ASSESSING MOVING TARGETS: THE IMPACT OF TRANSITION STAGES ON ENTREPRENEURSHIP DEVELOPMENT1
Transcript of ASSESSING MOVING TARGETS: THE IMPACT OF TRANSITION STAGES ON ENTREPRENEURSHIP DEVELOPMENT1
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ISSN 1392–1258. EKONOMIKA 2005 69
1 This paper has been accepted for presentation at thefollowing international conferences: Catalysts and Impedi-ments of Economic Development in Central and EasternEurope. Vilnius University, October 14–15, 2004, Vilnius,Lithuania.
RENT XVIII – RESEARCH IN ENTREPRENEUR-SHIP AND SMALL BUSINESS. November 25–26, 2004.Copenhagen, Denmark.
ASSESSING MOVING TARGETS:THE IMPACT OF TRANSITION STAGESON ENTREPRENEURSHIP DEVELOPMENT1
Ruta Aidis
School of Slavonic and East European Studies(SSEES),University College LondonFaculty of Economics and Econometrics,University of AmsterdamE-mail: [email protected]
Arnis Sauka
Faculty of Entrepreneurship,Marketing and Management,Jönköping International Business SchoolFaculty of Economics and BusinessManagement, University of LatviaE-mail: [email protected]
An issue that has recently gained in importance in transitional literature is the need to develop a
thriving small and medium-sized enterprise (SME) sector since it can contribute significantly to
innovation, job creation and economic growth. However, the specific characteristics of SMEs make
them especially vulnerable to changes in the legal, social and environmental context. In this paper we
are interested in the barriers that SME development encounters during different stages in the transition
process. There is no consensus regarding ‘transition stages’, yet various indicators measuring certain
aspects of transition progress have been developed. For this paper, we apply a selection of indicators
proposed in previous research to approximate three transitional stages that would make sense from
an entrepreneurship development perspective. We utilise these indicators to categorise 23 transition
countries into transitional stages. On the basis of that utilisation we develop a framework in which we
can identify SME development trends based on our analysis of the 25 empirical studies on constraints
facing SMEs in transition countries. Our preliminary results indicate that more fundamental barriers
related to legal issues are more characteristic of the early stages of transition, while more specific
constraints related to human resources and skill development characterise later transition stages.
Keywords: transition countries, SMEs, transition stages, business barriers
Introduction
Entrepreneurship and small and medium sizeenterprise (SME) activities are generally vie-wed as contributing positively to economicgrowth. Though diverse in their argumenta-tion and analysis, there is a growing consen-sus that SME development is important in ad-vanced western economies for its job creationand innovative possibilities. SMEs are also of
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special interest to transition countries for anumber of reasons. Firstly, they are able to pro-vide economic benefits beyond the boundaryof an individual enterprise in terms of experi-mentation, learning and adaptability. Thesecharacteristics are especially important in eco-nomies undergoing radical transformation. Se-condly, in most transition countries the SMEsector was largely neglected and even discri-minated against, with the focus being placedon the rapid privatization of large scale enter-prises and not on the development of the SMEsector, especially in the early phase of transi-tion. Furthermore, research in transition coun-tries shows that even if SMEs do not generatenet new jobs, they reduce the erosion of hu-man capital by providing alternative employ-ment opportunities for relatively skilled wor-kers (EBRD 1995). Though it is often arguedthat SME development is especially crucial forthe early phases of transition (EBRD, 1995,Smallbone and Welter, 2001), it is in fact justas important for the advanced and final stagesof transition as exemplified by the importantrole SMEs play in advanced western countries.As Porter (1990) has argued, invention and en-trepreneurship are at the heart of national ad-vantage and country competitiveness.
In the last 10 years, governments have in-troduced a number of policies in different tran-sition countries aiming to promote SMEs. Themain argument for this ‘intervention’ is the spe-cific characteristics of the SME sector. It is ar-gued that though the SME sector can be muchmore responsive to changes in the marketpla-ce, it is also much less able to influence suchdevelopments. Limited access to the finance,low degree of professionalism, difficulties inrecruiting qualified staff, dependency on cli-ents and suppliers and the absence of econo-mies of scale are identified as weaknesses ofthe SME sector and point to the fact that SMEs
require special attention (Burns, 2001). In thisrespect, understanding the problems faced bySMEs in specific environmental settings couldprovide the necessary background to developpolicies for SME support.
One of the most important findings in thesmall business entrepreneurship literature isthat context matters, as it shapes not only therole of small firms but also their structure andperformance (Karlsson & Dahlberg, 2003:1).The transition countries of Central and East-ern Europe and the former Soviet Union se-em particularly suited for our study for seve-ral reasons. Though transition countries havechosen different paths of development, theyhave all undergone a tremendous amount ofeconomic and social change, an important as-pect of which has been the development of anew private sector. In addition, it can be argu-ed that the unprecedented degree of institu-tional change experienced by transition coun-tries has been largely moving in a similar di-rection: the switch from a system based on stateplanning and allocation of resources dictated bythe government to a system characterized by de-centralized market allocation, which in itself ne-cessitates a substantial change in laws and regu-lations as well as norms and expectations (Rai-ser et al., 2001:2). Of specific interest to our stu-dy is the emergence and development of a legalSME sector, which under the central planningsystem was severely restricted.
A number of authors have identified thedistinct characteristics of entrepreneurship andSME activities in transition countries wherethe environment is undergoing quite dramaticchanges (Dallago, 1997; Scase, 2000; Chilosi,2001; Smallbone & Welter, 2001; Aidis, 2003).In addition, it is important to distinguish bet-ween countries at different stages of marketreform (Kolodko, 1999; Smallbone and Wel-ter, 2001).
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Although there is no consensus on ‘transi-tion stages’, different means of categorising thetransition process have been developed. Cam-pos and Coricelli (2002), for example, createdseven stylised facts describing the transitionprocess2 . Though interesting, the stylised factsproposed by Campos and Coricelli are not use-ful from an entrepreneurship developmentpoint of view. More suitable for this purposeseems to be the transition indicators develo-ped by the European Bank of Reconstructionand Development (EBRD), which plot theprogression of transition according to macro-economic as well as institutional variables.Smallbone and Welter (2001), for example, inan empirical study on SME development inUkraine, Belarus and Moldova, use selectedEBRD indicators in order to distinguish bet-ween transition countries where market re-forms have been slow or not properly instal-led and countries where they are more advan-ced. In addition, the three transition stages ba-sed on a new institutional theory proposed byVan de Mortel (2002) provide considerationsfor the categorisation of barriers useful for theanalysis of SME constraints. Some authorssuch as Surdej (2003) have shown an interlin-kage between market and institutional chan-ges and the number of start-ups in Poland. Lit-tle work, however, has been done specificallyattempting to classify the effects of transitionstages on SME development across countriesduring the transition process.
In a novel way, we apply the selection ofindicators proposed in previous research to ap-proximate transitional stages that would ma-ke sense from an entrepreneurship develop-
ment perspective. We utilise these indicatorsto categorise 23 transition countries into tran-sitional stages. The distinction of transition sta-ges is then used to develop a framework inwhich we can identify SME developmenttrends based on our analysis of the 25 empiri-cal studies on the constraints faced by SMEsin transition countries. The primary objectiveof our analysis is to identify which SME bar-riers are of ‘main’ importance at different tran-sition stages.
Our analysis contributes to the existing li-terature by providing insights into the dynamicrelationship between barriers and SME develop-ment during distinct stages of the transition pro-cess. Specifically, our preliminary results indica-te that more fundamental barriers related to le-gal issues are more characteristic of the early sta-ges of transition, while more specific constraintsrelated to human resources and skill develop-ment characterise the later transition stages. Inaddition, our results indicate a number of policyimplications for entrepreneurial development atspecific stages of transition.
The paper is structured as follows: SectionTwo presents the conceptual background inc-luding a discussion of the classification of tran-sition stages; Section Three discusses the met-hodology used, and Section Four presents cha-racteristics of the data used. The results arediscussed in Section Five, and the paper conc-ludes with policy recommendations presentedin Section Six.
2. Conceptual background
In this section we describe and analyse the mainconcepts used in the context of our study. Tho-se include transition, the stages of transitionand SME barriers. A review of existing theo-retical and empirical studies is used as the mainmethod to achieve this aim.
2 The seven stylised facts proposed by Campos and Co-ricelli (2002) describe the main characteristics of the tran-sition process. They are: 1) output fell, 2) capital shrank,3) labour moved, 4) trade reoriented, 5) structure chan-ged, 6) institutions collapsed, and 7) costs were high.
