THE INTEGRATION PROCESS OF SMALL AND MEDIUM SIZED...
184
i T.C. MARMARA ÜNİVERSİTESİ AVRUPA TOPLULUĞU ENSTİTÜSÜ AVRUPA BİRLİĞİ EKONOMİSİ ANABİLİM DALI THE INTEGRATION PROCESS OF SMALL AND MEDIUM SIZED ENTERPRISES (SMEs) IN TURKEY TO THE EUROPEAN UNION A COMPARATIVE ANALYSES BETWEEN TURKEY AND ITALY Yüksek Lisans Tezi İDİL BULAK İstanbul,2005
Transcript of THE INTEGRATION PROCESS OF SMALL AND MEDIUM SIZED...
i
T.C. MARMARA ÜNİVERSİTESİ
AVRUPA TOPLULUĞU ENSTİTÜSÜ AVRUPA BİRLİĞİ EKONOMİSİ ANABİLİM DALI
THE INTEGRATION PROCESS OF SMALL AND MEDIUM SIZED ENTERPRISES (SMEs) IN TURKEY TO THE EUROPEAN UNION
A COMPARATIVE ANALYSES BETWEEN TURKEY AND ITALY
Yüksek Lisans Tezi
İDİL BULAK
İstanbul,2005
ii
T.C.
MARMARA ÜNİVERSİTESİ AVRUPA TOPLULUĞU ENSTİTÜSÜ
AVRUPA BİRLİĞİ EKONOMİSİ ANABİLİM DALI
THE INTEGRATION PROCESS OF SMALL AND MEDIUM SIZED ENTERPRISES (SMEs) IN TURKEY TO THE EUROPEAN UNION
A COMPARATIVE ANALYSES BETWEEN TURKEY AND ITALY
Yüksek Lisans Tezi
İDİL BULAK
Tez Danışmanı: Prof Dr. Osman Küçükahmetoğlu
İstanbul,2005
i
ABSTRACT The main aim of this thesis is to analyse Turkish SMEs, in the integration process of
Turkey to the EU and to make a comparison with the case of Italy.
First of all, in order to clarify the definition of SMEs, the researcher has aimed at
explaining ‘entrepreneurship’ concept together with the basic elements of
entrepreneurship. It is asserted that there is a positive relation between entrepreneurship
and SMEs.
Then; EU’s SME definition has been made and some definitive examples from Turkey
have been provided.
Afterwards; the recent structure of SMEs both in the EU and in Turkey has been
analysed. The problems, weaknesses, strengths, advantages and disadvantages of SMEs
have been explained; and the problems deriving from legal points, have been analysed
in detail.
Later on; the historical development of SMEs and the reasons which made SMEs
important, have been discussed. Some reasons increasing the importance of SMEs have
been displayed in particular.
The development of the industry and SME policies in the history of the EU has been
explained including the strategies of past, present and the future.
Following chapter has mainly focused on incentive mechanisms about SMEs. Funds
and all other incentive mechanisms under different headings have been explained in
detail. Then, instruments of the EU for Turkish SMEs have been explained.
Another important issue is the ‘access of SMEs to finance’. The finance of SMEs has
been divided into two: External Finance which has also been divided into two, as;
financing from banks and financing from other external sources, and Internal Finance.
Following this section, the effects of Customs Union on Turkish SMEs has been
explained under six headings.
The last chapter deals with the comparison of Turkey with Italy. In order to compare
these two countries, twelve criteria have been used.
Finally, all these topics have been compiled up and various opinions have been
provided about the issue.
ii
ÖZET
Bu tezin amacı Türkiye’deki KOBİleri AB’ye entegrasyon sürecinde İtalya ile
karşılaştırmalı olarak incelemektir.
Öncelikle KOBİ tanımının netlik kazanması için girişimcilik kavramı üzerinde
durulmuştur. Girişimciliği oluşturan temel taşlar anlatılmış, girişimcilik ile KOBİler
arasında pozitif ilişki olduğu belirtilmiştir.
Daha sonra AB’nin KOBİ tanımı yapılmış, Türkiye’deki KOBİ tanımlarından örnekler
verilmiştir.
Türkiye ve AB’deki şu anki KOBI yapısı sergilenmiş, KOBİlerin sorunları, güçlü ve
zayıf yönleri, avantajları, dezavantajları üzerinde durulmuştur. Yasal açıdan KOBİlerin
maruz kaldığı sorunlar detaylı olarak incelenmiştir.
KOBİlerin tarihsel gelişimi, önem kazanmasına neden olan olaylar ve gelişmeler
üzerinde durulmuş, özellikle KOBİlerin önem kazanmasındaki üç stratejik sebep
belirtilmiş ve açıklanmıştır.
AB tarihinde sanayi ve KOBİ politikalarının gelişimi anlatılmış, dünü, bugünü, yarını
kapsayacak biçimde gösterilmiştir.
İkinci bölüm daha çok KOBİleri destekleyen teşviklere ayrılmıştır. AB’nin çokyıllı
programı başta olmak üzere, çeşitli konu başlıkları altındaki teşvik araçlarına,girişimlere
ve fonların açıklanmasına yer verilmiştir.
Daha sonra AB’nin Türk KOBİlerini yararlandırdığı teşvik enstrümanları açıklanmıştır.
Diğer bir önemli konu da KOBİlerin finansmana erişimidir. KOBİlerin finansmanı
dışsal finans ve içsel finans olarak ikiye ayrılmıştır. Dışsal kaynaklar da banka ve banka
dışı olmak üzere iki bölümde incelenmiştir.
Gümrük Birliği’nin KOBİler üzerine etkileri altı başlık altında anlatılmıştır.
Üçüncü bölüm olan karşılaştırma bölümünde ise belirlenen oniki karşılaştırma kriteri
üzerinden İtalya ve Türkiye KOBİleri incelenmiştir.
Son olarak tüm bu yapılanlar sonuç bölümünde toparlanmış ve görüşler belirtilmiştir.
iii
TABLE OF CONTENTS ABSTRACT..............................................................................................................i ÖZET........................................................................................................................ii TABLE OF CONTENTS.........................................................................................iii LIST OF TABLES...................................................................................................vii LIST OF GRAPHS..................................................................................................viii ABBREVIATIONS..................................................................................................ix INTRODUCTION....................................................................................................1
CHAPTER 1
ENTREPRENEURSHIP AND SMEs: THE CONCEPTUAL
FRAMEWORK
I. BASICS OF ENTREPRENEURSHIP........................................................................8
A. General Country Infrastructure.........................................................8 B. Entrepreneurial Infrastucture.............................................................9
II. SME DEFINITION................................................................................11
A. SME Definition in the EU................................................................11 B. SME Definition in Turkey...............................................................14
III. HISTORICAL DEVELOPMENT OF AND NECESSITY FOR SMEs ........................................................16
A. Entrepreneurship Policy in the Historical Evalution of the EU: Industry Policy and SMEs .............................................................20 B. SMEs in the EU, the Past, the Presence and the Future of the Industry Policy....................................................25
CHAPTER 2
CHALLANGES AND OPPORTUNITIES OF SMEs AND FINANCING OF SMEs
I. THE ECONOMIC IMPORTANCE AND THE PROBLEMS OF SMEs.................................................................................................26
II. THE DEVELOPMENT OF SMEs....................................................29
iv
A. Advantages of SMEs...........................................................................29 B. Strengths of SMEs................................................................................30 C. Weaknesses of SMEs............................................................................31
III. ACCESS TO FINANCE FOR SMEs.........................................................36
A. Venture Capital....................................................................................39 B. Factoring...............................................................................................46 C. Leasing..................................................................................................50 D. Credit Guaranty Fund...........................................................................53 E. Forfeiting...............................................................................................55 F. Capital Markets’ Role in the Finance of SMEs....................................58
CHAPTER 3
INITIATIVE MECHANISMS OF THE EU FOR SMEs I. INITIATIVES...............................................................................................60
A. Multi-annual Programme........................................................................60 B. The Simplification and Improvement of Business Environment from Administrative and Legal Point of View ............................................64
B.1. BEST ( Business Environment Simplification Task-force)......64 B.2. Improvement of the Fiscal Environment...................................65
II. INITIATIVE MECHANISMS.....................................................................67
A. CREA (Capital Risque pour les Entreprises en phase d'Amorçage - Seed Capital)...................................................................67
B. European Tecnology Capital – Eurotech Capital...................................67 C. Mutual Guarantee Companies................................................................68 D. The Roundtables of Bankers and SMEs.................................................68 E. Networks in order to share experiences – Business Angels Network....................................................................69 F. Growth and Environment Programme....................................................69 G. Growth and Employment Initiative........................................................70
III. OTHER INITIATIVE MECHANISMS.......................................................72
A. Europanisation of Enterprises and Internationalisation of Strategies....................................................72 B. The Enhancement of SME Competitiveness and the Improvement of the Access to R&D Training Programmes and Innovative Activities..................................................75
v
C. The Promotion of Entrepreneurship and Support to Special Target groups...........................................................80
IV. THE INSTRUMENTS OF THE EUROPEAN UNION FOR TURKISH SMALL AND MEDIUM SIZED ENTERPRISES ..................................81
CHAPTER 4
THE EFFECTS OF CUSTOMS UNION ON TURKISH SMEs
I. Effects on Incentive Policies......................................................................89 II. Export Subsidies.........................................................................................92 III. Effects on Employment...............................................................................93 IV. Effects on Productivity...............................................................................94 V. Effects on Competition...............................................................................95 VI. Effects on Foreign Trade.............................................................................96
CHAPTER 5
COMPARISON OF TURKISH AND ITALIAN SMEs I. AN OUTLOOK TO THE ITALIAN ECONOMY................................97 II. COMPARATIVE ANALYSIS OF TURKISH AND ITALIAN SMES:
BASED ON SELECTED CRITERIA....................................................99
A. Number of SMEs in Turkey and in Italy and Definition Differences in both Countries............................................99 B. Sectors that are Dominant in Both Countries by SMEs.....................101 C. Business Start-ups in Turkey and in Italy..........................................101 D. Business Failures in Turkey and in Italy............................................103 E. Small Business Employment in Both countries.................................106 F. Economic Impact of SMEs in Turkey and in Italy.............................112 G. Financing of SMEs in Turkey and in Italy.........................................122 H. Institutional Policy Towards SMEs in Turkey and in Italy................125 İ. SME Development and Constraints....................................................129 J. SME Capital Markets in Both Two Countries....................................135 K. Female Employment and Self Employment in Both Countries.........136 L. Tertiary Graduates and Graduates in Science and Technology..........142
vi
CONCLUSION.....................................................................................149 REFERENCES.....................................................................................................154 APPENDICES......................................................................................................158
vii
LIST OF TABLES Table1: The growth in two sectors among some EU countries 19
Table2: Industrial strategies of the EU in history 25
Table 3: Percent of subcontractors’ activities in Italy 101
Table 4: Survival and Hazard Rates of New Firms in Italian Manufacturing 103
Table 5 :Numbers of newly established and liquidated companies in Turkey 105
Table 6: Number of liquidated firms by economic activity in Turkey 105
Table 7: Unemployment rates in Italy 107
Table 8: Net job creation by firm size in Italy 108
Table 9: Employed persons by branch of economic activities 111
Table 10: GDP in Selected Countries (million USA $, at current prices) 113
Table 11: GDP at current and constant 1990 prices, Per Capita GDP,
Growth rate –Italy 114
Table 12: GDP at current and constant 1990 prices, Per Capita GDP,
Growth rate-Turkey 114
Table 13: GDP by Kind of Economic Activity at current prices
in Million US Dollars-Italy 115
Table 14: GDP by Kind of Economic Activity at current prices
in Million US Dollars-Turkey 116
Table15: The shares of small enterprises in economies 117
Table 16: Exports of selected Countries (million US$) 118
Table 17: Export of Turkey 118
Table 18: Export of Italy 119
Table 19: Main indicators of Foreign Trade- Turkey 119
Table 20: Import of Selected Countries (million US $) 121
Table 21: Import of Italy 121
Table 22: Import of Turkey 122
Table 23: Self Employment by sex, age and position in Italy 138
Table 24: Turkey employment status 141
Table 25: Tertiary Graduates in 2001 143 Table 26:Innovative and non innovative firms, 1998-2000 144
viii
LIST OF GRAPHS Graph1: Use of external financing by SMEs 37
Graph 2: Venture capital investment 45
Graph3: Aggregate volumes of factoring by Member States 50
Graph 4: Employment growth by size-class 93
Graph 5: Hazard rates in Italian Manufacturing 104
Graph 6: Employment by regions in Italy 107
Graph 7: Employment by sectors in Italy 109
Graph 8: Establishing a firm 131
Graph 9: Public Debts 133
Graph 10: Employment rate by gender in Italy 137
ix
ABBREVIATIONS BC NET: Business Cooperation Network
BRE: Business Cooperation Centers
CRAFT: Cooperative Research Projects
CU: Customs Union
DİE: Devlet İstatistik Enstitüsü ( Turkısh Statistical Institution)
DPT: Devlet Planlama Teşkilatı (State Planning Organization)
EBN: European Business and Innovation Center Network
ECIP: European Community Investment Partners Programme
EFTA: European Free Trade Area
EIB: European Investment Bank
EIC: Euro Info Centers
EIF: European Investment Fund
EIP: European Investment Partners
ERA: European Research Area
EU: European Union
EUREKA: European Network for Industrial R&D
EVCA: European Venture Capital Institution
GEM: Global Entrepreneurship Monitor
ICT: Information Communication Technologies
IP: Integrated Projects
İGEME: İhracatı Geliştirme ve Etüd Merkezi (Export Promotion Center)
İKV: İktisadi Kalkınma Vakfı (Economic Development Foundation)
JEV: Joint European Venture
x
KOSGEB: Küçük ve Orta Ölçekli Sanayi Geliştirme ve Destekleme İdaresi Başkanlığı
(Small and Medium Industry Development Organization)
MEKSA: Mesleki Eğitim ve Küçük Sanayi Destekleme Vakfı (Vocational Training and
Small Industry Promotion Foundation)
NoE: Networks of Excellence
OECD: Organization for Economic Cooperation and Development
REGIE: European Economic Interest Groups Networks
SMEs: Small Medium Sized Enterprises
SPK: Sermaye Piyasası Kurulu (Capital Markets Board of Turkey)
STREP: Specific Targeted Research Projects
TDA: Teşebbüs Destekleme Ajansı (Entrepreneur Promotion Agency)
TESK:Türkiye Esnaf ve Sanatkarlar Konfederasyonu (Turkish Confederation of
Tradesman and Artisans)
TİDEB: Teknoloji İzleme Değerlendirme Başkanlığı (Chair of Technology Observation
and Evaluation)
TOBB: Türkiye Odalar Borsalar Birliği (The Union of Chambers and Commodity
Exchanges of Turkey)
TOSYÖV: Türkiye Küçük ve Orta Ölçekli İşletmeler, Serbest Meslek Mensupları ve
Yöneticiler Vakfı (Foundation for Support of Medium Size Enterprises, Craftsman and
Administrators)
TTGV: Türkiye Teknoloji Geliştirme Vakfı (Technology Development Foundation of
Turkey)
TÜBİTAK: Türkiye Bilimsel Teknolojik Araştırma Kurumu (The Scientific and
Technological Research Council of Turkey)
xi
UN: United Nations
UNIDO: United Nations Industrial Development Organization
WCI: World Competition Index
WTO: World Trade Organization
1
INTRODUCTION
SMEs which are seen as the motors of the economic growth have been taking important
places in country economies. In Europe 99,78%, in Germany 99,8%, in Italy 99,2%, in
USA 97,2% of enterprises are SMEs. Being an SME is not only an enterprise
characteristic, but this scaled firms are used as vehicles for sustainable development.
They are used as instruments in improvement of employment, in diminishing regional
disparities, in adapting rapidly to new, changing economic and technologic structure, in
the improvement of export capacity. Essentially SMEs can be seen as an important
instrument of social policies. For this reason, it is obligatory to analyse their problems
better, to strengthen their strong features and to form State policies according to their
needs.
It will be in favour of Turkish SMEs to make comparison of Turkish SMEs with Italian
ones and determining EU’s contribution to one of its Member State’s SMEs, in order to
understand the probable expectations of Turkey in the accesion period to the EU.
The reason to choose Italy for comparison is the parallel features of Italian SMEs with
the Turkish ones. In both countries SMEs are cultural heritages from the history and
indispensible parts of economic and social life. In both countries SMEs are mostly
family businesses and they are experiencing some disadvantages because of this. They
are both experiencing the similar bureaucratic and financial difficulties. Both countries
are lacking in technology based production and their SMEs are both managed by non
university graduates. Also both countries have regional disparities and SMEs are used to
diminish these regional disparities.
Despite these similarities, Italian SMEs are the backbone of the country and mostly of
the exports. What is the reason of this strong structure?
2
While having these similarities, what can be said about the contribution of the EU to the
Italian SMEs? Could EU be the the solution to the problems of the Italian SMEs in
every aspect? What can Turkey expect rationally from this accession for its SMEs? Can
the same effect not be created for Turkish SMEs by Customs Union pot and
Mediterranean programmes pot?
At this point the table which summarizes the comparison of Italian and Turkish SMEs
will be helpful (See Annex I) in order to see the similarities and the differences more
clearly. In this way, we can see what we have to expect from this accession.
This table is formed by using some criteria of “A Pocketbook of Enterprise Policy
Indicators”•, using “A Comparison of Small and Medium Sized Enterprises in Europe
an the United States”• by Justin Byron and using the “Italian manufacturing SMEs”•
study sheets of David Audretsch with some important details as it is considered
necessary to be displayed for this comparison. The researcher has tried not to miss any
necessary points while making country comparisons in this field. In this way, it is aimed
to make a valid study in SME literature.
The first thing to be gained with EU accession is the definition of unity. This will cause
a harmonized structure for organizations which work in favour of Turkish SMEs and it
will give the opportunity to be harmonized with other countries by having one single
objective definition as well. Finally, it will give the chance to make healthy policies in
favour of SMEs. • A Pocketbook of Enterprise Policy Indicators (2003). European Commission Enterprise Directorate- General Publication: Luxemburg. • Byron, Justin & Solomon M. Karmel (2002). A Comparison of Small and Medium Sized Enterprises in Europe and the United States. London: Routledge. • Audretsch, B. David; Santarelli, Enrico; & Vivarelli, Marco (1996). Start-up Size and Industrial Dynamics: Some Evidence from Italian Manufacturing. Discussion Papers FSIV 96-17 Wissenscaftszentrum Berlin für Sozialforschung (July).
3
In sectoral base, both countries’ SMEs are alike and they operate generally in
manufaturing sector. But Turkey falls behind when Italy’s manufacturing capacity and
the share of this production in its exports are considered. Does the difference between
two countries’ aggregates originate from some traditional production, exporting
methods and State policies or does it originates from EU’s contribution? The
researcher’s point of view is to say both yes and no. As Italy has an experience from
history in this field, this productivity can be also caused by State policies because State
gives opportunity to establish various networks (for example; industrial districts) and
promotes SMEs by making necessary investments and incentives.
Furthermore this productivity can be caused by the EU policies because SMEs are
motors of economic growth according to the EU and it promotes SMEs in every aspect
like promoting them in their establishment phase or promoting them via Venture Capital
mechanism or promoting them to make technology based production or simplifying
their business environment or promoting county’s education systems by some
mechanisms
When the corporation ratio is considered, the ratio of Turkey is very lower than Italy’s
ratio (30 firms per 1000 people in Turkey, 80 firms per 1000 people in Italy). The
reasons of this can be explained as Italy’s strong tradition of SMEs and EU’s
mechanisms aimed towards firm establishment. CREA, EFT-Start up initiative
mechanisms can be good examples for this.
In both countries the high intensity of new establishing firms is in traditional sectors but
firm closings are also very high in these traditional sectors. Though in technology based
sectors, firm closings are much more less like new firm openings in this sector; it means
the the stamina of these firms are much more than in traditional sectors. Basically EU
4
tries to do this through its policies, in other words, by promoting technology based
sectors and creating good structured SMEs. For this reason, it is said that “innovative
SMEs are the enterprises of the future”.
The employment structure difference in both countries are determined again by sectors.
Turkey’s employment, focuses mostly on a declining sector: agriculture while Italy’s
employment has been shifted to services sector. The reason of Turkey’s agricultural
intensity derives from its lacking in industrial development. With the EU accession, all
agricultural and industrial policies must be harmonized. So in time Turkish SMEs will
have to direct themselves sectorally and this will affect the structure of employment too.
At first, this shift will cause an increase in “hazard rates” but in long run, it will bring a
new industrial and technologic development within itself.
Financially both countries’ SMEs are mostly in a similar situation. But Venture Capital
is an increasing mechanism with the supports of the EU in Italy. Venture Capital
mechanism favours innovative SMEs, so it promotes technology based sectors. Apart
from this, low benefiting from bank resources, expensive factoring possibilities, using
family resources, popularity of leasing are the points which two countries’ SMEs are
mostly alike. Financing via capital markets is still a developing issue for both countries’
SMEs and can not be accounted as a real mechanism for SMEs among other finance
mechanisms.
In Italy, State policies are shaped in two pots. First one is EU pot and the other one is
State pot. There are three priorities according to the EU and State policies that must be
in line with three priorities.They are the objectives aiming, the development of
underdeveloped regions, improvement of regions which are in industrial decline and
development of rural areas and improvement of unemployment. Apart from these aims,
5
both Turkish and Italian States’ policy decisions are alike. Italian governments have
been constituting policies towards SMEs equipment, technology transfer,
modernization, R&D and market research needs. In Turkey with the 8th development
plan, Turkish policies aim to increase the export capacity, giving infra-super structure
credits, promoting the use of technology and education.
One of the advantages of Italian SMEs is the good communication networks with big
firms. These kinds of networks called as “distretti” in Italy. This kind of a structure can
be very useful for Turkey as well, because Turkish SMEs are working mostly as
subcontractors like Italian ones. Apart from this, bureaucracy, difficulties in State aids
procedures, financial difficulties, high tax rates, deficiencies in banking systems are the
main impediments, mostly two countries’ SMEs faces with.
Turkey does not lack in organizational structure about SMEs. As positively stated in the
last Reccomendation Report, Turkey is ready about organizational eligibility in SMEs.
Self employment and women entrepreneurship is supported by EU funds in Italy. In
spite of this; women entrepreneurship is no more than being unpaid family worker. In
Turkey the situation is the same; moreover, this situation is valid in a declining sector;
agriculture.
