globally used for assessing the cost of “red tape” and identifying the benefits by administrative cost reduction. It produces transparent measurements, which construct an essential tool against ABs and complex legislation. The particular model breaks down legislations into information obligations that a business has to fulfill. It gives the capability to primarily identify the most burdensome information obligations in terms of cost and time, and reduce the particular ABs through the simplification or elimination of information obligations. Therefore, the SCM is very detailed in analyzing and reforming the ABs.

Another model is “The Regulatory Cost Model” focused on the measurement of regulatory costs. It is based on the SCM and tries to integrate previous models so as to lead to a holistic measurement of ABs of all involved parties (e.g., public agencies, businesses, citizens; OECD, 2010). The EC has acknowledged the need for measuring administrative costs using a common methodology for EU. In this light, in October 2005, it proposed such a methodology for measuring administrative costs imposed by existing or planned legislation. The particular methodology has been based on different SCM variants applied in many EU member states and has been titled “EU Net Administrative Cost Model.” The prototype model has undergone a pilot test proving its feasibility and added value. In the same year, the model was adopted as “EU Net Cost model” (EU SCM). The EC has proposed the assessment of net administrative cost so as not to have to undertake costly periodical assessment of the entire standing legislation, as well as to be able to produce consolidated figures at any time and monitor progress on an ongoing basis (EU, 2007).

The basic characteristics of the most significant models and methods for defining ABs internationally and in the EU have been compared in the context of the RI initiative (RI-Deliv. 112). According to Frick et al. (2009b), the aforementioned models use a top–down measurement approach, except for the Swedish model. Only the Swedish model measures cost incurred from information of substantive duties. The Polish and French models regard the measurement of information costs, contrary to the Dutch models that regard the measurement of substantive costs. Also, the SCM measures information costs and can make single policy case studies comparable and brings them under the same heading (Alemanno et al., 2013).

The EU SCM is the official instrument of the EU for measuring ABs. Up till today, the EC has been using the EU SCM in many assessments of the impact of administrative costs and has been trying to introduce it for converging models used by member states (the Netherlands, Denmark, and the United Kingdom) and establish it as the common methodology. The EU’s i2010 e-Government for Reducing ABs Action Plan was based on this model (EC, 2012).

The model has been used for macroeconomic and microeconomic cases. The fact that in many cases European regulations replace national ones has been considered in the model. The model enables benchmarking, making various comparisons (e.g., cross-country, cross-policy area) and the determination of best practices, shedding light on different processes followed by member states. Moreover, it creates economies of scale in terms of data collection and validation (EC, 2009).

In addition, the EU SCM has been used in many economic sectors. It has been used for public administration, businesses, and citizens. Using this model for measuring ABs provides many advantages in the effort for reducing them. More specifically, it identifies the parts of business processes that incur the highest administrative costs. At the same time, it specifies the burdensome elements of legislation and their origin through the decision tree classification so as to support their simplification. Also, it helps government agencies to calculate the total cost of ABs, monitor these costs when changing regulations and information obligations, promote electronic communication and data sharing among them, and apply changes in their pertinent departments (Administrative Burdens, 2012).

Rural Inclusion Initiative

The objective of RI initiative was to address a longstanding challenge by public administrations: reducing ABs of enterprises in rural areas, by alleviating the information elicitation process of businesses when they want to use a particular public service, or by making more effective use of the provided resources. This European initiative started in 2009 and lasted for 3 years. The RI has adopted, adapted, localized, implemented, and deployed a selection of innovative informational e-government services to help SMEs and PAs in reducing ABs and facilitating the transactions among them. It focuses on selected case studies of e-government services that regional public authorities already offer. It supports them by a rigorous and reusable service process analysis and modeling, and then deploys a semantic service that facilitates the disambiguation of the SMEs’ needs and requirements when trying to use the particular services. The case studies took place in five rural European regions, in Spain, the Greek island of Chios, Latvia, France and overseas, in the region of Martinique. More analytically, RI has addressed the following stakeholders:

Rural SMEs: which constitute a key group of RI, because they are the primary users of the RI-based portals and are expected to play an essential role in the adoption of similar services;

Public Authorities: which comprise another target user group that will benefit from the RI results;

E-government Researchers: who work in the field of e-government application design and deployment; and

Living Labs Institutions/Practitioners: RI uses the Living Labs approach as a key component of its overall methodology for service deployment and iterative improvement.