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2.1. Defining and understanding the
transitional context
For the 23 countries in our sample, transitiondenotes the process of change from a central-ly planned system to a well-functioning mar-ket-oriented system. According to the defini-tion introduced by the EBRD (1994), transi-tion is an institutional change involving not on-ly the advance of the private sector but also afundamental transformation of the role of thestate, in particular in the economic, financialand legal institutions underpinning the mar-ket economy. It is the institutional arrange-ments for the allocation and generation of go-ods and resources, and the ownership incenti-ve and rewards structures that institutions em-body, that characterise the differences betwe-en a market and a command economy. It mayalso be regarded as an ultimate objective initself as well as an end in itself (EBRD 1994:3).
However, it should be noted that while the-re are core features that a market economypossesses, there is no unique destination forthe transition process (EBRD 1995). Given thedifferent starting points and initial conditionsof the transition countries, there cannot be asingle, unique route for transition. A priori alarge number of variables could influence thetransition paths and the resulting patterns ofinstitutional change. Three main issues standout: geographical factors, cultural factors, andthe institutional legacy of central planning, rep-resenting a set of initial conditions for the gi-ven country (Raiser, 2000).
Not all authors agree about the influenceof initial conditions. A literature review byMerlvede (2000) based on growth in transitioncountries has found that though more unfavo-rable initial conditions lead to a larger outputfall, the effects fade over time and can be of-fset by stabilization and reform policies. He
also found that inflation stabilization, which isfacilitated by sustainable government balances,is a prerequisite for the recovery of growth. Afixed exchange regime is also important for sta-bilizing inflation, but the empirical evidence ismixed. Stabilization is not a sufficient condi-tion for output recovery since structural reformis also necessary.
Our analysis would be greatly simplifiedshould the transition process follow a simple,linear progression. Unfortunately it does not.Rather it is a complex process involving a mul-titude of influences and factors. Though cer-tain fundamentals of market economies iden-tified by EBRD indicators should be part ofany successful transition, the ‘end of transition’remains a contestable issue3.
2.2 Transition stages identified
In this section we explore some of the waystransition stages have been classified. Two mainmethods are highlighted: EBRD transition in-dicators and Mortel’s (2002) three-stage ap-proach. Alternative indicators for measuringtransition progress are also discussed.
EBRD transition indicators
In order to understand the development ofEBRD’s transition indicators, it is importantto understand the motivation behind their cre-ation. EBRD’s analysis of reform patterns intransition countries since 1989 suggests thatthree factors are crucial for a sustaining reform
3 Though the answer to this question is beyond thescope of this paper, it is perhaps of interest to mentionthat no single indicator or definition currently exists todescribe accurately the end of transition. A number ofauthors have suggested that the end of transition is achie-ved by reaching the level of an ‘advanced market econo-my’. Unfortunately, there exists no generally accepted de-finition of what precisely characterizes an ‘advanced mar-ket economy’. For further discussion, see Brown 1999).
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progress: (1) comprehensive economic libera-lization to create market competition and ge-nerate demand for market-supporting institu-tions; (2) market liberalization is more effec-tive if combined with political competition; (3)the process of transition is facilitated by inter-national integration (EBRD 2002).
According to the EBRD, the first or initialphase of transition was dominated by the struc-ture of the inheritance from the communist sys-tem and the political repercussions followingthe collapse of this regime. The main reformscharacterising this period include: the privati-sation of assets (small-scale privatisation), theliberalisation of markets (through price libe-ralisation and foreign exchange and trade li-beralisation) and the establishment of a degreeof macroeconomic stability (EBRD 1997).
The next phase of transitional reforms re-quires policies, institutions and behaviours thatcan foster and accelerate economic growth.The second transition phase reforms include acontinuation of the privatisation of assets(through large-scale privatisation), improvingenterprise performance through governance
Table 1: EBRD’s classification of transition phases and requirements
Phase Initial phase Next phase
Main requirements Privatisation of assets, market
liberalisation and macroeconomic
stability
The development of policies,
institutions and behaviour that
accelerates growth
Specific indicators of
progress • Small scale privatisation • Large scale privatisation
• Price liberalisation
• Governance and enterprise
restructuring
• Foreign exchange and trade
liberalisation
• Competition policy
• Infrastructure reforms
• Banking and interest rate
liberalisation and non-banking
financial institutions
Source: EBRD (2002)
and enterprise restructuring, the further libe-ralisation of markets (through competition po-licy), the development and maintenance of in-frastructure (through infrastructure reform)and reform to financial institutions (bankingand interest rate liberalisation and the crea-tion of non-banking financial institutions). Themain challenge in this phase is developing andproviding market-oriented governance, i.e.building and deepening of the institutions andbehaviour that are at the heart of a well-func-tioning market economy (ibid.).
The EBRD transition indicators are basedon annual scores indicating transitional pro-gress and are calculated based on an averagescore of nine separate indicators grouped intofour categories4 : enterprises, markets and tra-de, financial institutions and infrastructure. Asshown in Table 2, the ‘Enterprises’ category inc-ludes separate indicators for progress in lar-ge-scale privatization, small-scale privatization
4 For a more detailed description please refer to EBRD(2003:17).
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and governance and enterprise restructuring.‘Markets and trade’ includes three separate in-dicators measuring price liberalisation, tradeand foreign exchange system and competitionpolicy. Financial institutions include two sepa-rate indicators measuring banking reform andinterest rate liberalisation and securities mar-kets and non-bank financial institutions. Infra-structure includes only one indicator measu-ring infrastructure reform.
In brief, the ‘enterprises’ category measu-re indicates the process of large-scale privati-sation; the implementation of reforms to cutproduction subsidies; the introduction of ef-fective bankruptcy procedures; and sound cor-porate governance practices (EBRD 2001).The ‘markets and trade’ category indicates theextent and effectiveness of competition policyin combating the abuses of market dominanceand anti-competitive practices. With regardsto ‘financial institutions’, this indicator mea-sures the extent to which interest rates havebeen liberalised; the establishment of two-tierbanking; and the creation of securities mar-kets. In addition, ‘financial institutions’ also as-sesses the extent to which prudential regula-tions have been raised towards internationalstandards, whether they have been enforced
effectively and if procedures exist for resolvingthe failure of financial institutions. Finally, theinfrastructure indicator measures the extent oftariff reform; the commercialisation of enter-prises; and the extent of regulatory and insti-tutional development (ibid.).
Scores for transition progress are measu-red from a minimum score of 1 to a maximumscore of 4+. Scores are given with decimalpoints to provide a more accurate differentia-tion. In general, a score of 1 indicates little pro-gress; 2 indicates some progress; 3 indicatessubstantial, comprehensive progress; 4 indica-tes a level of progress approaching internatio-nal standards; and a 4+ score indicates thestandards and performance typical of advan-ced industrial economies.
As shown in Table 3, according to EBRDindicators, as of 2003, two CIS countries werestill in the primary stage (Belarus, Turkmenis-tan); nine countries were in the secondary sta-ge (Albania, Azerbaijan, Kazakhstan, Kyrgyz-stan, Moldova, Tajikistan, Turkmenistan, Uk-raine and Uzbekistan); and thirteen countrieswere in the advanced stages of transition (Ar-menia, Bulgaria, Czech Republic, Estonia, Ge-orgia, Hungary, Latvia, Lithuania, Poland, Ro-mania, Russia, Slovak Republic and Slovenia).
Table 2: EBRD transition indicator classification
Source: EBRD (2003)
Enterprises Markets and trade Financial institutions Infrastructure
Large-scale
privatisation
Price liberalisation
Banking reform & interest
rate liberalisation
Infrastructure reform
Small-scale
privatisation
Trade & foreign
exchange system
Securities markets & non-
bank financial institutions
Governance &
enterprise
restructuring
Competition policy
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Table 3: EBRD transition indicators
* = Indicator rating from 1–1.9; ** = Indicator rating from 1.9–2.9; *** = Indicator rating from 2.9–4.
