Presented to the 2008 International Council for Small Business World Conference Halifax, Nova Scotia, Canada June 22-25, 2008. A longitudional survey of small business entrepreneurship was conducted in Russia in 2008. It examined entrepreneurial climate and developments in Russia’s SMEs with a focus on motivations and obstacles, entrepreneurs’ needs for training, consulting and other assistance. Russia’s climate for SME entrepreneurship has improved. The 2008 survey indicated younger age, greater share of female entrepreneurs and remaining small size of the firms. SME entrepreneurial activities in Russia are still lower compared to major developed economies. No significant differences were found between 1994 and 2008 in entrepreneurial motivations and obstacles.

1. Presented to the
2008 International Council for Small Business World
Conference
Halifax, Nova Scotia, Canada
June 22-25, 2008
1
Motivations and Obstacles for SmallMotivations and Obstacles for Small
Business Entrepreneurship in Russia:Business Entrepreneurship in Russia:
15 Years in Transition15 Years in Transition
Anatoly ZHUPLEV
Loyola Marymount University
Los Angeles, USA
Dmitry SHTYKHNO
Plekhanov Russian Academy of
Economics, Moscow, Russia

2. Environment for E/SME in Russia: background
• Historically, E/SME has not played important role in Russia. The business
environment and cultural tradition less supportive of E, compared to the
world’s most developed economies
• Tradition of centralized control and strong government role in economic
planning and development does not bode well with E/SME.
• Historic tendency to pursue paths different from other nations. Vast
territory and remote geographic location, harsh climate and large
distances, challenging infrastructure, communal tradition of life & work,
numerous devastating wars.
• Before the Bolshevik Revolution (1917) - predominantly agrarian, self-
sufficiency, subsistence.
• 7 decades under communism continued this trend, restricted/halted
E/SME development. Resulted in restrained cultural attitudes towards E.
• Since the demise of the USSR in the early 1990s E/SME climate in Russia
has markedly improved, although remains a work in progress.
2

3. Environment for E/SME in Russia:
current dynamics (1)
The latest 2007 GEM survey of 42 countries placed Russia among the world’s least E
countries across the group of middle-low income reference countries
3
Prevalence Rates of E Activity Across Countries Ages 18-64
Middle- and Low-Income Countries – Europe and Asia
Country Nascent E
activity
New business
owner-
managers
Early stage E
activity
Established
business
owner-
managers
Overall E
activity
China 6.9% 10.0% 16.4% 8.4% 24.6%
Croatia 5.3% 2.0% 7.3% 4.2% 11.1%
Hungary 3.8% 3.1% 6.9% 4.8% 11.7%
India 6.0% 2.6% 8.5% 5.5% 13.9%
Kazakhstan 4.3% 5.3% 9.4% 5.8% 14.8%
Latvia 2.2% 2.3% 4.5% 3.4% 7.7%
Romania 2.9% 1.3% 4.0% 2.5% 6.5%
Russia 1.3% 1.3% 2.7% 1.7% 4.3%
Serbia 4.8% 4.0% 8.6% 5.3% 13.7%
Thailand 9.4% 18.6% 26.9% 21.4% 47.4%
Turkey 1.9% 3.7% 5.6% 5.5% 10.8%

4. Environment for E/SME in Russia:
current dynamics (2)
• Other important comprehensive SME studies
– Russian SME Observatory Report. 2002
– Ukraine and Russia: SME Development Policy. USAID/Kiev. 2002
– Analysis of the Role and Place of SME Enterprises in Russia. 2004.
• Russian law on small enterprises - legal entities
– no more than 25% of the state, municipal, public and religious
organizations or charitable funds’ ownership in their charter
capital and
– not exceeding the following limits in annual number of employees
• 100 persons in industry, construction and transportation
• 60 in agriculture and research and development (R&D) areas
• 30 in retail trade and consumer services to the public
• 50 persons – in other types of activity
4

