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ILO-en-strap

86th Session
Geneva, June 1998


Report IV (1)

General conditions to
stimulate job creation
in small and medium-sized
enterprises

Fourth item on the agenda


International Labour Office  Geneva

ISBN 92-2-110654-3
ISSN 0074-6681


CONTENTS


INTRODUCTION

On 18 June 1997 the International Labour Conference, meeting in Geneva at its 85th Session, adopted the following resolution:

By virtue of this resolution and in accordance with article 39, paragraph 6, of the Standing Orders of the Conference, the Office is required to prepare, on the basis in particular of the first discussion by the Conference, the text of a proposed Recommendation and to communicate it to governments so as to reach them not later than two months from the closing of the 85th Session of the Conference, asking them to state within three months, after consulting the most representative organizations of employers and workers, whether they have any amendments to suggest or comments to make.

The purpose of the present report is to transmit to governments the text of the proposed Recommendation based on the Conclusions adopted by the Conference at its 85th Session.

Any amendments or comments with regard to the proposed text should be submitted as soon as possible and in any case so as to reach the Office in Geneva not later than 30 November 1997. Governments which have no amendments or comments to put forward are asked to inform the Office by the same date whether they consider that the proposed text is a satisfactory basis for discussion by the Conference at its 86th Session.

In accordance with article 39, paragraph 6, of the Standing Orders, governments are requested to consult the most representative organizations of employers and workers before they finalize their replies. They should also indicate which organizations they have consulted. This consultation is also required by Article 5(1) (a) of the Tripartite Consultation (International Labour Standards) Convention, 1976 (No. 144), for countries which have ratified this Convention. The results of the consultation should be reflected in the governments' replies.

PROPOSED TEXT

The text of a proposed Recommendation concerning general conditions to stimulate job creation in small and medium-sized enterprises is given below.

In accordance with the practice established in 1988, the report of the Committee appointed by the Conference to consider this item is being communicated to member States in its entirety, together with the record of the discussion in plenary session (see Provisional Record No. 17, attached).

The proposed instrument follows the precise wording of the Conclusions adopted by the International Labour Conference following the first discussion at its 85th Session, apart from certain changes which have been incorporated in the interest of greater clarity, to bring the two official languages of the texts into line with one another or to harmonize certain provisions.

In the commentary below the Office has made an effort to address some of the questions and possible problems in implementation that were raised during the discussions in the Committee and in plenary session. The Office requests that Members reflect on these points and submit their comments for inclusion in Report IV(2), which the Office is required to prepare in accordance with article 39, paragraph 7, of the Standing Orders of the Conference.

Proposed Recommendation

Preamble

(Point 3 of the proposed Conclusions)

For the sake of consistency and to provide better guidance to Members with regard to meeting "their concerns with respect to the issue of child labour" referred to in the sixth paragraph of the Preamble, the reference to the Minimum Age Convention and Recom-mendation, 1973, has been moved from the seventh to the sixth paragraph of the Pre-amble, which refers to child labour, and the respective paragraphs amended accordingly.

In order to reflect fully the role of preambles, which is essentially to give the background to, and the reasons for, the adoption of an instrument, the direct references to the proposed Recommendation itself in the sixth and seventh paragraphs of the Preamble of the proposed Conclusions have been replaced by a reference to the need to adopt "new provisions on job creation in small and medium-sized enterprises". For the sake of clarity, the two paragraphs have been combined in the seventh paragraph of the Preamble of the proposed Recommendation.

Paragraph 5

(Point 8)

Clause (b)

The words "legal provisions" have been used instead of the word "rules" which does not fit in with the subsequent reference to "enforcement of contracts".

Paragraph 6

(Point 9)

Clause (2)(g)

The initial word "inappropriate" has been omitted since it is felt to be adequately covered by the words "inadequate or overly burdensome".

The order of words has been altered, with a consequential change in wording, in order to avoid the unintended implication that registration, licensing and reporting requirements are necessarily disincentives to the hiring of personnel.

Paragraph 7

(Point 10)

Clause (3)(c)

Paragraph (4) of Point 10 of the proposed Conclusions has been turned into a new clause (3)(c), with a consequential adaptation of wording. The original wording, which related to the implementation of policies (action to ensure the extension of social protection and compliance with social security legislation) was inconsistent with the introductory sentence, which refers to the formulation of policies.

Paragraph 9

(Point 12)

In addition to some minor editorial changes, the words "respect for" in clause (3)(a) have been added before "the rule of law" and the subsequent reference to "workers' rights" moved to follow immediately after. The Office feels that this results in greater clarity with regard to the intention behind the clause and an improved linkage with the introductory sentence's reference to "awareness campaigns to promote:".

