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  1. 1. 1997 Babson College - Kauffman Foundation Entrepreneurship Research Conference, April 17-20, 1997 THE SELF-EMPLOYMENT PROGRAMME IN SLOVENIA: EVALUATION OF RESULTS AND AN AGENDA FOR IMPROVEMENT Miroslav Glas, University of Ljubljana Meta Cerar, Employment Office of Ljubljana ABSTRACT Following high unemployment rate in the 1990’s, Slovenia launched an active employment policy incorporating a programme of self-employment. After years of operations, it is worthwhile to evaluate the results which appear satisfactory with respect to the initial objectives. The programme is the most comprehensive programme of assistance to start-up entrepreneurs, accoun-ting for nearly a quarter of all new businesses during the period between 1991-1995. It has genera-ted considerable employment - ventures created during 1993 on average account for 2,5 new jobs in 1996. The programme has triggered the investment of savings and the engagement of other resources of unemployed and their families. It also contributed visibly to the restructuring towards the service economy, enriching the local supply of goods and services. Moreover in retrospect, the majority of self-employed would pursue this path of self-realisation again to reap the satisfaction of becoming independent businesspeople. POVZETEK V 1990-tih letih je Slovenija zaradi visoke stopnje brezposelnosti razvila aktivno politiko zaposlovanja, katere del je bil tudi program pospeševanja samozaposlovanja. Po nekaj letih izva- janja je smiselno ovrednotiti rezultate, ki so zadovoljivi v primerjavi s postavljenimi cilji. Program je bil sicer najbolj celovit program podpore podjetnikom na začetku poslovanja in v obdobju 1991-1995 je prispeval skoraj četrtino vseh novih poslovnih enot. Ustvaril je tudi znatno število delovnih mest - enote, ki so nastale leta 1993, so v letu 1996 zaposlovale v povprečju 2,5 oseb. Program je spodbudil vlaganje prihrankov in poslovno uporabo drugih sredstev brezposelnih in njihovih dru-žin. Hkrati je vidno prispeval k prestrukturiranju slovenskega gospodarstva v smeri večjega deleža storitev in obogatil lokalno ponudbo blaga in storitev. Večina anketiranih samozaposlenih oseb bi se po vseh izkušnjah ponovno odločila za ta korak, ki jim je prinesel tudi zadovoljstvo, da lahko sami gospodarijo. INTRODUCTION Representative research into the origins of entrepreneurs in Slovenia, starting their ventu- res after the Enterprise Law (1988) is still not available. However, it is certain that the programme of self-employment (PSE programme onwards), which targeted the unemployed, played a signifi-cant role in the process. The PSE programme was introduced by the National Employment Office (NOE) in 1990. It involved a sizeable number of participants and attracted considerable resources. The initiative raised some questions concerning the efficiency of such resource allocations, although primary criticism focused on other less successful, though © Miroslav Glas, Meta Cerar: The Self-Employment Programme in Slovenia: Evaluation of Results and an Agenda for Improvement - Ljubljana 1997 - Page 1
  2. 2. expensive attempts to recover large companies on the verge of bankruptcy with the sole objective to avoid social tensions by avoiding large layoffs. In late 1994, a pilot evaluation of the PSE programme was conducted in the region of Savinjska where the regional Employment Office at Celje vigorously promoted its activities. Questionnaires were sent to a sample out of the 850 self-employed persons (with a 33,8 % share of women) and 82 were returned, with further 8 participants personally interviewed. The analysis concluded with a highly affirmative assessment of the programme (Glas et al., 1994). In 1996, a national evaluation was carried out, consisting of self-employed who entered the PSE programme in 1993, which was the most extensive year of the programme. This research provided a thorough evaluation of the programme’s performance and identified some guidelines for improvements (Glas, Cerar, Hazl, 1996). SELF-EMPLOYMENT AND THE ENTREPRENEURIAL “SILENT REVOLUTION” Slovenia was considered the most developed part of former Yugoslavia. After 1945, it developed a diversified pattern of economic activity with a focus on manufacturing. However, it was characterised by a large share of smaller business units than other socialist economies, inclu- ding a buoyant private crafts and catering sector (Petrin, 1981). In addition, the “shadow economy” was smaller than in other Yugoslav republics (see Kukar, 1988). Still, the majority of population aspired to professional careers in larger companies and in the government. Despite the economic recession during 1980’s, Slovenia maintained a high level of employ-ment as companies were reluctant to solve efficiency problems by laying off excess workers, the behaviour anticipated by Ward’s paradoxes of labor-managed firms. Mencinger (1990) estimated the extent of the excess labor to equal approximately 18-20 % of employment. Nevertheless, two important changes influenced further development in the late 1980s: first, the Enterprise Law (1988) allowed for legal private or mixed ownership of enterprises. As a result, in 1989 Slovenes started “en masse” with limited liability companies. Secondly, Slovenia became an independent state and the political turmoil led to a dramatic loss of its market share in other parts of Yugosla-via. Enterprises succeeded to compensate for this loss on the markets in Western Europe with some degree of success, but substantially lower prices exercised tremendous pressures with respect to costs and quality demands, which ultimately increased unemployment. TABLE 1 Key economic parameters for Slovenia, 1988-1995 Economic parameters 1988 1989 1990 1991 1992 1993 1994 1995 Growth rate - GDP -1.9 -2.7 -3.4 -9.3 -5.4 2.8 5.3 3.9 Growth rate - industry -2.6 1.1 -10.5 -12.4 -13.2 -2.8 6.4 2.0 Inflation (in %)1 202.2 1306.0 549.7 117.7 201.3 32.3 19.8 12.6
