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SME development in georgia


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SMEs development for Georgia is a primary concern to become self-reliant and fight with unemployment and poverty in the country. Georgia is basically SMEs economy but there is a need of redefining its …

SMEs development for Georgia is a primary concern to become self-reliant and fight with unemployment and poverty in the country. Georgia is basically SMEs economy but there is a need of redefining its SME sector operating framework. Non availability of information, lack of entrepreneurship and technological backwardness are the principal problem for SMEs development in the country and required communication framework for resolve these problems.

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  • 1. Small and Medium Enterprises Recommendation for SMEs development in Georgia Vivek Kumar Singh 15 December, 2010SMEs development for Georgia is a primary concern to become self-reliant and fight withunemployment and poverty in the country. Georgia is basically SMEs economy but there is a need ofredefining its SME sector operating framework. Non availability of information, lack of entrepreneurshipand technological backwardness are the principal problem for SMEs development in the country andrequired communication framework for resolve these problems.
  • 2. Small and Medium EnterprisesINTRODUCTIONSmall businesses are increasingly becoming a central par t of today moderneconom y and society. These micros and medium size enterprises with f ewindividuals to a medium large group of workf orce to producing product orser vice f ormed the SME s in the countr y. SME sector is the backbone f or anynation, specif ical ly in developing countries. SME sector in any nation constit utea large percentage of industrial enterprises and made the backbone ofeconom ic development. They are import ant to all countries in the world, withinthe broad categor y, especially to t hose with major employment and incomedistr ibut ion challenges.SME sector has been considered one of the „driving forces‟ of moderneconom ies due to their multif aceted contribut ions in terms of technologicalinnovat ions, employment generation, export promotion, etc. they constit ute inthe economy wit h a bulk industrial base, Gross domestic product or GNP andexports. This sector made it possible to ach ieve the object ive of , oper ationalf lexibilit y, low intensive import, high cont ribut ion t o domest ic product ion, importsubstit ution, export earning, competit iveness in domestic and export market andtechnolog y- or iented industries. It is also most importan t sector f or regionaldevelopment.GEORGIA AND SMALL & MEDIUM ENTERPRISESGeorgia is the t went y years old, new econom y, since it gains independence in1991 f rom f ormer USSR. The government has been trying to building businesssector, hoping to address 2 needs of reducing poverty and develop itseconom y. Since 2003 Rose revolut ion, rapid ref orms in tax and businessclimate seems posit ive f or the countr y. Georgian legislat ion def ined SME basedon workf orce and annual turnover out put, but there is conf usio n over theregulator y f ramewor k and gap bet ween tax codes. Regulat ory envir onment ismissing in legislation, which makes doubt about t h e def init ion of SMEs inGeorgia, e.g. According to tax code, any physical law ent ity with the annualturnover of less tha n 100 thousand is def ined as a small business and enjoystax pref erence. The def inition does not include legal ent ities that mean smallLLC enterprises like Salon and baker y ar e taxed similar it y to big business. Thatgives clear indication to need of redef ine SMEs def inition f or tax and oper atingregulation.Def ining the regulat ory f ramework as per physical law entit y is still a challengein the country. Identif ying the regulatory f ramework f or SME sector is theprimar y concer n f or Georgia, as its econom is t, public sector of f icial andinternational organization, def ining SMEs based on other nat ions SMEs model,2|Recommendation for SMEs development in Georgia
  • 3. Small and Medium Enterpriseswhich bas ically cr eat ing a big conf usion. Making a suitable f ramework seem s areally hectic deal.Almost all the economist and int ernat ional organi zat ions ar e over looking thef act that each count ry and cultural diff er f rom each. They acted diff erently onthe socioeconom ic f ront. Virtually, all internal external or ganizat ion bodiesworking on perception which t hey got inf luenced f rom other nation busi nesssectors and comparing and trying to define the f ramework for Georgian SMEsbased on other nations SMEs success and f ailure pattern. Def initely,government has im plemented posit ive ref orms, improved business climate,simplif y business registration, dec rease taxes, etc. but ther e is no evidence ofSME sector, which has been getting a pref erential tax and regulation benef it inthe countr y, although all physical law entities come under the small and mediumscale business ent it y. Theref ore, there is a need of thinking on the basis of theinternal f actors f or def ining SME sect or r egulation f or Georgia and use ext ernalf actors f or developm ent this sector. If we closely look at the country physicallaw ent it ies in the context of SMEs then Georgia is almost a S MEs econom y.Thereby, this is making conf usion f or creatin g a pref erential r egime f or SMEs .SIGNIFICANCE OF SMEs DEVELOPMENT FOR