country Primary stage* Secondary** Advanced***
Albania 1989–1993 1994–2003 -
Armenia 1989–1994 1995–2001 2002–2003
Azerbaijan 1989–1996 1997–2003 -
Belarus 1989–2003 - -
Bulgaria 1989–1992 1993–1998 1999–2003
Czech Republic 1989–1990 1991–1992 1993–2003
Estonia 1989–1992 1993 1994–2003
Georgia 1989–1994 1995–1999 2000–2003
Hungary 1989–1990 1991–1992 1993–2003
Kazakhstan 1989–1994 1995–2003 -
Kyrgyzstan 1989–1993 1994–2003 -
Latvia 1989–1991 1992–1995 1996–2003
Lithuania 1989–1992 1993–1995 1996–2003
Moldova 1989–1993 1994–2003 -
Poland 1989 1990–1992 1993–2003
Romania 1989–1993 1994–1998 1999–2003
Russia 1989–1992 1993–2002 2003
Slovak Republic 1989–1990 1991–1993 1994–2003
Slovenia 1989–1991 1992–1994 1995–2003
Tajikistan 1989–1997 1998–2003 -
Turkmenistan 1989–2003 - -
Ukraine 1989–1994 1995–2003 -
Uzbekistan 1989–1993 1994–2003 -
Mortel’s three-stage model
E. van de Mortel (2002) classifies three stagesof transitional progress using a framework ba-sed on institutional theory as developed by D.North (1990). According to Mortel, the firststage of transition starts when a country hasthe freedom or desire to reform, or when it isforced to start transforming its economy. Forthe countries willing to transform, this stage isusually very short. However, countries forcedto transform may have difficulties determiningthe general transition strategy. Transition startswith the collapse of the former institutional fra-mework, e.g., a total vacuum of legislation, ru-les, etc. In this stage of transition it is crucialfor the countries to develop their main transi-tion strategies. However, this step can only betaken if a suitable political structure is in pla-ce; a clear and duly endorsed power distribu-
tion between the president, government andparliament. The first stage of transition tendsto be more successful in the countries wherethere are more stable constitutional institu-tions able to make decisions about the direc-tion and speed of strategic processes. But thenagain the ability of a transition country to de-velop such institutions depends mainly on itspast experience. A considerable impact comesfrom factors we understand as national identi-ty, such as common language, recognition ofsimilar values, etc. During the first period it isstill too early to speak about property rightsand privatisation. The first stage ends when thedecision-making process related to the newlaws and regulations begins.
The second stage of transition is mainly sha-ped by formal (e.g., introduction of legislationand rules) institutional reforms. An important
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precondition has to be met before an econo-my arrives at this stage, i.e. a start must havebeen made with privatization and decentrali-zation of economic decisions. Instead of beingsuperficial, privatisation has to be structurallyand decidedly focused towards the shift in de-cision-making power. Decentralisation, on theother hand, should mean that owners or ma-nagers of firms can decide about selling pri-ces, about where to buy input, which goods willbe produced, and so on. During the second sta-ge of the transition, legislation and rules arereassessed and replaced, namely the legal fra-mework is shaped. For instance, banking laws,protection of private property, competition,law and bankruptcy laws are to be introduced.Even if slowly, informal institutions, like per-sonal attitudes, economic behaviour and cul-ture have to change during the second stageas well. However, as long as the formal insti-tutions have not taken shape and frameworkuncertainty persists, there can be no harmonybetween the formal and informal institutions.
The third stage of transition starts when theintroduction of legal framework is roughlycompleted. Marginal changes remain possib-le, but they mainly concern a refinement of thenewly implemented institutions. During thethird stage the main focus is on the change ofeconomic behaviour of agents. Economic ac-tors experiment in order to see which econo-
mic decisions lead to better results in the con-text of the new economic order. Furthermore,it is crucial that people accept the new formalinstitutional framework. This stage can last rat-her long and can be completed successfully on-ly if harmony between the formal and infor-mal institutions has arisen. Without this har-mony the new institutions are unlikely to per-sist, and, if they do, they probably are not ef-fective and the transition process may regressto the previous stage. The probability that har-mony will develop between two kinds of insti-tutions depends, among other factors, on theduration and the hardship suffered during thesecond stage of transition. When people seetheir incomes decline and have to live in po-verty for a prolonged period of time, they arelikely to blame the new economic and politi-cal order for their difficulties and will have lit-tle inclination to accept the new order andadapt to it (Van de Mortel, 2002: 23). Transi-tion stages according to Mortel (2002) areshown in Figure 1.
When we compare Mortel’s three transi-tion stages with the EBRD indicators we finda general agreement as to the formal institu-tional changes that need to take place duringStages One and Two. Mortel’s transition sta-ges go a step further by including the more ‘fuz-zy’ category of informal institutional influen-ce such as attitudes, values and culture. She
Figure 1: Three transition stages
Stage One: Desire or pressure to reform
Stage Two: Formal institutional reform
Stage Three: Harmonisation of formal and informal institutions
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argues that they play a crucial role in allowingthe more formal reforms in the transition pro-cess to progress.
Alternative indicators
A seemingly obvious indication of transitionprogress would be the GDP growth figures.Though all transition countries experienced adecline in output, a number of countries havebeen able to record high levels of GDP growthespecially in the mid to late 1990s. Table 4 pre-sents the estimated level of real GDP in 2002as compared to pre-transition GDP rates me-asured in 1989. Seven out of twenty-threecountries have surpassed their 1989 GDP le-vels. However, the arbitrariness of this deve-lopment and incongruity with other EBRDtransition indicators seriously question its ex-planatory value. Hungary and Poland’s high de-gree of economic recovery corresponds to theireconomic and political reforms, however, Al-bania’s high score is matched by only a secon-dary level of transition. Closer inspection ofAlbania’s GDP level shows high levels of in-ternational aid which has resulted in increa-sing its GDP figures to an artificially high le-vel.
Table 4: Estimated GDP level of real GDP in 2002 (1989 = 100)
Unfortunately, when searching for otherpossible indicators, substantial data problemswere encountered. A study by Raiser et al.(2001) investigated the relevance of a numberof factors to institutional change in 25 transi-tion countries. They developed a structural mo-del of institutional change using both time se-ries and cross-sectional data on transitioncountries. In their results, Raiser et al. findstrong evidence that economic reforms and po-litical liberalisation are more powerful forcesinfluencing institutional change than changesin economic structures induced by such re-forms. Hence the importance of political libe-ralisation for economic transition. The resultsof the study by Raiser et al. (2001) indicatingthe political liberalisation as an important de-terminant of institutional change inspired usto refer to measures of political liberalization.Therefore we consulted the surveys conduc-ted by Freedom House, measuring the levelsof civil liberties and political freedom . We wereable to find data for our entire country sam-ple, however, the earliest observation year is1993. According to our estimates using theEBRD transition indicators, by 1993 ten coun-tries had already entered the second stage of
Source: EBRD 2003
Country Estimated GDP 2002 Country Estimated GDP 2002
Albania 121 Lithuania 77
Armenia 78 Moldova 39
Azerbaijan 64 Poland 130
Belarus 93 Romania 87
Bulgaria 80 Russia 71
Czech Republic 105 Slovak Republic 109
Estonia 93 Slovenia 118
Georgia 38 Tajikistan 57
Hungary 112 Turkmenistan 91
Kazakhstan 86 Ukraine 47
Kyrgyzstan 70 Uzbekistan 106
Latvia 77
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transition. Therefore, if we were to use the Fre-edom House data, we would miss four crucialobservation years.
Another possibility was to use data on le-vels of corruption such as those presented inthe corruption index by Transparency Interna-tional. Measures of corruption can provide anindication of a harmonisation of informal andformal institutions. However, here we run in-to even greater data problems, since the earli-est observation year is 1995 and then only forHungary. Most countries are contained in thesample by 1999, however, even by 2003 not allcountries are represented.
We also consulted the measurement of in-formal markets in the Index for Economic Fre-edom compiled by the Heritage Foundation.The level of informal markets can indicate thelevel of compliance with formal rules. In thisindex, the earliest observation year for mostof the transition countries is 1995; however,not all of them are included.
In addition, we referred to the HeritageFoundation’s index for government interven-tion. Decreasing rates of governmental inter-vention could serve as an indication of a shiftof economic power from government controlto private economic agents. However, the He-ritage Foundation’s index for most transitioncountries begins in 1995. Besides, using thisindex for evaluating transition seems highly su-spect given the fact that some advanced Wes-tern countries exhibit very high levels of go-vernmental intervention such as France (sco-re = 5) and Norway (score = 3.5) and seem tobe able to combine it with an efficient marketeconomy. The score for Belarus is the same asfor Norway (score = 3.5) in 2003, which tellsus very little about the actual transition pro-gress, since according to EBRD indicators Be-larus is only at the primary stage of transition(EBRD 2003).
Another alternative measure would be tolook at human development related indicatorssuch as poverty, income distribution, years ofschooling and mortality rates. Here once againdata is limited and only available in the mid1990s and late 1990s for most transition coun-tries. We also consulted various macroecono-mic indicators in order to assess the transitionstages such as inflation levels, exchange rateregimes, current account balance and percen-tage of GDP created by the private sector. Butfor each one of these indicators, we found qui-te serious inconsistencies in terms of their re-lation to the actual transition progress measu-red by the EBRD.