About university graduates and those who graduated from science based faculties, more
or less the situation is alike in both countries.
Economically in Turkey, GDP, export and import capacities and FDIs are much more
less than Italy which makes it hard to compare. Turkish SMEs are making a low value
added production and that is one of the main reasons as low value added products can
not be exported and sectors can not have enough investments.
6
According to these observations in this thesis, Turkish SMEs are analysed with the
addition of Italian SMEs comparison in the last chapter. It is stated that in some aspects
EU accession will be very helpful in restructuring Turkish SMEs even though in some
aspects, economic realities are getting in front of the scene. It will be the right thing to
analyse the real problems of SMEs and constituting policies according to these
problems instead of making a wrong step towards them without analysing.
7
CHAPTER 1 ENTREPRENEURSHIP AND SMEs:THE CONCEPTUAL
FRAMEWORK
The aim of this study is to show that country comparisons can be a better way of
finding out the lacks of Turkish SMEs. In order to prove this; finance mechanisms,
strong and weak points, Customs Union effects, European Union mechanisms, Italian,
Turkish and some various countries’ indicators are stressed. These are the subjects
which appears in the first place. The other issues related with SMEs were put out of the
thesis, not to digress from the issue.
The strong and weak points of the economy is reflected on SMEs which are also a part
of the economy and this is a very important point that must be considered. It is
observed that a strong economy and cultural convenience lead to strong policies for
SMEs, otherwise there will be defects in the policies.
This thesis aims to observe SME structure in Turkey and mechanims in favour of
improving the structure in the light of recent problems of Turkish SMEs. And the
integration process of Turkey to the EU is cosidered while doing these observations.
Comparison of Turkey with other economies, finding out the weaknesses by this way,
and constituting better policies will be a positive development for SMEs. For this
8
reason; comparison with Italian SMEs and finding out the similarities and differences
would lead to know lacks better and give chance to amend the policies.
I. BASICS OF ENTREPRENEURSHIP
Entrepreneurship and SMEs are two complementary concepts. If there is an
expectation of growth in SME levels in a country, the very first thing to do; must be to
promote entrepreneurship. For this reason it is necessary to define ‘what is
entrepreneurship’ before making a SME definition.
Entrepreneurship; is the name of all risktaking, opportunity chasing and innovation
making processes that an entrepreneur has to bear. 1 But also importance of some
factors that have impacts on entrepreneurship can vary from country to country. We
can list the basic factors of entrepreneurship in two headings:
A. General Country Infrastructure
It is possible to analyse the features of a country in two sub-headings; A.1. Economic infrastucture Many surveys show the fact that a stable economic environment and a developed
competitive structure promote entrepreneurship. For example; it is observed that the
high spendings and debts of governments, high tax rates and the high participation rate
of government which excludes private sector activities from the economy are the main
1 Dilek Çetindamar (2002). Türkiye’de Girişimcilik. TÜSİAD Yayın No. 2002-12/340:İstanbul. p.34
9
problems in Europe.2 The existence of a strong entrepreneurship mostly depends on the
creation of new opportunities and the creation of an environment that supports
investments and also taking risks.
To measure the economic environment, it is possible to use economic performance
indicators. Some of them are: GDP, economic growth, import-export (openness to the
world), employment, the rate of public production in total production, firm sizes,
sectoral structure, competitiveness, public deficits, inflation, interest rates, tax revenues
and income distribution. These indicators will be used in the last chapter of country
comparisons.
A.2. Technologic Infrastucture
Technologic innovation level in a country indicate the potential of the development
rate of entrepreneurship in the country.
B. Entrepreneurial Infrastucture
Factors of entrepreneurship are elements that effect entrepreneur and enterprise
directly. We can analyse the entrepreneurship infrastructure in three main categories:
Human resources, finance, legal regulations for entrepreneur.
B.1. Human Resources
The demographic structure of a country, in other words, the structural features of
population in a country gives information about the potential entrepreneurs in the
country. For example; in 2001 GEM survey that has done in 29 countries, it is found
2 Avrupa’da Girişimciğin Özendirilmesi ve Yaygılaştırılması (1999). TÜSİAD Yayın No. 99-12/270. İstanbul. p.19,20
10
that men mostly own new, start-up firms and the age interval of these men are generally
between 25-34.3
B.2. Finance
Finance is one of the most needed input for entrepreneurs. For this reason an active
capital market will be a promoting factor for entrepreneurship and new start-ups. GEM
2001 survey shows that, financial support has a direct share in an entrepreneur’s
activity level. While one of them is increasing, the other one also increases. Two
contrast examples are as follows : While United States’ venture capital investments
have a share of 52% of total GDP, Japan has just 0,02% of total GDP, and as it is
known; USA has a high and Japan has a low entrepreneurship level, (in EU venture
capital investments have a share of 13% of total investments).4 In the West, especially
in USA, finance from venture capital firms is very prevalent.
Venture capital firms generally finace entrepreneurs that have innovative projects and
in return, venture capital firms generally ask for an equity capital partnership with the
firm. This subject will be analysed detailed in the next sections.
B.3. Legal Regulations5
The most important legal subjects which consider entrepreneurs are: Intellectual
property rights (Patents, standarts...), corporate law, tax law and labour law. Intellectual
property rights are important, because entrepreneurs want to protect their technological
innovations with a legal aspect.
About corporate law, the most important issue is, bureuacratic handicaps and costs of
starting-up a firm. Because , these two issues have a deterrent effect for a new
establishing firm. It is necessary to facilitate both firm start-ups and firm closings. Very 3 http://unpan1.un.org/intradoc/groups/public/documents/un/unpan002587.pdf :p.27 4 ibid. P:41-43 5 Dilek Çetindamar (2002). Türkiye’de Girişimcilik. TÜSİAD Yayın No. 2002-12/340. İstanbul.. p. 88
11
much alike, in tax systems, low tax ratios or tax exemptions may be provided for
entrepreneurs who take risk in order to support new established firms. These kinds of
practices will foster entrepreneurship in the future.
II. SME DEFINITION
According to World Bank definition, “enterprises which employ up to 50 workers, are
small enterprises and enterprises which employ workers between 50 and 250 are
medium sized.6
When the definitions of SMEs in different countries are observed; it is easily
understood that most of the countries have different definitions . These definitions are
changing, depending on the scales of countries’ economies. In Turkey all the
institutions related with SMEs have made SME definitions as to the criteria of number
of employees, production power potentials, firm’s specialities.
DİE has made its definition according to “Small and Medium sized manufacturing
enterprises research in 1991” and it is determined according to the number of
employees. As to DIE, the enterprises between 1-9 employees are micro, 10-49
employees are small, 50-99 employees are medium and over 100 employees are big
enterprises.7
A. SME Definition in the EU8
Additional to these definitions, European Union has put the maximum limit of 7 million 6 I. Orta Anadolu Kongresi (2001). KOSGEB yayınları. Ankara. p. X 7 DIE, Küçük ölçekli İmalat Sanayi İstatistikleri (1-9), (2001) 8 Mustafa H. Çolakoğlu (2002). KOBİ Rehberi. TOBB Genel yayın No.359-PM:2. Ankara. p.3,4
12
Euro turnover to the definition of small enterprises and the maximum limit of 40
million euro turnover for the medium sized enterprises.
It can be proposed that; small and medium sized enterprises (SMEs) employ less than
250 workers, they have a limit of 40 million euro turnover or,except for buildings and
lands, they have a limit of 27 million euro fixed capital. Additionally, they should be
eligible for the independence criteria that will be explained in third paragraph.
Apart from this definition, small enterprises are especially defined. Small enterprises
employ less than 50 workers and have a limit of 7 million euro annual turnover or,
except for buildings and lands, they have a limit of 5 million euro fixed capital. Also
they should be eligible for the independence criteria.
Independence criteria comprises the enterprises that 25% or more of their capital or
shares are not undertaken by another firm; or independent enterprises are enterprises
which have a capital structure coordinated with SME definition9. There are two
exemptions:
1) If the owner of the enterprise is a public investment partnership, a
venture capital firm or an institutional investor,
2) If the capital is divided into many shares and it is impossible to
determine owners,
Also if the enterprise clarifies legally that 25% or more of its capital is not undertaken
by an enterprise or/and if the enterprise can prove that definition of its structure is not
coordinated with other enterprise definitions; then these enterprises can be defined as
SMEs.
9 Çolakoğlu, H. Mustafa (2002). KOBİ Rehberi. TOBB Yayın No.359-PM:2 (Nisan): Ankara.
13
To seperate micro enterprises from SMEs, it can be said that micro enterprises are
enterprises which employ less than 10 employees.
In some occasions, SMEs can lose their SME structure. In the accounting period
balance sheet and following 2 years if the enterprise breachs limits of “number of
employees” or “financial criterion” , the enterprise may lose its SME (small scaled,
medium scaled or micro scaled) statute.
In these limits the enterprise should consider “Annual Working Units” (AWU) for
determining number of employees. It means, in a year, AWU rates and the full time
working employee rates should be compared. The reference year must be the year of
last accounting period.10
For the financial criterion; the enterprise should consider annual turnover and net
balance sheet values. These values have to belong to the last approved accounting
period. For the new enterprises which have not yet an approved accounts, the realistic
estimates will be put into consideration.
According to definition of SMEs of the EU, the Commission harmonized all EU laws
which contains expressions such as SME, medium scaled enterprise, small scaled
enterprise or micro scaled enterprise.
But in Turkey the situation differs because of the definition differences. It is not
possible to make a healthy plan and distribution of state aids. It is not possible to have
realistic statistics, and it becomes very hard to reach right conclusions in making
comparisons and analyses. To eliminate these problems, it is necessary to have a unique
definition of SMEs in act.
10 ibid
14
B. SME Definition in Turkey11
As there is no single definition for SMEs in Turkey, various related institutions made
their own definitions. Definition of KOSGEB has put in order by the law number 3624.
According to this act; small scaled firms are the enterprises which have workers
between 1 and 50 and operating in the manufacturing sector. Medium scaled firms are
the enterprises which have workers between 51 and 150 and operating in the
manufacturing sector.
HALKBANK has a different aspect about SMEs. It defines SMEs as; incentive
certified enterprises which have workers between 1 and 150 and that have fixed
investment amount of maximum 100 billion TL or less.Normal SMEs are; enterprises
which have workers between 1 and 250 and that have fixed investment amount of
maximum 400 billion TL or less.
EXIMBANK gives short term TL credits for exports, it defines SMEs as
“manufacturing enterprises which have workers between 1 and 200.
According to TREASURY, SMEs are enterprises that are active in manufacturing and
that have maximum 400 billion TL value of machine, equipment, facility, vehicle,
movable property, except buildings and lands in their ledger records. Enterprises with
workers between 1 and 9 are called micro enterprises, enterprises with workers between
10 and 49 are called small enterprises, enterprises with workers between 50 and 250 are
11 ibid, p. 7,8
15
called medium enterprises, and maximum 400 billion TL amount of fixed investment
spending of these enterprises are counted in the scope of SME.
For Foreign Trade; FOREIGN TRADE UNDERSECRETARİAT defines a SME as an
enterprise that is active in manufacturing industry, employs workers between 1 and
200, having mandatory ledger records and has maximum 2 million US Dollar fixed
capital in respect to net balance sheet value.
According to DİE and DPT; enterprises which have between 1 and 9 workers are called
micro scaled, which have between 10 and 49 workers are called small scaled, which
have between 50 and 99 workers are called medium scaled.
TOSYÖV12 (Türkiye orta sanayi yöneticileri vakfı) is a leading organization working
in favour of SMEs. As to them; Enterprises which have between 1 and 5 workers are
called micro scaled, which have 5 and 100 workers are called small scaled, which have
between 100 and 200 workers are called medium scaled.
As seen from the variety of definition, Turkey does not have unique definition and
this causes series of problems, moreover, these definitions can be increased
according to other organizations. As soon as possible Turkey with its entire
institutions, should adopt the definition of the EU for a better harmonization in this
subject.
12 ibid
16
III. HISTORICAL DEVELOPMENT OF AND NECESSITY FOR SMEs
One of the consequences of recession and inflation around the World in 1970s, is the
emergence of SMEs with their flexible structure. A flexible structure can have more
resistance than big firms in recessions and crises, and also SMEs have an important role
in creation of employment and production for a country’s economy.
Since 1970s, rates of growth in the number of SMEs have been higher than in the
immediate post-war period. Within the EU, the number of self-employed and SMEs
have increased from 11.6 million in 1988 to over 18 million, employing 2/3 of the
employed work force in the late 90s.
The flexible structure of SMEs have been mentioned for their increasing importance.
Flexibility obtains an easy adaptation to new and changing environments. Also the
share of SMEs in employment and production, make SMEs indispensible. Like most
countries SMEs are the propulsive motive of the economy in Turkey. It is important to
improve SMEs to respond to global economy where customers have more decisive
demands, and an economy that highly productive and competitive.
In Turkey the role of SMEs have developed after 1980s. The economy policy till 1980
was import substitutionist. After 1980 an industrialisation policy which is based
mostly on export has followed up.Afterwards SMEs became an important element of
this policy13.
13 www.kosgeb.gov.tr/ekler/dosyalar/yayin/106/kobitarihi.pdf
17
The share of manufacturing industry in Turkey’s GDP is nearly 20%. SMEs have a
crucial role for present and the future. The number of SMEs in manufacturing industry
is over 200.000 and it is equal to 99.5% of the manufacturing industry14. If we look at
the other indicators: In Turkey SMEs form 63,8% of the employment, 32.3% of the
added value, 26.5% of the total investment, 38% of the total production, 8%of the
export. Although most of these indicators have similarities with EU countries, the share
from credits ( EU average is 45%, Turkey has 4% ) and the rate of the use of capacity
(EU has 80%, Turkey has 25% ) are the indicators in which Turkey is lagging behind.
For this reason it is necesary to put support mechanisms that are equal to the
contribution of SMEs to the economy.15 When we put the numbers, datas and countries
aside and look to the basics and reasons of the importance of SMEs, we have to turn
back and understand the popularity of entrepreneurship recently. According to GEM
survey, the countries which have high entrepreneurial activities, grow economically
over the average. Beside this welfare effect, there are three developments that make
entrepreneurship so popular.
1) Entrepreneurship is thought to be the solution of unemployment problem16
In globalised and competitive economic environment, every country struggles with
these problems. Especially researches that observe unemployment in Europe, have seen
the contribution of entrepreneurship to employment in USA.
According to the survey of Drucker17; between 1965 and 1985 while the population
increases from 129 million to 180 million, the working population in USA increases
14 T.C. Sanayi ve Ticaret Bakanlığı Haziran 1999 Haziran 2002 Dönemi Faaliyetleri (2002). Sanayi ve Ticaret Bakanlığı Yayını (Haziran): Ankara. p:42 15 TC Sanayi ve Ticaret Bakanlığı Haziran 1999 Haziran 2002 Dönemi Faaliyetleri (2002).Ankara. p. 42 16 Dilek Çetindamar (2002). Türkiye’de Girişimcilik. TÜSİAD Yayın No.2002-12/340. p.40,41 17 ibid
18
from 71 million to 106 million. 24 million of 35 million employment which was
created in 20 years, was newly established businesses between 1974 and 1984.The only
reason of this growth in employment is entrepreneurial activities, according to Drucker.
The entrepreneur economy that increases employment creates 8 million new
employment between 1993 and 1996 in USA. 5% of these newly established companies
form 77% of the employment.
These newly established firms are generally small scaled and through years the
importance of SMEs in economic life is neglected. As Chandler explained in his
surveys18, large scaled capitalist enterprises after late nineteenth century, has surpassed
SMEs, in employment, production and creation of added value. After 1970s the weight
of large scaled enterprises have begun to decrease, because of many problems they
have faced. For example: the indefinite, unstable environment after 1970 oil crises, the
increase in global competition with the appearance of new competitors from far East
Asia, maladjustment to rapid changes in technology and lastly productivity problems in
“Fordist production”19.
After these problems, SMEs have begun to have attentions and they were taken into
consideration to analyse their role in the new economy. For example; a survey at this
period showed that, newly established firms between 1969 and 1976 have created 82%
of the employment20.
18 ibid. P: 41 19 A piece work scheme. A standart payment and time is set for the completion of each task. A bonus is payable, which varies inversely with the actual time taken. 20 Dilek Çetindamar (2002). Türkiye’de Girişimcilik. TÜSİAD Yayın No.2002-12/340. p.41
19
2) The changing economic structure because of the new powerful economy and
the role of entrepreneurship in this new economy.21
In our recent time not only new firms but new industries are constituted. Some of new
industries are; personal computers, biotechnology, cellular phones..etc.Technology not
only creates high value added products and services but at the same time creates
directly or indirectly productivity and a raise in the quality in all sector.
As seen from the table; EU countries have reached to an important size in technology
based manufacturing and service sectors and these are the dynamics that provide
economic growth. Generally, the growth in services sectors is higher than
manufacturing sectors. The growth of Ireland in both sectors, is the highest among
countries.After Ireland, Finland is following. But the rest of the countries provides their
growth more on services sector rather than manufacturing sector.
Table1: The growth in two sectors among some EU countries MANUFACTURİNG SECTORS SERVICES SECTORS The rate of high Technology sectors (1999)
annual average annual average growth growth in high tech
manufacturing sectors
The ratio of annual average annual averageinformation growth growth in informabased services based services
Country EU 15
38
0.3
0.9
48
1.8
2.9 GERMANY 46 -1.0 -0.1 47 1.2 2.9 DENMARK 34 -0.4 -2.5 60 1.4 2.7 FİNLAND 36 3.3 5.8 57 4.2 3.8 ENGLAND 43 -0.3 1.1 54 1.9 2.8 IRELAND 40 5.4 8.7 50 7.1 7.7 SWEDEN 44 -1.1 0.8 63 -0.1 0.1
Source: Çetindamar, Dilek (2002). Türkiye’de Girişimcilik. TÜSİAD Yayın No.2002-12/340 (Aralık): İstanbul.p:44
21ibid. p.42-44
20
3) The general acceptance of entrepreneurship because of theoric developments22in
the field of economy and business administration.
With the policies in 80s, it has been tried to make governments smaller in economic
and social life. In this time period entrepreneurship was promoted. In universities, in
business administration departments, entrepreneurship education and studies have
obtained a new perspective to the matter and these activities have fostered
entrepreneurship.
A. Entrepreneurship Policy in the Historical evalution of the
EU:Industry Policy and SMEs23
For a long time industry and SME policies are developed seperately. In the accession
negotiations with candidate countries, these two policies have been considered
seperately for their harmonization process ( Industry was fifteenth and SMEs was
sixteenth subject for negotiations ).
In 2000 at the renovation process of EU Commission; these two DGs are brought
together. After this change, these two policy subjects were brought together under the
name of “ EU Enterprise Policy”.
In negotiations, Commission tries to determine whether candidate country’s perception
is harmonised with EU’s policies of industry and SMEs or not. Because of the limited
laws in this field, negotiations generally continue easily. For both of two fields, binding
laws are under other negotiation headings; especially under competition dossier. After
the closure of the negotiation dossiers, Commission still follows the developments in 22 ibid, p. 44-46 23 Sanayi Politikası ve KOBİler (2001). İKV Yayınları. İstanbul. p. 8-12
21
the harmonization of the candidate country. The legal and basic targets of the EU
according to the periods, can be summarized as follows24;
A.1. 1952-1973 From European Coal and Steel Community to an official EU
industry policy
EU industry policy has a long history. Commission has first brought the matter on the
scene with “EU industry policy Memorandum” in 1970 (EU journal 1970/04). Despite
ESCS Treaty did not refer to any industry policy, some practices were seen either in
ESCS Treaty in 1952 or in EEC Treaty. Since former 70s EEC has focused on
establishing a single market. The most important issue in creating a single market was
the need to constitute a common frame for law and fiscal issues. Besides, government
support was needed for the rapid industrial changes in the world. Commision arranged
these matters in the Memorandum in 1970. Council accepted this first action
programme about industry policy. This programme included horizontal measures that
are: diminishing constraints in Community, harmonization of corporate law and
purchasing regulations and also it inluded some sectoral measures and at that time these
measure targeted; information, aviation, ship building, paper production industries
A.2. 1973-1992 Industry Policy before Maastricht Treaty
After 1973 both sectoral and horizontal measures have determined the activities of EU.
The protectionist measures in especially aviation and steel sectors are criticised by neo-
liberal economists and non-member countries. In 80s the term of criticism and
pressures were getting higher meanwhile USA and Japan have had progress in new
24 ibid. P:9
22
technologies and had the superiority in market. The traditional sectors of EU had to
compete with new competitors from far East Asia that have been making cheaper
production.
At this period, EU was taking import constraining measures such as quota for steel , or
constraints for textile and at the same time EU also tried to focus on industry policies
and this change can be seen in the structure of EU. For example in Commission in 1979
steel sector has a seperate DG and 60 people were employed at this DG but in 2000
other metals were added to the context of this DG and only 25 people were employed.
In 80s Commission still have tried to make structural changes for regions by using
sectoral policies: For example; textile, steel, automotive, ship building. On the other
hand EU has started to give more importance to make EU enterprises more competitive
in international arena. To achieve this, following elements were tried to be completed:
Completion of the Single European Market, promotion of European enterprises which
have industrial collaboration with third countries’ firms, and lastly, giving importance
to R &D. New interpretition of industrial policy was not only effected by the
competition of USA and Japan, but also by the new economic arguements in these two
countries.
A.3. The constitution of bases of law: Maastricht Treaty- Act number 15725
Maastricht Treaty in 1992 has announced the industrial competence as one of the basic
principles of EU and for the first time this concept was included. (Article 157 )
“The Community and the Member States shall ensure that the conditions necessary for the competitiveness of the Community’s industry exist.”
25 www.europa.eu.int/scadplus/leg/en/lvb/n25000.htm
23
The frame of the industry policy was determined by the principle of building a
competitor and transparent market, in the Treaty. In this context the fundamental duty
of Community was to accelerate the harmonization of the industry to this structural
change, to prepare a suitable business environment for the development of SMEs, and
to contribute for benefiting more from new inventions and technologic research and
development fields.
But there is not exact special practices for industry policies, because in the Treaty there
is an expression saying that: “Community assists to realize the aims in the first
paragraph by the policies and activities stated in other acts in the Treaty”26.
