SMEs need the necessary entrepreneurial freedom
by Prof. Dr. Dr. h.c. Friederike Welter, Hans-Jürgen Wolter.
SMEs in Germany have not only been repeatedly confronted with crisis situations for several years, but are now also threatened with additional US tariffs. In addition, the digital and ecological transformation must be mastered. In order to overcome all of these challenges, entrepreneurs are hoping that the new German government will create a framework that gives them the freedom they need to do business. In a survey conducted by the IfM Bonn (link) shortly before the general election in February 2025, a good half of entrepreneurs were in favor of politics largely staying out of the economy and the market in the future. The majority of the other half at least welcomed incentives for innovation or investment.
In the last legislative period, politics was primarily characterized by guiding guidelines: With the help of various legislative initiatives, companies were to be persuaded to operate more digitally and sustainably than before in a timely manner. This neglected the fact that entrepreneurs themselves are best placed to assess their economic situation and judge which measures they can use to successfully achieve the specified goals. Instead of prescriptions or requirements, they therefore need framework conditions.
Uncertainty affects the internationalization of SMEs
With regard to possible additional US tariffs, the German government will coordinate negotiations with its EU partners. In principle, however, the uncertain situation in the USA is having a negative impact on companies' internationalization decisions. This is all the more true the smaller the companies are. After all, foreign activities involve investments for which smaller companies have significantly fewer resources at their disposal than larger companies. Accordingly, it is also more difficult for them to open up other foreign markets to sell their goods in the short term.
Simplify the tax system, reduce bureaucracy and recruit international specialists
With regard to economic development in Germany, according to the IfM survey from February, there are levers that the future German government can use to help SMEs overcome the existing challenges. These include the following three aspects: In order to strengthen their own competitiveness, entrepreneurs hope that politicians will simplify the tax system, among other things. The coexistence of various types of tax such as income tax (or corporation tax), trade tax and property tax should also be reduced.
However, the competitiveness of companies also depends heavily on other location conditions, which have a significant impact on costs, efficiency and the innovative capacity of companies. With regard to the location factor “bureaucratic burdens”, most entrepreneurs now feel overwhelmed. At the same time, they criticize the lack of proportionality, reasonableness and practicality of many bureaucratic regulations.
The practical checks that were initiated in the last legislative period represent another important step towards reducing the current bureaucratic burden. However, in order to achieve a noticeable reduction in the bureaucratic burden on companies, our research shows that more is needed than individual selective measures such as the practice checks. Instead, bureaucracy should be rethought, not least due to technological and social change. Looking beyond national borders could also help here: In the UK, for example, the economic policy discourse no longer focuses on small-scale bureaucracy and the static categories of time and cost. Instead, the regulatory system in the sense of “enable and motivate” is seen as an important element in promoting competitiveness and innovation.
According to entrepreneurs, the third major challenge, the shortage of skilled workers and demographic change, should be countered primarily by improving the education system and by the targeted recruitment of international skilled workers. Entrepreneurs, on the other hand, see an extension or flexibilization of working life (40%) or the general promotion of immigration (30%) as less relevant.
Some of the above-mentioned adjustments can be found in the coalition agreement between the CDU/CSU and SPD. The coming months will show how quickly these will be adjusted.
Prof. Dr. Dr. h.c. Friederike Welter is President of the Institute for SME Research (IfM) Bonn and Professor of Business Administration, in particular Small and Medium-Sized Enterprise Management and Entrepreneurship, at the University of Siegen.
Hans-Jürgen Wolter is project manager at IfM Bonn.