As far as the alleviation of AB is concerned, the RI initiative has succeeded two goals. First, an innovative infrastructure (e.g., software, models, and services) facilitating the provision of semantic web e-government services by PAs in rural areas for the informational phase has been deployed. This infrastructure has deployed the Service Oriented Architecture (SOA) in a rural setting paradigm, being implemented through state-of-the-art semantic web technology. The infrastructure provides an online dialogue for all three steps—mentioned in the introduction—of the informational phase of a public service. The user does not need to search on other portals, ask a PA, or read legislation, but just answer a few simple questions. For avoiding miscomprehension, each question is accompanied by tips and instructions in various formats (e.g., documents, videos).

Second, a collaborative training methodology and tools for helping PAs in implementing and SMEs in using these services for the informational phase have been developed. This training methodology has integrated actions trying to enable both PA staff and rural SME personnel, in adapting the proposed change, inventing their own solutions for their specific circumstances. SMEs and PA employees have become a part of a collaborative training experience through a series of living labs and workshops using the RI infrastructure and tools.

Three main platforms have been used to serve the RI goals, namely, the Semantic eGovPortal, the eGovTube, and the Rural Observatory 2.0 creating an incubator (Figure 1), described as follows:

Semantic eGov is a platform that offers an ontology-based structured dialogue for driving users in eliciting specific information for performing a public service. It offers the main bundle of semantic e-government services and undertakes the responsibility of alleviating the AB for rural SMEs, in regard to their transactions with local authorities and regional public authorities.

eGovTube is a collaborative Web 2.0-oriented platform that aims at supporting PAs in sharing information and experiences, identifying innovative services, and developing users’ interest for them, as well as supporting users in sharing and exchanging ideas and experiences about public services and use of innovative e-government supportive technology, introduced by RI through video communication, community and knowledge assets network visualization, rich profiling, and other tools (Luccini & Angehrn, 2010). eGovTube has been used as the core driver by giving room to the delivery of training content and voice to all participants to share their ideas and experiences. This platform delivers formal training content as well as informal, actionable learning-based activities.

Rural Observatory 2.0 is an innovative web-based environment that facilitates information retrieval, access, usage, and exploitation of e-government services and relevant training content (Ntaliani et al., 2011). The use of the Rural Observatory 2.0 tool allows storing and delivering more traditional training content, which may be useful for addressing specific PA employees’ needs.

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Figure 1.

The RI incubator.

The RI has used the developed incubator to help in the reduction of SMEs’ ABs. To this direction, two measurements of ABs took place for depicting the state of the art before and after implementing the RI e-government initiative. Based on the aforementioned literature review, the EU SCM has been used in both measurements. The particular model fits the scopes of the RI initiative and provides detailed evidence regarding the costs aggravating business processes. The research method implemented is analytically described in the following section.

Research Method

This section provides the RI method regarding the measurement of ABs of a public service using the EU SCM. This method has also taken into account the proposed practices for AB reduction and has been used for the two RI measurements that are described below:

Both measurements have been based on questionnaire surveys. The construction of the final questionnaires was a quite time-consuming task, which happened in different iterations. The measurements took place according to the following (Figure 2):

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Figure 2.

RI AB measurement method.

In the context of the RI method, it has been decided that a quantity assessment “Before RI” and “After RI” would take place, taking into account that no change in the actual regulation has occurred. The method has been completed with a quality assessment after performing the “Before RI” measurement. Thus, the “After RI” measurement has been split into the quantity assessment, referring to cost reduction, and the quality assessment, depicting the perception of SMEs toward ABs when performing selected public services. In the following, the two assessments are described.

The aim of the quantity assessment regards identifying the ABs of rural SMEs stemming from the informational phase of public services. It is split into (a) general information on the SME’s representative, who has used the traditional and/or the RI services in a specific year and has completed the questionnaire; (b) information on the informational phase regarding Steps 1, 2, 3—mentioned in the introduction; and (c) measurement results concerning the total informational cost in Euros for an SME for performing a particular public service.