2.3. SME barriers
In light of both the EBRD’s transition indica-tors and Mortel’s three transition stages, wefind that both formal and informal institutionsplay a role in the reform process. But do thesetwo factors reflect the various influences onprivate business development? Acs and Karl-sson (2002) raise a critical voice against focu-sing solely on institutional influences to priva-te enterprise development since they only pre-sent a limited part of the overall economic mi-lieu within which entrepreneurship may deve-lop. Other important conditions include de-mand and supply conditions, the degree ofcompetition in various markets, the state of theinfrastructure, the supply and skill level of thelabour force, the entrepreneurial climate andaccess to knowledge.
We agree with Acs and Karlsson’s view thatenvironmental factors must also be includedin our analysis of influences to entrepreneu-rial development. We also feel that an additio-nal category should be included to capture fac-tors not included in the other three categories.As a result, our analysis identifies four influ-
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ences on business development and growth:formal, informal, environmental and otherconstraints (Figure 2). The specific classifica-tion of the barriers affecting SME developmentand growth are presented in Appendix 2.
3. Method
As is highlighted in the previous sections ofthe paper, transition process itself is not onlya complicated phenomenon but also a non-li-near process. Thus one would expect the indi-cators capturing the progress of the transitionprocess, which make sense from the entrepre-neurship development viewpoint, to be com-plex as well. Among other factors, transitionindicators would need to consider differencesamong various transition countries in terms ofhistorical influences, both long- and short-term, affecting the starting points as well asthe speed and path of transition. Informal in-fluences on the transition process, such as cul-ture and the norms of different actors, inclu-ding government, regulating (tax inspection,etc.) and business promotion organisation rep-resentatives, the general population and, ofcourse, SME owners and managers themsel-ves, should be also taken into consideration.
In light of these factors, we chose EBRD’saverage indicator (see Table 3 and Appendix1) as the most suitable option for approxima-ting the transition stages. There are several re-
asons for this choice. Firstly, they cover all 23transition countries we are interested inthroughout the transition process (data areavailable starting in 1989). Secondly, the im-pact of the long- and short-term history, na-mely differences in the starting points of tran-sition countries are considered by these indi-cators. Thirdly, the common measurement sca-le ensures that the speed, e.g., progress of tran-sition, regardless of the path taken is measu-red uniformly for all transition countries.
However, there are several limitations ofusing EBRD indicators. One of the main limi-tations of this approach is the limited scale(from 1 to a maximum score of 4) of changeprovided by the EBRD indicators. This smallscale provides a very limited range of variancethat can be measured for our analysis. Anot-her limitation is based on the fact that the tran-sition process is not a linear one and so somecountries such as Russia and Belarus exhibitoutlier years. In 1995, Belarus had a total tran-sition indicator score of 2.00 which would pla-ce it in the secondary transition stage for thatyear. However, in subsequent years the scoredecreased to under 1.9. In Russia a similar si-tuation occurred in 1997 when the indicatorscore was 2.96, though in the following years itdecreased back to below 2.9, until 2003 whenRussia once again reached the advanced levelof transition. Though not presented in Table 3,
Figure 2: Four categories of constraints to SME development and growth
Formal Informal Environmental Other
SME development and growth
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these outliers can be seen in Appendix 1 and,whenever possible, we will take these outliersinto account while analyzing our data.
In this paper, we use 25 existing empiricalstudies on constraints SMEs face in transitioncountries as a backbone to analyse the impactof transition stages on SME development. Toensure the quality of the surveys analyzed, mostsurveys were obtained from papers publishedin high quality academic journals. Additional-ly, other sources such as country reports wereused to provide a broader picture of constraintsfaced by SMEs in transition. Since our mainaim is to identify which SME barriers (e.g., for-mal, informal, environmental or others) are of‘main’ importance at different transition sta-ges, we first classified all 25 studies accordingto transition stage. Then we classified the bar-riers identified as ‘important’ by the studies in-to formal, informal, environmental and ‘other’categories. Finally we compared and summa-rised the main barriers and barrier groups iden-tified at different transition stages. For furt-her information on the classification of SMEbarriers, see Appendices 2 and 3. A list of all
the 25 surveys utilised is presented in Appen-dix 4.
A problem faced while analysing these stu-dies was the different methodology and mesu-rement scales used to analyse SME constraints.To evaluate the importance of a specific SMEbarrier, we devised a scale to evaluate barrier‘importance’ as described in Table 5.
Most of the surveys used focused on SMEswith up to 250 employees, however, this wasnot always the case. Definitions for SMEs canrange from under 50 employees to up to 500employees. Given our limited access to the rawdata used in the surveys analyzed, this presen-ted a definitional problem. This is not a pro-blem specific to the transition context, but itdoes affect our ability to analyze across stu-dies5.
5 This is the main reason why at this stage we did notemploy any quantitative estimation methods that couldprovide with a more accurate picture of the importanceof different barriers in distinctive transition stages. This isthe main challenge for further research on this topic.
Table 5: Criteria for the measurement of SME barriers
(1) If the importance of a barrier was measured as a percentage of total respondents considering it tobe important (in some studies most important, or that a barrier was a problem that must be improved).In these cases, the barrier was considered to be important if at least 30 percent of the total respondentsconsidered it as important.(2) If the importance of a barrier was measured by the mean (average) score using different scales, thefollowing method was used:� Scale from 1 to 5, where 5 is the most problematic barrier. In this case, we considered the most
important barriers to be those where the mean is more than 3.0� Scale from 1 to 4, where 1 is the most problematic barrier. In this case, we considered the most
important barriers to be those where the mean is less than 2.0� Scale from 1 to 8, where 8 is the most important problem. In this case, we considered the most
important barriers to be those evaluated with 5 and more. (3) There were also some surveys where authors did not provide any quantifiable measurementscales. In these cases we rely on the author’s judgement and consider the barriers as most importantwhich are mentioned to be such by the authors themselves.
19
4. Data
The selected 25 studies on constraints facedby SMEs cover various transition stages in 23different countries of transition. To ensure ahigh quality of analysis, most of the surveysused were published in high quality academicjournals. Additionally, other sources like coun-try reports, etc. which provided a broader pic-ture of the constraints faced by SME were inc-luded. The main focus of our analysis was onthe surveys of SME growth barriers. One halfof all studies used were single country surveys,while the other studies included two or morecountries. Most of the studies including twoor more countries analysed SME constraintswithin a single transition stage. The vast majo-rity of the studies used cover the main SMEsectors in a particular country. The unit of ana-lysis used in the studies was SMEs in transi-tion countries. As already mentioned, SMEswere defined rather differently in various stu-dies. The most common classification was lessthan 50 employees, less than 200 employeesor less than 250 employees. In terms of sam-ple sizes, the studies ranged from 50 to 2000respondents. The number of barriers exami-ned in an individual study ranged from 6 to 65.The data were mainly collected using mail sur-vey methods, while personal interviews were usedless extensively. A number of studies employboth methods. The respondents in most cases we-re managers and owners of SMEs. For a moredetailed description of studies on constraints fa-ced by SMEs in transition, see Appendix 4.
5. Results
Our aggregated barriers for the three transi-tion stages point to a number of interesting ob-servations. As is shown in Figure 3, a numberof formal and environmental constraints affec-
ted SME owners throughout the three transi-tion stages. This was not true for informal orother constraints. Constraints specific to eachtransition stage are listed separately under for-mal, informal, environmental and other cate-gories. In addition, a number of similar bar-riers were identified in both stages 2 and 3 andthese are listed separately in a column locatedbetween Stages 2 and 3. Given the exploratorycharacter of our analysis, it is more useful tofocus on the general nature and trends that canbe derived from our results and save a morespecific analysis for later research.
Our results indicate the following threetrends. First of all, we can identify a generaltrend of more fundamental barriers to morespecific constraints being identified as transi-tion progresses from Stage One to Stage Three.Furthermore, as the transition process movesto Stage Three and beyond, SME owners be-come increasingly more concerned with humanresources (labour) and skill development (trai-ning) than at the initial stages. This changedultimately to the increased need to develop in-ternal business capabilities to deal with the inc-reasing competition as well as business growthsuch as specific consulting and advice and bu-siness training programmes. Evidence for theneed for business training programmes has be-en identified in more advanced transition coun-tries such as Hungary (Acs et al., 2001). Se-condly, we find that three formal constraints,taxes, policy instability and legal regulations,form a barrier for business developmentthroughout the transition stages. Though ta-xes are a constraint faced by businesses worl-dwide, policy instability and uncertainty seemsmore specifically related to the transition pro-cess and indicates the effect of the difficultiesof adopting a new legal framework on SMEowners. Thirdly, we find that access to and the
20
cost of financing continues to be a barrier tobusinesses throughout the three transition sta-ges. Though access to financing is a constraintto many western businesses, this result drawsspecial attention to the difficulties of develo-ping an adequate independent banking sectorthat would serve the capital needs of SMEs inthe transition context.