In other acts in the Treaty there are decrees related with; Customs Union between
member states, free movement of services, capital, workers, goods, common
regulations about competition, state aids and taxation, economic and fiscal policy and
also social policy and common commercial policy.
On the other side, it is as required by law that measures depending on the legal basis of
article 157 can not cause a competition breach.
It is possible for Community to take some special supporting natured measures
additional to measures that were taken by member states. With the change of unanimity
rule in 2000 Nice Summit, these kind of measures can be accepted by qualified
majority rule.
A.4. Steps after Maastricht
A.4.1 . EU industry Policy in the frame of globalisation
In 1992, Council decided to put an act (number 157) related with industry policy to
26 ibid.p:11
24
the Maastricht Treaty. As explained before, this act gives the responsibility of
accelerating competition power of industry to the EU and member states. This act also
clarifies that industry policy practices should not cause any competition breach in
markets.
Since that date, Community’s contribution to global trade liberalization has increased in
practice. Automotive sector can be a good example to this. Before Single Market, five
member sates have different import constraints to Japan cars. Instead of these five
different import constraints, voluntary trade restraints agreement was come into force
between EU and Japan.This agreement was informed to GATT secretariat officially and
import from Japan was allowed for 6 mounths period according to evaluation results of
markets. By this agreement EU markets can become open to Japan car importing,
beginning from the year 2000.
Other events that will increase the competition in EU and World markets: The end of
ECSC Treaty in 2002, the end of WTO agreement about textile in 2005.
A.4.2 Competition Policy towards Industry policy
Those who criticised EU industry policy also says that Maastricht Treaty strengthened
Commission’s position and EU’s industry policy can be in contradiction with targets of
competition policies. If Commission supports enterprises to merger in a dominant
position in single market, it really will be a contradictionary situation. But there was not
occured such a situation till that day. On one hand, decrees related to industry policy
must be supported by member states in the Council, on the other hand Commission had
already announced that there would not be any policies in favour of some specific
industry sectors in official communication: “Industry policy in a transparent and
25
competitive environment” in 1990. Since that date Commission and member states try
to obey this uninterventionist horizontal industry policy.
B. SMEs in the EU, the Past, the Presence and the Future of the
Industry Policy
EU gives importance to industrialisation too much. Basic targets of EU are; being
nature friend, obtaining a sustainable development, protecting and developing the
competition power of enterprises, opening itself to new markets. These basic targets
which have effected industry policy, also have an importance for industry strategies of
member states and candidate countries as much as enterprises. Table below summarizes
what is tried to be said:
Table2: Industrial strategies of the EU in history past strategy present strategy target strategy
Product Strategies - big, rapid, standart - small, rapid production - production of individual production of goods; of qualified goods; special goods ; product/price ratio; solution- services high price to high Quality control after selling ; quality product; performance control to give importance to
equivalent design, production and marketing
Production strategies - quantity, scale economies, -rapid delivery,variety -To supply new products in output, production supported economy, flexibility, the market rapidly; by information processing logistic design multi-functional production equipments; to minimise the factors like transport
Organisation - complex structures; - organisation autonomy; - to eliminate the factors Strategies hierarchy individual responsibility which impede production,
services; having rapid solution by individualisation of duties
Direct investment - regional and national markets; -World markets; working - To meet real needs in market and strategies for working with subcontactors; subcontractors in a wide ;to be the partner of risks and accession to market collaboration labour intensed scope; direct investment profits; to attempt direct subcontractors to key markets competition in new markets
Source: Çolakoğlu, H. Mustafa (2002). KOBİ Rehberi. TOBB Yayın No.359-PM:2 (Nisan): Ankara.
26
CHAPTER 2
CHALLANGES AND OPPORTUNITIES OF SMEs AND FINANCING OF SMEs
İ. THE ECONOMIC IMPORTANCE AND THE PROBLEMS OF
SMEs
Small enterprises are the backbone of European economy. The ability of employment
creation of these enterprises is high and they facilitate the development and the spread
of new ideas in the business environment. For this reason policy makers try to create
the most suitable business environment for small enterprises and entrepreneurship. EU
Commission assists these efforts with Multiannual Programme and entrepreneurship
Programmes.27
When the World economy is considered, we can see the 95% of enterprises are SMEs
and these SMEs obtain nearly 65% of total employment and 55% of total production In
Turkey; 99% of total enterprises are SMEs and these SMEs obtain 56% of total
employment. With the unregistered ones, it is estimated that in Turkey there are nearly
3.5 million SMEs.28
All these datas show the importance of SMEs in the economy, so it is an obligation to
pay an attntion to SMEs, parallel with this importance.
27 Sanayi Politikası ve KOBİler (2001). İKV Yayınları. İstanbul. p. 17 28 Erdoğan Alkin (2001). I. Orta Anadolu Kongresi.KOSGEB Yayınları. Ankara. p. X
27
When the name SME is mentioned in Turkey, generally, automotive, durables,
electronic, clothing, handicrafts, services (agencies, cleaning, catering firms and similar
services ,metal and valuable mine and food sector ), subcontractor industries are come
up to minds. In other words most of SMEs in Turkey are working as subcontractors for
big firms.
In this concept and statement, SMEs should have tight bounds with the main firm in
order to be succesful. For being succesful, these SMEs also should have 150-200.000
US Dollar amount of investment and 50-100.000 US Dollar amount of working capital.
We can give some examples to the problems of SMEs.
To have tight bounds with the main firm can also create some direct and indirect
problems for SMEs. For example the main firm can slow down the work in crises
periods and this causes a redundancy payment problem for its subcontractors. Besides,
dependency to main firm can cause a disability in subcontractors’ production
development function.
As to SMEs, the main problems are economic unstability, high interest rates and high
tax rates; and it is impossible many times to provide the mortgage against credits for
SMEs. Since 1998, the percentage of SMEs that have difficulties in payment of debts,
in total has increased to 80% from 20% with the last economic crises.
Education of managers of SMEs is another problem; respectively, 19% of them
graduated from elementary school, 42% of them graduated from secondary school,
21% of them graduated from high school, 18% of them graduated from a university. It
is clear that more high educated, innovative managers are needed for SMEs.29 Only 1%
of SMEs have their own websites and 3.5% of them have e-mail addresses.30
29 ibid 30 ibid
28
The distribution of credits between large and small enterprises are not fair. The best
indicator of inequal distribution of credits is the share of SMEs in credits: SMEs use
just 4% of total credits. The insufficient information about alternative finance
resources by SMEs, restrict the use of external finance resources.SMEs do not know
how to benefit from credit facilities of banks because of the lack of information or
communication. Because of the majority of credit formalities, credits can not be
provided just in time. Short time period of repayment and average term for investment
and equipment credits, decrease the benefit of credit, which is used by SMEs.Limited
credit possibilities for SMEs also cause a restriction of use in credits. Limited number
of SMEs can use limited credits. Halkbank is the sole bank which provides enterprise
credit and facilities for SMEs.
Looking to the EU side; the problems of SMEs in EU can be analysed in two headings:
Fiscal and administrative problems.31 As a matter of fact, when these headings are
deeply analysed , the problems reflect the same base with the problems of Turkish
SMEs. Of course the term of problems differs from each other. Turkey has more
complicated problems but EU has almost the same base of problems. Just, EU has some
mechanisms to eliminate these problems. These mechanisms will be explained in the
latter chapters.
31 Deniz Şenyurt (1995). Küçük ve Orta Boy İşletmelerin Avrupa Topluluğunda ve Türkiye’de Teşviki. T.C. Başbakanlık Dış Ticaret Müsteşarlığı AB Genel Müdürlüğü Yayını. Ankara. p.35
29
II. THE DEVELOPMENT OF SMEs
Turkey’s economy has not integrated with the world economy in the level of
industrialised countries yet. Also Turkey is at end of the line in global competition
ranking.
Under these circumstances, in order to realize the development of SMEs ; main sectors
have to grow stabily and they have to promote their subcontractors to practice
technologic and administrative developments in their structure.
Duties of government in this scene are to diminish bureaucracy in SME supporting
programmes, to accelerate resource finding process, to attempt to find foreign resources
for SMEs and lastly to eliminate the unfair competition conditions. Despite the negative
elements, SMEs have many advantageous specialities.
A. Advantages of SMEs32
There are some advantages deriving from being in the phase of “new economies”. In an
intensified, global competition environment, due to transportation, information and
communication improvements have led large diversified manufacturers to sell off less
competitive holdings and has forced all producers into “leaner manufacturing”. Smaller
firms frequently place innovation at the at the centre of their strategy for advancement
and innovative activities may grow more in the small enterprises or in the “start up”
environment.
32 Justin Byron, M. Karmel Solomon (2002). A Comparison of SMEs in Europe and in the USA. Routledge. London. p. 27-30
30
During the early stage of the industry life cycle, there is a high amount of innovative
activity and new, smaller enterprises tend to have the relative innovative advantage33.
The other advantages can be mentioned as: Smaller firms may be less bureaucratic and
may have less “inertia”34 in their operating structures. Intensified market fragmentation
due to growing consumer demand for differentiated products may have favoured
smaller. New mechanisation methods and computerisation may have further provoked
more differentiation and specialisation of products and “leaner manufacturing”.35
The result is that since 1970s, small firms have been of increasing importance both to
EU and US economies generally and to their investors and capital markets in particular.
B. Strengths of SMEs36
There are many strong sides of SMEs as explained above;
1) SMEs are stabilization elements for total employment
2) SMEs have the ability to adopt themselves to changing market conditions,
they are flexible
3) SMEs have the characteristics of completing big firms
4) SMEs have the contribution to an equalize regional growth disparities.
33 David B. Audretsch, Maryan P. Feldman (1995). Innovative Clusters and the Industry Life Cycle.Discussion papers,Wissenschaftszentrum Berlin für Sozialforschung. p. 3 34 inertia; the resistance an object has to a change in its state of motion, resistance to change. 35 See page 95 36 Deniz Şenyurt (1995). Küçük ve Orta Boy İşletmelerin Avrupa Topluluğunda ve Türkiye’de Teşviki. T.C. Başbakanlık Dış Ticaret Müsteşarlığı AB Genel Müdürlüğü Yayını. Ankara. p.20-21
31
C. Weaknesses of SMEs
The weaknesses of SMEs derive from various sources. Mostly financial problems and
also technologic and management lacks are the main sources of the weakness
1) In SMEs generally the entrepreneur of the firm is also the manager of the firm.
All the main functions of management are concentrated on the hands of the owner, who
has not a good experience about how to operate on the international market, who has
not a “modern” style of management, characterised by the use of an efficient
information system, by a long and medium term planning, necessary when a firm wants
to enter the markets abroad.
2) It is hard for SMEs to finance themselves from capital markets.
3) Most of the times; financial, technical and marketing analysis of SMEs are not
healthy.
4) The decision making process is short. Only few persons take decisions for the firm
and in this way the research and analysis of information are inadequate.
5) Negative or limited economies of scale is one of the main disadvatages with
respect to the large enterprises, because the SMEs are obliged to increase the
productivity to maintain the price low and to compete better on the international
market, where a lot of big firms are present. These diseconomies are also relevant in the
purchasing function because of the reduced transaction power of the SMEs with respect
to the suppliers. These firms are obliged to use intermediaries, given their small orders
and their limited knowledge of the sources of supplies.37
37 C. Pepe (1984). Lo sviluppo Internazionale delle Piccole e Medie Imprese.F. Angeli, Milano. p. 49-53
32
6) Strong family ties are most of the time a disadvantage. The most important
functions are usually in the hands of the same persons, the members of the family that
founded the firm, and in this way it is difficult to have “the right man in the right
place”, to change one manager and to substitute him with another in possession of a
good experience and professionalism, ripened working in another firm.
7) Imperfect information problem has also been identified as one of the major
problems besetting our kinds of firms. They suffer from a lack of information about
their existing and potential markets, or the possibilities for linking up with other firms.
SMEs are able to do fewer things to know better the markets abroad.
8) SMEs have limited financial resources, there are number of ways that this problem
influences SMEs’ practices, above all when the operations are conducted at an
international level, where the period of realisation of the investments is usually longer
and hence the possibility of self financing is reduced.
9) The problems deriving from the legal aspect are also have great necessity in
Turkey.
Tax burden has an increasing trend despite the economic facts. In response, there is no
development in the number of the taxpayers and it is difficult to survive in this kind of
a business environment for investors. In Turkey average corporate tax ratio that is
calculated on profit (profit before tax) is less than Japan, Israel and USA, same with
England, more than South Korea, Hungary and Ireland. Between 49 countries; Turkey
is the fourteeth in low income tax ratios ranking. In indirect taxes like VAT, Turkey has
a relatively high tax burden when compared to OECD and EU countries. The
33
contribution of employer in compulsory social security share in GDP per person in
Turkey, is the highest among these 7 countries.38
Between 1995 and 2000, the average tax burden of OECD countries has increased to
37.4% from 36.1%. In Turkey a rapid increase has occured and in the same period the
tax burden has increased from 22.6% to 33.4%. On the contrary to Turkey, in OECD
countries tax burden which is determined on proprotion of tax revenue to national
income has an increasing trend. The high growth in USA in recent ten years has forced
the other countries to be more competitive in their tax policies. It is clear that Turkey
has a lower tax burden (35.8%) when compared with OECD (37.4%) and EU (41.6%)
averages.39
As a matter of fact in Turkey tax burden has a rapidly increasing trend without noticing
the economic facts. In response, the stable number of taxpayers effect the investment
environment negatively. Besides, in spite of serious tax burdens, budget deficits and
unrestricted economy continued to increase and the innovative actions for tax policy
were always be delayed.40
Looking to the tax revenues in Turkey, it is seen clearly the dominance of indirect tax
weight and by the time, this dominance has increased. Main indirect taxes that are in
practice: VAT, customs tax, stamp tax, transaction tax for bank and insurance, resource
utilization promotion fund. While in 1990 the distribution of indirect and direct taxes in
total tax revenues are respectively 48% to 52%; in 2002 the share of indirect taxes has
38 Çetindamar, Dilek (2002). Türkiye’de Girişimcilik. TÜSİAD Yayın No.2002-12/340 (Aralık): İstanbul.p:21 39 http://www.oecd.org/dataoecd/6/1/33826979.pdf 40 Çetindamar, Dilek (2002). Türkiye’de Girişimcilik. TÜSİAD Yayın No.2002-12/340 (Aralık): İstanbul.p:93,94
34
increased to 66%. At this point of view, indirect tax burden of Turkey is relatively high
when compared to EU and OECD countries.
But only, the most important reason for this, is the failure in collecting direct taxes.
Also the relative easiness of collecting indirect taxes strengthens this situation.
Uncoordinated structure in public finance, was tried to be coordinated with a limited
number of taxpayer and the tax justice is damaged.
Despite various number of changes in tax law, a suitable, justified, active functioning
and simple tax environment could not be created for taxpayers. The unregistered
economy is about 50% and taxpayers could not bear this burden.41 Income and
corporation tax systems are confusing and tax ratios are high. The most complained
four problems by SMEs are: The frequent change in ratios and regulations, the delays
in repayments, the abundance of the laws and lastly, insufficient number of tax officers.
Many examples can be given for bureuacratic impediments that a firm faces. A normal
taxpayer has to go to tax office 80 times in a year to complete his annual tax procedure.
Additionally the average time to prepare tax statements is 80 days. So the taxpayer has
to spend his 160 days in tax office and in Social Security Foundation (SSK).
Consequently, there are nearly 264 work days in a year and a tax payer has to spend 1/3
of his time only in tax office.42
Bureaucracy is another major impediment that firms has to face43. According to
WCI data, Turkey is the thirtyninth in 49 countries that government facilitates the
growth in business environment. In other words Turkey is the tenth most bureaucratic
41 ibid.p:93 42 Dilek Çetindamar (2002).Türkiye’de Girişimcilik. TÜSİAD Yayın No.2002-12/340. p. 88-94 43 ibid, 94-96
35
country. Also among 60 countries Turkey is the fortysecond in eligibility of making
business and investment.44
To give some information about the time of procedures in Turkey:45 20% of a firm’s
activity time is spent on bureaucracy. This percentage is 8 % for Middle and East
Europe countries, 4% for South America.In Turkey; the time, spent on registration of a
firm can be 2.5 mounths. An entrepreneur has to have nearly 172 signature to complete
an investment procedure. To have an official registration of a trademark, 14 mounths
are needed while 6 mounths are enough in Europe.
In energy sector, to have all the permissions of a 14 mounth project, entrepreneur has to
have all permissions in 9 years.
To establish a firm, the number of formalities that are needed, are 18, and this amount
is the highest among Europe. Second highest amount is in Italy with 17 formalities.
England has just one formality to establish a firm.
When we observed detailed the establishment of a firm; we can see the procedures and
the time needed to form a firm. To establish a joint-stock company, 18 procedures are
needed and if these procedures can be done followingly, the firm may be established in
26 days with a cost of 675 million TL. To establish a limited company, 18 procedures
are needed with minimum 27 days and a cost of 560 million TL. To establish a private
entity company , 13 procedures are needed with minimum 40 days and a cost of 211
million TL. To establish a commandite company or unlimited company, 13 procedures
are needed with 25 days and a cost of 450 million TL.
As seen from the data above, bureaucracy in Turkey makes entrepreneurship a hard
activity. Simplificaton of procedures and the laws will foster entrepreneurship.Also to 44 ibid 45 Oya Han (2001).Şirket Yapıları ve Kuruluş Aşamaları.KOSGEB Yayınları. Ankara. p. 9-19
36
close a firm is diffiult in Turkey and there are problems in the law of bankruptcy.
Besides entrepreneurs’ firm failures are punished throughout their lives. For example;
entrepreneurs who are bankrupted, can not have check book or credit card again.
III. ACCESS TO FINANCE FOR SMEs
Due to supply or demand constraints, average, one fifth of SMEs in Europe considers
access to finance as a barrier to growth46. Clearly, stimulating a competitive financing
environment for all companies is a key element in promoting an entrepreneurial
economy and strengthening economic growth. SMEs can finance their activities from
internal or external sources. There are considerable differences between Member States
in respect of the financial structure of SMEs between the share of own ‘internal’ capital
versus ‘external’ financing. In some Member States (for example, in Germany and
Austria) small businesses rely much less on own capital and more on readily available
bank loans. In others (France, Belgium, Portugal) own capital financing is more
prevalent. What is common though is that in most cases SMEs require external finance
for business expansion — be it loans, other types of debt, or equity.47
46 http://eban.org/pays/it.html 47Commission Staff Working Paper- Enterprises’ Access to Fianace. http://www.europa.eu.int/comm/enterprise/entrepreneurship/financing/docs/sec_2001_1667_en.pdf
37
Graph1: Use of external financing by SMEs
Use of external financing by SMEs
exter
nal in
vesto
rs
subv
entio
ns
factor
ing
leasin
g
bank
loan
s
over
drafts
0102030405060
Source:Exco Grant and Thornton survey of SMEs 2001-Commission Staff Working Paper. Enterprises Access to Finance 2001. http://www.europe.eu.int/comm/enterprise/entrepreneurship/financing/docs/sec_2001_1667_en.pdf. p:8 One of the main obstacles facing small and medium sized companies is accessto finance.
This is especially true in the crucial start-up phase when financial institutions are
reluctant to grant loans because of the perceived high risks involved and the lack of
collateral.48
Banks are reluctant to lend to small enterprises without collateral. For SMEs, the lack of
guarantees is their biggest financial problem, according to the Bank of England’s report
on finance for small firms.49
As banks usually ask for collateral against their lending, (reflecting theirconservative
approach to risk), the availability of collateral is an essential factorin SMEs securing
access to bank financing (overdrafts and loans). Banks will generally require either real
48 Rudy Aernoudt (2001). Enterprise Europe No.3 (April-June).Luxemburg. p. 8,9 49 Rudy Aernoudt (2001). Enterprise Europe No.2 (January).Luxemburg. p. 10,11
38
estate or other tangible assets as collateral, or a guarantee from a person or an
institution. Typically, SMEs use what collateral they have to secure in start up business
financing, and therefore may lack additional assets to secure against raising additional
debt finance for short term and long term expansion.
Overall, some 46 % of SMEs indicate that they use bank credit. Research evidence
shows that in countries where overdraft use is high, recourse to bank loans tends to be
low (Italy, Greece, Denmark, United Kingdom). Further, a causal relationship is
apparent in that, where access to bank credit is more difficult, payment periods and
payment delays tend to be the longest (Italy, Greece, Portugal, Spain).50
In Turkey, HALKBANK is the bank which provides the most credit support.
Cooperative, industry and funds credits are provided as specilization credits and;
commercial, individual credits are provided as’other credits’ by HALKBANK. In spite
of some developments in specialization credits in recent years, the share of
specialization credits in total, is very limited. Since 1991, credit guarantee fund that is
established as a solution to collateral problems of SMEs, can be used as collateral to
specialized credits of HALKBANK.
However Eximbank allocates cheaper credits and exercises a credit
schedule(programme) for SMEs which consider with export. To finance export,
Eximbank put credit insurance and guarantee programmes into practice. In 2000 with
the short termed credits given, Eximbank has financed 12.5% of export. In the same
period SMEs have used 36% of short termed Eximbank export credits. These indicators
show that SMEs could not benefit from these support mechanisms. The rate of
benefiting from bank credits is very low in Turkey. In 1995 SMEs have used 2.18 % of
50 Analysis of use of Factoring. http://www.europa.eu.int/comm/enterprise/entrepreneurship/financing/docs/factoring_en.pdf. p:10
39
total banking sector credits. In 1996 the rate was 3.01%, in 1997 the rate was 4.25%, in
1998 it was 4.60 and in 1999 it was 4.82%. These ratios point out a low benefiting of
SMEs from bank credits in Turkey. But also SMEs constitute 99.5% of total enterprises
and 27.3% of total added value. So, considering the low added value, in this sense the
share from bank credits should not be percepted very low.51
Beside “own capital financing” (internal finance), there are various “external finance”
instruments for enterprises to finance themselves.
A. Venture Capital
Venture Capital is a finance mechanism that promotes projects which are about
technologic innovation and which have the potential of growth. This kind of
investments have high risks but they are expected to get profit above the average in
the future. Venture capital gives the opportunity to new innovative firm establishments
and their future existence. In addition, venture capital mechanism includes
administrative and organizational support to the firm. The organization which invests
capital, aims to get high capital profit in long term. Venture Capital is a capital which
seeks high profit and at the same time accepts high risks. But every investment which
has high risk and profit can not be defined as venture capital. It is a special kind of
investment for the benefit of the establishment and development of new SMEs which
have the potential of growth. Venture capital is an investment partnership but it has
different status and mechanism.