Quality assessment cannot provide absolute numbers, but gives concrete evidence on SMEs’ feeling on the incurred ABs while performing specific public services. To identify the critical quality aspects and dimensions that someone must take into account for the assessment of the information quality of public services, a comprehensive state-of-the-art review took place in the areas of quality in traditional public services, e-government services, and electronic services in general.

The aim of the quality assessment regards identifying elements of SMEs such as the following: familiarization and use of electronic public services and information and communication technologies (ICT), as well as perception of AB sources, AB reduction suggestions, and simplification of public services for lowering ABs. More specifically, it concerns (a) information on the easiness of finding information for each step through the RI service; (b) information on the business overhead for performing each step; (c) evaluation of the quality characteristics of the information provided by the RI approach, namely, accessibility, completeness, concise representation, relevancy, timeliness, and understandability; and (d) comparison of the “traditional” public service and the RI service in terms of cost, fastness, effectiveness, and easiness. “Traditional” refers to the way the SME usually uses to perform the public service (e.g., by visiting a public agency); (e) advantages of finding information through the RI approach; and (f) disadvantages of finding information through the RI approach.

Results

In this section, the questionnaire results are given for the particular case of the Greek island of Chios in the north of the Aegean Sea. In the island group of Chios, approximately 3,800 businesses are activating. Many of its habitants are farmers and more specifically, they maintain mastic tree cultivations. The Greek government has launched a program for supporting new farmers. According to this program, new farmers can apply for receiving a grant. This grant depends on the size and the type of cultivation. However, the process of applying for the grant seemed to be very complex for the local farmers. Another important area of economic activity in Chios Island is the creation of goods from local agricultural products, such as mastic. It is a common practice for farmers to start up small and medium manufacturing companies to take advantage of their cultivations and to produce various products. As a result, Chios local entrepreneurship would be improved by the provision of an electronic service about the issuance of an operation license for manufacturing companies.

In the following subsections, the measurements regard farmers and manufacturers, including mastic businesses. The “Before RI” and “After RI” measurements have been based on surveys. In specific, authors in cooperation with a partner of the RI project from the Chios Chamber of Commerce have chosen representative businesses for taking part in the two surveys. However, finding SMEs for participating in the two surveys was not an easy task due to the following reasons: First, taking personal SMEs’ interviews by the responsible partner was difficult because the partner has to travel to the insular villages to find them. These interviews were time-consuming and have been repeated so as to retrieve actual and accurate data. Second, while involving SMEs in the surveys, reluctance in providing information and difficulty in gaining their commitment because they were facing crucial financial problems threatening their existence have been shown by them. Moreover, many rural micro businesses do not keep in their records these kinds of data and they had to spend much time and effort to calculate them. Another obstacle was involving SMEs in the two surveys, namely, “Before RI” and “After RI” measurements, so as to maintain the same sample for comparing the data. Particularly for the “After RI” measurement, the SMEs had to use the RI incubator so as to answer the questionnaire. Finally, not all answered questionnaires were valid. It has been taken into account that no change in the actual regulation of the two public services has taken place during the two measurements.

“After RI” Measurement

After the implementation of the RI services, a new measurement has been undertaken so as to measure the reduction of information cost of public services in comparison with the traditional ones. The particular measurement shows whether and to what extent the RI approach is beneficial for rural SMEs and reduces their ABs.

Provision of grant to new farmers

General information

Six SMEs have answered the questionnaire, all of which have been considered valid for calculating the costs. The questionnaires have been answered by the SMEs’ owners.

Step 1

All SMEs agree that the RI approach is sufficient for identifying the public service and they do not need to search for information through other means. This step is performed only once. The cost of this step has been estimated to be €0.3.

Step 2

All SMEs agree that the RI approach is sufficient for identifying the public service instance and they do not need to search for information through other means. This step is performed only once. The average cost of this step has been estimated to be about €0.3.

Step 3

All SMEs agree that the RI approach is sufficient for identifying the public service prerequisites and they do not need to search for information through other means. This step is performed once to 3 times. The cost of this step has been estimated to be €3.3.

Measurement results

Regarding the easiness of finding information using the RI approach, two thirds of the SMEs believe that it is very easy to find information for the first step. Also, all SMEs state that finding information for Step 2 is very easy, whereas for Step 3 is moderate. From the three steps, the third step seems to be the most costly. In total, the cost of all three steps, namely, the informational phase of the public service, is about €3.9.

