SME, employment generation and regional development David Smallbone 1. The paper draws on evidence from mature market economies as well as from transition countries. Many of the issues discussed in the paper apply at the national, as well as at the sub-national level, although where appropriate regionally specific aspects are highlighted.
SME, employment generation and regional development David Smallbone 1. The paper draws on evidence from mature market economies as well as from transition countries.
Many of the issues discussed in the paper apply at Smes and employment generation national, as well as at the sub-national level, although where appropriate regionally specific aspects are highlighted.
Although the SME has become the subject of increasing attention by policy makers, academics and others in recent years, Smes and employment generation term is not uniformly defined and precise definitions often vary according to the reasons why a definition is required.
In practice, most definitions tend to focus on quantitative criteria, such as employment or sales turnover. This can result in difficulties when making international comparisons because of differences in the size bands or in the databases used.
Apart from independent ownership, which can result in a more limited internal resource base particularly finance and management resources than is the case in large firms, these characteristics include: Whilst these are commonly recognised characteristics of SMEs, it is important to emphasise the heterogeneity of the SME sector, even within the context of a single national economy.
The potential role of SMEs includes: Whilst these are roles which SMEs can perform in any economy, there are additional aspects of the conditions pertaining during the transition period which suggest that SMEs may have additional roles to play. For example, in the Baltic States, the development of SMEs can contribute to economic adjustment from highly concentrated structures, that were overly focused on manufacturing industry based on mass production methods and relatively inflexible production processes, to more flexible production systems which include a wider range of consumer services.
During the socialist period, manufacturing in the Baltic states was integrated into a technological chain, and locked into markets in the former Soviet Union, which resulted in a high level of military orientated production at the expense of consumer goods.
As a consequence, there is a need to radically restructure the economic base in order to develop a more flexible system of production which is responsive to changes in consumer demands and the forces of market competition. In this context, sectoral restructuring is to a considerable extent dependent on the creation of many new enterprises.
Transforming a centrally planned, socialist society into a liberal, democratic market based system involves fundamental social change as well as economic restructuring, which SMEs can also contribute to.
The creation of an entrepreneurial class is part of that process as the Lithuanian government has explicitly recognised in one of the stated aims of its programme for SME development: Alternatively, as Piasecki points out: This may involve contributing to bringing privatised assets into productive use as an alternative to or following their liquidation, representing a means by which resources which would otherwise lie dormant can be brought into production, and so increase output at marginal opportunity cost.
As the OECD noted: In this context, many manufacturing SMEs in the Baltic States commenced trading using equipment and premises that were leased initially from state-owned companies Smallbone et al, However, a more negative view of the role of small businesses in the transformation process has been presented by Scase His core argument is that in assessing the role of small businesses in transition economies, it is necessary to make a distinction between 'entrepreneurship', which refers to a person's commitment to capital accumulation and business growth, and 'proprietorship', which refers to the ownership of property and other assets that may be used to realise profits but are not utilised for the longer term processes of capital accumulation.
In fact, Scase emphasises that 'proprietors' are more likely to consume any surplus that is generated rather than re-invest it in their businesses.
He argues that it is 'proprietors' rather than entrepreneurs which account for the majority of small businesses that are established in Eastern Europe, as individuals strive to protect themselves from the uncertainties characteristic of emerging market economies, by generating cash flows that can be consumed for raising general living standards, rather than for business expansion.
One of the consistent themes emerging from the western literature on SME development is the need to recognise the variety of motives of those who start and run small businesses, which includes lifestyle reasons in many cases.
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As a consequence, not all SME owners are aiming to grow their businesses Curran, Moreover, SME development in a transition context is more than an economic process.
As Scase himself recognises, in transition countries the emergence of a stratum of small traders is part of the social transformation contributing to wider consumer choice and the emergence of a middle class. As far as economic development is concerned, the point to stress is that the role of SMEs varies at different stages of the transformation process as well as in different national contexts.
Structure of the Paper The rest of the paper is divided into 3 main sections and a conclusion: Although less dramatic than the earlier Birch findings, this study reinforced the original message with respect to the contribution of very small enterprises to new job creation.
Moreover, various studies in Britain and other developed economies, that include a variety of timespans and both recessionary and non-recessionary conditions, have confirmed that smaller firms have been making a disproportionate contribution to net employment creation Commission of the European Communities, ; Storey and Johnson, ; Sengenberger et al, These days, job creation is a top priority for policymakers.
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