Are informal barriers ‘irrelevant’ at Stage
One?
Our results certainly point to this unlikelyconclusion. But we believe there may be someother reasons for this seemingly incongruousresult. First of all, it may be the case of missingdata because of the few studies available withdata on barriers to SMEs in transition coun-tries at Stage One. However, it may also be
possible that these results illustrate a situationin which SME owners may be less aware of theinformal constraints, because these constraints‘stayed constant’ and exemplify a situation of‘the fish don’t talk about the water’. In this ins-tance other constraints such as formal and en-vironmental barriers would seem more impor-tant, because they are undergoing dramaticchanges and put additional demands on SMEowners to adapt to the changing conditions.
In addition, business owners in later tran-sition stages may become more vocal about in-formal barriers such as corruption, as they be-come more accustomed to the formal and in-formal environment and become more awareof the fact that informal barriers such as cor-ruption are fundamentally detrimental to theirbusiness development.
Figure 3: Main barriers facing SMEs in different transition stages
STAGE 1
INFORMAL
FORMAL: Taxes, policy instability/uncertainty, legal regulations
STAGE 3 STAGE 2
OTHER
ENVIRONMENTAL: Financing: access and cost
• Customs and
trade
regulations
• Macroeconomic stability
• Inflation
• Gov’t Attitude
• Organised crime and mafia
• Anti-corruption measures
• Business security
• Gov’t non-transparency
• Commercial law
• Social security
payments
• Frequent changes to laws
and government
• Business registration
business
• Too many licenses
• Accounting
standards
• Business
training
• Too many tax inspections
• Implementation of regulations
• Motivation / quality ethics of the
workforce
• Lack of state support
• Corruption
• Bureaucracy
• Payment behaviour of
clients
• Physical infrastructure
• Low product demand
• High input prices
• Suppliers
• High interest rates
• Infrastructure
• Unfair competition
• Premises rental costs
• Wage costs
• Shortage of qualified workers
• Strong competition
• Lack of investment/finance for
expansion
• Inflation
• Information
• Need for specific consulting advice
(marketing, financial,
psychological)
Stages 2 & 3
21
REFERENCES
Acs, Z., S. Lazslo, U. Jozsef, V. Attila, (2001).Hungary GEM 2001 National Report, Global Entrep-reneurship Monitor. (Http://www.gem.org).
Acs, Z. and C. Karlsson 2002. ‘Introduction toinstitutions, entrepreneurship and firm growth: Thecase of Sweden’ Small Business Economics, vol 19(2).63–67.
Aidis, R. 2003. By law and by custom: Factorsaffecting small- and medium-sized enterprises duringthe transition in Lithuania. Thela Thesis: Amsterdam.
Batra, G., D. Kaufmann and A. Stone (2003) Thefirms speak: What the world business environmentsurvey tells us about constraints on private sectordevelopment, working paper, http://papers.ssrn.com
Brown, A. (ed). (1999). When is Transition Over?W.E Upjohn Institute for Employment Research, Ka-lamazoo, Michigan.
Brunetti, A, G. Kisunko and B. Weder. (1998).Institutions in Transition: Reliability of rules and eco-nomic performance in former socialist countries,1997’,World Bank working paper, no. 1809.
Burns, P. (2001). Entrepreneurship and Small Bu-siness. Palgrave Macmillan.
Campos, N. and F. Coricelli (2002). ‘Growth inTransition: What we know, what we don’t know andwhat we should know’ Journal of Economic Literatu-re, vol. XL. 793–836.
6. Policy recommendations
Our results indicate that a number of const-raints experienced by SMEs change as the tran-sition process progresses. Correspondingly, thetypes of policies and programmes offered tobusiness owners should also be sensitive to the-se developments. SME owners in Stages Oneand 2 seem much more affected by fundamen-tal formal constraints, and so at these stagesthe policies that would diminish this barrier,such as information on taxes and simplified taxpolicies would be most appropriate. Busines-ses in Stage Three may profit more greatlyfrom specific business training programmes toimprove their skills in marketing, obtainingspecific forms of financing and growing their
business into new markets. Given the fact thataccess to and cost of financing continued to bea constraint to SMEs throughout the transi-tion stages, it is a fundamental issue that shouldbe seriously addressed at the beginning of thetransition process in order to foster the growthand development of SMEs.
Acknowledgements
Both authors contributed equally to the wri-ting of this paper, names are listed in alphabe-tical order. Acknowledgements belong to theSwedish Institute as a grant-giving institutionfor the possibility to pursue research work atJönköping International Business School(Sweden) from Arnis Sauka.
Chilosi, A. (2001). ‘Entrepreneurship and Transi-tion’ MOST 11:327 –357.
Dallago, B. (1997). ‘The Economic System, Tran-sition and Opportunities for Entrepreneurship’ Chap-ter 7, pp. 103–124 in Entrepreneurship and SMEs inTransition Economies, The Visegrad Conference. Pa-ris: OECD.
European Bank of Reconstruction and Develop-ment (EBRD). 1994, 1995, 1996, 1997, 1998, 1999,2000, 2001, 2002, 2003. Transition Report. London
Feige, E. (1997). ‘Underground activity and insti-tutional change: Productive, protective, and predato-ry behavior in transition Economies.’ in TransformingCommunist Political Economies, edited by C. TillyJ. Nelson & L. Walker. Washington DC: NationalAcademy Press, 21–34.
Freedom House (2004) Freedom in the World Sur-vey, http://www.freedomhouse.org
Hedlund, S. (1999). Russia’s ‘market’ economy: Abad case of predatory capitalism. London: UCL Press.
Heritage Foundation, The 2004 Index of Econo-mic Freedom, http://cf.heritage.org.
Karlsson, C. and R. Dahlberg (2003). Entrepre-neurship, Firm Growth and Regional Developmentin the New Economic Geography: Introduction SmallBusiness Economics 21: 73–76, 2003.
Knaack, R. (1995). ‘The Collapse of the RussianEconomy: an Institutional Explanation’, in EconomicInstitutions, Markets and Competition edited by B. Dal-lago, L. Mittone, Cheltenham: Edward Edgar.
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Kolodko, G. (1999). Transition to a market andentrepreneurship. The systematic factors and policyoptions. Paper for the UNU/ WIDER project “Smalland Medium Enterprises: How does Entrepreneurs-hip Develop in Postsocialistic States”. Helsinki, Fin-land.
Merlevede, B. (2000) Growth in transition econo-mies: A review of the literature. Working paper. Uni-versity of Antwerp, Department of Economics.
Nørgaard, O. (1996). The Baltic States after inde-pendence. Brookfield, VT: Edward Elgar.
North, D. (1997a). The Contribution of the NewInstitutional Economics to an Understanding of theTransitional Problem, Helsinki: Wider Annual Lectu-res, United Nationals University World Institute forDevelopment Economics Research.
North, D. (1997b). ‘Understanding economic chan-ge.’ in Transforming communist political economies,edited by C. Tilly J. Nelson, & L. Walker. Washing-ton DC: National Academy Press, 13–19.
Porter, M. (1990). The Competitive Advantage ofNations, New York: Free Press.
Raiser, M., M. Di Tommaso and M. Weeks (2001)The measurement and determinants of institutionalchange: Evidence from transition economies, EBRDworking paper nr. 60, http://www.ebrd.org
Scase, R. (2000). Entrepreneurship and Proprietors-hip in Transition: Policy Implications for the Small-and Medium-size Enterprise Sector Helsinki: UnitedNations University World Institute for DevelopmentEconomics Research.
Smallbone, D. & F. Welter. (2001). “The Distinc-tiveness of Entrepreneurship in Transition Econo-mies.” Small Business Economics 16: 249-62.
Surdej, A. (2003). ‘SME Development in Poland:Policy and Sustainability’, (Chapter 7) in Small andMedium Enterprises in Transitional Economies, editedby R. McIntyre & B. Dallago. Hampshire, UK: Palg-rave, 98–113.
Transparency International (2004). Corruption Per-ceptions Index, http://transparency.org
Van de Mortel, E. (2002). An Institutional Ap-proach to Transition Processes. Hants, UK: Ashgate.
Yeager, T. (1999). Institutions, Transition Econo-mics and Economic Development Oxford: WestviewPress.
Áteikta 2004 m. spalio mën.