Quality assessment

In comparison with the traditional way, the information provided by the RI approach is considered by all SMEs to be very much accessible, complete, concisely represented, relevant, timely, and understandable. Also, all SMEs agree strongly that finding information on a public service through the RI approach is less costly, faster, more effective, and easier. The main advantages of finding information through the RI approach are saving time and the provision of certified information. The main disadvantages of finding information through the RI approach are that the SMEs are not very skilled in using ICTs (Figure 3).

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Figure 3.

Provision of grant to new farmers: Ways of finding information before and after RI service implementation.

Issuance of an operation license for manufacturing companies

General information

Six SMEs have answered the questionnaire, all of which have been considered valid for calculating the costs. The questionnaires have been answered by the SMEs’ owners.

Step 1

All SMEs agree that the RI approach is sufficient for identifying the public service and they do not need to search for information through other means. This step is performed only once. The cost of this step has been estimated to be €1.

Step 2

All SMEs agree that the RI approach is sufficient for identifying the public service instance and they do not need to search for information through other means. This step is performed only once. The average cost of this step has been estimated to be about €1.3.

Step 3

All SMEs agree that the RI approach is sufficient for identifying the public service prerequisites and they do not need to search for information through other means. This step is performed only once. The cost of this step has been estimated to be €1.1.

Measurement results

Regarding the easiness of finding information using the RI approach, all SMEs believe that it is easy to very easy to find information for the first and the second steps. All SMEs state that finding information for Step 3 is very easy. From the three steps, the second step seems to be the most costly. In total, the cost of all three steps, namely, the informational phase of the public service, is about €3.4.

Quality assessment

In comparison with the traditional way, the information provided by the RI approach is considered concisely represented, relevant, timely, and understandable by all SMEs; half of them consider the information much complete and the two thirds of the sample as very much accessible. Also, all SMEs agree strongly that finding information on a public service through the RI approach is less costly, faster, more effective, and easier. The main advantages of finding information through the RI approach are reduction of man hours, saving of time, avoiding visiting the public agencies, and provision of certified information. The main disadvantages of finding information through the RI approach are that the SMEs are not very skilled in using ICTs.

Conclusion

This article has described a method for AB measurement for the informational phase of public services used by SMEs. The proposed method can help from one hand PAs to calculate the information cost of public services for SMEs, and monitor these costs when changing regulations; and from the other SMEs to identify parts of business processes that incur the highest ABs. Such method has not been previously presented in literature. It includes quantity and quality assessment for calculating costs and providing evidence on the feeling of SMEs regarding these costs respectively.

The method has been evaluated for five rural areas in Europe. In all five measurements, a reduction of ABs has been shown, with the highest in the case of Chios Island. The actual implementation of the presented endeavor can be found through the Chios Chamber of Commerce portal (www.chioschamber.gr). The lessons learnt from the Chios case is that the AB measurement is a very time-consuming task that requires good coordination among all involved parties. Also, it requires particular numbers for analysis that SMEs cannot easily understand or cannot sometimes calculate accurately. It should be noted that involving SMEs requires very much effort due to their reluctance in providing information, their resistance to change and preoccupation with business activities especially during crisis when they are facing crucial problems threatening their existence.

The reduction of ABs of the informational phase incurred in SMEs in rural Europe has been accomplished through the use of the proposed innovative RI infrastructure providing e-government services and collaborative training tools. Particularly, it has played a significant role as a one-stop system with certified, timely, and accurate public information for SMEs. It has reduced the time spent and visits of SMEs to PAs for finding information, by easing the discovery of public services, personalizing the service, providing all necessary information for the execution of the particular services in one portal, and checking the eligibility for receiving the service. Also, the provided information is combined with advanced tools, practical explanations, and training material (videos), simplifying tasks and diffusing the experience from other cases through training tools. Therefore, the AB reduction is high according to the survey data. Thus, EU policy makers and PAs should take into account the results of this work for alleviating businesses’ ABs of the informational phase of public services.

Future work will focus on first developing an electronic service for online measurement of AB according to the method, second measuring the information cost of public services for European citizens, and finally deploying the incubator to the mobile environment for anytime and anywhere access.