5. Environment for E/SME in Russia:
current dynamics (3)
• Limited scope , reliability of research data (although there has
been a progress)
• Limited role of domestic scholars in E research (busy in survival)
• A mid 1990s study of 250 Russian respondents on Hofstede's five
cultural dimensions showed that on average Russian culture
appeared to be moderate in individualism, masculinity, and power
distance, and fairly high in paternalism and uncertainty avoidance
– traits hardly compatible with dynamic E. Younger generation
that came of age during the late 1980s and early 1990s had the
highest scores in masculinity and the lowest scores in paternalism.
• In the beginning of the 2000s the number of enterprises with up
to 250 employees per a thousand people of population in Russia
was 37 enterprises – comparable to 45 enterprises for the EU
(Russia SME Observatory Report, 2002).
5

6. Environment for E/SME in Russia:
current dynamics (4)
• Inadequate organizational and financial support from government
• Constrains in access to funding; unfavorable terms of financing;
reliance on non-banking sources; limited role of institutional VC,
business angels and other forms of external equity markets
• Lack of efficient institutional contract enforcement and court
system in Russia delinquencies on private funding are often
privately enforced via mafia-style remedies, including blackmail,
intimidation, and contract killings
• Reflecting on problem with SME funding, the 2005 survey of
investment climate by the World Bank: only 8.8% of small firms
have loans; only 17% cite financing as a major constraint
• Almost 16% of Russian small business and individual entrepreneurs
in 2005 financed the creation of their business with funding from
relatives and acquaintances. The majority of funding was personal
savings; banks accounted for 10% 6

7. Environment for SME/E in Russia:
current dynamics (5)
7
Ease of Doing Business in Russia: World Rankings
Doing Business. Russia (World Bank, 2008)
Ease of...
Doing
Business
2008 rank
Doing
Business
2007 rank
Change
in rank
Doing Business (overall) 106 112 +6
Starting a business 50 45 -5
Dealing with licenses 177 172 -5
Employing workers 101 102 +1
Registering property 45 44 -1
Getting credit 84 156 +72
Protecting investors 83 81 -2
Paying taxes 130 126 -4
Trading across borders 155 155 0
Enforcing contracts 19 19 0
Closing a Business 80 81 +1

8. Questionnaire
• The original 1994 survey questionnaire was designed for a purpose of
international comparative longitudinal survey. English version was
translated into Russian, pre-tested and translated back into English for
authenticity.
• Following the first survey in the post-Soviet Russia, the second identical
survey was conducted in spring 2008. The 2008 survey in Russian was pre-
tested and administered to respondents in Moscow by a business professor,
a native Russian speaker.
• The 2008 survey was based on the same 130-item questionnaire and
administered through attendees at several business training programs at the
Plekhanov Russian Academy of Economics (a full-scale higher education
institution) in Moscow, Russia. The questionnaire, based on the 7-point
Likert scale, included five sections: motivations for small business ventures;
problems and obstacles that small business owners and managers face in
starting and running their businesses; entrepreneurs’ training and assistance
needs; traits of successful entrepreneurs; and data reflecting respondents’
personal and business profiles.
8

9. Sample: demographics
9
Age, years <21 21-30 31-40 41-50 51-60 > 60
1994 (n=100)
2008 ( n=151)
2
23
23
56
44
14
30
7
1
0
0
0
Gender Male Female
1994 (n=100)
2008 (n=151)
70
51
30
49
Ethnic
affiliation
Belong to ethnic
majority
Belong to ethnic minority
1994 (n=100)
2008 (n=151)
70
89
30
11

10. Sample: business profile
10
# of
additional
businesses
owned
None 1 2-3 >3
1994 (n=48)
2008 (n=151)
63
85
33
12
4
1.5
0
1.5
# of employees
working in
business
None 1 2-5 6-10 11-25 26-50 51-100 101-500 > 500
1994 (n=93)
2008 (n=151)
2
9
29
2
30
18
25
17
4
23
8
15
1
11
1
3
0
2