Darbe nagrinëjama verslumo ugdymo pereinamosioserinkose problematika: smulkios ir vidutinës ámonësyra ypaè jautrios iðorinës aplinkos pokyèiams, todëljoms reikia iðskirtinio dëmesio. Darbe analizuojamoskliûtys, kylanèios ámonëms skirtingais virsmo proce-so etapais. Pateikiami virsmo procesà apibûdinantysindikatoriai, kurie turi átakà verslumo perspektyvai.Autoriai naudoja ðiuos indikatorius virsmo proceso
NEPASTOVIØ TIKSLØ VERTINIMAS: VIRSMO PROCESO ETAPØ POVEIKIS VERSLUMUI UGDYTI
Ruta Aidis, Arnis Sauka
S a n t r a u k a
analizei 23 ðalyse. Remdamiesi tyrimo rezultatais, au-toriai pateikia modelá, kuris gali bûti naudojamassmulkiø ir vidutiniø ámoniø raidos tendencijoms nu-statyti. Ðiame modelyje taip pat identifikuojamos kliû-tys ir problemos, su kuriomis susiduria smulkios ir vi-dutinës ámonës skirtingais virsmo proceso etapais. Ty-rimo rezultatai leidþia formuluoti patarimus ámonëms,veikianèioms skirtingais virsmo proceso etapais.
23
Ap
pen
dix
1:
EB
RD
tra
nsi
tion
in
dic
ato
rs (
ave
rage
)
1
98
9
19
90
1
99
1
19
92
1
99
3
19
94
1
99
5
19
96
1
99
7
19
98
1
99
9
20
00
2
00
1
20
02
2
00
3
Alb
ania
1
.00
1
.00
1
.11
1
.63
1
.89
2
.07
2
.33
2
.48
2
.48
2
.48
2
.48
2
.63
2
.67
2
.67
2
.67
Arm
enia
1
.00
1
.00
1
.00
1
.48
1
.52
1
.59
2
.11
2
.44
2
.52
2
.67
2
.70
2
.70
2
.85
2
.92
2
.96
Aze
rbai
jan
1
.00
1
.00
1
.00
1
.19
1
.30
1
.30
1
.70
1
.85
2
.15
2
.33
2
.33
2
.41
2
.48
2
.56
2
.59
Bel
aru
s 1
.00
1
.00
1
.00
1
.26
1
.56
1
.59
2
.00
1
.82
1
.67
1
.52
1
.52
1
.59
1
.67
1
.78
1
.81
Bu
lgar
ia
1.0
0
1.1
1
1.7
0
1.8
5
2.0
4
2.2
6
2.3
3
2.3
7
2.8
1
2.8
1
2.9
2
3.1
1
3.1
5
3.2
2
3.2
6
Cze
ch R
epu
bli
c 1
.00
1
.00
2
.11
2
.63
3
.07
3
.30
3
.30
3
.41
3
.48
3
.52
3
.55
3
.59
3
.67
3
.67
3
.67
Est
on
ia
1.0
0
1.1
8
1.3
7
1.8
5
2.6
3
2.9
6
3.1
1
3.1
8
3.3
3
3.4
1
3.5
2
3.5
9
3.6
3
3.6
7
3.6
7
Geo
rgia
1
.00
1
.00
1
.00
1
.26
1
.41
1
.41
1
.96
2
.44
2
.70
2
.78
2
.81
2
.92
2
.92
2
.92
2
.92
Hu
ng
ary
1.3
0
1.7
8
2.3
7
2.5
9
2.9
6
3.2
2
3.4
8
3.5
2
3.7
0
3.7
8
3.8
1
3.8
5
3.8
5
3.8
5
3.8
5
Kaz
akh
stan
1
.00
1
.00
1
.00
1
.30
1
.52
1
.74
2
.26
2
.67
2
.78
2
.81
2
.70
2
.78
2
.85
2
.85
2
.89
Kyrg
yzs
tan
1
.00
1
.00
1
.00
1
.48
1
.74
2
.52
2
.70
2
.74
2
.81
2
.81
2
.81
2
.81
2
.81
2
.81
2
.81
Lat
via
1
.00
1
.00
1
.19
2
.00
2
.26
2
.81
2
.81
3
.07
3
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3
.11
3
.18
3
.22
3
.26
3
.41
3
.48
Lit
hu
ania
1
.00
1
.15
1
.19
1
.59
2
.44
2
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2
.85
2
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3
.04
3
.07
3
.15
3
.26
3
.37
3
.48
3
.48
Mo
ldo
va
1.0
0
1.0
0
1.0
0
1.4
4
1.7
0
2.0
4
2.5
2
2.5
6
2.6
3
2.7
0
2.7
0
2.7
0
2.7
4
2.7
4
2.7
0
Po
lan
d
1.2
6
2.2
6
2.4
1
2.5
6
3.0
0
3.1
1
3.2
6
3.3
7
3.4
4
3.5
5
3.5
5
3.6
3
3.6
6
3.6
6
3.6
6
Ro
man
ia
1.0
0
1.0
0
1.2
6
1.5
9
1.8
5
2.2
6
2.4
1
2.4
1
2.7
4
2.8
5
2.9
3
3.0
0
3.0
4
3.0
4
3.0
4
Ru
ssia
1
.00
1
.00
1
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1
.89
2
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2
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2
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2
.85
2
.96
2
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2
.48
2
.59
2
.67
2
.85
2
.92
Slo
vak
Rep
ub
lic
1.0
0
1.0
0
2.1
1
2.5
2
2.8
5
3.0
4
3.1
1
3.1
9
3.1
9
3.2
2
3.3
0
3.3
3
3.4
1
3.4
4
3.4
8
Slo
ven
ia
1.5
2
1.7
4
1.8
9
2.0
4
2.7
0
2.8
5
2.9
3
3.0
4
3.0
7
3.2
2
3.3
0
3.3
3
3.3
3
3.3
7
3.3
7
Taj
ikis
tan
1
.00
1
.00
1
.00
1
.30
1
.37
1
.37
1
.70
1
.74
1
.78
2
.00
2
.04
2
.15
2
.15
2
.22
2
.26
Tu
rkm
enis
tan
1
.00
1
.00
1
.00
1
.00
1
.00
1
.15
1
.26
1
.26
1
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1
.45
1
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1
.37
1
.30
1
.30
1
.30
Uk
rain
e 1
.00
1
.00
1
.00
1
.19
1
.30
1
.48
2
.19
2
.30
2
.52
2
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2
.48
2
.59
2
.63
2
.70
2
.74
Uzb
ekis
tan
1
.00
1
.00
1
.00
1
.19
1
.41
1
.96
2
.22
2
.22
2
.15
2
.11
2
.04
2
.00
2
.11
2
.11
2
.08
S
ou
rce:
EB
RD
200
3
25
Ap
pen
dix
3:
Cla
ssif
ica
tion
an
d t
ypes
of
SM
E b
arr
iers
id
enti
fied
in
dif
fere
nt
tra
nsi
tion
sta
ges
F
orm
al
Info
rmal
E
nv
iro
nm
enta
l O
ther
All
sta
ges
•
Hig
h t
axes
/ ta
x r
ate
•
Po
licy
inst
abil
ity
/unce
rtai
nt
y
•
Leg
al i
ssu
es /
reg
ula
tio
ns
•
Fin
anci
ng p
rob
lem
s
•
Acc
ess
to f
inan
ce/c
red
it
•
Co
st o
f fi
nan
ce/c
redit
Sta
ge
1
•
Cu
sto
ms
and
tra
de
reg
ula
tio
ns
•
Mac
roec
on
om
ic s
tab
ilit
y
•
Infl
atio
n
Sta
ge
2
•
Fre
qu
ent
chan
ges
to
law
s/g
ov
’t
•
Tim
e to
reg
iste
r
bu
sin
ess
•
Att
itu
de
of
the
go
v’t
•
Org
anis
ed c
rim
e an
d
maf
ia
•
Inad
equ
ate
mea
sure
s
agai
nst
co
rru
pti
on
•
Bu
sin
ess
secu
rity
•
Phy
sica
l in
fras
tru
ctu
re –
old
un
reli
able
eq
uip
men
t
•
Lo
w p
rod
uct
dem
and
•
Hig
h i
np
ut
pri
ces
•
Su
pp
lier
s n
ot
read
y t
o d
eliv
er
•
Hig
h i
nte
rest
rat
es
Sta
ge
2&
3
•
Go
v’t
no
n-
tran
spar
ency
•
Op
erat
ion o
f
com
mer
cial
law
•
Hig
h s
oci
al s
ecuri
ty
pay
men
ts
•
Bu
reau
crac
y
•
Pay
men
t b
ehav
iou
r o
f
clie
nts
•
corr
up
tio
n
•
Un
fair
co
mp
etit
ion
•
Pre
mis
es r
enta
l co
sts
•
Wag
e co
sts
•
Infr
astr
uct
ure
– l
ack
of
tele
ph
on
e co
nn
ecti
on
s
•
Bu
sin
ess
trai
nin
g
Sta
ge
3
•
To
o m
any
lic
ense
s
•
Acc
ou
nti
ng
stan
dar
ds
•
Un
pre
dic
tab
ilit
y o
f
eco
no
mic
reg
ula
tio
ns
•
Pre
fere
nti
al t
reat
men
t
•
Dis
ho
nes
t co
mp
etit
ion
•
To
o m
any
tax
insp
ecti
on
s
•
Imp
lem
enta
tio
n o
f
bu
sin
ess
reg
ula
tio
ns
•
Mo
tiv
atio
n o
f th
e
wo
rkfo
rce/
qu
alit
y
eth
ics
in t
he
wo
rkfo
rce
•
Lac
k o
f st
ate
sup
port
•
Sh
ort
age
of
qu
alif
ied
wo
rker
s/la
bo
ur
•
Str
on
g c
om
pet
itio
n
•
Lac
k o
f in
ves
tmen
t/fi
nan
ce
for
exp
ansi
on
•
Infl
atio
n
•
Info
rmat
ion
pro
vis
ion
to s
mal
l
firm
em
plo
yee
s
•
Nee
d f
or
spec
ific
co
nsu
ltin
g
adv
ice
(mar
ket
ing
, fi
nan
cial
,
psy
cho
logic
al)
•
Inab
ilit
y t
o g
row
in
to n
ew
mar
ket
s
26
Ap
pen
dix
4
. S
tud
ies
on c
onst
rain
ts f
aci
ng
SM
Es
in t
ran
siti
on
Tra
nsi
tio
n s
tag
e
(dat
a
coll
ecte
d)
Co
un
try
(ies
) S
ecto
rs c
ov
ered
S
amp
le
size
Def
init
ion
of
SM
E
Met
ho
d u
sed
K
ey i
nfo
rman
ts
Nu
mb
er
of
bar
rier
s
exam
ined
Au
tho
r(s)
, ti
tle
and
so
urc
e
III
(20
00
) S
lov
enia
A
ll s
ecto
rs e
xce
pt
agri
cult
ure
17
3
Les
s th
an 2
50
emp
loy
ees
Per
son
al
inte
rvie
ws.