  3. 3. 1997 Babson College - Kauffman Foundation Entrepreneurship Research Conference, April 17-20, 1997 Employment (in 1000) 862 851 818 746 692 666 647 642 - in private businesses 31 31 32 33 33 37 42 48 - in manufacturing 378 373 363 324 290 264 252 243 Unemployment (in 1000) 21.3 28.2 44.2 75.1 102.6 129.1 127.1 121.5 1 Inflation is measured by the annual rate of growth of retail prices (in %) Source: Statistical Office of Slovenia, Office for Macroeconomic Analysis and Development Table 1 clearly illustrates how unemployment has risen to become a key economic and social problem of Slovenia. Between the 1970s and 1980s the number of unemployed rose from approximately 11.000 to 15.000 persons. Since 1988 it has grown to an unprecedented level. Although the rate of unemployment did not exceed the levels of Spain or Ireland, it caused major social distress in the Slovene society. The period of full employment and social security disintegra-ted too quickly and the unemployed and state institutions, such as the Employment Office were not prepared psychologically to face the new reality. Nevertheless, it was NEO that responded rather quickly to the problem of unemployment by the introduction of a package of active employment policy initiatives. While the NEO found that some marginal groups accounted for the fastest growth of unemployment (unskilled workers, the youngsters with virtually no working experience, disabled persons), many bankruptcies of firms contributed a number of highly skilled workers with abundant working experiences to the unem-ployment pool through lay-offs. This later group has become the target of the PSE programme with a twofold objective: to activate the potential of the unemployed through their own business start-ups, and to develop potential employers for other unemployed who were not interested in becoming self-employed. Knowing the experience of other countries, the staff at NEO never assumed that these ventures would provide for an enormous increase in employment. It was expected that the majority would develop life-style type ventures, employing primarily other family members, at least in the capacity of part-time employees. An important impact of the PSE programme which should be mentioned is the develop- ment of entrepreneurial attitudes and culture among the unemployed. As a society that nurtured a model of full employment, everyone expected from the government to provide jobs. In their absence, clandestine work combined with unemployment benefits was considered as an attractive alternative for unemployed. From the viewpoint of the values it developed, the PSE programme is an ambitious rival to the government programmes of job preservation in existing companies that failed to exert such a progressive change of attitudes on the labor market. THE CONCEPT OF THE SELF-EMPLOYMENT PROGRAMME The concept of the PSE programme adapted the experiences of Western European active employment policies to incorporate some features of the Slovene business environment: • the scarcity of equity sources for new business ventures, • the lack of business skills due to the decades of the socialist economic system neglecting important topics in the business education, • the fairly underdeveloped government sponsored or NGO’s small business support networks of business services, • the lack of self-confidence among the unemployed, given the changing environment, • the low mobility within the Slovene population to relocate for new jobs etc. The fact is that the PSE programme started during the entrepreneurial “silent revolution” in Slovenia which opened the room for private business initiatives and provided encouraging role-models for owner-managers. This lucky coincidence accounted for the two rather different © Miroslav Glas, Meta Cerar: The Self-Employment Programme in Slovenia: Evaluation of Results and an Agenda for Improvement - Ljubljana 1997 - Page 3
  4. 4. groups of unemployed entering the PSE programme. On the one side, there were many participants from the managerial ranks and professionals who decided to commercialise their knowledge, experiences and established business networks when faced with the problems within companies. This group had the vision and well-thought business ideas and required financial assistance from the NEO to ease their business start-ups. On the other side, the larger group of participants of the PSE programme suddenly lost their jobs and were quite unprepared to take immediate action. Psychologically, they have not seen a career as entrepreneurs, and while proficient in technical areas, lacked appropriate essential business skills. This group needed some time to identify a business opportunity, to move from the first idea to the ultimate decision to start a business. Advisory assistance was far more necessary for this second group to manage their business plans and to develop a customer oriented commitment to the venture. NEO decided therefore to develop two options of the self-employment programme with two variations of the financial assistance as presented in the Figure 1. FIGURE 1. Alternatives provided by the self-employment programme UNEMPLOYED PERSONS ↓ Awareness raising seminar (information): 1 day ↓ 3-days introductory workshop on business / entrepreneurship skills: basic concepts of entrepreneurship and self-employment ↓ Decision A. Unemployed who decided IN FAVOR B. Unemployed who decided NOT to for the participation in the PSE programme participate in the PSE programme AA. Programme of training, counselling and AB. Programme of self-employment reduced financial assistance to financial assistance only ↓ ↓ ↓ ↓ AAA. A grant for AAB. Capitalisation ABA. A grant for ABB. Capitalisation self-employment programme self-employment programme This comprehensive programme of self-employment introduced new training approaches which included the awareness raising seminar providing the unemployed with information on the programme, procedures to found start-up ventures, and the dilemmas of being self-employed. The workshop made unemployed familiar with some business issues: legal forms of business ventures, the business plan, basics of marketing, accounting, finance and taxation. After taking part at these two events, the unemployed had to decide about their participation. To continue with the programme, the unemployed individual presented his/her business idea to the advisory staff at the Regional Employment Office (REO) who selected the appropriate people to proceed with the PSE programme. The would-be entrepreneur entered a contract with the REO to start self- employment in 6 months, and were eligible for further 12 months of assistance. They were then not entitled to register for unemployment benefits again for another 24 months. Option AA provided them with extensive training (business planning workshops, marketing, accounting, finance courses and like), support from specialised small business counsellors working with them on business plans, start-up formalities, and market research.
