Small Business Development and Management

Temur Khomeriky, TSU Professor

Small business is main base of current Georgian economy, according to experts estimation, but advantages of business organization are not able to be completely realized because of non suitable management.

Small entrepreneur structures are basically handled by its owners, what is not always right decision. Despite of small business development, non –hierarchical structure moving forward, because of correspondence managing style not existence, but non –organized managing is primate form way provided. These are causes of failure of small business entrepreneurs. Therefore, correspondence management is as important for small business as premium capital, material asserts and other sorts of development.
Stability of country economy is hugely dependent on the society members’ stability, while transmitting on market economy condition. International organization could maintain ruling bureaucracy intellectual elite establishing of market gears, before real property foundation, but forming of middle level society drawled too. Despite broad of small –commodity producing, middle level of real owners development is sharply behind of current market economy measures. Economy treasure was appropriated by state bureaucracy, political and tectonic managerial elite following transformative processes, and assisted Quasi -owners level forming. Rights of their property appear to be mostly diffuse and frequent is the cause of battling for property separation with intensive participation of new political- crates and active managers. While these conditions, liberal business environment inculcation and development of small entrepreneurs is an issue of huge importance.
According to officially declared dates, total circulation of small business consisted 7.4 per cents of entire business sector circulation, but total production 6, 9 per cents of entire production, total amount of small business employees 19, 5 per cent of entire business sector employees, including 19, 5 of women and 56, 7 of men.
Separate sectors of total circulation of small entrepreneurs face following condition by sorts of dealing: “trade” –cars, domestic production and repair of things of private use –54, 3 %, “treaty manufactory” –14, 1 %, “Immovable property operations, lessee and clients service”, –9, 2 %, “hotels and restaurants”, –6, 4%, “transport and connection” –5,9 % and others.
Separation of employees in small business sector face following condition: “trade” –cars, domestic production and repair of things of private use –30, 7%, “treaty manufactory” –18, 0%, “Immovable property operations, lessee and clients service”, -13, 8 %, “hotels and restaurants”, –9, 2 %, “transport and connection” –6, 6 % and others.
Separation of small business employees by the regions: Tbilisi city 42, 2 %, Imereti region 14, 4 %, Kvemo Kartli –9, 0 %, Ajara unrecognized republic 8, 1 %, Samegrelo –Zemo Svaneti –8, 1 %, Guria region 1, 9 and ect;
Small and middle entrepreneurs’ support system is not just formally functioneering in the country for today but influence of government based structures (centers, agencies, projects or programs is too unimportant. According to law of Georgia on the “support of small and middle enterprises” also after its annul and according to amendments and additions making to the law on “national investing agency of Georgia”: small and middle entrepreneurs located on the territory of Georgia are organization –law form enterprises, employees of which should not excel 20 000 per year and yearly circulation should not excel 500 000, accordant to “law on entrepreneurs”. Enterprise is not mentioned to be small or middle if: 25 % of state share owned by individuals not meeting the law requirements, basically involved in banking, insurance and other financial service dealing.
While growing unemployment in the country and needy conditions, maintain of small enterprises forming and business development is hugely important. Increasable is pelage amendments in tax code (hasten amortization regime providing, small land owners free from taxes, which do not use hired workers, tax amnesty providing, entrepreneur units registration and liberalization of taxation regime and ect;) what will positively effect on afterward legalization and increase in small entrepreneurs` profits. But provided limits up till today basically concerned so- called micro – enterprises. But the limits are already cancelled.
According to economic practice, micro- entrepreneur includes as industrial unites joint in one corporation, so individuals (individual entrepreneurs, self- employees, domestic workers and ect); family enterprises and farms, which` s employees should not excel 10 and obligatory investing should include USD 20 000. About 80 % of economically active population is working at such king of small enterprises. But micro – enterprises frequently use law quality technologies and appeal to extensive methods of industry development. Micro – enterprise business is characterized with several sort of positive points: functioneering capacity while minimal resources and organizational expanses, family members and friends involving into the dealing, what makes easer to run a business and provide background for the success of enterprises. Tight relationship with clients and orientating on satisfactory, of consumers` demands. Micro –enterprises are frequently based not for just on economy goals, but on moral principles.
According to United State Agency of International Development (USAID) research, about 210 thousand micro –enterprises are running in Georgia, but just half of them passed official registration. Most part of the enterprises located in Tbilisi. Just few located in Mtskheta – Mtianeti and Samtskkhe –Javakheti regions. More numebr of the organizations are located in Ajara, Samegrelo and Imereti regions. Registrant micro – enterprises basically run their business in the sphere of trade and about one third in the sphere of agriculture. Their share in service and production includes 10 %. Top in enterprise sector are furniture workshops, joint workshops, mills, food enterprises, bakeries and baker ` s. Agriculture enterprises basically provide seasonally works, family farms and agriculture foundations are also among them. Agriculture small – enterprises basically busy with fruit producing, also bee- keeping, wine –producing and grain – growing. Service sectors basically run their business in the sphere of food (restaurants, cafés and ect), beauty salons, domestic service (shoes repair, car repair and ect;). Communication service portion is also among the top issues.