Ran
do
m s
am
ple
SM
Es
ow
ner
s
and
man
ager
s
51
B
arl
ett
, W
. an
d V
.Bu
kv
ič.
20
01
. B
arri
ers
to S
ME
Gro
wth
in S
lov
enia
. M
OC
T-M
OS
T 1
1:
17
7-
19
5,
20
01
II (
19
97
) A
lban
ia
Man
ufa
ctu
rin
g,
con
stru
ctio
n,
trad
e
and
ser
vic
e
sect
ors
50
L
ess
than
20
0
emp
loy
ees
Co
mp
lete
qu
esti
on
nai
re
(nea
rly
40
0
qu
esti
on
s) a
nd
face
to
fac
e
inte
rvie
w
SM
Es
ow
ner
s
and
man
ager
s
15
H
ash
i, I
. 2
00
1.
Fin
anci
al a
nd
Inst
itu
tio
nal
Bar
rier
s to
SM
E
Gro
wth
in
Alb
ania
: R
esu
lts
of
an E
nte
rpri
se S
urv
ey.
MO
CT
-
MO
ST
11
: 2
21
- 2
38
, 2
00
1
III
(19
97
) T
he
Cze
ch
Rep
ub
lic
Man
ufa
ctu
rin
g,
con
stru
ctio
n,
trad
e
and
ser
vic
es
10
0
Les
s th
an 2
00
emp
loy
ees
Inte
rvie
ws
SM
Es
ow
ner
s
and
man
ager
s
40
B
oh
ata,
M.
and
J.M
lad
ek.
19
99
. T
he
Dev
elo
pm
net
of
the
Cze
ch S
ME
Sec
tor.
Jo
urn
al o
f
Bu
sin
ess
Ven
turi
ng
14
, 4
61
-
47
3,
19
99
III
(19
99
) H
un
gar
y
Sm
all-
sca
le
man
ufa
ctu
rin
g o
r
pro
du
ctio
n,
serv
ices
28
0
na
Mai
l su
rvey
s an
d
tele
ph
on
e
inte
rvie
ws
Sm
all
bu
sin
ess
ow
ner
s an
d
op
erat
ors
12
F
og
el,
G.
An
An
aly
sis
of
En
trep
ren
euri
al E
nv
iro
nm
ent
and
En
terp
rise
Dev
elo
pm
ent
in
Hu
ng
ary
. 2
00
1.
Jou
rnal
of
Sm
all
Bu
sin
ess
Man
agem
ent
20
01
39
(1),
pp
. 1
03
- 1
09
II (
19
96
and
19
97
)
Ky
rgiz
Rep
ub
lic
Co
nce
ntr
ated
on
serv
ice
acti
vit
ies
19
96
: 1
60
19
97
: 2
19
na
Mai
l
qu
esti
on
nai
re
Des
crip
tiv
e
stat
isti
cs a
nd
lo
git
anal
ysi
s
Ow
ner
s o
f
smal
l n
on
-far
m
ho
use
ho
ld
bu
sin
esse
s
12
A
nd
erso
n,
K.
and
R.P
om
fret
.
20
01
. C
hal
len
ges
Fac
ing
Sm
all
and
Med
ium
- S
ized
En
terp
rise
s in
th
e K
yrg
yz
Rep
ub
lic,
19
96
-97
. M
OC
T-
MO
ST
11
:20
5-2
19
, 2
00
1
II (
19
93
,
19
96
an
d
19
98
)
Ru
ssia
A
ll s
ecto
rs
19
93
:
27
7 a
nd
28
1
19
96
: 8
87
19
98
: 2
27
Acc
ord
ing
to
Ru
ssia
n
Fed
erat
ion
fed
eral
law
of
14
Ju
ne,
19
95
Sta
nd
ard
ized
surv
ey
SM
Es
ow
ner
s
and
man
ager
s
8
Rad
aev
, V
. 2
00
1.
Th
e
Dev
elo
pm
ent
of
Sm
all
En
trep
ren
eurs
hip
in
Ru
ssia
.
WID
ER
Dis
cuss
ion
Pap
er N
o.
20
01
/13
5
27
III
(19
97
and
19
98
)
Hu
ng
ary
All
sec
tors
2
00
0
na
na
Ow
ner
s an
d
man
ager
s o
f
smal
l en
terp
rise
11
D
alla
go
, B
. 1
99
9.
Co
nte
xt
and
Poli
cies
for
the
Tra
nsf
orm
atio
n
and
Gro
wth
of
SM
Es.
Th
e
Cas
e of
Hungar
y w
ith R
uss
ian
Impli
cati
ons.
WID
ER
Res
earc
h f
or
Act
ion
50.
III
(19
93
) P
ola
nd
n
a n
a n
a In
terv
iew
s S
mal
l b
usi
nes
s
ow
ner
s an
d
man
ager
s
11
R
ob
son
, G
. 1
99
3. T
he
pro
ble
ms
faci
ng
sm
all
firm
s in
Po
lan
d. D
iscu
ssio
n P
aper
No
93
-4 S
cho
ol
of
Busi
nes
s
Man
agem
ent,
Un
iver
sity
of
New
cast
le u
po
n T
yn
e, U
K.
II (
19
95
) R
uss
ia a
nd
Bulg
aria
All
sec
tors
R
uss
ia:
21
6
Bulg
aria
:
22
1
Les
s th
an 2
00
emp
loyee
s
Inte
rvie
ws.
Ran
do
m s
am
ple
s.
Tab
ula
tio
n o
f
resp
on
ses
Mult
ino
min
al
reg
ress
ion
anal
ysi
s.
Reg
ional
ly
stra
tifi
ed r
ando
m
sam
ple
s
SM
Es
ow
ner
s
and
/ o
r ch
ief
exec
uti
ve
off
icer
s
11
Pis
sari
des
, F
., S
ing
er,
M.
and
Svej
nar
, J.
2003. O
bje
ctiv
es
and
Co
nst
rain
ts o
f
Entr
epre
neu
rs:
Ev
iden
ce f
rom
Sm
all
and
Med
ium
Siz
e
En
terp
rise
s in
Russ
ia a
nd
Bulg
aria
. Jo
urn
al o
f
Co
mp
arat
ive
Eco
no
mic
s
(20
03
) 1
3, 5
03
–5
31
II (
19
93
-
19
96
)
Bu
lgar
ia
All
sec
tors
1
20
L
ess
than
50
emp
loyee
s
Mai
l
ques
tionn
aire
Sm
all
busi
nes
s
ow
ner
s an
d
man
ager
s
13
D
mit
rov
, M
. an
d T
od
oro
v, K
.