  5. 5. 1997 Babson College - Kauffman Foundation Entrepreneurship Research Conference, April 17-20, 1997 Both AA and AB options provided appropriate financial assistance with two options: • unemployed who entered self-employment immediately after the loss of their jobs, had the opportunity to capitalise their future unemployment benefits - on average: 505.000 SIT (depending on former earnings). In 1993, approx. 33.5 % of participants preferred this option; • unemployed who needed more time to make the decision and consumed their unemployment benefits were entitled to a grant/subsidy. In 1991, this grant was 60.000 SIT, 1992-1994 150.000 SIT, after late 1994 it was the equivalent of six monthly minimal wages. The PSE programme developed over time as all REO’s were not able to provide for a proper assistance from the early beginning. The REO’s advisory staff gained skills through SME counsellor training programmes sponsored by a consortium of governmental bodies. TABLE 2 The number of participants in different activities of the PSE programme, 1991-1995 Activity 1991 1992 1993 1994 1995 Total Information & awareness raising 1.450 3.600 5.100 1.351 1.078 12.579 Training (various courses) 850 1.410 4.313 2.728 3.396 12.697 Individual counselling 470 1.577 3.256 2.836 3.970 12.109 Financial assistance for start-up 1.831 2.373 3.494 3.716 3.211 14.625 Source: The Annual Report of the National Employment Office for 1995 It is evident from the Table 2 that the PSE programme encountered a rapid increase as new ROE’s entered the scheme. It reached a peak in 1993, when a large number of highly skilled participants became unemployed due to bankruptcies and the programme itself had established its status among the unemployed. Unfortunately, the programme’s budget was spent too quickly and the approval of the new national budget was delayed for some months. The PSE programme was subsequently suspended for the period between October 1993 and May 1994, thus creating uncertainty among the unemployed, a disruption in the continuity of activities, and a break in the collaboration with external counsellors became inevitable. As a result, the PSE programme did not resume the same momentum after 1993. It had to be revised and adapted to address the changes in attitudes and structures of the unemployed. The PSE programme has contributed a substantial share of new business start-ups in the Slovene small business sector. We can ascertain that the programme involved quite a number of people who would never have started their own businesses if it were not for the assistance of the programme. TABLE 3 The contribution of the self-employment programme to the number of businesses in Slovenia 1990 1991 1992 1993 1994 1995 Incorporated businesses 14.957 23.348 36.448 47.734 51.038 51.875 Independent craftshops 33.484 34.380 35.650 35.911 34.607 - Sole proprietors - - - 2.157 10.643 57.802 Business ventures - total 48.441 57.728 72.098 85.802 96.228 109.677 © Miroslav Glas, Meta Cerar: The Self-Employment Programme in Slovenia: Evaluation of Results and an Agenda for Improvement - Ljubljana 1997 - Page 5
  6. 6. New ventures added 9.287 14.370 13.704 10.486 13.389 Self-employment 1.831 2.373 3.494 3.716 3.211 businesses - as % of new ventures 19.7 % 16.5 % 25.5 % 35.4 % 24.0 % Source: Table 2, Statistical Office of Slovenia The number of incorporated businesses in the Table 3 represents the number of registered companies. From that number, 60-65 %, depending upon the year, are actually in business (Glas et al, 1997). With the new legislation, the status of craftshops was abandoned and the new category of sole proprietors was introduced. Craftsmen mostly registered as sole proprietors (at the end of 1996, approx. 45.800 of sole proprietors had crafts licenses) and some changed to companies. There are some other commercial activities with the status of sole proprietors e.g. free lancers and trades such as lawyers, architects, surveyors, projectors etc. The contribution of the PSE programme to newly established ventures was assessed at roughly 24 % (as illustrated in the last row of Table 3). Taken into account that about 10 % of self-employment businesses failed and that over a third of registered companies were purely “shell” firms, the actual result of the PSE programme is close to 25 % of new ventures from 1991-1995. We can reasonably conclude that the PSE programme provided substantial input into the development of entrepreneurship in Slovenia. THE METHODOLOGY OF THE RESEARCH In the autumn of 1996, a survey was carried out among self-employment units established in 1993, thus having the record of about three years in business. The regional sub- samples of units followed the pattern of the PSE programme through the ROE’s. The interviews were conducted by the local staff of ROE’s at the business sites. In the same time, another sample of 99 unemployed who did not enter the PSE programme after the introductory seminars were interviewed by phone. TABLE 4 The sample structure of self-employment units according to the modality of the programme The modality of the PSE programme Males Females Total % Non-participants in the PSE programme 58 41 99 Financial grant 65 26 91 44.4 Participants assistance capitalisation 12 9 21 10.2 in the PSE Other assis- grant 25 14 39 19.0 programme tance capitalisation 36 18 54 26.3 include. Total sample of participants 138 67 205 100.0 THE NON-PARTICIPATING UNEMPLOYED PERSONS The PSE programme provided the unemployed with introductory training in order to elicit their participation in the programme. The decision not to participate did not impact their rights to collect unemployment benefits. Some 57.6 % of these persons (the share of women was larger than among the participants) entered the introductory course with an earnest aim to