51 Alövsat Müslümov (2002). 21. Yüzyılda Türkiye’de KOBİler: Sorunlar, Fırsatlar ve Çözüm Önerileri.Literatür Yayıncılık. İstanbul. p.21-26
40
Venture capital firm does some analyses before the use of funds in order not to make a
wrong investment or not to take and exercise wrong decisions in the funding period.
Venture capital comprises sources from institutional and individual investors. In Turkey
there are insufficient institutional and individual investors and even existing ones seem
to withdraw their money from the economy because of inconfidance problems that have
been mentioned before. The remaining money of investors in banks are used for internal
debt payments and it is obvious that venture capital firms face source finding problems
at first glance.52 To overcome this problem; it is better to transfer financial sources
which are in the structure of institutions in favour of SMEs (approximately 8 trillion
TL)53 to the use of venture capital firms, and also the money in cooperatives’ or
foundations’ accounts which has been collected in the name of donation, membership
fee , should be transfered to the use of venture capital, another way is to obtain long
termed, low cost credits from abroad by giving guaranty to credit providing.
With these methods, a good source can be provided in short term. After seeing the
consequences of venture capital investments as a success in production, employment
and in profit making, it is obvious then, reliance problem will be solved. More
important thing is, SMEs become more competent after an effective venture capital
practice, because investments result with production, employment and export and these
competitive SMEs will have the attention of international capital.
In Turkey, the most important buyer of bank deposits, is the government because of the
internal debt. And it is natural for banks to sell these resources anytime with no risk and
high profit to government instead of giving these sources as credit to business sector, by
this way banks prevent themselves from the probable risk.The main aim of venture 52 Hüseyin Ölmez (2003). KOBİlerin Finansmanı, bu alanda yapılan kıt kaynakların israfı ve çözüm önerileri. Active Finans No.29 (Mart-Nisan). P. 70-77 53 ibid
41
capital practice is to make a long termed equity investment on rapid growing, dynamic
firms. The output of venture capital is a capital gain in long term. Investments at the
beginning may not be sufficient and also extra improvement, development investments
may be needed in order to increare profit in long term.
Venture capital owner is the person or the institution who/which provides finance
needed in venture capital investments. In some occasions their funds can be managed by
professional persons or institutions.
Generally a venture capital owner provides finance resource to rapid growing firms,
buys these kinds of firms’ shares, bonds or securities. By this way, they help firms to
create added value. He/she bears the risk in order to have high profit by spreading their
expectations in long term, by this way, promotes the development of new products and
services.
However, venture capital fund is the financial source that is provided for person or
institution who/which needs finance for a project by using some financial vehicles in
venture capital investment.
Some special features of venture capital are: Small firm/ rapid growing potential ( the
aim is to promote SMEs which have rapid growing potential ), a long termed investment
( no gain between the periods of technologic invention and entering to market and extra
expenses, additional finance burdens in this period ), technologic innovation ( high
profit aim of venture capital does not derive from some peculative profit expectations
but it derives from the increase of productivity by technologic developments),
participation to management ( venture capital investors want to participate in
management both to support the management and also they want to take the control of
money), participation to capital (actually venture capital investment is a seed capital
42
investment and investor becomes a partner of the firm according to investors’
partnership share and negotiations that were made at the beginning, investors can have
the right in management).54
A.1. Venture Capital in Turkey and its history55
The idea of a venture capital firm is first recognized in 1986 in Turkey. First attempt
towards this aim is the establishment of “Entrepreneur Promoting Agency” (Teşebbüs
Destekleme Ajansı ). TDA would contribute to employment by supporting SMEs in
technical and managerial fields but financial support is not considered. In spite of
founding “Entrepreneur Promoting Fund” in order to finance TDA’s activities, this fund
can not operate as a venture capital firm. “Technology Development Foundation” (
Teknolojiyi Geliştirme Vakfı ) is established in 1991 in the frame of technology
development project that is prepared with World Bank. The aim of the foundation is to
increase Turkey’s competition power in technology and export, and to promote
technology transfer and foreign capital.
The legal framework about venture capital is launched by SPK ( capital market
institution ) in 1993 with the official communication related to “Venture Capital
Investment Partnership Conditions”
According to this official communication, investment partnerships will be founded as a
joint-stock company, have to have at least 500 billion TL start-up capital, shares will be
issued equivalent to cash, partnership period has to be at least 10 years, Venture capital
firms should not invest on other venture capital firms, they should not do borrowing,
54 ibid 55 N. Oğuzhan Altay, Aydanur Gacener (2003). Küçük ve Orta boy İşletmelerin finansman sorunlarının çözümünde banka dışı finansal kurumlar ve Venture Capital örneği. Active Finans No.28 (Ocak- Şubat). P.18-28
43
collecting bank deposits, except venture capital investment, they should not consider
any kind of capital market activities.
A.2. Venture Capital in the EU - European Venture Capital Association (EVCA)
EVCA was established in 1983 to represent, promote and facilitate the development of
the European private equity and venture capital industry. As the industry’s pan-
European representative body with over 950 members, EVCA supports a wide range of
initiatives designed to encourage an entrepreneurial environment in Europe, promote the
industry to institutional investors and investees and establish high standarts of business
conduct and professional competence. The association stimulates the promotion,
research and analyses of private equity and facilitates contacts with policy-makers,
investors,research institutions, universities, trade associations and other relevant
organisations.
The most important initiative that EVCA designed is called “venture consort” and it has
put into force in 1985 as a pilot project. This programme aims a financial promotion for
international syndication which invest on SMEs. Also EU funds support these
investments financially in the frame of this programme. In choosing the project which
will be supported, some criterion are important: Project should comprise a technologic
development, should be in the structure of the EU, should have the potential of
including more than one member states. This programme has helped the development of
Common market and has increased the cooperation between firms, operating in the
European venture capital industry. Commission has determined maximum and the
minimum contribution to the programme. Maximum contribution shall be 3 million
44
Euro and minimum contribution shall be 50.000 Euro and Commission shall promote
the project equivalent to the 30% of its value. Some of the other projects which EVCA
supports,are: “Eurotech Capital” in which international high technology investor
venture capital firms are supported, “Seed capital” in which newly established firms are
supported, “Sprint” in which small, rapid growing firms with new inventions are
supported and finally “Value” in which technical assistance is given.
According to the EVCA’s surveys, in the year 2000 relatively to 1999, 2.5 billion Euro
increase, has determined in venture capital funds, and 1 billion Euro investment has
determined. When we look at the sectoral distribution of the total investment; software
sector is leading with 235, after that, internet technology sector follows with 18% and
lastly telecommunication sector has a 14% share in total investments.56
56 http://www.evca.com/html/about.asp
45
Graph 2: Venture capital investment
EU 15 USA
hightechnology
56
13
44
87
0102030405060708090
high technology
others
USA
33
41
26
EU 15
12
74
14starting period
expanding period
latter periods
Source: Avrupa’da Girişimcliğin Özendirilmesi ve Yaygınlaştırılması -UNICE Kıyaslama raporu (1999). TÜSİAD Yayın No.1999-12/270 (Aralık): İstanbul.p:27 In the graph it can be seen: the general distribution of venture capital in the EU,
comparatively with the USA. We can say easily that the share of high technology in
venture capital investments in the EU, must be increased. But when we look at the
situation in Turkey, we can see that there is no sectoral limitation in Turkey for venture
46
capital; opposing that in Europe, technology based sectors are the ones which are
benefiting mostly from venture capital mechanisms.
As venture capital is a long term investment, in Turkey it is very hard to find the
funding institutions for long term investments. The only attraction of this, can be
gaining high profits for funding institutions in the end of this long term. Regarding the
difficulty of guarantying such a profit to the funding institutions in Turkey, it is very
hard to approach the position of EVCA in venture capital.
B. Factoring Factoring is a financial facility, offering improved cashflow for its clients. However,
factoring is not one homogenious product. First it will be better to explain what is a
factor.
“A factor is a person that purchases a debt for a discount owed to another in order
tomake a profit by collecting it”.57
So factoring is the sale and purchases of debts. But what really defines “factoring”, is
between the factor and his client and their specific relationship.
So all factoring companies pay their clients for their invoices as they are issued. But
also, factoring companies offer a range of professional services that might include;
collecting payments from their customers, pursuing late payers, providing advice to
clients on credit management, protecting the client against bad debts.58
This means that the benefits of factoring do not simply include an immediate cash
payment. If the factor provides credit management services too, then there is also the
57 http://www.kosgeb.gov.tr/Ekler/Dosyalar/BilgiBankası/28/factoring.doc 58 ibid
47
prospect of an improvement in the speed at which debts are collected, giving a further
positive impact on cash flow, and reduced interest charges.
Factoring can only take place for short termed credits. Terms are generally between 30
and 120 days, sometimes for 180 days. If factoring takes place in the country, basicly
there are 3 parts: Buyer, Seller, Bank or Factor. If the importer is the bank in the foreign
country, the fourth part may occur and this part will be the factoring institution or a
correspondent. Exporter may apply to the factoring association in order to benefit from
factoring services or to get information about the credibility of the importer. The
factoring institution will have these informations from the correspondent after having all
documents related to this foreign trade. Factor will inform exporter positively or
negatively about accepting the business after having information about the importer
from the correspondent and making an evaluation according to this information. If the
respond is positive, Factor will inform the exporter about the extent of credit being
taken over , the conditions and the factor guarantees credit rights.
In case of a payment disability, factor undertakes all the risk of uncollected credit and in
response the factor demands a risk premium from the client.With the contract the factor
pays to the client , 80% of the invoice as an advance. The 20% rest will be taken after
the deliveries of goods and in 90 days before its term is over. Domestic factoring
process is just similar with this procedure59.
The cost of the factoring process is the sum of; commission that exporter payed to factor
and the interest. Factor takes an amount of commission from the client for the risk that
is undertaken, the research of credibility and the collection of credit. This commission is
59 N.Oğuzhan Altay, Aydanur Gacener (2003). Küçük ve Orta boy İşletmelerin finansman sorunlarının çözümünde banka dışı finansal kurumlar ve Venture Capital örneği. Active Finans No.28 (Ocak- Şubat). P. 22
48
calculated according to the risk condition of the country and the special features of the
sector. If the exporter uses an extra advance before the deliveries, he/she will pay a
commission to the factor.60
The effects of Factoring by SMEs is an important subject. Because; it is argued that
factoring is a highly appropriate source of working capital finance for smaller
businesses. The following rationale in support of this supposition is generally quoted.
The cost of funds are competitive against alternative, typically bank overdraft, product
charges. The availability of funds through factors is higher to smaller ‘growing’
businesses than traditional sources ( i.e. bank overdrafts ) because factors consider the
sales invoice as a secure asset, whereas banks typically look for fixed assets as security.
Clients know and can plan for the actual value of charges made by factors, whereas
bank overdraft charges can be variable. Factors are able to process and pay against
invoices considerably more quickly than the time taken to renegotiate any overdraft
extension and, the credit management services offered by factors often provide an
economic solution to smaller businesses who either do not have the relevant skills
internally, or the opportunity cost of undretaking these functions are prohibitive. Factors
undertake accounting process of procedures. For the small business, it is a saving for the
time and personels. Also factors use more modern computer and telecommunication
systems than SMEs can use.
By using factoring; debts, stocks and credits will be decreased and this makes balance
sheet more liquid. By this way the credibility of firm may increase.
The essential point of factoring is to protect the clients from the risk of uncollected
money and to providean additional source for buying raw material or using this money
60 ibid. P. 18-28
49
in production by having these funds before their terms. Also clients have the
opportunity to know more and to take place in different markets by using institutions
which are expert on foreign markets, and this may lead to an increased competition
power.
Factoring is especially suitable for SMEs, because conversely to the arguments above,
factoring is not appropriate for larger enterprises. Above a certain size, businesses may
be motivated and able to pay for the credit management skills and above a certain size,
businesses may able to find comparatively cheaper sources of finance, through perhaps
a stronger negotiation position with bankers or having more control of managing trade
credits or perhaps their incresed ability to raise capital through external sources.
When the short history of factoring in Turkey is considered, the year 1988 is seen as the
introduction of factoring to Turkish financial sector . The legal aspect of factoring was
made in 1994. Within 1991, the percentage of domestic factoring procedure has
increased. Also now domestic factoring procedures are more used in Turkey (75% ) and
the rest is used in export ( 23% ), import (2% ) factoring. Subcontractors and SMEs are
the ones which use factoring services most. Sectorally; automotive, textile, food, health
services use mostly factoring61.
The most important lack about factoring in Turkey is the limited sources of factoring
businesses and the need of an institution which involve requisite information about
enterprises. Especially the lack of information of SMEs in factoring services,
procedures and firms, are serious handicaps for improvement of this sector.
61 ibid
50
Graph 3:Aggregate volumes of factoring by Member States
Aggregate Volumes of Factoring by M.S.
020000400006000080000
100000120000140000
UKIta
ly
France
German
ySpa
in
Sweden
Irelan
d
Denmark
Greece
World Factoring Yearbook 2001
Source: World Factoring Yearbook 2001 ,BCR Publishing. Analysis of use of Factoring http://www.europa.eu.int/comm/enterprise/entrepreneurship/financing/docs/factoring_en.pdf. p:10 The profound differences between member states can be seen when the EU member
states are considered . As seen from the graph; while UK and Italy use factoring as an
effective external source, the other member states especially Greece,Denmark, Ireland,
Sweden and Spain are lagging behind in using factoring.
C. Leasing Leasing simply means financial rent. In leasing, the ownership of the property belongs
to the leasing firm. In return to some rent amount, determined with the contract, the use
of property is given to the client. The main aim of this external finace method is to
provide equipments needed by the enterprise during the production process. But of
51
course the ownership remains in the financial organization ( intermediary/ leasing firm )
and just the right of use is given to the enterprise.62
Leasing firm may be the productor of the equipment then it is called “direct leasing”.
But also leasing firm may be an expert fiscal organization, then it is called “indirect
leasing”. If enterprises do not have the possibility to finance themselves (with credits or
equity capital ) in these kinds of investments, they may have the possibility to renovate
the technology they use. Leasing includes a minimum 4 year period. Within this 4 year
period enterprises can reflect the technical equipment power to their production process.
Leasing method is the second popular method that is used in finance of investment
goods after long term credits.
In Europe, the share of leasing in total fixed capital investment is between 15% and
20%. In Turkey this share is between 4% and 5%, and Turkey takes twentyfifth place in
World ranking of “the use of leasing”. It will be harder for SMEs to buy all these
investment assets as technology gets developed. As a result, leasing gets most popular
financial method63.
The history of leasing in Turkey starts after 1985. In 1986 leasing sector has started to
work with the establishment of “İktisat Leasing” and by the time this financial method
find its way to spread in the country. Leasing attracted especially SMEs attention
because leasing is an ideal way of finance for firms which could not buy but rent. In the
62 http://www.kosgeb.gov.tr/Ekler/Dosyalar/BilgiBankası/27/Leasing.doc 63 N.Oğuzhan Altay, Aydanur Gacener (2003). Küçük ve Orta boy İşletmelerin finansman sorunlarının çözümünde banka dışı finansal kurumlar ve Venture Capital örneği. Active Finans No.28 (Ocak- Şubat). P. 25
52
first three quarters of 2001, 1919 leasing procedures took place with the 219 billion TL
in volume. The decision of leasing for SMEs, is strongly growth possibility of firm.64
There are various Kinds of leasing65. These are; operational, domestic and international
leasing and another kind is; “sale and lease back”. Operational leasing is rental kind that
does not comprise the whole economic life of the good which is wanted to be leased.
Despite the contract involves a determined time period, by informing in legal time
periods, the leasing contract may be abolished. Fnancial / capital leasing: in this kind of
leasing the legal owner of the good remains lessor part, despite the control of ownership
of good remains in renter by a long term contract.
Domestic leasing: as can be understood from the name, means the leased good is
provided domestically.
In international leasing; the provider firm of the good which is wanted to be leased has a
foreign origin. The rest is a typical leasing contract.
Sale and lease back is the kind of leasing that is operated generally under the
circumstance of a hard need of finance by a firm. The firm sales its economic asset to
the leasing firm and in return the firm leases the other economic asset that is needed.
The other kinds of leasing are; direct leasing, leverage leasing, gross leasing, net
leasing.
The advantages of leasing makes this mechanism more popular among other
mechanisms. In the leasing mechanism the credit providing process is more rapid than
providing bank credits process.Constraints like legal and bureaucratic can be eliminated
with this mechanism.By leasing, 100% of investment can be financed. The expenses
like insurance, transportation and assembly is undertaken by leasing firm.When 64 Alövsat Mslümov (2002). 21. Yüzyılda Türkiye’de KOBİler: Sorunlar, Fırsatlar Çözüm önerileri. Literatür yayıncılık. İstanbul. p. 28,29 65 http://www.kosgeb.gov.tr/Ekler/Dosyalar/BilgiBankası/27/Leasing.doc
53
compared to bank credits, leasing needs less collateal. The reason is ; the ownership of
the good remains in lessor in renting period.
Leasing is not really a credit for this reason it does not take place in the liabilities of the
balance sheet and the ratio of debt/capital is not effected.The rent payment can be
shown as an expense.
Providing fixed assets by leasing, helps SMEs to distribute their sources to alternative
fields, by this way liquidity of the firm is effected positively.
Leasing is a medium termed credit alternative for short term credits of SMEs. Instead of
these advantages, leasing could not be a major solution for SMEs’ problems until now.
Because SMEs do not know leasing mechanism vey well. Besides, in an inflationist
economic environment like this, leasing firms collect the rent amount in the first two
yeas of the contract despite leasing contracts are made for 4 years legally. For these
reasons, leasing could not operate efficiently. In the first two years SMEs have liquidity
problems because of the big amount payments in first two years. For this reason SMEs
percept the leasing not so positive. These kinds of constraints can be eliminated by
stabilization of inflation and economy.
D. Credit Guaranty Fund The most important problem for SMEs in finding guaranty is the collateral problem.
Because, while lending credit, banks require a collateral, 2 or 3 times more valued real
property than credit as a mortgage. On the other hand banks prefer to lend credit, to less
amount of clients who use big amount of credit. For these reasons, in order to solve the
guaranty problem, in developed countries, credit guaranty fund firms are started to be
54
established. In the turkish banking system, credit guaranty fund practices are not
developed.
By using the “German Technic Collaboration” aid, credit guaranty company and
research and joint stock Company was established in 1991. The partners of this
Company are: TOBB, TESK ( small scale retailers and craftsmen confederation ),
KOSGEB, MEKSA ( vocational training and small industry promotion fund ) and
TOSYÖV (medium scaled industry profesionals and managers foundation ). This
guaranty fund will operate as a guarantor either for SMEs or for banks. Fund does not
give credit for SMEs but it provides guaranty for Halkbank credits in return of a feasible
project. In other countries guaranty fund provides guarantees for many banks but in
Turkey, guaranty is only given to Halkbank credits. In this fund practice, SMEs find
their own credits from the banks and banks analyze the projects of credit demanding
SMEs.
If the collateral for the Project will not be sufficient for the bank, the mortgage banking
is recommended to the firm by the bank. SME applies to the guaranty fund via the bank
and this time, the demand of credit application is evaluated by the guaranty fund. If
necessary, the guaranty fund accepts firm’s assets, firm owner’s life insurance or firm’s
Project as a collateral. And with taking a commission, the fund sends a guaranty
document to the bank. By this practice the fund guarantees partly, the return of the
credit.66
According to the agreement between Credit Guaranty Fund Company and research joint
stock Company and German Technic Collaboration Organization, the guaranty is given
to firms which have employees between 1 and 100 and which are the members of 66 N. Oğuzhan Altay,Aydanur Gacener (2003). Küçük ve Orta Boy İşletmelerin finansman sorunlarının çözümünde banka dışı finansal kurumlar ve Venture Capital örneği. Active Finans No:28 (Ocak-Şubat). İstanbul. p:23,24
55
TOBB or TESK, which have a relationship with TOSYÖV or MEKSA. The guaranty is
maximum 250.000 DM valued TL and it must be maximum 80% of the credit and the
term must not exceed 5 years. The evaluation of the demand of credit will be done
according to the bank’s criterion.
The commission of the guaranty for the credit is annually 4% of the guaranty remainder.
Incase, the firm does not pay for the credit, the first thing to do will not be the changing
of collaterals into cash. Before going to the guaranty fund, bank initiates a legal
proceedings for the 20% risky credit. Than, the bank will apply to the guaranty fund for
the 80% valued collateral67.
In order to make the Guaranty Fund practice widespread, some kinds of regulations
must be made. New guaranty funds’ establishment must be promoted, craftsman
collateal cooperatives’ structure must be strengthened, the reorganization of these
cooperatives must be promoted. By this way they can operate as credit guaranty funds,
credits must be organized strictly legally when the credit can not be collected.
E. Forfeiting Forfeiting can be defined as;the purchase of a credit which derives from especially the export of goods or services by banks or financial institutions.68 In forfeiting process generally promissory notes is given by impoter in return of the
debt to exporter. After this process importer has no longer any responsibility.
67 ibid 68 http://www.kosgeb.gov.tr./Ekler/Dosyalar/BilgiBankası/29/forfaiting.doc
56
Generally promissory notes are used in forfeiting practice. The forfeiting organization
requires a bank guaranty as a collateral in return of the security that has been taken over
by the organization.
In the forfeiting process the price of the good that will be imported, is paid multiyear in
installments. First of all, a contract is made between exporter and importer,where a
payment schedule is prepared.Accordingly, importer obtains the goods, against the bank
guaranty and delivers the debt security to exporter via bank. Securities are prepared by
exporter firm, are accepted by importer firm and are guaranteed by a guarantor bank.
Between guarantor and importer there is an indemnity agreement and it has not got any
relation with the forfeiting process. In the forfeiting market these securities can be
endorsed three times without rescinding.69
There are some advantages which can be provided by forfeiting. Exporter SMEs’ all
economic and politic risks are reflected to forfeiter, The cost of forfeiting process may
be known at the beginning, for this reason SME can prepare its long term activity plan
easily. Forfeiting improve exporters liquidity statement and also provides SMEs a
resource. Generally forfeiting is a simple and rapid practice. Forfeiting provides
importer, an opportunity of import with credit and provides forfeiter, a bank guaranty
for credit collection.