11. 1994/2008 Findings: motivations towards E
Motivations
1994 2008
Mean Rank Mean Rank
Make money to become wealthy and ensure security 6.52 2 6.27 1
Control own time and work 6.59 1 5.91 2
Gain a personal sense of accomplishment and grow business 6.13 4 5.68 3
Better use of abilities, training, knowledge, and skills 6.16 3 5.55 4
Want to be own boss n/a n/a 5.48 5
Desire to lead rather than be led by others 5.88 5 5.34 6
Need for money to survive 5.37 8 5.19 7
Try new product and business ideas 4.71 10 4.59 8
Working with people preferred 5.75 6 4.58 9
Variety and adventure in work 3.53 15 4.41 10
Live and work in desirable location 5.58 7 4.32 11
Desire to have fun 5.24 9 4.29 12
Increasing recognition and social status 4.70 11 4.05 13
Contribution to community welfare 4.46 12 3.56 14
Innovating in the tech forefront 3.88 13 3.53 15
Need for personal freedom n/a n/a 3.50 16
Frustration with previous job 2.19 18 3.30 17
Contributing to welfare of ethnic group 3.59 14 2.95 18
Follow example of person I admire n/a n/a 2.87 19
Continuation of family tradition 2.36 17 2.51 20
The bad boss on old job 2.94 16 2.46 21
Layoff 1.47 19 1.38 22
11

12. 1994/2008 Findings: obstacles/problems in E (1)
12
Obstacles/Problems
1994 2008
Mean Rank Mean Rank
Obtaining the money to start the business 5.91 4 5,74 1
Obtaining the money necessary to keep business
operating
5.79 5 tied 5,32 2
Finding good and reliable employees 5.79 5 tied 5,29 3
Governmental regulations and red tape 6.30 3 5,27 4
High interest rates 6.47 2 4,89 5
Acquiring knowledge and skills needed to start
and operate business
4.91 17 4,79 6
Bribery, ethnic and influence peddling 5.09 15 4,75 7
High taxes 6.84 1 4,56 8
Reliability of business partners 5.64 6 4,51 9
Achieving successful sales and marketing efforts 5.34 12 4,42 10
Reliability of business suppliers 5.56 7 4,40 11
Understanding how to manage my business 5.24 13 4,34 12
New product development 4.84 18 4,25 13
Production and operations management 4.71 19 3,91 14

13. 1994/2008 Findings: obstacles/problems in E (2)
13
Obstacles/Problems
1994 2008
Mean Rank Mean Rank
Unfair competition 3.69 25 3,86 15
Finding the necessary office and operating space 4.14 23 3,80 16
Accounting and bookkeeping 5.10 14 3,77 17
Managing employees 3.40 26 3,72 18
Finding info on registration, legal and startup
requirements
4.15 22 3,65 19
Crime against business and community 5.42 11 3,59 20
Advertising 4.56 20 3,56 21
Ease of currency transactions and safety of
money
5.50 9 3,54 22
Finding info on markets, products, prices 5.44 10 3,46 23
Conducting banking and financial operations 5.55 8 3,24 24
Transportation 4.95 16 2,97 25
Discrimination and harassment (ethnic, religious,
sexual)
3.05 27 2,54 26
Environmental issues 4.16 21 2,51 27
Setting up communications (phone, fax, etc.) 3.91 24 2,13 28