GEORGIASME sector is cr ucial to the sustainable economic growth process and play animportant role in the countr ys overall pr oduct ion capabilities. Some advancedeconom ies have succeeded because SMEs become a f undamental part of theeconom y, compr ising over 98% of total establishments and contributing to over65% of employment as well as over 50% of the gross domestic product.Although the numbers might be an absence if we consider the present situat ionof the country businesses, SMEs have t he potent ial to contr ibute substant iallyto the econom y and can provide a str ong f oundation f or the growth of newindustries as well as stren gthening existing one. SME sector simulates theeconom ic growth and ser ves in reducing the econom y‟s over -reliance on f oreignMNCs f or sustained growth and development. In f act, som e companies couldalso help to attract the global companies, f oreign entrep reneurs and talents toGeorgia by providing them with the necessar y support ser vices and sources ofinnovat ion, but st ill there is a need to be shif t in perception of societ y towardf oreign business and people.Small medium -sized enterpr ises could not onl y the most adapted enterpr ises f orGeorgia, also could be the unique star t of projects, which provide a lot toGeorgia in solving its critical problems, even if it can or not attract f oreigndirect investment (FDI). These projects could be the ideal solut ions f or manyproblems such as unemployment, inf lation, the def icit in the Balance ofpayment. Unemployment , income distribution, low wages and povert y ar e themost painf ul issue f or Georgia. Theref ore, development of SME sect or in3|Recommendation for SMEs development in Georgia
  • 4. Small and Medium EnterprisesGeorgia is becoming a ne ed due to become self -reliant and compete inglobalization era which we are living in . Due to the inter actions & the interrelat ions bet ween m arkets , SME sector development has a key vital importanceto Georgia‟s pr osper it y and become self -reliant.GEORGIAN SMEs PROBLEM AREAMost of the business e ntit ies virtually belong to SME sector in the context ofproduct ion, contribut ion to GDP or GNP, employment generation capabilities inGeorgia. Country legal f orm of doing business and regist ering a businesstreated ever y micro and macro business unit on same t ax procedure. Hence,there is a need of improvement in the f ramework which could assure t heregulation and tax pr ef erence to SME s.Georgian SMEs ar e f acing lot of problems due to their condit ion wit h lim itedresources. There is f ollowing reason of problems, which creating co nstraints indevelopment of SME sector in the countr y.  Absence of regulator y f ramework  Absence of adequat e and timely banking f inance  Limit ed capital and knowledge  Non-availabilit y of suit able technology  Marketing knowledge, abilit y to ident if y customers, buyers in f oreign markets,  Human resource: non availabilit y of highly skilled labour at af f ordable cost  Short product lif e cycle  Technical adapt ation  Industr y structure  Export market : Procedural knowledge  Micro & Macro environmental inf ormationThese above complications may slow the development of the SMEs sector tocompete successf ully in the domestic markets as well as in internat ionalmarkets. All complications associate wit h the main basic constraint. They havea lack of management and marketing concept in general, and in marketinginf ormation specially that is due to the lack of marketing concept itself & due t othe Georgian view point to the marketing activities. The majorit y ofbusinesspersons think that marketing is only the pr omotion activit ies and theinabilit y to invest in marketing research to invest igate a consumer need andsuitable market f or their products and services, other management parts theyrelate with f inance t o impl ement.4|Recommendation for SMEs development in Georgia
  • 5. Small and Medium EnterprisesAnother major const raint of with Georgian SMEs is obsolescence of technolog yor lack ing in advance in science and technolog y. W hile most of the largecompanies have f inancial as well as technical capacit y to identif y technologicalsources and evalu at e alter nate technologies that would suit their requirements,unf ortunately, this capacit y is conspicuously m issing in most SMEs in Georgia,which make them unable to compete globally. These ar e basic problems wit hGeorgian SME sector development.RECOMMENDATION FOR DEVELOPMENT OF SMEs IN GEORGIASmall And Medium enterprises are t he backbone of Georgian econom y,although there is no signif icant legal evidence of SMEs but whole econom ybased on small and medium sized enterprises based on the pr oduct ion,turnover and workforce manners. They have to work hard now to getinternationalized standard scenar io in ter ms of production and innovation.Georgia‟s SME sect or which is not globally compet itive and require assistanceto upgrade and be more productive. It s eems in many aspects; Georgia‟seconom ic condit ions are f avorable to SME development. Recently, Governmentstarted concentrat ing on support ing and encour aging SME businesses by thehelp of international f inancial institut ion aid f or SME development. Last m onthEuropean Bank f or Reconstruction and Development ( EBRD) and AsianDevelopment Bank (ADB) provided 100 million (50 million each) f inancingpackage to boost the country‟s small and medium -sized enterprises and restoreconf idence in local banks, which su ff ered in the wake of the war and