Beside these external finance mechanisms; Franchising and Barter can be very useful
mechanisms for financing SMEs. They can be shortly explained;
Franchising70; is some kind of a contract between two parties comprising the guaranty
and the support of a well known trade mark in distributing services or goods with same
structured firms in return of a cost that has determined with the contract. When the
69 ibid 70 http://www.girisimciliknetwork.gen.tr/kitaplar/franchisingrehberi.pdf. P: 5
57
investor buys a Franchise, he also buys the experience of the firm with a highly
successed method of production. The advantages of Franchising by SMEs can be
summarized as :
1) It will be a great advantage to start into the business life with the name of a well
known firm.
2) Franchisor provides to franchisee the trade mark using right, besides, it provides
training, advertising, equipment, promotion supports.
3) In a competitive environment, investing with this system seems easier and less
riskier for investors.71
“Barter” is a system that the price of goods or services which have bought, is paid
again with the goods or services which have produced. The system of Barter is a market
of firms and operates by the supply and demand of these firms. The firm which has
bought goods or services from the Barter commom market, pays its worth with selling
the goods or products of this firm to the common market. In Europe, Barter institutions
are gathered under the name of IRTA. This organization obtained the Barter system to
be widespread around the region. According to Economist journal; the 50% of the world
trade will be done by Barter system in the future72. The advantages of this system are:
1) Barter is most efficient stock selling method
2) Barter is the most efficient way of benefiting from inactive capacity
3) Barter provides a free and efficient advertising
4) Barter protects the member firms from the harmful effects of competition
71 http://www.kosgeb.gov.tr 72 http://www.kobifinans.com.tr/icerik.php?Article=282&Where=danisma_merkezi&Category=021403
58
5) Barter provides goods and srevices credits without any interest rate. The member
firms can use goods and services credits with 0% interest rate in 12 mounth period.73
F. Capital Markets’ Role in the Finance of SMEs Capital Markets are not sufficiently known by SMEs. However Capital Markets are one
of the best field in which SMEs can solve their finance problems. For this reason in the
context of IMKB, Regional Markets and New Enterprises Markets are established.
There are some reasons which impede the partcipation of SMEs to the Capital Markets.
The most important problem in investing SMEs shares and make them more liquid, is
the lack of institutional investors. Some of the institutional investors like SSK, Bağ-Kur
etc. are at the edge of financial crises, and it is indispensible for them to be reorganized.
The rest of other institutional investors like private retirement insurance funds etc., have
not developed enough yet. Besides, the regulations promoting these institutions to invest
in capital markets are not sufficient.
SPK legislation must be reorganized in order SMEs to benefit from capital markets.
Because according to the existing legislation, in order SMEs to benefit from capital
markets, they have to have profit 2-3 years continually, 25% of being in the stock
exchange markets, they have to have transparent and organized accounting records. For
these reasons it is very difficult for SMEs to enter the market.
Venture Capital has a legal regulation but it is not operating well and this is also a
problem, venture capital firms must be promoted.
With respect to these problems, new struggles and attempts are future promising. First
attempt is prepared by TSKB in 2004. It envisages circulation of shares, by this way, a
73 http://www.kosgeb.gov.tr
59
capital support for SMEs can be provided. Second one is the establishment of New
enterprises markets. This system has operated primally in Denizli, Gaziantep and Konya
in September 2001. First of all these regional stock exchanges aimed to operate in 3
cities, in the second phase, regional integration would be obtained. These regional stock
exchanges operate via computers and the processes are made by dealers and computers.
In order SMEs to enter into stock-exchange market, SPK must be appropriate to
accounting standarts. By the venture capital regulations, the future promising SMEs’
projects will be financed. By this way SMEs will be open to international competition
and by regional stock exchanges an additional finance will be provided for SMEs.
The participation of SMEs to Capital Markets can be an alternative of solving the
financial problems. And solving SMEs financial problems via capital markets, is
necessary for fostering the competition power of SMEs in the process of integrating
with EU.
60
CHAPTER 3
INITIATIVE MECHANISMS OF THE EU FOR SMEs
İ. INITIATIVES
Most of enterprises are SMEs in most of the economies. As to large enterprises, SMEs
have dynamic structure and a flexible decision making mechanism. With these
characteristics, SMEs are best type of enterprises which can use the potential of
employment.
In EU 99.78% of enterprises are SMEs74 and it is well known by member states that the
promotion of economic growth, competitiveness, the creation of employment can be
provided via SMEs. Enterprise policy is structured with taking into consideration of
needs of SMEs, what kind of problems are they facing, and how can their
competitiveness can be fostered? With this aim, many mechanisms are put into practice
for SMEs.
A. Multi-annual Programme75
EU’s enterprise policy in the frame of multi-annual and integrated programme towards
SMEs, was started to shapen with 1980s. In 1989, it has gained an institutional
characteristic with the creation of a new DG who is responsible for enterprise policy.
Integrated programme constitutes a frame for the facilitation of all activities related to
SMEs in EU in an harmonized and coordinated way. This programme includes three
action group: 74 see Table 1 75 Mustafa H. Çolakoğlu (2002). KOBİ Rehberi. TOBB Genel Yayın No.359-PM:2. Ankara. p. 20-23
61
i. The mutual change of all good practices related to SMEs development in
Union, national or regional level ( BEST ).
ii. Enterprise multi-annual programme.
iii. Activities which are attempted in the context of other Union policies.
Multi- annual programme draws the frame for legal and fiscal matters related to SMEs
which other Union policies do not include.
Competitiveness development of Turkish SMEs and utilization of attempts with
potentional EU partners will provide a contribution to country economy and these
kinds of facilities are getting important.
“EU Small Enterprises Contract” which was accepted by EU Foreign Relations
council in 13 June 2000 and was approved in Feira Summit in 19/20 June 2000, has
made the description of Commission’s and member states’ duties about the promotion
of small enterprises. The aim of this contract is to emphasize the important role of
SMEs in Europe’s economic development and to consider factors that are in favour of
SME development by policy makers76.
EU Commission has prepared the fourth SMEs multi-annual programme to reach the
goals which were set in the Feira Summit. The decision of Commission which has
included the fourth SMEs multi-annual programme embraces the years between 2001
and 2005 .
General SME policies of multi-annual programme, which also Turkey participates in
the status of candidate country by the coordination of KOSGEB, are77 to take
precautionary measures of employment development in SMEs. This aim will be tried to
76 ibid 77 http://ue.eu.int/ueDocs/cms_Data/docs/pressData/en/ec/00200-r1.en0.htm (annex IV)
62
realize by social and taxation measures. The second policy can be mentioned as;
diminishing and simplification of bureaucratic, fiscal and social impediments;
improvement of working environment; promotion to start-ups. One of the other policies
is to upgrade the business administration quality and this can be done via spreading the
participation to education programmes, increasing information resources and improving
the consultancy services. Supporting R&D (innovation) studies is another important
policy of the programme and also informing SMEs about the importance of R&D is as
important as supporting R&D programmes.
One of the most important policies is to increasing finance/ credit resources. This can
be achieved by supporting new enterprise facilities, supporting activity creation
projects and decreasing the costs of ownership transfer.
The last policy of the multi-annual programme is related with the integration aspect. It
is the “Integration of SMEs to the Single Market and promotion of SMEs’ integration
to international markets”. In this context harmonization of Single Market conditions
must be realized and export to third countries should be increased.
By these policies; simplification of legal and bureaucratic constraints towards SMEs,
empowering financial facilities of SMEs are targeted. Also it is important to
promote SMEs to enter international markets and information networks, to increase
competition power of SMEs and R&D, innovation and education activities and to
promote entrepreneurship and special target groups.
EU Commission put into force these projects below in order to realize targets and
policies explained above78;
1) Diminishing bureaucratic impediments
78 ibid
63
- Coordination with member states
- New actions on the Commission level
- Additional policies
2) Promotion and development of information networks
- Coordination with member states
- Development in Community’s information networks
3) Education supports
4) Accelarating the transition to R&D and innovation, being an information
society
5) Reaching the targets of environmental protection
6) Targets in promotion of entering international markets
7) Improvement of credit/finance environment
8) Determination of SME policy priorities
SMEs either in EU or in candidates can benefit from European Information center
networks and later from programmes that facilitate finance for SMEs. The budget of
multi-annual programme will be 450 million Euro.
In Turkey, in the context of multi-annual programme, number of Euro-info centers will
be increased to twelve. KOSGEB coordinates activities according to multi-annual
programme. KOSGEB organizes the spread of Technology Development Centers,
improvement of services, the increase in promotions of technology based SMEs,
promotes the use of software by SMEs. It coordinates the spread of electronic
commerce and promotion for enterprises which produce software. The organization
tries to establish new internet cafes in order to increase the use of internet by SMEs.
KOSGEB helps the promotion of technoparks, organizes information activities for
64
SMEs in order to benefit from EU programmes, via KOBİ-NET a widespread
informing network is established for SMEs. KOSGEB also tries to develop new
financial models for SMEs and new investment fields for SMEs and it provides
investment consultancy. It also gives test and analyze services and to make activities
eligible according to the EU regulations and standarts.
B. The Simplification and Improvement of Business Environment
from Administrative and Legal Point of View79
From administrative and legal point of view, the work for simplification and
improvement is especially focusing on; competition, single market, taxation, social
policy and environment policy , in which subjects mostly SMEs have difficulties.
B.1. BEST ( Business Environment Simplification Task-force )80
BEST activity group is formed especially for giving suggestions related to preventive
measures of Commission and member states to eliminate problems which impede the
development of SMEs and also to improve the quality of the context of the laws. BEST
Programme has Member States’ businessmen, public officials and academicians in its
structure. In this programme, a report is prepared related to the improvement of EU
SMEs’ competition power and the need for the creation of sustainable employment
possibilities. In this context, nineteen main suggestions were made in the report. These
nineteen suggestions were about public administration, new approaches in education,
79 AB KOBİ Destek Politikası (2002). Avrupa Komisyonu Türkiye Temsilciliği ve İKV Yayını. Ankara. p. 3 80 CC BEST Raporu Türkiye (2002). Kosgeb İdaresi Başkanlığı: Ankara
65
conditions of employment and work, reaching to finance and new technologies and
innovative activities. Commission has prepared an action plan according to BEST
activity group report and about the pursuit of precautionary measures in the plan,
Commission was decreed to prepare a report to the Council.
B.2. Improvement of the Fiscal Environment81
To facilitate the access of SMEs to financial resources, various attempts were put into
practice in EU in the frame of existing finance mechanisms.
B.2.1 Finance mechanisms
European Investment Bank, European Investment Fund, Structural Funds are the main
finance mechanisms in the EU.
B.2.1.1 European Investment Bank
EIB was established in 1958 to obtain a balanced development and to facilitate finding
new funds to new investments which would promote European integration. EIB
provides finance via national, regional or local fiscal intermediaries. In this context,
45% of credits to industry and services sectors provided by EIB , are used by SMEs.
EIB has increased finance of investment for SMEs because of the importance that EU
gives to employment creation and innovative activities. In 1999 the amount of credits
provided for SMEs was 2.8 billion Euro82. Besides, EIB has started “SME Venture
Capital Attempt” in the frame of support to reccomendation decision related to growth
and employment in Amsterdam Summit by forming “Amsterdam Special Action
Programme”. With this venture capital attempt, EU tries to provide finance with the
aim of SME and entrepreneurship development in 2000s in the frame of ‘innovative
activities 2000 attempt’. 81 AB KOBİ Destek Politikası (2002). Avrupa Komisyonu Türkiye Temsilciliği ve İKV Yayını. Ankara. p. 4 82 ibid
66
B.2.1.2. European Investment Fund
EIF targets EU integration via promoting middle and long term investments about two
main fields in Europe’s economic development: Trans-European Networks (TEN’s)
and SMEs. In this context EIF provides portfolio guarantee for banks that provide
finance for SMEs, leasing companies, guarantee institutions, mutual guarantee funds
and for other fiscal institutions and also EIF invests on venture capital funds that have
great importance for start-ups.
B.2.1.3. Structural Funds
Structural funds target, promoting economic and social harmonization via providing
fiscal support to activities which diminish inequities between regions or social groups.
Structural funds include, European Regional Development Fund, European Social fund,
European Agricultural Guidance Fund and fiscal intermediary for Fishery. European
Regional Development Fund and European Social Fund will be explained , because
studies of these funds are mostly related with SMEs.
i) European Regional Development Fund
European Regional Development Fund provides fiscal support to the promotion of
SMEs, productive investments, improvements of infrastructure and development of
local advance in the frame of diminishing regional socio-economic inequities.
ii) European Social Fund
Social Fund is the main fiscal intermediary in the practice of EU’s employment policy.
This fund promotes long term strategic programmes especially improvements of
employment qualities in underdeveloped regions, empowerment of entrepreneurship.
67
II. INITIATIVE MECHANISMS
Various attempts were put into force on Commission level in order to facilitate the
access to fiscal resources by SMEs in EU. In this context, the production of suitable
solutions to problems of SMEs, the promotion of joint investments, the creation of new
resources, especially in the field of venture capital and effective use of these resources,
were targeted in these attempts.
A. CREA (Capital Risque pour les Entreprises en phase
d'Amorçage- Seed Capital)83
CREA targets facilitation of providing equity finance to innovative small enterprises
(maximum with fifty workers) by the facilitation of the reaching to seed capital which
has the potential of creating growth and employment. In this context Commission
supports firm expenses in the start-up period. Additionally, Commission may pay 50%
of firm expenses for three years, maximum amount of 500.000 Euros. Between 1998-
2000 the budget of CREA was 8 million Euro.
B. European Tecnology Capital – Eurotech Capital84
This attempt provides support to venture capital funds which invest on high technology
projects. By this way , financial problems of projects like these, are targeted to be
solved. Eurotech Capital considers only big venture capital funds which have minimum
50 million Euro capital. In this frame, fourteen funds which have approximately 1
83 ibid, p.5 84 ibid
68
billion Euro total investment capacity, were chosen. 200 million Euro were saved for
high transnational technology projects.
Eurotech capital obtains 4% capital support to participant funds, beside the free use of
Eurotech data, European technology data bank, which gives information service about
technology and technology markets.
C. Mutual Guarantee Companies
The problems of finding finance alternatives with affordable expenses, derive from
impossibilities in finding a guarantee from banks. This problem has been tried to be
solved by “mutual guarantee companies”. Commission promotes these mutual
guarantee companies and their developments actively. Between the years 1998 and
2000, Commission has payed 50% of fisibility studies related to establishment of these
companies maximum for one year, and has payed again 50% of establishment expenses
of mutual guarantee companies, maximum for three years.
D. The Roundtables of Bankers and SMEs85
“The Roundtables of Bankers and SMEs” has a forum qualification which gathers SME
representatives and representative of fiscal institutions in order to discuss SMEs’ fiscal
problems and suitable solution suggestions for both parties.
85 http://www.europa.eu.int/comm/enterprise/entrepreneurship/financing/docs/sec_2001_1667_en.pdf
69
E. Networks in order to share Experiences – Business Angels
Network
It is again just like a forum that SME representatives and entrepreneurs, who have sold
their firms and now want to invest on new firms and want to help them with their
experiences. By this attempt, access to information of new financial resources except
banks and official venture capital, is obtained.
Between 1998 and 2000 Commission has provided 50% of costs related to
establishment of these networks and provided maximum 50% of costs related to pilot
actions which were targeting establishment of a regional or a national network86.
F. Growth and Environment Programme
This programme facilitates the reaching of SMEs to bank loans about new
environmental investments. In this frame Commission provides SMEs’, guarantees to
bank loans related to new environmental investments. The privilidge is given to small
enterprises which employ maximum 50 workers and these small enterprises has to
apply to a bank as a fiscal intermediary.
Programme comprises; environmental investments, production of environmental
equipment, investment which create environmental effect and other investments that
have a definite environmental effect.
For this programme, 50% of credit which meets European investment Fund criterion is
guaranteed to banks (minimum 3 years termed, limited with one million Euro and used
just for investments).
86 AB KOBİ Destek Politikası (2002). Avrupa Birliği Avrupa Komisyonu Türkiye Temsilcilği Yayını: Ankara.p:6
70
G. Growth and Employment Initiative87
This initiative comprises three programmes: First one is EFT Start-up programme; it is
a venture capital programme that promotes SMEs in their start-up period. The second
one is JEV ( Joint European Venture ); this programme targets joint ventures among
SMEs in the EU. The last one is SME guarantee facility programme; this programme
aims to improve financial opportunities for small or newly established SMEs.
G.1) EFT Start-up
Commission provides venture capital to newly established SMEs via expertised venture
capital funds with EFT Start-up programme. Promoted Funds are those which are
designed for investment to SMEs that are newly established or have a potential of
growth or innovation. It has got to be ten million Euro resource in funds just for the
investment and 50% of the fund capital must be provided from private institutions. As a
principle Commission provides 25% of the total capital of venture capital fund, on
condition that is maximum ten million Euro. The priority to benefit from this
programme is given to SMEs which employ 100 workers. Between 1998 and 2000, the
budget of this programme was 170-190 million Euro.
G.2) JEV ( Joint European Venture )
JEV is a support programme for the creation of transnational joint ventures for SMEs in
the EU, approved by the Commission on 5 November 1997. EU’s contribution is aimed
to cover some of the expenses which arouse in setting up a joint venture. In January
1998, Commission has proposed to allocate a larger amount to JEV. By this way, 1500-
2000 projects would be financed.
87 http://www.cordis.lu/finance/src/grow-emp.htm
71
The partners must play an active role in the joint venture and they have responsibilities.
Any joint venture in which one of the partner owns more than 75% will be ineligible,
and the joint venture must be created by at least two SMEs from two different member
states.
Maximum contribution per project shall be 100.000 Euro ( maximum 50% of the
eligible expenses with a maximum amount of 50.000 Euro and maximum 10% of the
total amount of the investment ).
G.3) SME Guarantee Facility88
The SME guarantee facility was implemented in 1998 as a part of the EU’s growth and
employment initiative. In december 2001, EIF signes a new agreement with
Commission in the framework of the multi-annual programme. This agreement extends
the average of financial assistance facility to other countries and products. Currently
member states, candidate countries and EFTA countries are eligible to participate in the
SME guarantee facility programme. This programme consists of four sub programmes:
1.Loan Guarantees: Loan guarantee’s objective is to reduce the particular difficulty
SMEs face in having access to finance because of the higher risk they represent and the
insufficient security.
2.Micro credit guarantees
3.Equity guarantees
4.ICT Loan guarantees
88 http://www.eif.eu.int/portfolio/ecport
72
III. OTHER INITIATIVE MECHANISMS
A. Europanisation of Enterprises and Internationalisation of
Strategies89
Some kind of programmes are practiced in order to increase the competition power of
SMEs and to benefit from foreign markets, via international cooperation of SMEs in
commerce, technic, fiscal, and R&D fields.
A.1. Euro Info Centers
EICs are structured in the frame of a network of public, private or mixed organised
chambers of commerce, development agencies and institutions etc. Functions of EICs
are to inform, guide, consult and support enterprises about the Community’s
programmes and policies. In order to achieve these goals EICs use brochures,
information journals and some kind of documents. Besides, EICs organize seminars
and conferences. Finding partners to enterprises, is also one of the duties of EICs.
The other duties are, to assist in easy reaching to projects which is financed by EU
budget and to inform SMEs about the export opportunities. The main aim is to make
things easier and effective for SMEs.
Every year EICs consider 500.000 application of enterprises, and also in order to
function well, EICs work in a collaboration with centers in other countries. Besides
these centers are important information sources about the procedures which must be
followed ( the customs taxation and product standarts etc. ).
89AB KOBİ Destek Politikası (2002). Avrupa Komisyonu Türkiye Temsilciliği ve İKV Yayını. Ankara , p.7
73
A.2. BC NET ( Business Cooperation Network )
BC NET is a cooperation mechanism. BC Network allows SMEs to identify other
businesses, seeking to cooperate on an interregional basis in the fields of finance,
commerce and technic. After forming these profiles, they are sent to ‘central data bank’
in which all informations are gathered. BC NET members demand Information about
the collaboration profiles which have sent. Contacts will be done in case of an eligible
cooperation between two firms. About this network, firms have to apply to BC NET
member associations in their countries. In the structure of BC NET, there are;
commerce and industry chambers, professional associations,regional development
agents, European Business centers, consulting firms, banks, etc.
A.3. BRE (Business Cooperation Center )
BRE is based on a decentralised network of correspondents and seeks to bring business
into contact with one another. In BRE, enterprises which want business partners, apply
to the industrial, commercial, professional associations, regional development agencies
which are in the structure of BRE Network and give information about their activity,
business field and the cooperation they want to make. These informations are then sent
to central data bank by institutions which have mentioned before, and again by these
institutions, these informations are published ( in journals, websites, etc. ) and by this
way information reaches to concerning firms.
In Turkey the contact points, operators of BC NET and BRE are KOSGEB and TOBB.
Additionally, KOSGEB has the function of ‘ European Information Center’ ( to give
advice, information and pactical assistance to business in general ).
74
A.4. Europartenariat
Europartenariat aims to create new cooperation opportunities in the fields of interprise
commerce, technic, fiscal and R&D subjects. Europartenariat is organized twice in a
year in two different member states. This programme has first put into force in 1998.
In the programme SMEs in home status are eliminated according to their business
activities and their cooperation projects with foreign firms. After that, they are
introduced to business environment in a catalog. Approximately 6000 SMEs participate
from 70-80 countries to the programme every year and it is announced in the countries
by the ‘national counseller’ ( an intermediary ). Also the distribution of catalogs,
determination of firms which apply for a collaboration according to these catalogs are
organized by these national counsellers.
Participant countries’ firms meet the home country’s and other participant countries’
firms in the direction of an appointment programme during two days.
Since 1992, when Turkey was accepted to SMEs cooperation programmes, IKV
(economic development foundation ) represents Turkish SMEs in Europatenariat
programme. Programme announcements are made indirectly in chambers of industry
and commerce, sectoral unions, professional associations and media. Announcements
are made directly for the firms which are in IKV’s data bank.
A.5. Medpartenariat
Medpartenariat programmes were developed in 1994 according to the enlargement of
the programme ‘Europartenariat’ to non member Meditarranean countries. But
Medpartenariat has a smaller scale when compared to Europartenariat’s participant
countries. Medpartenariat aims the development and enhancement of competitiveness
75
of SMEs in non member meditarranean countries and also it aims to promote the
cooperation opportunities with EU countries. In Turkey IKV organizes Medpartenariat
programmes.