  7. 7. 1997 Babson College - Kauffman Foundation Entrepreneurship Research Conference, April 17-20, 1997 proceed with self-employment, but decided later not to do so. Others did not enter the course with an inclination towards self-employment. However, among the 99 non-participants, a third found employment and abandoned their pursuit of self-employment. More than half of the non- participants failed to identify a promising business idea and dropped the idea of self-employment. The answers highlighted the importance of the selection procedure in order to prevent unemployed to “jump” into businesses which would probably fail. It saved the unemployed considerable resources and spared them from further frustrations. The rather modest financial assistance was an important reason for non-participants because they perceived, that with their own resources added, they still would not possess sufficient start-up financing. Between 1993-1996, more than a third of non-participants were still unemployed, with 34.3 % finding job in larger companies and 28.3 % in small business. With almost three years of unemployment, these individuals are in a difficult position to find a suitable job. However, from the non-participants, 76.8 % assessed even the short introductory training as useful. These resources have not been dissipated without some impact - 56.6 % later engaged in other NOE programmes to improve their status on the labor market. THE PARTICIPANTS IN THE SELF-EMPLOYMENT PROGRAMME The PSE programme, for a large number of unemployed , was an option they had not considered before. This option exposed them to the many risks attributed to the economic reces- sion, inadequate business skills, and other resources. This is the rationale why the PSE programme was not conceived for the average laid-off person. The unemployed between 30-45 years of age, with professional experience and no option to exit into an early retirement really preferred the programme. It was a choice for better educated, trained and experienced individuals. Table 5 clear-ly indicates this superior education of participants in the PSE programme over the unemployed. Nevertheless, the level of education of self-employed persons felt short when compared to the education of owner-managers of growing companies. It was still an indication that a large part of self-employed, with their education and skills, would never decide for an independent business if it would not be for the encouragement and support of the PSE programme. TABLE 5 The level of formal education of different adult groups of population (in %) Level of education Popu- Emplo- Unem- PSE Growing Dynamic lation, yees, ployed, program- firms2 entre- 1991 19881 1993 me, 1993 1995 preneurs, census EFER3 Grammar school 47.7 33.5 45.3 8.9 1 Secondary school: 1-3 years 19.7 28.9 33.9 8.1 2 Secondary school: 4 years 23.7 57.6 20.9 40.3 40.7 38 College 4.6 4.1 2.8 10.0 26 University 4.3 4.8 2.1 6.8 51.2 32 1 The level of education as certified by internal qualification (higher than the formal one); 2 A sample of 85 growing businesses in Slovenia, 1995 (unpublished research); 3 The EFER research on 150 dynamic entrepreneurs (Zizek, Liechtenstein, 1994) Sources: Statistical Office, Annual Report of NOE for 1995, Research reports as indicated © Miroslav Glas, Meta Cerar: The Self-Employment Programme in Slovenia: Evaluation of Results and an Agenda for Improvement - Ljubljana 1997 - Page 7
  8. 8. Motivation for self-employment The rationale to start a business under very special circumstances following the loss of a steady employment, is indicated in the Table 6 as perceived motivation for self-employment. TABLE 6 Motivation for self-employment (up to three options)(in %) Motivation Self- Slovene Dynamic employed entre- entrepreneurs preneurs* Self-employment as an existential solution 53.2 37.5 6 Wanted to become independent 35.1 51.3 (33) Wanted to realise a business opportunity 15.6 13.8 37 Wanted more money, higher earnings 8.3 12.5 8 Opportunity for innovation 4.4 - - Continuing the family tradition 3.9 11.3 8 Frustrated in the social company - 20.3 20 Other 8.8 - 37 • Survey of 80 entrepreneurs in 4 municipalities (Metlika, Ribnica, Trbovlje, Trebnje) in 1996 Table 6 indicates that for over the half of participants, the PSE programme had to secure their existence. The ranking of motives is quite different for other groups of entrepreneurs, in particular for dynamic entrepreneurs. This again reinforces the conclusion that a large number of self-employed would not start own businesses had they not lost their jobs. However, with the rising unemployment, almost 58 % of them have at least incidentally considered self- employment even before being laid-off. Nevertheless, it took them quite some time before developing the business idea and even more to transform a vague idea of becoming independent into a real business. Performance of the self-employment ventures TABLE 7 The employment performance of the self-employment ventures, 1996 Number of Full-time Part-time Total employment employees units emplo- units emplo- units % emplo- % yees yees yees None 21 0 172 0 20 9.8 0 0.0 1 105 105 17 17 95 46.3 95 18.5 2 34 68 9 18 35 17.1 70 13.6 3-5 32 114 4 15 34 16.6 124 24.2 6-9 9 72 2 13 16 7.8 120 23.4 10 + 4 51 1 40 5 2.4 104 20.3 Total* 205 410 205 103 205 100.0 513 100.0 (1) The employment potential: The PSE programme aimed primarily to reduce the unemployment. Self-employment ventures provided for only a modest employment potential for others. Some three years after their initial start, nearly 10 % of businesses were not able to