19
95
. S
mal
l B
usi
nes
s
Dev
elo
pm
ent
in B
ulg
aria
. In
Fo
gel
, et
al.
19
95
(ed
s).
Movin
g t
o S
ust
ainab
ilit
y.
How
to K
eep S
mal
l B
usi
nes
s
Dev
elop
men
t C
ente
rs A
live.
Av
erb
ury
. E
ng
lan
d, U
SA
III
(19
99
) P
ola
nd
A
ll s
ecto
rs
32
0
Les
s th
an 5
0
emp
loyee
s
Mai
l
ques
tionn
aire
Sm
all
busi
nes
s
ow
ner
s
10
Mat
usi
ak, K
. 1999.
En
trep
ren
euri
al A
ttit
ud
es a
nd
Inn
ov
atio
ns
of
Sm
all
and
Med
ium
- S
ized
En
terp
rise
s in
Pola
nd. U
npubli
shed
III
and
II
(19
93
)
Pola
nd,
Hungar
y, th
e
Cze
ch
Rep
ub
lic
(III
)
and
Slo
vak
Rep
ub
lic
(II)
All
sec
tors
1
40
in
each
cou
ntr
y
Les
s th
an 5
00
emp
loyee
s
Mai
l
ques
tionn
aire
SM
Es
ow
ner
s
and
man
ager
s
16
O
EC
D w
ork
ing
pap
ers,
vo
l.
IV. S
mal
l B
usi
nes
s in
Tra
nsi
tio
n E
con
om
ies,
19
96
28
II (
19
99
) A
lban
ia
All
sec
tors
1
01
L
ess
than
25
0
emp
loyee
s
Mai
l
ques
tionn
aire
SM
Es
ow
ner
s
and
man
ager
s
9
Mu
ent,
H.
2001. T
axes
,
Co
mp
etit
ion a
nd F
inan
ce f
or
Alb
ania
n E
nte
rpri
ses:
Evid
ence
fro
m a
Fie
ld S
tudy.
MO
CT
- M
OS
T 1
1:
23
9–
25
1,
20
01
II (
19
96
) R
uss
ia a
nd
Po
lan
d
Sh
op
s 5
5 i
n
Russ
ia
(Mo
sco
w
) 50
in
Po
lan
d
(War
saw
)
Les
s th
an 5
0
emp
loyee
s
Surv
ey
Ow
ner
s 6
Fry
e, T
. an
d A
. S
hle
ifer
. 1997.
Th
e In
vis
ible
Han
d a
nd t
he
Gra
bb
ing
Han
d. A
mer
ican
Eco
no
mic
Rev
iew
, 1
99
7, 8
7/2
,
35
4–3
58
I, I
I an
d
III
(19
97
)
All
23
cou
ntr
ies
All
sec
tors
D
iffe
rent
sam
ple
size
in
dif
fere
nt
cou
ntr
ies
Les
s th
an 2
00
emp
loyee
s
Mai
l
ques
tionn
aire
Ow
ner
s an
d
man
ger
s
31
W
orl
d D
evel
op
men
t R
epo
rt
19
97
. W
orl
d B
ank
I, I
I an
d
III
(19
99
)
All
23
cou
ntr
ies
All
sec
tors
D
iffe
rent
sam
ple
size
in
var
iou
s
cou
ntr
ies
Les
s th
an 2
00
M
ail
ques
tionn
aire
s
SM
Es
ow
ner
s
and
man
ager
s
65
B
EE
PS
19
99
, E
BR
D a
nd
Wo
rld
Ban
k
I, I
I an
d
III
(20
02
)
All
23
cou
ntr
ies
All
sec
tors
D
iffe
rent
sam
ple
size
in
var
iou
s
cou
ntr
ies
Les
s th
an 2
50
Mai
l
ques
tionn
aire
s
SM
Es
ow
ner
s
and
man
ager
s
25
B
EE
PS
20
02
, E
BR
D a
nd
Wo
rld
Ban
k
I an
d I
I
(19
97
)
Uk
rain
e (I
I)
and B
elar
us
(I)
All
sec
tors
3
43
in
Uk
rain
e
20
0 i
n
Bel
arus
Les
s th
an 2
00
Quan
tita
tive
surv
ey a
nd i
n-
dep
th c
ase
studie
s
SM
Es
ow
ner
s
and
man
ager
s
17
S
mal
lbo
ne,
D. et
al.
20
01
. T
he
con
trib
uti
on
of
Sm
all
and
Med
ium
En
terp
rise
s to
Eco
no
mic
Dev
elo
pm
ent
in
Ukra
ine
and B
elar
us:
Som
e
Poli
cy P
ersp
ecti
ves
.. M
OC
T-
MO
ST
11
: 2
53
–273
, 2
00
1
III
(20
00
) L
ith
uan
ia
All
sec
tors
3
32
L
ess
than
50
emp
loyee
s
Mai
l
ques
tionn
aire
SM
Es
ow
ner
s
and
man
ager
s
19
A
idis
, R
. 2
00
3. B
y l
aw a
nd
by
cust
om
: F
acto
rs a
ffec
ting
smal
l- a
nd
med
ium
-siz
ed
ente
rpri
ses
duri
ng
the
tran
siti
on i
n L
ithu
ania
.
Tin
ber
gen
Inst
itute
Res
earc
h
Ser
ies,
PhD
Thes
is
29
III
(20
00
) L
ith
uan
ia
All
sec
tors
1
50
0
Les
s th
an 5
0
emp
loy
ees
Mai
l
qu
esti
on
nai
re
SM
Es
ow
ner
s
and
man
ager
s
11
S
urv
ey b
y t
he
Em
plo
yer
’s
Ho
use
, th
e L
ith
uan
ian
Bu
sin
ess
Em
plo
yers
’
Co
nfe
der
atio
n a
nd
SIC
Mar
ket
Res
earc
h.
Lit
hu
ania
, 2
00
0
III
(19
98
) L
atv
ia
All
sec
tors
2
95
L
ess
than
25
0
emp
loy
ees
Inte
rvie
ws
SM
Es
ow
ner
s
and
man
ager
s
16
T
isen
ko
pfs
, et
al.
19
98
. H
ow
do
es s
mal
l en
trep
ren
eur
feel
?
Rep
ort
to
th
e G
ov
ernm
ent
of
Lat
via
. P
hil
oso
ph
y a
nd
So
cio
log
y I
nst
itu
te o
f th
e
Un
iver
sity
of
Lat
via
. (I
n
Lat
via
n)
III
(19
97
) L
atv
ia
All
sec
tors
1
80
L
ess
than
25
0
emp
loy
ees
Mai
l
qu
esti
on
nai
res
and
inte
rvie
ws
SM
Es
ow
ner
s
and
man
ager
s
9
Ku
zmin
a, I
. 1
99
9.
So
cial
ly
eco
no
mic
al a
spec
ts o
f
entr
epre
neu
rsh
ip i
n L
atv
ia
du
rin
g t
ran
siti
on
per
iod
to
mar
ket
eco
no
my
. P
hD
Th
esis
,
Un
iver
sity
of
Lat
via
. (I
n
Lat
via
n)
III
(20
01
) L
atv
ia
All
sec
tors
5
41
L
ess
than
25
0
emp
loy
ees
Inte
rvie
ws
To
p m
anag
ers
of
SM
Es
12
L
atv
ian
Dev
elo
pm
ent
Ag
ency
and
th
e W
orl
d B
ank
Fo
reig
n
Inv
estm
ent
Ad
vis
ory
Ser
vic
e.
20
01
III
(20
02
) L
atv
ia
All
sec
tors
3
00
L
ess
than
25
0
Fac
e to
fac
e
Inte
rvie
ws
or
qu
esti
on
nai
re
SM
Es
ow
ner
s
and
man
ager
s
16
S
KD
S.
20
02
. E
nv
iro
nm
ent
of
smal
l an
d m
ediu
m s
ize
entr
epre
neu
rsh
ip i
n L
atv
ia.
Res
ult
s o
f en
terp
rise
su
rvey
.
(In
Lat
via
n)
III
(19
97
-
19
99
)
Lit
hu
ania
A
ll s
ecto
rs
17
50
N
ot
on
ly
SM
Es
bu
t
on
ly 3
per
cen
t
of
the
resp
on
den
ts
had
mo
re t
han
49
em
plo
yee
s
Fac
e to
fac
e
adm
inis
trat
ion
of
the
qu
esti
on
nai
re
ow
ner
s an
d
man
ager
s
14
Ja
nca
usk
as,
E.
20
00
. V
ersl
o
Plėtra L
ietu
vo
je i
r v
idu
rio
Eu
rop
oje
, S
tati
stik
os
Ty
rim
ai,
Vil
niu
s. (
In L
ith
uan
ian
)