B. The Enhancement of SME Competitiveness and the
Improvement of the Access to R&D Training Programmes and
Innovative Activities90
It is an obligation to do some regulations in the fields of research and technologic
development in order to increase competitiveness of SMEs. But it is not enough to form
an environment for SMEs to have information about researches and new technologies
or to strengthen their technical capacities or to incline towards to innovative activities.
To have a concrete result, qualified human resource is also needed. In this frame EU
gives importance to vocational training and in this context Union promotes vocational
training by various programmes and activities.
B.1. Standardization – NORMAPME
NORMAPME is established in order to help SMEs about their standardization
problems. This programme promote SMEs in the fields of evaluation of standarts and
finding eligible solutions.
90 ibid, p. 8,9
76
B.2. Research and Technologic Development – Fifth framework programme91
Fifth framework programme was between 1998 and 2000. It is envisaged for increasing
Europe’s industrial competitiveness and improvement of European citizens’ living
quality. To make these real, it is focused on innovative activities. In this programme’s
context, regulations about SMEs are organized in the horizontal programme of
“Innovative activities and promoting SMEs’ participation”. The target is to promote
SMEs by providing them information and counsellation, facilitating their access to any
source in favour of innovative activities, encouraging them to participate in research
programmes, helping them to develop their technologic capacities, encouraging them to
form new transnational networks and cooperations in order to spread new technologies,
encouraging them to constitute new bounds between SMEs, big firms, researh centers
and universities.
B.3. Innovative Activities and SME Programme
This programme supports the innovative activities of firms, development and marketing
of new technologies, harmonization of firms to changes, full participation of European
SMEs to fifth framework programme and optimization of benefits provided by this
participation. Innovative activities in Europe, to improve the conditions of
establishment and development of firms, to spread new technologies, to constitute new
economic activites and to strengthen innovation culture in Europe.
B.4. Sixth Framework Programme92
Sixth Framework Programme comprises the years between 2002 and 2006. Sixth
framework programme has a budget of 17.5 billion Euro and this amount is the 3.9% of 91 http://europa.eu.int/comm/research/fp5/fp5-intro_en.html 92 İsmet Rıza Çebi (2003). KOBİlerin 6. Çerçeve programına Katılımı.İGEME’den Bakış Dergisi, Sanayi Özel Sayısı No. 23. p. 59-61
77
total EU budget in 2001, so it has the largest budget among all framework
programmes. Sixth framework programme is the most important practice instrument of
ERA (European Researh Area ).
ERA targets to integrate all different dispersed researches in Europe. Because dispersed
researches have less social and economical contribution. For this reason every
supported research has to have a concrete social or economical output for Europe.
Sixth framework programme has seven thematical fields in priority. To achieve in these
fields, some instruments would be used and these instruments are: IP (Integrated
projects), NoE (Networks of Excellence), STREP (Specific Targeted Research
projects).
Seven thematical fields of the sixth framework are determined as;
1) Life sciences, Genom sciences and biotechnology for health
2) Information society technologies
3) Nanotechnologies, intelligent equipments, new production processes
4) Aeronautics and Space
5) Food safety and health risks
6) Sustainable development
7) Citizenship in European transparent information society and governance
IP projects have, good defined, certain targets about scientific, technologic information
production. The time period can be between 3 and 5 years. NoE projects are designed
for integration, these projects try to strengthen science and technology excellence. NoE
comprises joint reseaerches and network management. The time period can be between
5 and 7 years. Though these projects are long termed, STREP projects are short termed.
78
They last approximately 2 or 3 years. STREP aims to obtain or to develop new
information and technologies and to create new production or services.
The participation of SMEs to these projects are importatant because approximately
80% of the budget will be used in these projects.
On the other hand there is a special programme designed for SMEs and its budget is
nearly 400 million Euro. Two instruments will be used to achieve in this programme
and these are; CRAFT ( cooperative research projects ) and collective research projects.
These two instruments are just for SMEs and there is no subject, field limitation. The
subject can be anything about SMEs’ scientific and technologic needs. CRAFT is
designed for individual SMEs. Collective research projects are designed for industrial
unions or SME groups.
B.5. EUREKA ( European Network for Industrial R&D )93
EUREKA is an intergovernmental organization founded in 1985, in order to increase
competition power in Europe with the participation of EU Member states and
additionally Russia, Switzerland and Turkey. In this frame, it is expected to support a
market oriented, joint research and technologic structure including industrial and
research institutions.
It is expected to provide finance for project expenses by participant but in addition to
this, member states’ governments may also provide financial support. To evaluate a
project in the context of EUREKA, there must be at least two different indepentent
EUREKA members and also these two members have to create an innovative activity
in their own sectors, this activity has to turn out to be a marketable product, process or
service in private sector.
93 AB KOBİ Destek Politikası (2002). Avrupa Komisyonu Türkiye Temsilciliği ve İKV Yayını. Ankara. p.9
79
The operator of EUREKA in Turkey is TUBİTAK. The institutions that provide
support in the context of EUREKA are: TTGV (Turkey technology development
foundation) and TIDEB ( Technology watch, evalution directorate).
B.6. Vocational Training94
To produce new technologies and to adopt them in production processes not only
depend on finance but on qualified human resource. With the programmes that are
practiced in EU, it will be possible to facilitate integration in professional field,
vocational training will contribute to innovative activities. Besides, these programmes
will eliminate every kind of discrimination in professional field.
B.6.1. Leonardo da Vinci Project
Leonardo project was put into force to guarantee eliminating lacks in vocational
training in member states. The first part was completed between 1995 and 1999. The
second phase comprising 2000-2006, was put into force with the decision of council
(1999/382/EC ). With the same Council decision and with the announcement of Turkey
as a candidate in Helsinki Summit, Turkey had the right to participate Leonardo
project. By the Leonardo II project, improvement in training quality and access to
training; development in contribution of training to innovative activities are targeted.
This project includes some transnational pilot projects about the subjects which have
been mentioned above, some projects about the development of linguistic and cultural
qualities in vocational training and some projects about the following up and spread of
datas, researches, analyses and best practices.
The budget related to 2000-2006 period is 1.15 billion Euro and every supported action
has its own financial regulation.
94 ibid, p.10
80
B.6.2. EQUAL
EQUAL is a Community initiative which fights against any kind of discrimination in
work force market via international cooperations. Besides, EQUAL deals with some
projects about harmonization of refugees into social and vocational training in the EU.
EQUAL provides funds to actions in the frame of constituting strategic cooperations.
These cooperations are named as “development cooperations”. The participation of
recruitment bureau, civil society organizations and also business environment
especially SMEs to these activities are expected and aimed.
Financement of this initiative is provided by member states and EU jointly and the total
contribution of ESF (Social fund ) for 2000 – 2006 period is 2.847 million Euro.
B.6.3 Manager Training
Manager training project has started with the third multiannual programme (1997-
2000). This is an initiative, aiming to increase and improve access to training for
SMEs’ managers. This project includes managing training for SMEs’ managers and
new technologies, finance trainings for handicraft enterprises.
C. The Promotion of Entrepreneurship and Support to Special
Target groups
REGIE – ( European Economic Interest Groups Network EEIG )
It is a mechanism to strengthen bounds between economic interest groups in Europe.
REGIE organizes regularly conferences on sharing experiences and different practices
of firms in this system and also REGIE obtains improving of EEIGs and the existing
information quality about EEIGs.
81
IV. THE INSTRUMENTS OF THE EUROPEAN UNION FOR
TURKISH SMALL AND MEDIUM SIZED ENTERPRISES
In the past, Turkish SMEs were able to benefit from EU Mediterranean Programmes
some of which are focusing specifically on SMEs. In addition to this, future financial
aid will be made available to the Turkish SME sector from two sources: On the one
hand from the economic co-operation between the EU and the Meditarranean Non
member Countries in the framework of the Euro-Meditarranean Partnership policy, on
the other hand from the financial co-operation between Turkey and the European Union
within the framework of the Customs Union.The Programmes between European Union
and Meditarranean Non member Countries- among which is Turkey- are called as
Meditarranean Programmes, as there are MED-URBS, MED-CAMPUS, MED-MEDIA,
MED-MIGRATION, MED-TECHNO and MED-INVEST.In these Programmes, one
participant comes from a Meditarranean Non member country and two from different
European Member States. Participants in the programmes share part of the cost of the
projects.95
In 1992, the European Union started the pilot stage of the MED-INVEST Programme.
The aim of the MED-INVEST programme is to create an environment conducive to the
development of SMEs in Meditarranean Non member countries including Turkey and to
provide them with the technical resources needed to increase their ability to compete.
Turkish SMEs participated in all four actions which make up the partnership aspect of
95 Turkish Small and Medium sized Enterprises in the Integration Process of Turkey with the EU: Implications and Consequences (1998). Friedrich Naumann Foundation and Akdeniz University publication. Ankara. p.87-97
82
the MED-INVEST Progamme. These are; including the mechanisms; the
Europartenariat, the Medpartenariat, the Medinterprise, the Business Co-operation
Network (BC-Net), the Business Co-operation Centers (BRE).
In the first years of the MED-INVEST Programme, roughly one thousend businesses
from Meditarranean Non member countries including Turkey took part in these events.
Europartenariat, Medpartenariat, BC-NET and BRE initiatives were explained in the
previous section.
Medinterprise activities also have been carried out in Turkey. Medinterprise is an
extension of the INTERPRISE Community programme. At the regional or national
level, several Meditarranean non member countries combine with the regions of at least
two European Union member States to open up the way for effective co-operation with
the countries, particularly in the fields of technology, commerce, finance and
environment. Altogether six Interprise meetings took place in Turkey involving some
200 SMEs.
There is the establishment of MED-INVEST service centers to provide SMEs with high
quality expertise. This action is currently being implemented in Turkey by a consortium
consisting of Turkish SME organisations (TESK,MEKSA, KOSGEB), the Marseilles
Chamber of commerce and industry, the European Business and innovation center
network(EBN) and the German Zentralverband des Deutchen Handwerks(Union of
German Craft). Then there is the establishment of Development Agencies as support
instruments in the promotion of an area in order to attract and localise investment and
job creation schemes. For Turkey, this has been realised with the establishment of the
Aegean Development Agency in İzmir in 1994. Also an important tools aspect of the
MED-INVEST programme is opening up access to credits for SMEs with the support of
83
the European Investment Partners(EIP) and the European Community investment
partners programme(ECIP). The ECIP is to facilitate the creation , in 60 developing
countries ( Turkey is among them ) of private joint venture investments that contribute
to the economic development of those countries. The ECIP instrument is unique in that
through five distinct facilities it can finance support to all of the succesive stages in the
preparation and the realisation of EC/local joint venture private investments notable in
the SME sector in the respective countries.
The possibilities of finding finance from European Union continues with the step into
customs union agreement of Turkey with EU. CU has opened new perspectives for
SMEs for co-operation and financial assistance. In 1995 the EU decleration was issued
aiming at the resumption of financial cooperation with Turkey. It contains the following
elements;
i) Substantial budgetary resources of the European Community to be made
available to Turkey over a five year period starting in 1996,
ii) Continued access of Turkey to EIB loans under the 1992-1996 renovated
Meditarranean policy for the financing of infrastructure projects in the fields
of environment, energy, transport and telecommunications,
iii) Additional EIB loans over a five year period starting in 1996, in order to
improve the competitiveness of the Turkish economy following the entry
into force of the Customs Union,
iv) Funding facilities in the sense of budgetary resources of the Community as
well as EIB loans which the European Union will make available, as from 1996,
for all Meditarranean Non member countries in the framework of the Euro-
Meditarranean partnership,
84
v) Finally, in cases of special needs and under certain conditions macro-
economic financial assistance.
Taken the two sources together, the Customs Union pot and the MEDA pot, financial
co-operation between the EU and Turkey would eventually amount to at least a little bit
more than 1,7 billion ECU up to the year 2000.
Going into some more detail of this co-operation it appears necessary to make two
preliminary observations.96
Firstly, the funds thus determined will not come to Turkey in lump sums for free use
notably by the Turkish budgetary authorities. Rather their destination is to contribute to
the financing of individual projects and programmes which aim at adapting and
reinforcing economic and social structures in Turkey to a rapidly changing economic
environment expression of which is notably the establishment of a Customs Union with
the European Community.
Secondly, financial co-operation with Turkey will not take place in the framework of
several years’ financial protocols as in the past. Rather, as regards the grant money,
yearly appropriations will be made in the Community budget. This means that the funds
allocated for the financial co-operation with Turkey for a specific year will have to be
commited to individual projects and programmes by the end of the respective year,
otherwise they will be lost. A transfer of funds which have not been committed in the
year of appropriation to the following year is not possible. It is at this point to ask what
kind of projects and programmes are eligible for financial support in the framework of
financial co-operation between the EU and Turkey, and what structural quality the
financial aid has been given.
96 ibid
85
As to the latter, the Community’s budgetary resources will be distributed either as
grants, risk capital or interest rate subsidies, whereas the European Investment Bank’s
own resources will only be deployed as loans of differing character.
Grants may take up various forms, such as technical assistance, training, institutional
building, seminars, studies and investment in the SME sector and infrastructure.
However individual economic operators which pursue profit making oriented projects
are generally excluded from this type of funding in order not to distort market
structures. The Commission though presently reflects on allocating grant funds to a
credit guarantee scheme of which individual economic operators notably in the SME
sector could eventually benefit. Grants may also cover the costs incurred by the
beneficiaries of financial aid in the preparation, implementation, monitoring, auditing
and the execution of support measures of a supported project.
Risk capital is a budgetary resource of the Community which is mandated to EIB which
deploys it on behalf of the European Commission. The purpose of granting risk capital
is to promote the creation or assisting of the capital base of individual productive
enterprises, financing start up projects, business rehabilitation or expansion programmes
in productive sectors with a preference given to joint ventures with European Union
partners. As to the size of participation, which may take up the form of an EIB
appointed financial intermediary- usually a bank- taking a share in the company or the
financial intermediary financing the share holding of a third party, the EIB is of the
opinion that the total share participation in an individual enterprise should not exceed
ECU 5 million equivalent and not be less than ECU 200.000 equivalent.
In order to finance projects promoted by SMEs, the EIB normally grants lines of
credit(global loans). EIB global loans are directed towards investment projects in the
86
field of industry, services and tourism. The main criteria is that projects must be
productive-oriented.
With these explanations it appears clearer to which sectors financial co-operation funds
will eventually be allocated to. EIB loans and risk capital of the European Commission
will focus on the economic operators in the Turkish SME sector building up and
strenghtening their competitivity.
European Commission grants will focus on mainly six areas:
i) The strenghtening of the SME sector as a whole. This includes vocational
training measures, information and access to data bases, technology transfer
and development of adequate technologies, development of disadvantaged
regions, promoting of female employment and the decentralisation of over-
industrialised zones and regions,
ii) The improvement of the functioning of those public services in Turkey which
are concerned with the implementation of Customs Union, as there are the
customs services, competition services, the Patent office, Ministry of Justice,
the economic administration, veterinary and phyto-sanitary services,
statistical services, etc, The improvement of social services and social
infrastructure in co-operation with regional and local authorities,
iii) The improvement of the environment,
iv) The co-operation in the field of research and development through
participation of Turkey in EU programmes such as LEONARDO,
SOCRATES, ERASMUS, YOUTH FOR EUROPE,
v) Finally, support for non-governmental organisations’ activities notably in
the field of democratisation and human rights.
87
The financial aid which is made available for individual projects will be given directly
to the person and organism which is implementing the project. Although on the side of
Turkey, the Undersecretariat of Treasury has been chosen as the exclusive co-ordinator
for project proposals, it will not be involved in the implementation of a selected project.
Except for the EU initiatives, Turkey also has her own kinds of incentives in favour of
SMEs. But these incentives will not be written here name by name; they will be placed
in the appendices (Annex IV).
88
CHAPTER 4
THE EFFECTS OF CUSTOMS UNION ON TURKISH SMEs
The Customs Union between Turkey and EU has completed its 8 years. Beyond a
regular Customs Union, the agreement envisaged a complete acquis harmonization in
the fields of competition, state aids, technical legislation and intellectual property
rights. It can be said that Customs Union operate well despite there are some problems
about trade matters.
One of the subject that has a priority for Turkey in the process of Customs Union, is the
situation of SMEs. SMEs which are defined as indipendent and not in a dominant
position, are in a great competition environment after the abolishment of customs. This
competition derives from either EU Member States’ goods, or goods which have come
from third countries and have entered into circulation from EU States. But it is hard for
Turkish SMEs in this circumstance and in this capital structure to compete with high
technology based EU enterprises and it is obligatory in a way , to give State support for
a period. And when the density of SMEs in Turkish economy is considered, this urge
can be understood easily.
SMEs which are open to international competition must consider new product design,
product development, technology, production and investment planning, modernization,
standarts and economies of scale, beside these technical information also competitors
situation, demand, product price, marketing activites and market information and auto-
89
finance, external finance, leasing, factoring, venture capital and credits must be
considered.97
In EU, SMEs are supported by giving 10% of total aids in the frame of Industry Policy.
In Turkey the support mechanisms are also reorganized, coordinated with EU’s
incentive legislation. For this reason it is indispensible for SMEs to be effected by
Customs Union. Of course SMEs are effected from the changes in incentives,
competition, trade policies.98
I. Effects on Incentive Policies
Turkey has adopted the system about support mechanisms with the entry into force of
Customs Union Agreement in 1 January 1996. It means Turkey will align its policy
according to EU legislation. The most used support mechanisms in EU are; donations,
soft loans, tax credits or other kinds of tax measures, reduction in Social Insurance
premiums, the partcipation of State to equity by using shares, advance repayment
incase of a success, postponed tax provisions (reserves, etc)99
In the EU, some support mechnism are accepted as they are coordinated with EU
support mechanisms. For example; social aids for customers, aids for natural disasters,
aids for supporting regions which have a lack of welfare and unemployment, aids for
fostering specific economic regions or economic activites without creating an unfair
competition, aids for fostering culture and culture values are harmonized with EU
support mechanisms
97 T.C. Sanayi ve Ticaret Bakanlığı Haziran 1999 Haziran 2002 Dönemi Faaliyetleri (2002). Sanayi ve Ticaret Bakanlığı Yayını (Haziran): Ankara.p:42-44 98 Gülay Coşkun Kasap(2002), Türkiye’deki KOBİler ve Gümrük Birliği Bariyerleri, www.iktisat.uludag.edu.tr/dergi/5/gulay2/gulay2.html 99 Rıdvan Karluk(1998). AB ve Türkiye.Beta yayımcılık. p.616-632
90
Aids must be coordinated with EU policies and aids must aim to integrate the sector
and enterprise which have this subsidy into an active competition system. State aids
must not be perminant, after a while the enterprise or the sector must be in a competitor
position without the aids.100
It is determined clearly that in some lagging behind regions, some State aids can be
accepted if it is in the service of a common aim with the EU and if it is about a subject
or sector which has a compliance difficulty. If a breaching occurs in practice, it is
determined that Association Committee will evaluate this situation according to EU
legislation. It is announced that all competition legislation and jurisdictin will be
practiced in Turkey. The most important issue is, with the obligation of mutual
announcement of all practices will be under the control of the EU.
In globalized world; all state aids are put in the GATT frame and all GATT/WTO
members should obey these rules. The essential specialties are; all state aids must be
transparent and clear, directed towards an aim, limited with a time period, should
protect culture values, sectoral choices must be dominant, should not be given to
sectors or enterprises which have lost competition opportunity.
On the other hand, on national basis, it is possible to support some strategic sectors. In
this context, R&D, environment, SMEs supports are mostly practiced around the world.
Between Turkish and EU State aids legislation, there are great differences. First one is,
EU State aids legislation put the competition on the front page, secondly EU defined
the aims of State aids in this context and all the supported sectors and regions were
defined.
100 ibid
91
When compared the vehicles of State aids in Turkey and in the EU, we can see in the
EU, there are more variety of vehicles which are also more flexible. The customs duties
which was a popular vehicle in Turkey can not be used after the Customs Union for
import from EU and for import from other countries, common customs tariff can be just
collected. The subsidies, practiced in underdeveloped regions of Turkey would
continue till 2001.101
The official communication number 95/2 has seperated Turkey into 3 regions according
to its development (KÖY-Kalkınmada Öncelikli Yöreler; the regions in priority in
development, normal regions,and developed regions). It is determined ‘ what kind of
aid measures and by which aims can these measures be taken’. The important thing is,
in developed and in normal regions, the aids except new ones will be distributed
equally.
The most important support mechanism in investment, is the ‘investment reduction’.
The maximum ratio in investment reduction practice is 70%. This ratio is applicable for
(KÖY) the regions in priority in development and also for private sectors and it
abolishes the difference of regions in this frame.
By the Association Council decision number 1/95, it is possible to give investment aid
to most of the regions in Turkey, mostly to the regions in priority in development. With
the Communication number 95/2, it is aimed to support SMEs via regional aids because
Turkey has completed her economic structure. The aids given to SMEs must have
compliance with the EU. The function of fund and credit institutions except State aids
in the EU in ivestments, is very important. Except State aids, most of the support in the
101 ibid
92
EU is provided by these funds and credits ( for example: regional development fund,
social fund etc.). Turkey can not benefit from these funds in the context of Customs
Union because she is not a full member.
II. Export Subsidies
One of the fields which has not got a compliance with competition rules, is the
exporting sector. Turkey had a part of code towards export subsidies in the context of
GATT in 1989. But export subsidy which is contrary to GATT rules, is stil on the
practice.
Most important ones are; the corporation tax exemptions, exemption of customs and
funds in imports related to export with EU, freight premium practice in export and
import.
The export subsidies are provided in the EU as credits and guarantees by the
responsibilities of the Union towards GATT and OECD taken into consideration.
Except these subsidy vehicles there are also marketing, foreign advertising supports and
tax exemptions. Export subsidies which are practiced in EU can be listed in three
headings: Export interest rate, credit subsidies, tax exemptions and reductions in export
activities, export credit, insurance and guaranty.
In Turkey 24.8% of small enterprises, 55.3% of medium sized enterprises, 93.5 of big
enterprises are using incentives. 8.3 % of small enterprises, 19.7% of medium sized
enterprises, 56.4% of big enterprises use Eximbank credits. For this reason after
93
Customs Union, big firms are the ones which would be effected in the first instance
from the diminishing subsidy mechanisms.102
III. Effects on Employment
Large enterprises lost jobs between 1988 and 2001, while employment in the SME
sector increased. As can be seen from figure below, in the early years, this growth was
concentrated in micro and small enterprises, as employment growth in medium sized
and large enterprises only started in 1997. In 2001, employment growth slowed down.