  9. 9. 1997 Babson College - Kauffman Foundation Entrepreneurship Research Conference, April 17-20, 1997 provide for jobs and 46 % of businesses employed only the founder. However, a quarter of businesses employed three and more employees fulfilling successfully the goal of the PSE programme. On the average, 2 full-time employees and 0.5 part-timers were engaged. This performance should not be judged too critically considering the general picture of the Slovene small business. Within the group of incorporated businesses, there was a much higher share of entities with no employees and in craftshops the employment was on average below 1 employee besides the owner himself. TABLE 8 The structure of businesses in Slovenia according to the number of employees (in %) Number of Incorporated businesses Craftshops employees 1991 1993 1995 1993 1993* None 42.8 46.0 27.8 63.4 1-2 24.5 26.0 40.2 81.3 27.1 3-5 8.3 9.5 15.0 7.0 6-9 3.5 3.9 6.3 18.7 10 + 20.9 14.6 10.7 2.5 Total 12.152 30.293 33.609 38.975 38.975 • Only employees, without owner-managers (the average below 1) Sources: Statistical Office - Statistical Yearbook 1994, other publications A high percentage of the self-employment ventures focus on family (spousal, children, relatives) employment. Female-led ventures are particularly inclined to this kind of employment: a 53.7 % employed their spouse as a full-time or part-time employee. (2) Financial performance: the annual revenues / turnover of the businesses have been taken in account for the year 1994 (annual report) and 1995 (only rough estimates). TABLE 9 The structure of self-employment businesses according to the annual turnover The annual turnover Turnover in 1994 Estimated turnover in 1995 (in SIT) businesses % businesses % Less than 0.5 Mio SIT 43 21.0 28 13.7 0.5 - 1.5 Mio SIT 43 21.0 34 16.6 1.5 - 5.0 Mio SIT 51 24.9 57 27.8 5 - 10 Mio SIT 24 11.7 28 13.7 Over 10 Mio SIT 36 17.6 45 22.0 No answer 8 3.9 13 6.3 With their turnover below 1.5 Mio SIT, the businesses have difficulty providing a stable business and support to owners, even in the service sector. However, accounting for inflation, the estimates for 1995 have shown a consistent increase in turnover, but not significant growth. On the other side, the entrepreneurs provided an assessment of the profitability: in 1994, almost 54 % have run the business with some profit and a further 28 % reached the break-even point. The © Miroslav Glas, Meta Cerar: The Self-Employment Programme in Slovenia: Evaluation of Results and an Agenda for Improvement - Ljubljana 1997 - Page 9
  10. 10. forecast for 1995 was even more promising with only 8.3 % still incurring losses. It is interesting, though, how the entrepreneurs compared their actual performance with the growth as projected in their business plans (business plans have been a must to qualify for the financial assistance): Growth of the business has exceeded the plans 14.6 % Growth was consistent with the forecasts 51.7 % Growth felt short of expectations 24.8 % Don’t know, can not provide an assessment 5.9 % We can conclude that with the assistance of counsellors provided the entrepreneurs with a fairly realistic assessment of their business opportunity, with some bias to optimism. The banks might not been satisfied with the 25 % of entrepreneurs whose businesses felt short of their expectations, but we have to take into account the inexperienced owner-managers, the tough, unstable business environment, and lack of business information due to the sudden changes in the Slovene economy. (3) Start-up financing and the equity investments: with the strict limits on the private ownership in the former system, the PSE programme provided an important step towards changing the saving and investment behaviour of the population, as well as its attitude towards efficient resource utilisation. However, the research confirmed some weaknesses in the attitudes and behaviour of Slovene entrepreneurs: first, there is a reluctance towards building entrepreneurial teams which would merge skills and resources - individualism is highly pronounced, overrun only by some family ties; secondly, the businesses are almost closed for other investors although the founders badly lack start-up capital. Table 10 Sources of the start-up capital for the self-employment ventures The source of the capital Share (in %) Equity capital 88.7 − the founder’s own capital 49.1 − family / relatives 13.0 − other equity investors 1.6 − the financial assistance of the Employment Office 21.3 − other equity capital 2.5 Debt capital (loans) 8.8 − commercial banks 6.2 − different small business development funds 0.8 − other loans (suppliers, foreign creditors) 1.8 Other sources 2.5 The financial assistance provided through the PSE programme is very important in its role of the leverage for the commitment of own sources - the programme has been very successful in the mobilisation of savings of the founders and their families. However, other external resources have felt short. The commercial banks participated at only 13.2 % of businesses and small business funds played only a minor role. The structure revealed the problem of the start-up financing in Slovenia. Even in the case of dynamic entrepreneurs, the banks participated in a modest 4 % of start-up financing - compared to an average 25.8 % share for other Middle-European countries. The picture has become a little better, with banks providing