globalf inancial cr isis in 2008. Gover nment is tr ying to create an encouragingbusiness- pro environment. St ill there must be a need on major change inpolicies on how t hey are oper ating. Although gover nment claims, Busine ssenvironment is a best suitable attribut e of Georgian econom y but still there is arequirement of enhancement and re -def ine development strategy f or SMEsector. SMEs have to put more eff ort on research and development (R&D) andneed to absor b technolog y f or innovation and imitat ion t o compete ininternational markets.ENTREPRENEURSHIP & INNOV ATIONThe E & I (Entrepreneur & Innovat ion) can redef ine the Georgina SMEsinternationally. The “E” Entrepreneurship is the key of innovat ion and the “I”Innovat ion itself the key of success. Theref ore, there is a need of the supportprogram f or entrepreneurs t o climbing success ladder. Entrepreneur Awardprogram and f inancial assistance program f or the new ideas to develop onindustr y scale should be encour aged by gov ernm ent and should have thespecial int erest rate scheme f or landing a loan f or new startup. Georgian5|Recommendation for SMEs development in Georgia
  • 6. Small and Medium EnterprisesGover nment must have to take the signif icant steps to understanding andpromote entrepr eneurship spirits, which can be possible by establishing acommunic ation f ramework f or general population.TWO “I’s” IMITATIO N & INNOV ATIO NTechnological back wardness is another problem of Georgian SMEs to compet ein a globalized m arket. Today‟s global econom y scenario technologicalinnovat ion is a key f actor in f irm‟s c ompetit iveness. Thus, Innovation &Imitation (Add new f eatures in existing product & ser vices) are the two keys toemerge globally. Since most of SMEs do not have the f inancial strength f ortechnological advancement, theref ore using low -cost substitute tec hnologyresolve the problem.By using substitute technolog y to adding new f eatures in exist ing product andser vice could becom e the reason f or innovation of new product and ser vices oradvance technolog y. Theref ore, Imitation should not be ignored by Geor gianSMEs, and governm ent must support these f irms f or producing products withnew f eatures. Innovation is the ext ended version of f irst “I” imitat ion like orkutto Facebook or CRT TV to Plasma, because adding new f eature in exist ingproduct and ser vice le ad to bring out better product and services or process.Theref or imitation could also play the signif icant role f or Georgian SMEs tobring out with new advanced pr oducts and ser vices or process to compet e onthe global market.COMMUNIC ATION FR AMEWORKCommunicat ion f ramework is ver y necessary f or Georgia to become more stablein terms of politics and business f or building conf idence in societ y regardinggovernment policies. Communication f ramework must have t o provide qualif iedinf ormation about the exter na l and inter nal f actor related to SMEs development,such as, opportunities in the export market, each countr y prof iling, f inancialresource alternatives, marketing, cost -eff ective available technology, taxincentive inf o, procedural inf o regarding entering any specif ic region andcountr y, etc. Communication f ramework should have to cont ain these attributes:  Entrepreneurship Development  Countr y pr of ile f or export & import  Domest ic Trade and Export Business Development  Inf ormation on import / export opportun it ies  Financing resources  Technological assist ance  Source and Import qualit y products, machiner y, equipment and hi -tech products6|Recommendation for SMEs development in Georgia
  • 7. Small and Medium Enterprises  Promotion, Branding, Design, Development and Launch of products and ser vices  Identif ying business partners, associates and bu yers  Business Matchmaking, Buyer -Seller Meet, Arrange Delegations and Missions  Market Sur vey and Research on var ious products and ser vices  List ing in SME Exchange  Qualit y improvement s to meet global standards  Preparat ion of project reports and f inancial d ocuments  Set up new manuf act uring units in Georgia and abroad  Assistance f or revival of sick units  Resolve Problems & Issues  Human Resource Development and Financial Advisor y Ser vices  Georgian products and ser vices permanent display centers in var ious countries  Liaison with Government Departments & Agencies, Overseas Organizations  Arrange study tours & visits to f actories / industrial plants / tr ade f airs / exhibitions in abroad  Assistance to represent and participate in international exhibitions, trade f airs and conf erencesGeorgian Government role must begin with, providing meaningf ul tools f orf inancing, marketing and technological support through its authorit ies andinst itutions such as public bank, NGOs or the social f und f or development f orentrepreneurship. Training and educational support through its author it ies inunconvent ional ways of training to provide required knowledge skills inproduct ivit y marketing & f inancing, The media must have to play a vit al role toencour age people t o adopt the entrepr eneurship idea in g eneral populat ion,Then we can assur e organic econom y growt h f or Georgia.7|Recommendation for SMEs development in Georgia
  • 8. Small and Medium Enterprises Author Contact Detail VIVEK KUM AR SINGH 41 Indradhanush Colony, Dayalbagh, Agra -05 Uttar Pradesh, India Tel.: +91-562-2572437 Mob: +91- 9897739779 Email: Skype: wiweck December, 20108|Recommendation for SMEs development in Georgia