Competing in the Single Market - SMEs and ... - Erhvervsstyrelsen

The Role of SMEs in Transitional EconomiesSMEs in the B4SMEs play an important role in the economy in general, but their role is particularly prominentin the economic transformation of countries in transition (CITs). Some of the most significantbuilding blocks for economic stability and growth in CITs are the creation of the private sector, thedevelopment of entrepreneurship and the creation of SMEs. SMEs stimulate private ownership andserve as the main ‘learning ground’ for managerial and entrepreneurial skills; they are flexible andcan adapt quickly to changing market demand and supply situations; they generate employment,help diversify economic activity and make significant contributions to exports and trade (UNECE2003).“The Small and Medium Enterprise (SME) sector carries great hopes and great burdens in theevolution of all of the transitional economies. It is difficult to imagine either rising overall livingstandards or social peace without sustained and healthy growth of this sector.”(McIntyre (2002), p.2)The CITs (or new market economies) have all undergone very rapid and transformational reformsover the last 15 years. These countries have managed continuous growth in GDP and foreigninvestment and decreased rates of inflation and unemployment while undergoing massive economic(e.g. privatization) and political changes (see chapter one of this report). One commonality of thesecountries’ reform agendas was their focus on developing the small and medium enterprise sector.In the early stages of transition, one of the main catalysts of transformation was the re-structuringof the large, originally state-owned enterprises, generally with high levels of foreign involvement,either through direct ownership, joint ventures or foreign know-how (Scase (2000), p.iv). Althoughto varying degrees, overall, in the past decade, the transition economies have become increasinglydependent on large foreign-owned corporations for exports, business R&D, product, process andorganizational innovation, capital investments, job creation, and economic growth.As transition has progressed, however, the importance of small and medium enterprises (SMEs) asinstruments and vehicles of economic renewal and vitality has increased. Since the early 1990s, theB4, as well as many other Candidate Countries, have experienced dramatic increases in the shareof both employment and GDP accounted for by SMEs (World Bank 2002). Generally, it is fair tosay that SMEs play a key role not only in the social but also in the economic fabric of the transitioncountries (European Commission (2002e and 2003j), McIntyre (2002 and 2003)).The rising importance of SMEs is partially due to the shift of production from formerly state-ownedenterprises, many of which were dismantled in the 1990s (European Commission 2002e). In theearly stages, many SMEs in the transition economies were created from the break-up of large, stateownedenterprises and mass privatization, while others were conversions from the unofficial sector.The rapid rise in the economic significance of SMEs therefore “does not in itself point at a healthydevelopment of the SME-sector” (ibid.). The crucial question concerns what conditions and measuresare needed to build an environment that is conducive to the development of dynamic, competitive,and innovative SMEs.35