  11. 11. 1997 Babson College - Kauffman Foundation Entrepreneurship Research Conference, April 17-20, 1997 12.1 % of financing for a sample of growing companies. However, those firms already have a track record and an established market position. This structure of financing created the problem of undercapitalisation.. TABLE 11 The assessment of start-up capital sufficiency in self-employment businesses (%) The assessment of entrepreneurs Celje, 1994 Slovenia, 1996 We have faced a critical shortage of the capital 67.1 44.9 The start-up capital has been “very tight” 22.0 37.6 The start-up capital was sufficiently available 4.9 15.1 Don’t know, difficult to say 6.1 2.5 Although the assessment improved if compared to the pilot research (Celje, 1994), lack of capital still hampered the growth of businesses. Self-employment encouraged the productive application of other resources as well: 38.5 % of businesses started from their own premises and the majority, 43.9 %, rented the premises. 34.6 % of businesses have provided their own equipment and 68.3 % had to purchase at least partly new equipment. We could attribute the PSE programme to create: • the productive use of formerly idle premises and equipment of the self-employed, • the commercial use of some rented premises and equipment, providing additional revenues to their owners (e.g. larger companies), • the promotion of investment in the premises and equipment, encouraging the increase in the production of investment goods. (4) Enriching the supply of goods and services: The self-employment units contributed to the restructuring of the Slovene economy. They encompassed a broad range of activities to maintain their flexibility (not really available for businesses with a crafts license): they created a small share of manufacturing (8.3 %), with the majority in trade (24.4 %), personal services (24.4 %), financial and other business services (21.5 %). The structure is related to the skills and occupations of the founders and to the capital required to start any business successfully. However, 45.9 % of the business ideas related to the former job environment, prompting two potential dangers: • the self-employment units became close competitors to their former employers, • a concentration of businesses with similar customers brought fierce competition which seriously limited many growth opportunities. The entrepreneurs interviewed expressed quite an optimistic view concerning their opportunities for further development. Almost 75 % forecasted, with a great deal of persuasion, increased sales and market share, the introduction of new programmes or products (60 %), and new employment (56 %). They were uncertain about exports with only 25 % of them perceiving further increases. However, almost no one assumed a decrease in any of these business indicators. Evaluation of support services © Miroslav Glas, Meta Cerar: The Self-Employment Programme in Slovenia: Evaluation of Results and an Agenda for Improvement - Ljubljana 1997 - Page 11
  12. 12. The PSE programme provided the most organised support for entrepreneurs with no similar programme for other entrepreneurs combining financial assistance with support services. TABLE 12 Evaluation of assistance provided by the ROE staff and external counsellors (%) Assistance assessed as ROE staff Counsellors Very good 37.1 27.3 Good 27.8 30.3 Satisfactory 12.7 23.2 More has been expected 6.3 16.2 No real assistance provided 2.4 3.0 Can’t assess 10.2 - No answer 2.0 - On average, assistance was positively assessed, but was far from excellent. The evaluation is more favourable for ROE staff who assisted unemployed overcome problems and stress related to lay-offs. The participants highly rated the information, advice, empathy of the staff, and services for start-up issues. Education and training were more ambiguous and the financial assistance was less satisfactory due to humble resources provided. The external counsellors were functional with their advice on business plans as demanded by the PSE programme and the bank, but again their weakness was in not being able to open access to financial sources. EFFICIENCY DIFFERENCES AMONG THE MODES OF THE PSE PROGRAMME We described the modes of service delivery by the PSE programme in the Figure 1. With the differences in the assistance provided to participants we tested the performance of these modes trying to verify two hypotheses. Hypothesis 1. Entrepreneurs enjoying additional support in the form of training and counselling would be more successful than the ones with only financial assistance. The research did not reveal any significant difference in the performance of the options AA and AB in terms of turnover and profitability. There was a slight variation with respect to the number of employees with 2.55 for AA option and 2.14 for AB. However, the participants within each option possessed different characteristics. Less skilled, experienced participants, feeling more uncertain about their business opportunity chose the AA. Without support through training and advice, this group would probably fall behind the performance of the other group. Hypothesis 2. Entrepreneurs taking the capitalisation programme with 3.4-times larger financial assistance compared to grants would be more successful in business due to a higher level of start-up capital. The research duly identified some differences in the businesses between these two groups. Participants within the capitalisation scheme: shared to a larger extent the ownership of the venture with other partners, felt they had sufficient start-up capital, employed an average of 2.6 employees against 2.1 for participants with grants. As a result, their turnover was larger, but turnover per employee was not. In addition, their profitability was higher in 1994, but not in 1995.