Current estimates show that this occured both in SMEs and large enterprises but the
slow down is slightly more obvious in large enterprises. Over the years most jobs in
Europe were created by micro enterprises, whereas large enterprises lost jobs.103
Graph 4: Employment growth by size-class
Source: Observatory of European SMEs 2002, SMEs in Focus (2003). Enterprise Publications: Luxemburg.p.5 102 ibid 103 Observatory of European SMEs 2002, SMEs in focus. Enterprise Publications.Luxemburg.p. 4,5,6
94
Customs Union effects on employment will be seen on mostly industry sector. There
seem to be a decline in the employment levels. As a result of having weak
competitiveness when compared with EU firms , some firms withdraw from the market
and this causes the decline in employment. The rest of the firms start to operate with
technology based production and this also causes a decline. But after a while with the
foreign investment and investment from far East it is expected to get an increase in the
employment levels. In order to provide an equlibrium in this decline and increase in
employment level, these investments should be foreign “direct” investment.104
IV. Effects on Productivity
The abolishment of Customs tax and collective hausing fund in the context of Customs
Union will cause Turkish enterprises a competition difficulty while trading with EU
countries. As a result Turkish enterprises will start to make technology based
production to foster their competition power and they will also foster their
competitiveness and they will also foster their productivity or they can not compete and
withdraw themselves from the sector. On the other hand, the foreign investment and
new technologies which has come with Customs Union will cause a productivity
increase. According to 2001 data (See Annex VI), we can easily see the dominant
sectors which small enterprises operate in. It can be seen that the competitiveness is
increasing towards big enterprises while small ones remain less competitive because of
their less productivity. In the first years of Customs Union Agreement it is hard to say
104 Karluk Rıdvan (1998). AB ve Türkiye. Beta Yayımcılık.p:625
95
that small enterprises moved gradually positive in this aspect. On the other hand; it will
take a time for them to transform themselves and have some positive results in
competition and productivity.
As seen in Annex VII, the growth rate of MVA (manufacturing value added) was very
high between 1993 and 1998 (6,4%) in Turkey, even higher than developing countries
(5,7%- 5,4%) but then the rate falls behind between the period 1998-2003 (1,5%). It is
stated that; there is a growth depending on Customs Union for sure between 1993 and
1998 and this growth is considered as positive for competitiveness but this can not be
percepted as the productivity result of Customs Union105. Even, after 1998 the growth
rate has a diminishing trend.
V. Effects on Competition
The problems derive with the Customs Union is the competitiveness of our Industry.
There are negative elements that has an effect on competitiveness of Industry. These
are; unstability of macro economic structure, cronic high inflation, insufficient capital
amount, unstability in institutional structure, high cost of capital, high input prices, lack
of participation in technologic developments,unability in production of technology in
Industry sector, inadequacy in production quality at international standarts106. All these
negative elements constitutes important barriers of competition in Customs Union.
With the high inflation, high interest rates, rapid growing public deficits and foreign
debts, increasing labour costs, diminished productivity, it seems difficult to reach the
desired level of competition in Customs Union. According to a survey; 35.2% of small
105 http::// www.dtm.gov.tr/ead/DTDERGI/OCAK2001/tekstil.htm 106 ibid
96
firms 47% of medium sized firms and 57.5% of big firms declared that they can
compete with European Countries. It is stated that the most effected sectors will be fur,
leather and shoes sectors which have weak competitiveness. In these sectors especially
small firms’ competitiveness is the weakest. Among small firms it is found that the
competitiveness in clothing and automotive sectors is relatively high. In chemistry,
pharmacy, food, paper, metal, weaving sectors Turkish firms have similar
competitiveness with European ones. But it is found that; in leather shoes, forest
products, plastics, main metals, machines, electric machines, rubbers sectors there is no
competitiveness.107
VI. Effects on Foreign Trade
Turkey’s share in export with EU was 2.3% in 1995 while it was 2.7% in 1999 (most
recent figure). For the import, this figure was 1.7% in 1995 and 1.9% in 1999. As seen ,
Turkey’s share in trade with EU is developed positively. In 1999, Turkey was the
seventh biggest export client of the EU ( in 1990 she was the ninth), and Turkey is the
thirteenth in countries which export to the EU ( she was the seventeenth in 1990).
These figures show that both sides benefit from the Customs Union in this subject.The
important thing is , we have to mention that our Foreign Trade had also deficit before
the Customs Union.108
107 Rıdvan Karluk.(1998). AB ve Türkiye. Beta Yayımcılık.p:629 108 ibid. p. 616-632
97
CHAPTER 5
COMPARISON OF TURKISH AND ITALIAN SMEs
I. AN OUTLOOK TO THE ITALIAN ECONOMY Following oil crises in 1970s, Italian industry engaged in an extended adjustment
process. The need to save on energy costs and remain competitive internationally drived
Italian industries to adopt the “just in time”109 model of production. To effect this
adjustment, they cut down stocks and contracted out a large volume of service activities
and component production to smaller enterprises, which were able to manage their work
force with greater flexibility.
During the 80s, the demand for labour in the industrial sector declined; the growth of
the service sector was favoured, as this was traditionally an area of real opportunity to
start up businesses. However, the additional work force caused a drop in average
productivity, which was already rather low.
The key factor to consider in examining the processes that have determined the changes
in work organisation in Italy, is firm size. The dichotomy between large firms,
characterized by job loss, and small ones, with job creation, has infact more
pronounced.
109 Just in Time (JIT) is a management phylosophy that strives to eliminate sources of manufacturing waste by producing the right part in the right place at the right time. Also known as leaner production or stockless production; this will avoid moving andstoring costs.
98
Between 1990 and 1994, some 700.000 to 800.000 employee labour units were
eliminated each year; in the same period about 650.000 or 750.000 new units were
created annually ( in 2003, the amount of jobs created by new firms, is 835.987 ).
In the 5 years from 90 to 94 the larger enterprises dismissed a net total of more than
500.000 workers, as each year 300.000 to 400.000 labour units were eliminated and just
200.000 to 300.000 new ones created. By contrast, minor enterprises employed more
than 100.000 additional units, since the 350.000-400.000 units destroyed every year
were more than offset by the creation of new labour units.110 For having further details
of Italian economy, it is better to see Annex II and for Turkey, Annex III.
110 Labour Market Studies- Italy (1996). Fondazione Giacomo Brodolini. European Commission. Luxemburg. p. 7-10
99
II. COMPARATIVE ANALYSIS OF TURKISH AND ITALIAN
SMES: BASED ON SELECTED CRITERIA A. Number of SMEs in Turkey and in Italy and Definition
differences in both Countries
According to the Ministerial decree of the Italian Ministry of Industry and in application
of European Commission criteria, in Italy the definition criteria for SMEs can be shown
better as follows
Employee aspect Industrial medium enterprises up to 250 Service medium enterprises 21-95 Industrial small enterprises up to 50 Service small enterprises up to 20 Turnover aspect Medium enterprises up to 40 million Euro Small enterprises up to 7 million Euro Instead of Turnover Assets and Liabilities aspect Medium enterprises up to 27 million Euro Small enterprises up to 5 million Euro111
111 http://www.unido.org/es/doc/4319
100
On the contrary in Turkey there are many different definitions and this descriptional
excess causes; unhealty planning and unhealty distribution of government subsidies,
difficulties in making comparisons and statistical studies. For this reason as soon as
possible Turkey should adopt and absorb a common definition, like the EU definition. It
has been explained all kinds of definitions in Turkey in the former chapters. Turkey’s
definitions also include employee, turnover and asset aspects in a way but Turkish
SMEs are defined as manufacturers in all kinds of definitions and this is also another
problem.
When the number of SMEs is considered in Italy; with 4.897.933 enterprises, according
to 2001 “rapporto annuale” 3.8 million of the total enterprises are SMEs, and in a
country with a total population of 57.700.000, Italy has one of the highest enterprise
density in Europe. In most cases, there are very small enterprises. 94% of these
enterprises have fewer than 10 employees and the percentage is still above 80% in
industry. Close on 75% of employees in industry work in companies employing less
than 50 people.112The average number of employment in enterprises is 4 people and this
shows the micro structure of Italian enterprises. Looking generally we see that there are
84 enterprises per 1000 people in Italy113.
In Turkey; there are 2.139.289 enterprises according to 2001 DIE data, and the total
population is nearly 70 million. The number of enterprises per 1000 people in Turkey is
31. This amount is nearly one in three when we compare with Italy. 99% of this total
enterprises is small scaled, and the average of scale in Turkey is 3.8. The ratio of SMEs
in total enterprises in the EU is 99.7%. Turkey , Italy and EU average are close in the
ratio of SMEs in total.But the incorporation ratio is respectively low in Turkey. 112 European Guide to Alliances between subcontracting SMEs (1988). Publication of the European Communities. Luxemburg. p. 84 113 ibid
101
B. Sectors that are Dominant in Both Countries by SMEs In both countries’ SMEs work mostly as subcontractors.In Italy the activities of these
subcontractors listed as:
Table 3: Percent of subcontractors’ activities in Italy Activity % Metal Working 44 Fandry, forging, sindering 21 Assembly 10 Plastics 9 Moulds, patterns, tools 7 Electrical and electronic engineering 6 Other 3 Source: European Guide to Alliances between subcontracting SMEs (1998). Publication of the European Communities. Luxemburg. p:84
But in Turkey when SMEs are mentioned; generally automotive, white goods,
electronic and textile subcontractors come up to minds. Sectorally, both countries’
SMEs are mostly active in manufacturing and commerce. Other than these, especially,
SMEs operate in various kinds of services: Mostly in hotel and restaurant services,
construction, real estate trade and logistics.
C. Business Start-ups in Turkey and in Italy “A new entrant may represent agent of change; entry is, then, one of several methods by which markets restruct themselves”.114
114 David B. Audretsch, Enrico Santarelli, Marco Vivarelli (1996). Start-up size and Industrial Dynamics: Some evidence from Italian manufacturing. Discussion Papers. Wissenschaftszentrum Berlin für Sozialforschung. p.3
102
For this reason new start-ups always have an important role in the economy and also in
SMEs. In the EU there is a support mechanism called EFT Start-up to promote new
entities by using venture capital mechanism.
In Italy, according to 2003 data, the number of start-up firms are counted as 890.021
and the number of persons involved in start-ups is 1.703.261. When we look at the
annual jobs provided by new firms, the estimates show the number of 835.987. If
sectoral base is considered in start-ups, it can be understood that traditional industries
which are also characterised by low barriers to entry, low market concentration and a
negligible ‘sunk costs’ are in majority ( for example; footwear and clothing industry
take the majority in new firm entries in Italy with the highest number of 231 new firms,
survival rate is 48.5% ).115
On the other hand; new firm entry is still low in some industries like motor vehicles and
parts ( 6 new entries ), office machinery and computers (7 new entries ) etc. But in these
industries the survival rates are higher than traditional industries. For example: The
survival rate of motor vehicles and parts industry is 83.3% in 1993 in Italy and this is
the highest survival rate among all industries.116
In Turkey according to 2003 DIE data there are 183.580 newly established firms. And
it can be observed clearly that the survival rate of services sector is higher. Start-up rate
is relatively low when compared with Italy.But also in Turkey traditional sectors like
footwear and clothing have a dominant activity with the amount of 13.639 firms in
cumulative. In high technology based industries like computer and other information
processing machinery, the low participation amount can be seen immediately with the
cumulative amount of 329 firms.
115 ibid, p.7-12 116 ibid, p. 7-12
103
When compared with the EU average, Italy gets below the average ( If EU average is
estimated 100, Italy has got 93 points, this is below the average but not shows a weak
performance because weak performance criteria is 75 points).117
D. Business Failures in Turkey and in Italy Business failures are very related with the former subject. All new entities do not result
with survival. Table below both shows surviving and exiting firms together, between
1987 and 1993 in Italy.
Table 4: Survival and Hazard Rates of New Firms in Italian Manufacturing Mounth Survival Hazard
Surviving Firms
Survival rate
Exiting Firms
Hazard rate
1/87 1576 1/88 1435 91.1% 141 9.8% 1/89 1286 81.6% 149 11.6% 1/90 1183 75.1% 103 8.7% 1/91 1077 68.3% 106 9.8% 1/92 988 62.7% 89 9% 1/93 932 59.1% 56 6% Source: INPS/ Start-up size and Industrial dynamics. David B. Audretsch, Enrico Santarelli, Marco Vivarelli (1996). Start-up size and Industrial Dynamics: Some evidence from Italian manufacturing. Discussion Papers. Wissenschaftszentrum Berlin für Sozialforschung. p:7 As seen from the table, in 1993 survival rates become 59.1%. This is greater than the
45% of survival rate for American manufacturing. And it far exceeds the 35% survival
rate identified for Portegese manufacturing firms.118
117 A pocketbook of Enterprise Policy Indicators (2003). European Commission Enterprise Directorate- General. p. 20
104
Hazard rates ( failure ) are shownn in graphic below, Graph 5: Hazard rates in Italian Manufacturing
Source: INPS Data. David B. Audretsch, Enrico Santarelli, Marco Vivarelli (1996). Start-up size and Industrial Dynamics: Some evidence from Italian manufacturing. Discussion Papers. Wissenschaftszentrum Berlin für Sozialforschung. p:8 Hazard rate for one year, is about 10% and then rises to about 12% for the two year
period, before falling to 6% for the six year period. As seen; hazard rates incline in the
primal years but then decrease in long term. These hazard rates are generally somewhat
lower than those found in the USA, Portugal and Germany.
As it is said before, for the traditional industries, the rate of entry is remarkably high but
the exit rate is high too. Firms are exercising a “try and see” process for these kinds of
industries. Because traditional industries are characterised by low barriers to entry, low
market concentration, low capital and financial requirements and a negligible sunk
costs. But in Italy survival rates are much more higher than other countries and business
118 David B. Audretsch, Enrico Santarelli, Marco Vivarelli (1996). Start-up size and Industrial Dynamics: Some evidence from Italian manufacturing. Discussion Papers. Wissenschaftszentrum Berlin für Sozialforschung. p:7,8
105
failures are lagging behind when compared with other countries except some traditional
sectors.
Table 5 :Numbers of newly established and liquidated companies in Turkey 1999 2000 2001 2002 2003 number newly established 27.083 33.161 29.665 30.842 32.259 capital decrease 11 8 6 20 10 liquidated 1.408 1.887 2.464 3.667 5.436 Source: DIE, Turkey’s Statistical Yearbook, 2003. p: 326 Table 6: Number of liquidated firms by economic activity in Turkey 1999 2000 2001 2002 2003 liquidated 10.166 12.055 13.583 14.994 13.229 agriculture, hunting 40 56 41 63 64 fishing 2 6 3 3 7 mining 14 22 17 31 21 manufacturing 863 874 865 1.088 1.030 electricity,gas and water supply 3 4 4 construction 611 694 799 954 895 whole sale and retail trade 7.422 9.014 10.057 10.937 9.503 hotels and restaurants 189 259 259 266 279 transport, storage and communication 335 383 432 544 376 financial intermediation 221 163 291 301 313 real estate, renting 370 461 657 622 558 public administration and defence 2 2 4 education 39 38 52 62 63 health and social work 19 29 37 34 28 other community services 38 53 72 83 84 Source: DIE, Turkey’s Statistical Yearbook, 2003. p: 326 As seen from the table 5, the trend is increasing in Turkey for liquidated firms.The
leading sectors in liquidated firms are: manufacturing, wholesale and retail trade, and
construction as to table 6. The high exit rate in these industries can be the similar of
“try and see” process of Italian traditional sectors. But the lack of data of technologic
106
sectors’ information avoids comparing these two traditional and technologic sectors in
Turkey.
E. Small Business Employment in Both Countries In Italian Labour market Italy also considers with the employment problems. The
employment rate is significantly lower than the average for the industrial economies,
only half of all Italians of working age are engaged in economic activities. Also there
are big differences between Central, Northern regions and Southern regions(See Annex
V). The unemployment rate is now between 7% and 8%, more or less in line with other
EU countries if not lower. But in South the rate is over 21%, moreover the participation
rate is low as well, especially for women and whereas in Northern Italy the bulk of the
jobless are unemployed workers (i.e. job-losers ), in the South the largest group is that
of first job seekers. For this reason governments try to counter the dualism in the labour
market which is also the aim of “Pact for employment (1996 )”.119
119 Labour Market Studies-Italy (1996). Fondazione Giacomo Brodolini, European Commission. p.159
107
Graph 6: Employment by regions in Italy
Source:ISTAT Data. Labour market Studies-Italy (1996). Fondazione Giacomo Brodolini, European Commission.p:34 Table 7: Unemployment rates in Italy Years North Centre South Italy 1986 8% 9.7% 16.5% 11.1% 1987 7.8% 9.7% 19.2% 12% 1988 6.9% 9.8% 20.7% 12% 1989 6% 10.6% 21.1% 12% 1990 5.1% 9.8% 19.7% 11% 1991 5.1% 9.6% 19.9% 10.9% 1992 5.9% 9.9% 20.4% 11.5% 1993 6.2% 8.6% 17.5% 10.2% 1994 6.8% 9.6% 19.2% 11.3% 1995 6.8% 10.3% 21% 12% Source Bank of Italy. Labour market Studies-Italy (1996). Fondazione Giacomo Brodolini, European Commission.p:154 The new labour market reforms in Italy plans to support the growth of productivity,
particularly in the Southern regions.
But what about the firm size effect in unemployment problem in Italy? Firm size
provides the key to understand the changes that have taken place in work organization
108
and employment in Italy. Small and micro firms have increasingly become the main
source of job creation while large firms (except retailing ) are steadily destroying jobs.
Table 8: Net job creation by firm size in Italy No. Employees in firm 1990 1991 1992 1993 1994 1-5 76.6 78.8 52.6 26.8 50.7 6-9 2.1 -3.8 -15.1 -28.5 -7.5 10-19 -0.1 -11.1 -34.7 -41.0 -18.4 20-49 3.7 -14.0 -35.0 -46.0 -18.1 50-99 2.5 -5.6 -19.2 -24.6 -9.1 100-199 6.4 -3.5 -23.6 -19.0 -10.5 200-499 13.8 -2.0 -25.0 -26.9 -27.7 500-999 9.9 -9.6 -16.0 -4.9 -17.2 1000+ -20.8 -4.4 -49.2 -60.9 -60.5 0.0 0.0 0.0 0.0 0.0 TOTAL 94.1 24.8 -165.2 -225.0 -118.3 0.0 0.0 0.0 0.0 0.0 1-19 78.6 63.9 2.8 -42.7 24.8 20+ 15.5 -39.1 -168.0 -182.3 -143.1 Source:INPS Data. Labour market studies-Italy (1996). Fondazione Giacomo Brodolini, European Commission.p:43 As seen from the tables at first sight; in 1994 net job creation of both SMEs and large
firms are both negative but the net job creation of large firms are much more lower than
SMEs’ (net job creation of SMEs: 12.9 and net job creation of large firms’: -105.2 ).
And while analysing tables, the micro scaled density of Italian enterprises have to be
taken into consideration. If we look at the net job creation of enterprises that have
between 1 and 19 workers, we can see the net job creation of +24.8. This means these
small scale enterprises create 24.800 new jobs despite the other creates job destruction .
More generally, the main features of job creation in Italy are the following:
109
A recent resumption of job creation in the services, especially the advanced
services sector, after a phase of intensive reorganization that did away with over
600.000 jobs.
Graph 7: Employment by sectors in Italy
Source: ISTAT Data.Labour market studies- Italy (1996). Fondazione Giacomo Brodolini, European Commission.p:34 According to the graphic, the dominance of services sector in employment, is seen
especially after October 1994. Agriculture sector has a decreasing trend by years and
industry sector has not got neither increasing nor decreasing trend but a stable one.
The steadily growing employment role of small and micro firms as explained formerly, An upward trend in self employment as seen from the graphic and atypical
employment (non regular work represent 34% of total employment in South ( 33%
in 1980 ), and 18% in the Center North ( 16% in 1980 )120
120 ibid
110
A recovery in the demand for female labour and skilled labour but not sufficient to
offset the expansion of the labour force in the segments. It will be discussed in latter
subjects.
To summarize; according to the official documents, one of the top priority objectives of
the Italian government is significantly raising the employment rate, especially in the
South.
Geographical disparities underscore the need for focused, multi level action that views
the European, national and regional dimension of problems and instruments.
As seen; Italy have also unemployment problems deriving from various reasons
especially from the regional disparities. Governments of Italy have tried to solve
unemployment problems by multi level actions. With this perspective SMEs in Italy are
the main instruments in creating jobs. Micro firms seem to be employment sources in
Italy with the share of 43.200 jobs.
111
Table9:Employed persons by branch of economic activities Males 1998 1999 2000 2001 2002 15.687 15.713 15.780 15.555 15.232 Agriculture, foresty, hunting and fishing 4.909 4.647 4.261 4.309 3.784 Mining and qarrying 144 132 77 95 115 Manufacturing 2.839 2.846 2.918 2.888 2.923 Electricity gas and water 103 87 85 88 99 Construction 1.296 1.339 1.331 1.089 935 Wholesale and retail trade, restaurants and hotels 2.709 2.859 3.429 3.351 3.534 Transportation, communication and storage 919 910 999 972 942 Finance, insurance, real estate and business services 375 405 488 503 505 Community, social and personal services 2.395 2.489 2.192 2.260 2.396 Females 6.092 6.335 5.800 5.969 6.122 Agriculture, foresty, hunting and fishing 4.130 4.209 3.508 3.780 3.674 Mining and qarrying 4 3 4 3 5 Manufacturing 624 710 720 693 808 Electricity gas and water 10 7 6 7 4 Construction 29 25 33 21 23 Wholesale and retail trade, restaurants and hotels 285 345 388 386 446 Transportation, communication and storage 50 42 68 62 62 Finance, insurance, real estate and business services 171 175 221 194 192 Community, social and personal services 791 820 852 823 907
Source: DIE, Turkey’s Statistical Yearbook, 2003. p: 130
As seen from the table the leading sectors in employment in Turkey are agriculture,
manufacturing and wholesale, retail sectors in Turkey. The dominance of men
employees in all sectors can be seen easily. The distribution through years are quiet the
same. But it can be said that agriculture is a sector in decline, manufacturing and
wholesales are sectors in increase.