Paragraph 10

(Point 13)

For the sake of clarity the initial sentence has been redrafted to eliminate the words "the availability of", which is considered to be ambiguous in this context.

Clause (j)

The wording has been amended to avoid a double reference to "services" in the clause and the initial sentence of the paragraph. The words "in understanding and applying" have been added to elaborate on the word "assistance", and the words "provisions on" and "the promotion of" have been added before the words "workers' rights" and "gender equality" respectively, for the sake of clarity and style.

Paragraph 11

(Point 14)

The words "the highest degree" have been replaced by the word "optimum" to make the intentions behind the text clearer.

Clause (g)

The words "enhance the employment creation potential of small and medium-sized enterprises and the functioning of markets" have been replaced by the words "avoid distorting the markets for such services". It is felt that this simplification of the text leads to clearer presentation of the central idea, which is that all providers of services to small and medium-sized enterprises should charge an appropriate level of fees in order to enhance the financial sustainability of such services while also reducing the possible market distortions which may result from excessively subsidized services by some service providers. The amendment results in the elimination of the reference to "enhance the employment potential of ..." which is felt to be peripheral to the central idea of this clause, and which is furthermore already addressed elsewhere in Section IV, including Paragraph 10.

Paragraph 12

(Point 15)

The words "and help ... to sustain competitiveness in domestic and international markets" have for reasons of clarity been placed after the words "promote efficiency". Similarly, the words "together with" have been replaced by the words "while at the same time", along with minor editorial changes.

Paragraph 13

(Point 16)

Subparagraph (1)

For linguistic reasons, the words "except in the case of particularly vulnerable groups" have been moved to the end of the subparagraph so as to emphasise the central idea of generally applying commercial terms.

Subparagraph (2)

For the sake of clarity, the words "poverty-oriented development finance institutions" have been replaced by the words "development finance institutions addressing poverty alleviation".

Paragraph 15

(Point 18)

Subparagraph (2)

To make the text consistent with Paragraph 16, clause (b), of the proposed Recommendation (Point 19) the words "between large and small enterprises" have been replaced by the words "between small and medium-sized enterprises and larger enterprises".

Subparagraph (3)

For the sake of consistency with Paragraph 16, clause (f), of the proposed Recommendation (Point 19) the words "mutual learning" have been replaced by the words "the exchange of experience" and a number of other minor editorial amendments made to reduce the overall length of the text.

Subparagraph (4)

The words "elderly workers" in the English text have been replaced by the words "older workers" to make the terminology more consistent with other ILO instruments. The words immediately following, "with appropriate experience", have been retained, although it was felt that this phrase could be interpreted as unduly limiting the coverage of the specific measures which are the subject of the provision. Members' views on this point are solicited.

Subparagraph (5)

The word "special" has been deleted since it would imply that a range of measures already exists, which is not the case in the context of this provision.

Also, the words "organizations of" have been introduced before the words "small and medium-sized enterprise", and the words "improve the effectiveness of" replaced by the words "facilitate understanding of". These changes have been made to highlight the important role of small and medium-sized enterprise organizations in the flow of information between government and the enterprises concerned, which the Office understands was behind the original amendment presented to the Committee. The new wording also makes it clear that the likely direct outcome of such an effort is improved "understanding" rather than improved "effectiveness" of government policies.

Paragraph 16

(Point 19)

Clause (c)

The words "improvement and control" have been added at the end of the clause to clarify the meaning of the word "quality".

Clause (e)

The clause has been amended to reflect better the discussions in the Committee. The words "taking part in the development of" have been replaced by the word "promoting", to indicate that the roles of employers' and workers' organizations in the area of enterprise restructuring would most likely be promotional rather than in the form of direct involvement. For reasons of clarity, the word "enterprise" has been added before the word "restructuring".

Clause (f)

The word "commercial" has been deleted. This change widens the range of linkages which can be considered under the provision and makes the text consistent with subparagraph 15(2).

Clause (g)

The words "issues regarding" have been replaced by the words "trends affecting", to be more consistent with the earlier part of the sentence which mentions "monitoring" and "analysis". For similar reasons, the words "and promotion, as appropriate," have been moved to the end of the clause and reworded to read "and promoting corrective action as appropriate".

Paragraph 18

(Point 21)

Subclause (b)(iv)

The word "commercial" has been deleted to make the text consistent with paragraph 15, subparagraph (2), and paragraph 16, clause (f).