Georgian markets assimilated by small – enterprises, are high – level competitive capacity, so information on market conductivity approachableness and effective self – management is very demandable. As, traditionally their state share is unimportant, loans and credits use opportunity for meeting financial requirements are very important. Technical assistance (consulting supplement, trainings providing for skills improving, and ect) is as important as financial one. Developed infrastructure has no opportunity of small business effectiveness maintain, what brings additional hardships for small – enterprises. So, actually every small business structure has to creak down on following controversies:
– Non – perfection of market estimation, because of lack of information.
– Lack of shadow economy transmission into official sector stimulating is faced. For attraction micro –industry organizations with official registration, tax limits establishment and confidence restore towards government is necessary, because state programs are basically declaration sort.
– Small – enterprise staffers often less of calculation skills and elementary in marketing and management.
– For most of micro – enterprises preferable loans and credits are basically unapproachable. Most of micro – enterprises are obliged not care about savings, but money economically expanses, because of micro –enterprise organizations low profit (yearly income includes USD 5 000, according to experts` estimation).
– Fear of risk and un-confidence towards feminists is huge in the sphere, most of them do not believe in possibility of meeting credit liabilities timely and not suffer damage because of inflation.
Internal reserves still remain as basic resource sources for micro – enterprises, but they are not able replace loans and credits role in the issue of circulating means filling. Demand on fixed small loan excels USD 200 million excels supplement, in Georgia for today.
Georgian non –bank and micro –finance organizations covered just 1/3 of potential clients, other micro – industrial structures provide cash accounting operation. Investment activity of small enterprise subjects needs afterward bonus maintain, including accessibility of micro finances and micro credits. Non –banking sector and micro finance organizations play very important role in the issue. Because micro financing gives entrepreneurs possibility gain preferable resources via eased documentation and procedure, besides, everything these take small time and the regime is approachable. It doe not requires expensive methods of guarantees and hard conditions of bailing (group grants are user for supplements, with different forms of warranty and ect;). Credit unities creation also needs to be maintained, because the systems gives individual and corporate clients inter –support ability, to say nothing about it other positive sides.
Fundamental problems of micro – industries as utilization of high –techs is resolved with development of liaising relationship, advantages of franchise is also among frequently used means by small business organizations. Unfortunately, venture investitions providing are very rare yet. It should be noted, that if banking organizations and liaising companies provide partnership with large and middle enterprises, non –banking organizations, state supporter programs and credit unions remain to be basic source of small and micro-enterprises. Creaking down on the issue requires solid gears installation for finance – credit risks guarantees providing and credits cheeping for small business providers correspondence politics should be provided by the National Bank of Georgia.
Development of small – enterprises is not able to be just imagined without support of the project participator investors.
Credit – financial and investment support of small business is following way realized:
– Financial lasing and franchising;
– Inter –support of small structures and credit unions, with other sort of self – financed systems foundation;
– Micro – crediting;
– State guarantee gears for loans;
– Venture investition funds development;
– Other forms.
Micro fiancé organizations were appeared in Georgia science 1997, but the first credit union created in 2002. They partly support the issue of needy and small profitable population employment while group and individual loans releasing on them. Dealing of micro finance organizations officially realized by approximately thirteen foreign donor organizations based structures, up from 2007. Their loan profile includes at average 51 million Lari and 43 thousand debtors, basically self – employed. Their business is micro loans way developed.
Credit unions acting as cooperative organization –law form registry enterprises, receiving accounts just from their members (individuals), releasing loans on them, provide permitted banking dealing and their basic goals is not profit gaining.
Small enterprises may launch funds and unions for private industry, state support and issues concerned to development jointly realization. Besides, small enterprises have several sort of limits, defined by Georgian legislature but the issue needs more complex and system attitude. Clear is that these forms of business development need micro financing and effective action of micro finance organizations, and requires obligatory amendments making and in such legislative acts as tax code of Georgia, organic law on NBG, law on commercial banks work, law on non – banking and depository branches —credit unions and ect. Necessary is enterprises supporter micro credit organizations maintain, affective collaboration with donor organizations and financial institutes and coordination strengthening.
Research on small and middle business focuses that most of small entrepreneurs believe that the main hindrance factors of developing (finances less accessibility, legislative base non –perfection, small knowledge of management and business strategy not – existence) is non –correspondence capacity of business running. Small enterprises management points are following factors determined: size of enterprises, sphere of dealing, number of employees, organization – law form, production and service, management organization structure and ect;
Because of tax payment, customs and other regulatory legislative hardships and small entrepreneurs low level professionalism, successful micro entrepreneurs fall into crisis situation and clear is that just value creating strategy is not enough if it is not coordinated by correspondence manager.
Small enterprises survey faces that business owner immediately create administrative team, private organizational structure and separate plenipotentiary. But relationship between manager and submitters in these enterprises is just immediate and small business provides define standards for managers.