  13. 13. 1997 Babson College - Kauffman Foundation Entrepreneurship Research Conference, April 17-20, 1997 However, these differences did not directly or significantly account for the varied performance. We can safely deduct that the alternative modes of assistance were suited for participants with different needs. We could not recommend any one mode as a general programme suitable to everyone. THE AGENDA FOR IMPROVEMENT This evaluation has confirmed some proposals for improvements to the PSE programme, already intuitively felt by the ROE staff. The recommendations are in line with the assessment of the entrepreneurs concerning the intensity of the problems they faced. TABLE 12 The intensity of problems self-employers faced when creating their own businesses (in %) Often Some- Never No answer times Irregularity of payments of debtors 48.8 29.8 18.0 3.4 Lack of the investment capital 39.5 33.2 22.4 4.9 Lack of working capital 38.5 39.5 17.1 4.9 Problems with documentation 23.4 42.0 28.3 6.3 Getting the right staff 20.5 26.8 45.4 7.3 High rents 16.6 14.6 58.5 10.2 Inadequate business premises 13.2 28.3 51.7 6.8 Access to market information 12.2 41.5 37.6 8.8 Low commitment of workers 8.8 15.6 64.4 11.2 Problems of a financial nature are by far the most important. Currently, NOE does not adequately address that problem. Strong bureaucratic traditions (Smallbone, 1996) and legacies from former economic systems (premises, workers attitudes) also raise barriers. Research on small business in Slovenia (Glas, 1993; Glas & Antauer, 1996; Prasnikar, 1994) revealed a similar list of problems facing entrepreneurs, but with different rankings. By identifying these issues, there is the opportunity to make substantial improvements to the PSE programme: (1) Improved financial scheme: The existing PSE programme provides only a modest amount of financial assistance as grants that inevitably raise budgetary pressures. During the pilot research (1994), some entrepreneurs proposed a soft loan scheme. However, the self-employed owners expressed diverse opinions with 48.3 % in favour of soft loans and 39.5 % preferring a grant. It looks that an optional scheme could best accommodate for the diverse preferences. The NOE and the Small Business Development Centre have sponsored a project which combines the resources of NOE (0.3 Mio SIT), the local community (0.1 Mio SIT) and the participants (0.1 Mio SIT). Resources would be deposited in the local bank (interest-free) who would administer a loan equal to twice the amount of the deposit (1 Mio SIT, on 5 % interest rate). The NOE would provide about 33 hours of counselling support. The proposal will be implemented in 1997 in some regions where local funds were already available. The proposal does not rule out the existing grant scheme as an option, though. © Miroslav Glas, Meta Cerar: The Self-Employment Programme in Slovenia: Evaluation of Results and an Agenda for Improvement - Ljubljana 1997 - Page 13
  14. 14. (2) Involvement of currently employed participants in the PSE programme, who face imminent lay-offs: This would enable the participants to develop the business ideas well in advance in order to provide for an early start to business planning, promotion of entrepreneurial teams and joint projects while still working together in the known environment, and engagement of under-utilised resources of the former employer. This conceptual shift of the PSE programme assumes that legislation to allow the NOE to enter the companies prior to the lay-off will occur. It demands proper planning for downsizing and transparent employment policy in companies, with close collaboration of management with the staff at ROE’s. (3) Training of SME advisors: The assessment of support services pointed to an unbalanced quality of counselling and to some topics where advisors largely underperformed (marketing, access to finance). These problems have been identified in the past but there are some limitations: • the lack of resources for an extensive training and upgrading of advisors, • the scarcity of the trainers because there is no tradition of SME counselling, • the networks among advisors, financial and other organisations are still weak. (4) Monitoring of self-employment ventures: The PSE programme performed well during the start-up phase of the venture. However, no follow-up activities have been proposed. Later failures could be easily prevented with a close follow-up, support and further financial assistance. Again, this change would require additional financial resources and staff trained for turnaround situations in troubled businesses. Until now, the PSE programme did not run into too many difficulties with respect to failures and the staff at ROE’s preferred not to take radical measures in the case of such a failure. With more stringent market conditions the close monitoring would be preferred to avoid an increasing small business failure rate. (5) Promotion of the PSE programme: This should not be confined to the unemployed, but also should target awareness among other institutions, such as municipalities and other administrative units. Networking should be encouraged among all the stakeholders in the PSE programme. Promotion should emphasise the positive economic impact of the programme, a new entrepreneurial and innovation culture and attitudinal changes in self-confidence, positive thinking, problem-solving, initiative, etc. These changes should reflect the changes in the environment and the PSE programme’s performance in the next stages of development. This will create a valid alternative for individuals facing the traumatic prospects of layoffs. CONCLUSION The PSE programme significantly altered the former model and principles of full employ-ment. Nevertheless, it raised concerns that the performance of small business owners with lower qualifications and a perceived lack of business skills and managerial experience would be conside-rably lower. The research confirmed the important contribution of the PSE programme to the entre-preneurship and economic restructuring in Slovenia during 1990’s. To conclude our arguments we add the final statement by the self-employed on the question of whether they would one again decide in favour of self-employment if given the choice now: 78 % would start again (up from 70 % in the pilot research in 1994) and only 13.7 % would refuse to enter the PSE programme; 8.3 % were inconclusive. Given that one-third of those who decided not to enter the PSE programme in 1993 are still unemployed, the PSE programme provided a creative solution to the problems of unemployment in Slovenia.