Clause (c)

For linguistic reasons and to avoid repetition, the words "through actions specifically designed for women who wish to become, or who already are, entrepreneurs" have been deleted since it is felt that their meaning is already conveyed by the words "support for female entrepreneurship", especially having regard to the identical reference in subparagraph 15(6).

Clause (d)

The words "the structure, effectiveness and" have been deleted to shorten the text since it is felt that their meaning is already implied in the words "key success factors". For reasons of clarity, the words "job creation in" have been deleted and the words "creating jobs" added after the words "capable of".

Proposed Recommendation concerning general conditions to stimulate
job creation in small and medium-sized enterprises

adopts this       day of June of the year one thousand nine hundred and ninety-eight the following Recommendation which may be cited as the Job Creation in Small and Medium-Sized Enterprises Recommendation, 1998:

I.  Definition, purpose and scope

1. Members should define small and medium-sized enterprises by reference to such criteria as may be considered appropriate in accordance with national social and economic conditions, it being understood that this flexibility should not preclude Members from arriving at commonly agreed definitions for data collection and analysis purposes.

2. Members should adopt measures which are appropriate to national conditions and consistent with national practice in order to recognize and to promote the fundamental role that small and medium-sized enterprises can play as regards:

(a) the promotion of full, productive and freely chosen employment;

(b) greater access to income-earning opportunities and wealth creation leading to productive and sustainable employment;

(c) sustainable economic growth and the ability to react flexibly to changes;

(d) increased economic participation of disadvantaged and marginalized groups in society;

(e) increased domestic savings and investment;

(f) training and development of human resources;

(g) balanced regional and local development;

(h) provision of goods and services which are better adapted to local market needs;

(i) access to improved quality of work and working conditions which may contribute to a better quality of life, as well as to allow large numbers of people to have access to social protection;

(j) stimulating innovation, entrepreneurship, technology development and research; and

(k) access to domestic and international markets.

3. In order to promote the fundamental role of small and medium-sized enterprises referred to in paragraph 2, Members should adopt, where appropriate, measures and enforcement mechanisms to safeguard the interests of workers in such enterprises by providing them with the basic protection available under other relevant instruments.

4. The provisions of this Recommendation apply to all branches of economic activity and all types of enterprise, irrespective of the form of ownership (i.e. private and public companies, cooperatives, partnerships, family enterprises, sole proprietor-ships and others).

II.  Policy and legal framework

5. In order to create a business environment conducive to the growth and development of small and medium-sized enterprises, Members should:

(a) adopt and pursue appropriate fiscal, monetary and employment policies to promote a stable economic environment (as regards, in particular, inflation, interest and exchange rates, taxation, employment and social stability);

(b) establish and apply appropriate legal provisions as regards, in particular, property rights, location, enforcement of contracts, and adequate social and labour legislation.

6. The measures referred to in paragraph 5 should be complemented by policies for the promotion of efficient and competitive small and medium-sized enterprises able to provide productive and sustainable employment under adequate social conditions. To this end, Members should consider policies that:

(1) create conditions which:

(a) provide for all sizes and types of enterprises:

(b) ensure the equal application of labour legislation, in order to raise the quality of employment in small and medium-sized enterprises;

(c) promote observance by small and medium-sized enterprises of international labour standards related to child labour;

(2) remove constraints to the development and growth of small and medium-sized enterprises, as regards:

(a) insufficient access to credit;

(b) low levels of technical and managerial skills;

(c) inadequate information;

(d) low levels of productivity and quality;

(e) insufficient access to markets;

(f) difficulties of access to new technologies;

(g) inadequate or overly burdensome registration, licensing, reporting and other administrative requirements, including those which are disincentives to the hiring of personnel, without prejudice to the effectiveness of labour inspection and the system of supervision of working conditions and related issues;

(3) include specific measures aimed at assisting and upgrading the informal sector to become part of the organized sector.

7. With a view to the formulation of such policies Members should, where appropriate:

(1) collect adequate national data on the small and medium-sized enterprise sector, including quantitative and qualitative aspects of employment, while ensuring that this does not result in undue administrative burdens for small and medium-sized enterprises;

(2) undertake a comprehensive review of the impact of existing policies and regulations on small and medium-sized enterprises, with particular attention to the impact of structural adjustment programmes on job creation;

(3) review labour and social legislation, in consultation with the most representative employers' and workers' organizations as well as with the representative organizations of the employers and workers concerned, if they exist, to determine whether:

(a) such legislation meets the special needs of small and medium-sized enterprises, while ensuring adequate protection and working conditions for their workers;

(b) there is a need for supplementary measures as regards social protection, such as voluntary schemes, cooperative initiatives and others;

(c) such social protection extends to workers in small and medium-sized enterprises and there are adequate provisions to ensure compliance with social security regulations.