Because of small business variety, acting managers are equally presented in the role of as liberals, as well as in manipulators, but leader –organizer role is always advantage, preferring equally collaboration with staffers and job fulfilling, what assists team in work providing. Finance and marketing administration is basic in small business running, because, as a rule, documenting is less important in such kind of structures, double accountings, hired low skilled specialists and many other hindrances are frequent issues.
Most of managers and entrepreneurs pay less attention on small business structures administrating and pay much attention on strategy attitudes. Most of them provide business projecting just for additional investitions attraction. Sort of business, field development trend and environment condition are obligatory moments for the strategy creation. Most of entrepreneurs are energy, aimed, loyal towards challenges, self- believed persons, who think that hired management and consultants just assist them in scheduled tasks realization and often are not able just realize operative and strategy activities dissociating obligatory.
Strategy management is a complex of resolutions and activities, directed to strategies formulating, inculcation and organization goals realization. Strategy is exact activities based, directed to effective job realization by organization ` s management. So, strategy is managing plan aiming organization positions strengthening, client claims satisfy and high results achievement.
Small structure managers required flexible thinking on while alternatives estimation and dynamic action on the market for treating most preferable strategy following environment observation.
Priorities of business development in current modern conditions are following: adequate react on business – environment transformation, temporarily factor determination, regional market role generation in globalization conditions, commodity vital cycle reduction, innovation role increasing and ect.
Acting management paradigms and conceptional methods of approach importantly influence on small –business development. System of new views of management in named as “administrating evolution” in literature, because its basics is not aiming founding structures, systems and methods blindly inculcation, but provides improvement and filling of the new programs. Use of administrating systems gradually increases, basing on challenges forecast and floppy, especial decisions.
American conceptions of managing was top in recent century despite of important strengthen of European researches. Conceptions of management are forming is determined terms and as a rule reflects non traditional (alternative) ways of managing problems resolve. Georgia equally mastering basics of as the west so the east cultures and both are important for our country.
While today` s economy system globalization, new technologies spreading and economic problems, internationalization and integration of management conceptions is clearly seen. Especial reference is made on intellectual resources of separate organizations. Modern industrial management is innovations oriented and pays less attention on control, independent sphere of business integration in fast way developed despite of specialization. Economic accentuate is made on flexibility and rapidity of reaction.
Basic of management research remains to be human factor of organization. Unitary, pluralistic and critical conceptions of management have been developed very. Entrepreneur unites are obliged to submit correspondence regulatory laws, requirements of state branches and basic purviews of international agreements. Every government has its exact goals while passing on transmitting period. Official reports of Georgia ` s government tell that deregulation process is under the way, but defendless of competitive and free choice just assists monopoly forms development in undeveloped society conditions. In general, state regulatory tasks of economy regulation are following: juridical base treatment and enforce for entrepreneurs` interests protection; control over legislation; state regulation to make more affective and expanses reduction, direct share in enterprise work; right financial, taxpaying, money and interest politics providing for country` s budget stability maintain. Current and perspective tasks determination while scientific –technical development and structural – investition policy providing, economic methods way inflation managing and capital stockpile growing assistance; free moving of job resources providing and work legislation norms protection; consumer rights protection; justifiability social politics running.
The authority more intensively participates in enterprise organization – economics regulating process. Regulation gears are based on main directions of long term programs structural transmitting. Administrative supervision and normative regulation is realized. Tools of financial regulation more and more used by the authority. Foreign –economic policy providing assists entrepreneurs` rights defense on international market. The authority attempts to support business –structures in new markets adaptation and export widening. The authority uses as direct methods (price establishment improving arrangements, incomes separation policy, enterprises development maintain and act;) so indirect methods (taxpaying, subsidies, treasury arrangements, quotes and ect;) for market structure development. State anti – monopoly practice development is hugely depended on anti – monopoly office work effectiveness, which is reorganized in Georgia into Agency of Free Trade and Competitive. In general, anti – monopoly policy is realized as strict control providing over capital centralization (up from financial sanctions to monopoly structures liquidation), as well as market relationship liberation way (limits canceling or reduction on customs rates and import, investment climate improving fro investors, small business and venture firms maintain, enterprise diversification support and ect;). Anti – monopoly politics does not mean struggle against monopoly in general, it strictly directed against market structures ruin monopolists and provide work limiting practice towards small business.
Skilled staffers’ role in small business is very important, because non- effective work of each person importantly damage enterprise structure and reduces its competitive capacity.
Despite of small business –structures participation in legal business increased in the last period, unimproved taxpaying and finance system conditions still remaining in Georgia, in conjunction with shadow economy portion.
Because of small business management un-development negative events have been increased: diversification policy providing got harder; effective investitions attraction opportunities reduced while groundless business –strategy conditions; bankrupt risk is large because of administrating resolutions uncompetitive; business –consulting use quality is low; business education of Georgia is not meeting demanded requirements, because no entrepreneurs have exact formulated demand on managerial education and neither staffers re- training system is not market adequate. It` s clear, that to resolve the named problems is impossible without concerning consensus achievement of stakeholders and strong will.