  15. 15. 1997 Babson College - Kauffman Foundation Entrepreneurship Research Conference, April 17-20, 1997 REFERENCES Glas, M. (1993) Slovene Small Business: State, Problems and Prospects. Slovene Economic Review. 44 (6), pp. 531-558. Glas, M. et al (1994) A Preliminary Assessment of the Programme of Self-Employment, ROE Celje. Ljubljana: Gea Ventures. Glas, M., Antauer I. (1996) Economic Development Strategy for Ljubljana, with the Focus on Small Business Development. Ljubljana: PIC Consulting. Glas, M., Cerar, M., Hazl, V. (1996) Evaluation of the Self-Employment and Entrepreneurship Programme for the Unemployed. Ljubljana: Gea Ventures. Glas, M. et al (1997) The State of Small Business in Slovenia (to be published) Kukar, S. (1988) Shadow Economy: Estimates of its Size in Yugoslavia and Some Microeconomic Problems of its Estimation. Ljubljana: Institute of Economic Research. Mencinger, J. (1990) Economics of Yugoslavia. Ljubljana: Studium Generale - University of Ljubljana Petrin, T. (1981) Research into Causes of Concentration of Organisations in Manufacturing and Trade in Yugoslavia, 1954-1976. Ph.D. Dissertation. Ljubljana: University of Ljubljana Smallbone, D. (1996) Supporting SMEs Development in Economies in Transition: A View from the West. In M. Dimitrov, K. Todorov (eds.). Industrial Organisation and Entrepreneur- ship in Transition. Sofia: Informa Intellect Ltd. SUMMARY Names Miroslav Glas Metka Cerar Address University of Ljubljana, Faculty of Economics Kardeljeva ploscad 17, 1000 Ljubljana, Slovenia Telephone Fax e-mail (+386) 61-1892-400(+386) 61-1892-698 Title THE SELF-EMPLOYMENT PROGRAMME IN SLOVENIA: EVALUATION OF RESULTS AND AN AGENDA FOR IMPROVEMENT Principal Topics © Miroslav Glas, Meta Cerar: The Self-Employment Programme in Slovenia: Evaluation of Results and an Agenda for Improvement - Ljubljana 1997 - Page 15
  16. 16. The results of an extensive self-employment programme in Slovenia that had sponsored the foundation of over 14.000 new business units during the 1991-1995 period were studied, following a pilot research undertaken two years ago. The results of the programme were measured in terms of employment, assessment of financial results (sales and profits), the amount of the own equity capital participants invested in new units. The efficiency of the assistance offered by the staff at the Employment Offices as well as by the external counsellors was assessed. Method A random sample of 205 self-employed units that entered the business during the year 1993 were examined through a questionnaire in 1996. The results were compared to the pilot research undertaken in the most active region of the Regional Employment Office at Celje. Additional 99 persons leaving the programme after the awareness course were contacted through a short interview by phone. The units were grouped according to the modality of assistance chosen: different amount of founding capital provided by the Employment Office and the availability of training and counselling support. Major Findings The self-employment programme attracted the unemployed with the relevant education and experience far above the average for unemployed and the employed people in Slovenia as well. Nonetheless, the self-employment was primarily the way to ensure economic existence facing the probability of long-term unemployment. The majority of participants opted for the exclusive ownership of the venture, with females far more inclined to embrace other family members. The economic contribution of self-employment units was assessed rather favourably conside- ring following findings: • considerable commitment of private financial and other resources, particularly business premises and some equipment, • the number of new jobs created: in the average 2 full-time jobs per venture and 0.5 part- time jobs, although there were hardly any fast growing businesses involved, • the net value added increasing steadily, • the level of satisfaction of local customers, focusing on services, • the upgrading of the business expertise among participants. Despite the amount of the founding capital ensured by the programme the ventures have experienced the problem of the capital shortage related to some extent to the wide-spread problem of delayed payments of customers. The self-employed have evaluated favourably the support of the staff at Employment Offices, particularly in the field of information and advice. External counsellors fared slightly worse in the evaluation, mostly due to the high expectations of self-employed persons. Implications The self-employment programme is far from being a panacea for the problem of acute unemployment. However, it has been a valuable option for many unemployed with almost 80 % of participants in the questionnaire that would make the same choice again. There is room for some improvements: • to increase the amount of financial assistance by turning it into a credit scheme instead of a modest one-time subsidy (the scheme has already been proposed), • to improve the assistance of counsellors with more specialised services,
  17. 17. 1997 Babson College - Kauffman Foundation Entrepreneurship Research Conference, April 17-20, 1997 • to offer more flexible choice of type of ventures to answer for different needs of participants (there is a novel programme for cooperatives), • to ensure long-term monitoring of new ventures and the development of clusters of ventures. © Miroslav Glas, Meta Cerar: The Self-Employment Programme in Slovenia: Evaluation of Results and an Agenda for Improvement - Ljubljana 1997 - Page 17