8. In formulating these policies, Members:

(1) may consult, in addition to the most representative employers' and workers' organizations referred to in paragraph 7(3) above, other concerned and competent parties as they deem appropriate;

(2) should take into account other policies in such areas as fiscal and monetary matters, trade and industry, employment, labour, social protection, gender equality and occupational safety and health;

(3) should establish mechanisms to review these policies, in consultation with the most representative employers' and workers' organizations, and to update them.

III.  Development of an enterprise culture

9. Members should adopt measures, drawn up in consultation with the most representative employers' and workers' organizations, to create and strengthen an enterprise culture which favours initiatives, enterprise creation, productivity, environmental consciousness, quality, good labour and industrial relations, and adequate social practices which are equitable. To this end, Members should consider:

(1) pursuing the development of entrepreneurial attitudes, through the system and programmes of education and training linked to job needs and the attainment of economic growth and development, with particular emphasis being given to the importance of good labour relations and the multiple vocational and managerial skills needed by small and medium-sized enterprises;

(2) encouraging a process of lifelong learning for all categories of workers and entrepreneurs;

(3) designing and implementing, with full involvement of the organizations of employers and workers concerned, awareness campaigns to promote:

(a) respect for the rule of law and workers' rights, better working conditions, higher productivity and improved quality of goods and services;

(b) entrepreneurial role models and award schemes, taking due account of the specific needs of women, and of disadvantaged and marginalized groups.

IV.  Development of an effective service infrastructure

10. In order to enhance the growth, job-creation potential and competitiveness of small and medium-sized enterprises, consideration should be given to a range of direct and indirect support services for them, to include:

(a) managerial and vocational skills enhancement;

(b) consultancy and research services;

(c) access to capital markets, credit and loan guarantees;

(d) quality testing and measurement;

(e) market research and marketing assistance;

(f) packaging services;

(g) assistance in product design, development and presentation;

(h) business start-up and development assistance, including business planning;

(i) information services, including advice on government policies;

(j) assistance in understanding and applying labour legislation, including provisions on workers' rights, as well as in human resources development and the promotion of gender equality;

(k) export promotion and domestic and international trade opportunities;

(l) advice regarding technology;

(m) access to energy, telecommunications, and physical infrastructure such as water, electricity, premises, transportation and roads, provided directly or through private sector intermediaries;

(n) support for innovation and modernization;

(o) legal, accounting and financial services;

(p) business incubators;

(q) computer systems application and information technology services;

(r) environmental management services.

11. As far as possible, the support services referred to in paragraph 10 should be designed and provided to ensure optimum relevance and efficiency through such means as:

(a) adapting the specific services and their delivery to the prevailing economic, social and cultural conditions;

(b) ensuring strong involvement of small and medium-sized enterprises and the most representative employers' and workers' organizations in the determination of services to be offered;

(c) involving the public and private sector in the delivery of such services through, for example, employers' and workers' organizations, semi-public organizations, private consultants and small and medium-sized enterprises themselves;

(d) decentralizing the delivery of services, thereby bringing them as physically close to small and medium-sized enterprises as possible;

(e) providing services tailored to the needs of small and medium-sized enterprises, taking into account their differences in terms of size, sector and stage of development;

(f) promoting easy access to an integrated range of services through "single window" arrangements or referral services;

(g) aiming towards self-sustainability for service providers through a reasonable degree of cost recovery from small and medium-sized enterprises and other sources, in such a manner as to avoid distorting the markets for such services;

(h) ensuring professionalism and accountability in the management of service delivery;

(i) establishing mechanisms for continuous monitoring, evaluation and updating of services.

12. Services should be designed to include productivity-enhancing and other approaches which promote efficiency and help small and medium-sized enterprises to sustain competitiveness in domestic and international markets, while at the same time improving labour practices and working conditions.

13. Members should facilitate access of small and medium-sized enterprises to finance and credit under satisfactory conditions. In this connection:

(1) credit and other financial services should as far as possible be provided on commercial terms to ensure their sustainability, except in the case of particularly vulnerable groups of entrepreneurs;

(2) supplementary measures should be taken to simplify administrative procedures, reduce transaction costs and overcome problems related to inadequate collateral by, for example, the creation of non-governmental financial retail agencies and development finance institutions addressing poverty alleviation;

(3) small and medium-sized enterprises may be encouraged to organize in mutual guarantee associations.