14. Major changes in the E/SME climate
over the last 15 years (1)
1. Windfalls from exports of oil, gas and other energy and mineral resources facilitate
E/SME expansion in Russia and beyond to the “near” and “far” abroad.
2. 46% was found to operate in wholesale, retail trade and food service, ~11% —in
construction service, ~14% — in manufacturing industries.
3. Economic stability and growth lead to increase in the number of small businesses
with medium level of sales and decrease in those with low sales in 2008. That also
caused shift toward higher number of employees in a business along with reduction
in the number of additional businesses owned.
4. Economic stability instilled confidence in private investors elevating importance of
private investment from own country as a source of financing business.
5. Shift in motivations in operating small business: “starting own business,” "working
with people one prefers,” "living and working in a desirable location," "desire to
have fun" lost their relative importance; creativity-related motivations - "gaining a
personal sense of accomplishment and grow business," "trying new product and
business ideas" or "variety and adventure in work" - increased in rank. As share of
minorities dropped, "contributing to welfare of one’s ethnic group“ lost its rank as a
business motive.
14

15. Major changes in the E/SME climate
over the last 15 years (2)
6. Drop in general unemployment and a growing need for a well-skilled labor =>
downgrade in such motivators as "bad boss on old job" and "layoff”
7. Improvements in access to business information, transportation, advertising and
other business functions, as well as setting up communications (phone, fax, etc.).
8. Shortage of real estate in capital cities due to increased demand. Difficulties in
finding office and operating space
9. Improvements in business infrastructure did not make easier acquiring E/SME
knowledge and skills. It is still an obstacle for a number of young entrepreneurs
10. Improvements in the banking service, stricter governmental requirements in
banking transparency, introduction of the Deposit Insurance System in 2004
11. More stable monetary system, simplification in banking and financial operations =>
slight decline in perceiving high interest rate as an E/SME obstacle.
12. Simplification in the accounting system for small business => decrease in rating the
accounting /bookkeeping as a problem.
15

16. Major changes in the E/SME climate
over the last 15 years (3)
13. Rampant crime against private businesses common in the 1990s no longer a hot
button, while bribery, influence peddling and unfair competition are perceived as
more important obstacles. That may be the resulting dynamics for these processes
and entrepreneurs’ increased knowledge and awareness
14. Increased number of young small business entrepreneurs => raise in demand for
business education, consultancy and services
15. Reduction in unemployment, labor shortages in capital cities and lack of experience
in HRM cause concerns about finding and managing employees
16. Trend toward growth in the number of companies, number of employees, volume of
sales and the number and share of female entrepreneurs (the later is particularly
evident in the service sector)
17. Growth is facilitated by positive changes in taxation and licensing procedures but at
the same time hampered by worsening situation with red tape and bribery
18. Russian government should continue reforms and efforts in support of small
business, focus on developing effective infrastructure (technology parks,
incubators), centers that offer specialized services, and financial support for small
firms and start-ups
16

17. Limitations of research
• Limited sample size (93 in 1994, 151 in 2008) does not allow
for comprehensive generalization and wide policy
implications
• Variation in the sample composition between 1994 and 2008
causes incongruence in analysis and comparisons
• Survey administration through a training program may have
skewed outcomes
• Lack of data from the 1994 survey constrains comparison in
interrelations between variables (cross-tabulations and
further bi-variance analysis)
• Russia’s immense size, economic and cultural diversity may
require adding the industry and regional components to
survey; current survey was conducted in the capital city of
Moscow that is different from the rest of Russia thus limiting
broad policy implications nationwide 17

18. Future research
• Systematic longitudinal surveys to allow for better
monitoring of changes and trends in E/SME
environment
• Surveys specifically focused on selected target regions,
industries and industry clusters in contrast
• International comparative surveys for Russian SMEs
contrasting and comparing with regional peer
countries
• Theme-based E/SME surveys (trade, demographics,
entrepreneurial traits, competitiveness, female
entrepreneurs, human side of entrepreneurship, etc.)
• Qualitative E/SME studies 18

19. Thank youThank you
19
Motivations and Obstacles for Small BusinessMotivations and Obstacles for Small Business
Entrepreneurship in Russia:Entrepreneurship in Russia:
15 Years in Transition15 Years in Transition