14. Members should consider policies to improve the terms and conditions of employment in small and medium-sized enterprises by ensuring equal application of protective labour legislation.

15. Members should, in addition:

(1) facilitate the development of organizations, where appropriate, which can effectively support the growth and competitiveness of small and medium-sized enterprises. In this regard, consultation with the most representative employers' and workers' organizations should be considered;

(2) consider adequate measures to promote cooperative linkages between small and medium-sized enterprises and larger enterprises. In this connection, measures should be taken to safeguard the legitimate interests of the small and medium-sized enterprises concerned;

(3) consider measures to promote linkages between small and medium-sized enterprises to encourage the exchange of experience as well the sharing of resources and risks. In this connection, small and medium-sized enterprises might be encouraged to form structures such as consortia, networks and service cooperatives, taking into account the importance of the role of employers' and workers' organizations;

(4) consider specific measures for persons aspiring to become entrepreneurs among selected categories of the population, such as: women, long-term unemployed, persons affected by structural adjustment or restrictive and discriminatory practices, disabled persons, demobilized military personnel, young persons including graduates, older workers with appropriate experience, ethnic minorities and indigenous and tribal peoples. The detailed identification of these categories should be carried out, taking into account national socio-economic priorities and circumstances;

(5) consider measures to improve communication between government agencies and organizations of small and medium-sized enterprises which lack specialized support staff, in order to facilitate understanding of government policies aimed at job creation;

(6) encourage support for female entrepreneurship, recognizing the growing importance of women in the economy, through measures designed specifically for women who are either entrepreneurs or wish to become entrepreneurs.

V.  Role of employers' and workers' organizations

16. Employers' or workers' organizations should consider contributing to the development of small and medium-sized enterprises in the following ways:

(a) articulating to governments the concerns of small and medium-sized enterprises or their workers, as appropriate, regarding the policy and legal framework in which they operate;

(b) providing direct support services in such areas as training, consultancy, easier access to credit, marketing, advice on industrial relations and promoting linkages with larger enterprises;

(c) cooperating with national, regional and local institutions which provide support to small and medium-sized enterprises in such areas as training, consultancy, business start-up and quality improvement and control;

(d) participation in councils, task forces and other bodies at national, regional and local levels established to deal with important economic and social issues, including policies and programmes, affecting small and medium-sized enterprises;

(e) promoting economically beneficial and socially progressive enterprise restructuring (by such means as retraining and promotion of self-employment) with appropriate social safety nets;

(f) involvement in promotion of exchange of experience and establishment of linkages between small and medium-sized enterprises;

(g) participating in the monitoring and analysis of social and labour-market trends affecting small and medium-sized enterprises, concerning such matter as terms of employment, working conditions, social protection and vocational training, and promoting corrective action as appropriate;

(h) involvement in activities to raise quality and productivity, as well as to promote ethical standards and gender equality;

(i) preparing studies on small and medium-sized enterprises, collecting statistical and other types of information relevant to the sector, including gender disaggregated statistics, and sharing with other national and international employers' and workers' organizations this information as well as lessons of best practice;

(j) providing services and advice on workers' rights, labour legislation and social protection for workers in small and medium-sized enterprises.

17. Small and medium-sized enterprises and their workers should be encouraged to be adequately represented, in full respect for freedom of association. In this connection, employers' and workers' organizations should consider widening their membership base to include small and medium-sized enterprises.

VI.  International cooperation

18. Appropriate international cooperation should be encouraged in the following areas:

(a) exchange of information, gender disaggregated where appropriate, on best practices in terms of policies and programmes to create jobs and to raise the quality of employment in small and medium-sized enterprises;

(b) creation of linkages between national and international bodies and institutions that are involved in the development of small and medium-sized enterprises, including employers' and workers' organizations, in order to facilitate:

(c) international meetings and discussion groups on approaches to job creation through the development of small and medium-sized enterprises, including support for female entrepreneurship;

(d) systematic research in a variety of contexts and countries into key success factors for promoting small and medium-sized enterprises which are both efficient and capable of creating jobs providing good working conditions and adequate social protection;

(e) promotion of access by small and medium-sized enterprises and their workers to national and international databases on such subjects as employment opportunities, market information, laws and regulations, technology and product standards.


Updated by VC. Approved by RH. Last update: 26 January 2000.