As it is mentioned before, in 2003 there are 2.139.289 enterprises in Turkey. In 2002
there were 6.325.036 people working in 1.881.433 enterprises. 1.633.509 of total
enterprises in Turkey are micro scaled ( with 1-9 workers ), and this amount is equal to
94.94% of total enterprises. The enterprises that employ 10-49 workers create the
percentage of 3.09 of total enterprises (53.246 enterprises ). So, in Turkey 98.3% of
total enterprises are SMEs. 615 of total employment is obtained by small scaled
112
enterprises. And these small scaled enterprises are generally established in Istanbul,
Ankara, Izmir, Bursa and Antalya (40.35 of toatal enterprises are established in these
cities ), and also the employment is more powerful in these regions with the percentage
of 52.08 of total employment. Eastern regions are powerless both in enterprise part
( 0.596% of total enterprises in Tunceli, Ardahan, Bayburt, Hakkari, Gümüşhane )and in
employment (0.37% of total employment is obtained by these cities.This regional
disparity is similar to the North-South dualism in Italy. Both countries suffer from their
underdeveloped regions and SMEs can be used to foster employment in these
regions.121
Employment in Turkey is mostly obtained by trade ( 32.38% ), manufacturing
(32.31%), hotels and restaurants sector ( 8.33% ), logistics and communication sector
(7.91% ). According to 1992 data in Turkey, 72.5% of the total employment work in
small sized enterprises, 4.2% of total employment work in medium sized enterprises
and the rest of 23.3% work in large enterprises.122
Like the center-North and South problem of Italy, Turkey faces the East and West
problems in employment depending on development.
F. Economic Impact of SMEs in Turkey and in Italy
Economic impact can be analyzed in three headings and these are: employment,
production, trade . Employment has already been explained. So the rest of the elements
will be examined.
121 DIE, 2002 Genel Sanayi ve İşyerleri Sayımı 1. Aşama Geçici Sonuçları. P:4,5 122 ibid.p: 1,2
113
Also Zoltan claims that; SME participation to the global economy can be with three
kinds activities. These are: trade, technology and investment. All of these activities will
be tried to be explained.123
F.1. Production
What are the shares of SMEs in countries’ GDPs. First of all, it is better to show some
GDP indicators from the world.
Table 10: GDP in Selected Countries (million USA $, at current prices) Country 1996 1997 1998 1999 2000
29.875.621 29.730.388 29.566.880 30.703.679 31.700.950 World Growth 3.3 3.5 2.2 2.9 4.1 USA 7.751.100 8.239.000 8.699.200 9.191.962 9.810.200 Growth 3.6 4.4 4.4 4.1 4.2 Germany 2.383.421 2.114.402 2.150.631 2.112.061 1.866.131 Growth 0.8 1.4 2.1 1.6 3.0 Denmark 182.954 168.365 173.683 174.280 160.351 Growth 2.5 3.1 2.5 1.7 3.0 France 1.554.361 1.406.121 1.446.950 1.432.364 1.294.245 Growth 1.1 2.0 3.4 2.9 3.1 UK 1.179.577 1.318.524 1.410.433 1.141.786 1.429.384 Growth 2.6 3.5 2.6 2.1 3.0 Spain 608.812 558.567 582.138 595.943 560.887 Growth 2.3 3.4 3.9 3.7 4.9 Italy 1.232.882 1.164.846 1.190.929 1.171.005 1.073.121 Growth 1.1 1.8 1.5 1.4 2.9 Bulgaria 9.830 10.141 12.257 12.403 11.988 Growth -10.1 -7.0 3.5 2.5 5.8 Source: Statistical Yearbook of Turkey, 2003, DIE, p:341,342
As seen from the table, there are great differences of GDP between USA and the rest of
the countries.
123Acs, Zoltan J., Yeung Bernard (2002). Small and Medium sized enterprisess in the Global Economy. The University of Michigan Press.p:4
114
A detailed Italy/Turkey difference in GDP can be understood with the help of tables
below.
Table 11: GDP at current and constant 1990 prices, Per Capita GDP, Growth rate -Italy
GDP at current prices
GDP at constant 1990 prices
Million
Per Capita GDP
Growth rate
Period
Euros US Dollars
Euros US Dollars US Dollars Percent
1999 1107994 1180441 775592 1253446 20519 1.7
2000 1166548 1074763 799947 1292806 18680 3.1
2001 1220147 1091844 814398 1316160 18982 1.8
2002 1258349 1184271 817425 1321052 20602 0.4
2003 1298780 1465835 819523 1324444 25527 0.3 Source:http://unstats.un.org/unsd/snaama/resultsCountry.asp?Country=380&SLevel=99&Year=0&Selection=country&x=32&y=8
Table 12: GDP at current and constant 1990 prices, Per Capita GDP, Growth rate-Turkey
GDP at current prices GDP at constant 1990 prices
Million
Per Capita GDP
Growth rate
Period
Liras US Dollars
Liras US Dollars
US Dollars
Percent
1999 77415272308 184858 520355210 199474 2749 -4.7
2000 124583458275 199264 558651924 214154 2918 7.4
2001 178412438500 145573 516778452 198103 2101 -7.5
2002 276002987851 183120 557007776 213524 2604 7.8
2003 365890000000 243783 589314227 225908 3418 5.8 Source:http://unstats.un.org/unsd/snaama/resultsCountry.asp?Country=792&SLevel=99&Year=0&Selection=country&x=35&y=15
115
As seen from the tables, Italy’s GDP is nearly 5, 6 times greater than Turkey’s GDP in
all time periods. And while the growth rate of GDP in Italy is decreasing for the last 4
years, Turkey has seen (-) values in 1999 and 2001 but in last 2 years the growth rates
find positive values. But of course Turkey’s growth rates are not stable.
When GDP’s by economic activities are considered, differences and similarities will
be seen, of course in proportions not in real aggregates.
Table 13: GDP by Kind of Economic Activity at current prices in Million US Dollars-Italy
Agriculture, hunting, forestry, fishing
Mining, manufacturing, utilities
Of which: Manufacturing
Construction
Wholesale, retail trade, restaurants and hotels
Transport, storage and communication
Other activities
Period
at current prices (Million US Dollars)
1999 32308 255178 225880 52550 181560 80567 489286
2000 27508 230052 203247 47881 165912 73583 452057
2001 27622 233596 205604 49783 169687 75199 464981
2002 28984 247637 218418 54655 183061 79032 514157
2003 35169 299735 264369 69009 225812 97489 646492 Source:http://unstats.un.org/unsd/snaama/resultsCountry.asp?Country=380&SLevel=99&Year=0&Selection=country&x=32&y=8
116
Table 14: GDP by Kind of Economic Activity at current prices in Million US Dollars-Turkey
Agriculture, hunting, forestry, fishing
Mining, manufacturing, utilities
Of which: Manufacturing
Construction
Wholesale, retail trade, restaurants and hotels
Transport, storage and communication
Other activities
Period
at current prices (Million US Dollars)
1999 29833 42919 36596 10381 37067 24745 47339
2000 29576 46428 39588 10335 41238 27530 45349
2001 18512 37436 31921 7515 32413 21638 33994
2002 23035 46466 39620 7602 39276 26221 42839 Source:http://unstats.un.org/unsd/snaama/resultsCountry.asp?Country=792&SLevel=99&Year=0&Selection=country&x=35&y=15
The main similarity is the dominance of manufacturing sector in both countries.
Wholesale, Retail, Trade, Restaurants and hotels sectors are following after
Manufacturing in both countries. Moreover, these two sectors’ indicators are so close in
Turkey. The main difference is in the Agriculture sector. In Italy agricultural activites
does not have dominance as much as other sectors but in Turkey, Agriculture sector is
still dominant. And of course as values, Manufacturing in Turkey is nearly 5 times
lower than in Italy.
After these datas which has given above; it can be said, Turkey can not become
productive in especially manufacturing and in other sectors when compared with an EU
State, Italy. GDP is already low when compared through per capita, Turkey is nearly 8
times behind of Italy ( per capita income for Italy: 25.527$; per capita income for
Turkey: 3418$). But what about SME shares in countries’ GDPs.
117
Table15: The shares of small enterprises in economies USA GERMANY JAPAN ENGLAND FRANCE İTALY TÜRKEYSmall enterprises / Total enterprises 97.2 99.8 99.4 96.0 99.9 99,2 98.8 The percent of small enterprises in total employment (%) 50.4 64.0 81.4 36.0 49.4 56.0 45.6 The share of small enterprises in investments (%) 38.0 44.0 40.0 29.5 45.0 36.9 6.5 The share of small enterprises in total production 36.2 49.0 52.0 25.1 54.0 53.0 37.7 The share of small enterprises in exports (%) 32.0 31.1 38.0 22.2 23.0 58,0 8 The share of small enterprises in total credits (%) 42.7 35 50.0 27.2 48.0 38.0 3-4
Source: Devlet İstatistik Enstitüsü Hüseyin Ölmez, (2003). KOBİlerin Finansmanı Bu Alanda Yapılan Kıt Kaynakların İsrafı ve Çözüm Önerileri. Active Finans 29 (Mart-Nisan), 70-77. Source: www.italydati.it/Invest.pdf Source:www.europa.eu.int/comm/enterprise/enterprise_policy/analysis/doc/smes_observatory_2003_report2_en.pdf
According to table above; the share of SMEs in production can be clearly seen. Turkish
SMEs have 37.7% share in total production while Italian ones have 53%, French ones
have 54%, German ones have 49%. UK SMEs’ low share in production is really
interesting but also UK SMEs have the lowest share (96%) in total enterprises. Also the
big firm contribution to production is an important reason for the UK & USA shares of
SMEs in production. Anyway Turkey is lagging behind in this context. With such a
density of SMEs, it is expected to have more share in production. The productivity
problem comes up again. Technology based production may be the solution for this
problem but in order to have technology based production, Turkey should build the
right infrastructure and this is a subject of another criteria.
118
F.2. Export When we look at the export indicators in the world, we can see USA is making one in
nine export of the world aggregate.
Table 16: Exports of selected Countries (million US$) Country 96 97 98 99 2000 World 5.257.102 5.445.992 5.370.673 5.543.173 6.165.070 USA 625.073 688.696 682.138 702.098 781.125 Germany 524.226 512.503 543.431 542.883 549.686 Czech Republic 21.917 22.751 26.417 26.245 29.057 Japan 410.926 421.050 388.135 417.659 479.227 Denmark 50.099 47.720 47.481 48.698 53.840 France 287.643 290.972 305.991 300.763 298.899 UK 262.130 281.083 271.851 268.254 281.550 Spain 102.003 104.368 109.240 109.966 113.348 Italy 252.044 240.440 245.715 235.067 238.310 Bulgaria 6.602 5.322 4.302 3.964 4.810 Source: SIS, Statistical Yearbook, 2002. p:711 As seen from the table, USA is leading in exporting. After USA; Germany, Japan, France, UK, Italy are following respectively. It’s better to check the export aggregates of Italy and Turkey more detailed. Table 17: Export of Turkey
Source:http://unstats.un.org/unsd/comtrade/dqBasicQueryResults.aspx?px=H1&cc=TOTAL&r=792&p=0&rg=2&y=2003,2002,2001,2000,1999&so=8
Period Trade Flow
Reporter Partner Trade Value
1999 Export Turkey World $26,587,172,864
2000 Export Turkey World $27,485,306,880
2001 Export Turkey World $31,333,885,952
2002 Export Turkey World $35,761,922,048
2003 Export Turkey World $47,252,770,816
119
Table 18: Export of Italy
Period Trade Flow
Reporter Partner Trade Value
1999 Export Italy World $234,962,944,000
2000 Export Italy World $240,515,874,816
2001 Export Italy World $244,180,828,160
2002 Export Italy World $254,501,371,904
2003 Export Italy World $299,509,451,670
Source:http://unstats.un.org/unsd/comtrade/dqBasicQueryResults.aspx?px=H1&cc=TOTAL&r=381&p=0&rg=2&y=2003,2002,2001,2000,1999&so=8 As seen from the tables both two countries have increasing trends in export. But there
are great differences in aggregates. One more time, the difference is nearly 6-7 times in
favour of Italy.
Table 19: Main indicators of Foreign Trade- Turkey 1999 2000 2001 2002 2003 Exports (000$) 26.587.225 27.774.906 31.334.216 36.059.089 46.877.598 Change (%) -1.4 4.5 12.8 15.1 30.0 Imports (000$) 40.671.272 54.502.821 41.399.083 51.553.797 68.734.070 Change (%) -11.4 34.0 -24.0 24.5 33.3 Foreign Trade Balance (000$) -14.084.047 -26.727.915 -10.064.867 -15.494.708 -21.856.472Foreign Trade Volume (000$) 67.258.497 82.277.727 72.733.299 87.612.886 115.611.669Proportion imports covered by exports 65.4 51.0 75.7 69.9 68.2 Ratio of exports to GNP (%) 14.0 13.8 22.0 19.8 Source: SIS, Turkey’s Statistical Yearbook, 2003. p: 254
As seen from the table, the aggregates are low, besides; foreign trade balance has
always deficits between 1999 and 2003. Exports could not cover imports and this causes
as deficit in trade balance. Ratio of exports to Turkey’s GDP remains 29.2%124 in 2002
124 http://www.worldbank.org/cgi-bin/sendoff.cgi?page=/data/countrydata/aag/tur_aag.pdf
120
while the ratio of exports to GDPs in some other European countries are: Italy,
26,9%125; France, 27,1%126.
In 2001 in Italy the export volume was 244.180.828.160 $ and 58% of it was created by
SMEs (30,8% by 1-49 workered enterprises; 11,3% by 50-99 workered enterprises;
15,9% by 100-249 workered enterprises)127. It is expected that 80% of all SMEs in
OECD Countries will be effected by or involved in, international trade by 2005.128
From the table 15, the situation of other countries can be seen. American SMEs have a
share of 32% in export. Germany has 31,1%, Japan has 38%. French SMEs have a little
bit lower share with 23%. But the situation of Turkish SMEs is really disturbing with a
share of 8%. Why Turkish SMEs don’t export and make a production towards domestic
market. In a survey only 35,2% of small enterprises declared that they can compete
with EU countries.129 It means that just 35,2% of small enterprises in Turkey could
think; they can export to the EU. The problem once again come up to the competition
power of Turkish SMEs. When the exporting firms are considered, it is reported that:
43.8% of them are small entities, 64.4% of them are medium sized enterprises, 85% of
them are big enterprises.130
As to the survey of DIE, Turkey has the 38th place in export in world ranking with
having 0,5% of world foreign trade in 2001 and 2002. Italy has instead the 8th place
with having 4,0% of world foreign trade in 2001 and 2002. USA, Germany and Japan
have the first three places in world ranking.131
125 http://www.worldbank.org/data/countrydata/aag/ita_aag.pdf 126 http://www.worldbank.org/cgi-bin/sendoff.cgi?page=/data/countrydata/aag/fra_aag.pdf 127 http://www.oecd.org/dataoecd/9/42/31778704.ppt 128 Acs, Zoltan J., Yeung Bernard (2002). Small and Medium sized enterprisess in the Global Economy. The University of Michigan Press.p:16,17 129 Karluk Rıdvan (1998). AB ve Türkiye. Beta Yayımcılık. P: 629 130 ibid. P:631 131 DIE, Türkiye Istatistik Yıllığı, 2003. p:263
121
F.3. Import
As seen from the table above and export table, USA, UK, and Spain have significant
trade deficits in their budgets.
Table 20: Import of Selected Countries (million US $) Country 96 97 98 99 2000 World 5.327.562 5.505.782 5.426.782 5.657.959 6.373.078 USA 822.025 899.019 944.353 1.059.430 1.257.640 Germany 458.808 445.683 471.448 473.551 497.902 Czech Republic 27.716 27.188 28.814 28.784 32.241 Japan 349.174 338.830 280.631 310.039 379.491 Denmark 44.434 44.044 45.427 44.067 43.711 France 281.776 272.721 290.273 289.799 301.085 UK 287.472 306.592 314.036 317.969 334.366 Spain 121.792 122.721 133.164 144.438 152.900 Italy 208.097 210.297 218.460 220.327 236.671 Bulgaria 6.861 5.223 5.021 5.454 6.492 Source: DIE, Statistical Yearbook of Turkey 2002. p: 711
And also Turkey has a big trade deficits according to its export and import volumes
(export in 2000 was 27.774.906.000$, import in 2000 was 54.502.821.000$, deficit was
–26.727.915.000$). Italy had no deficits in this 5 year period and has a balanced foreign
trade. The tables below show Italian and Turkish import states more detailed.
Table 21: Import of Italy
Period Trade Flow
Reporter Partner Trade Value
1999 Import Italy World $220,056,092,672
2000 Import Italy World $238,257,307,648
2001 Import Italy World $236,066,013,184
2002 Import Italy World $246,843,179,008
2003 Import Italy World $297,462,190,386
Source:http://unstats.un.org/unsd/comtrade/dqBasicQueryResults.aspx?px=H1&cc=TOTAL&r=381&p=0&rg=1&y=2003,2002,2001,2000,1999&so=8
122
Table 22: Import of Turkey
Period Trade Flow
Reporter Partner Trade Value
1999 Import Turkey World $40,686,710,784
2000 Import Turkey World $54,149,758,976
2001 Import Turkey World $41,399,046,144
2002 Import Turkey World $51,270,160,384
2003 Import Turkey World $69,339,652,096
Source:http://unstats.un.org/unsd/comtrade/dqBasicQueryResults.aspx?px=H1&cc=TOTAL&r=792&p=0&rg=1&y=2003,2002,2001,2000,1999&so=8
There is no need to mention the aggregate differences. Like in every heading, in import
Italy has more density (nearly 4-5 times more) than Turkey. In 2000 the import quantity
increased suddenly and falled again in 2001 but in 2002 and 2003 it increased gradually.
For Italy, imports have a balanced quantity till 2002 and in 2003 it increased much more
than last 4 years but this increase did not make any difference in Italy’s foreign trade
balance because in 2003 exports also raised much more than last 4 years.
Looking to the World ranking of imports, it is seen that USA, Germany and Japan were
leading again between 1998 and 2002. Italy has the 7th place in the world ranking with
3.7% in 2001 and 2002. Turkey has 22nd place with 0.7% in 2001 and 0.8% in 2002132.
G. Financing of SMEs in Turkey and in Italy
Financing in both countries is mostly alike. Because SMEs are generally familly run
businesses and family business’ source is often family again.133
132 DIE, Türkiye Istatistik Yıllığı, 2003. p:263 133 http://www.eban.org/pays/it.html
123
In Turkey bank loans in financing SMEs very insufficient. In 1999 it is determined that
the ratio of bank loans utilization by SMEs, is 4.82%134. The reason for lower utilization
of bank loans by SMEs, is the high financial costs. What is meant by financial costs are;
short terms, limited credit possibilities, high interest rates, obligation of collateral. It is a
truth that banking sector prefers to give bigger credits to larger firms. Generally Turkish
SMEs are using supplier credits, the most attractive vehicle in “supplier credit” is the
practice of checks drawned for future due date. But also, these checks are one of the
most important finance problem for SMEs. When we look at the other financing
vehicles: Financing by Venture Capital is not sufficient in Turkey but it is practiced
succesfully in European countries. The legal framework of Venture capital in Turkey
was drawn in 1993. To make this financing method succesful, private sector must be
supported.
The primal practices of factoring method was seen at the beginnings of 90s in Turkey.
There are 97 registered factoring firms. The reasons of rare using of factoring are;
firms’ little information about factoring and the high costs of the method.
Leasing is much more used among enterprises when compared with other external
financing methods. There are 80 leasing firms in Turkey. In the first three quarters of
2001, 1919 units of leasing is determined and this amount created 219 billion TL in
volume. It is obvious that the leasing method will be the most favourite financing
method among other financing methods in a couple of years.
SME guarantee fund, has started in Turkey in 1991. But SME guarantee fund only gives
guarantee for the credits of Halkbank and also the guarantee comprises the 80% of the
credit. This financing method is also not favourite among enterprises in Turkey.
134 Ölmez, Hüseyin (2003). KOBİlerin Finansmanı Bu Alanda Yapılan Kıt Kaynakların İsrafı ve Çözüm Önerileri. Active Finans 29 (Mart-Nisan), 70-77
124
When Italy is considered, the similarity between Turkey and Italy can be seen. Main
sources for SMEs in Italy, are personal internal resources, family, retained profit and
bank overdrafts. Bank loans are available as a minor source, because of high bank
charges.
About Venture Capital financing method in Italy we can say that it is below the average
of European Union ( ıf the EU average is estimated 100, Italy has got 68%, this amount
is also below the 75% barrier of weakness, it shows that venture capital practices in
Italy are weak )135. But since 1991 venture capital method has got a significant increase.
In the first two quarters of 2000, it is determined 1.3 billion Euro venture capital
investment in 288 firms. Despite the high tech investments are 17.5% in total
investments; it is equalavent to 45% of enterprises on which total investment has been
made. The result of this data is: Italian high tech SMEs are more prefered in venture
capital investments. Actually Italy is lagging behind in the subject of ICT in Europe,
because of this reason venture capital tries to support mostly these kinds of enterprises.
The growth of new forms of external finance can only be achieved if interest rate is
reduced to let new and riskier forms of finance emerge.
Factoring is used mainly by large undertakings and leasing, although more expensive
than bank loans is widely used by undercapitalised enterprises.
135 A Pocketbook of Enterprise Policy Indicators (2003). European Commission Enterprise Directorate- General Publication: Luxemburg.p.20
125
H. Institutional Policy towards SMEs in Turkey and in Italy
In Italy the structure and size of SMEs sharply vary from area to area.The Italian
government has always made an important distinction between regions where
companies were located, namely between Northern, Central and Southern Italy. The
severest problems were found in Southern Italy, and therefore government measures
mainly aimed at encouraging companies in this part of the country. Nowadays, Italian
policy concerning SMEs is especially diciplined by EU rules. The structural funds
Reform of 1988 and the following renewal in 1993 established five priority objectives,
currently as being follows:
Objective 1: Development and structural adjustment of regions at low development rate.
Objctive 2: Conversion of regions or parts of regions severely effected by industrial
decline. Development of rural areas ( within the reform of CAP )136 . Speeding up
adjustments of agricultural structures
Objective 3: Reduction of long-term employment, occupational integration of young
people and support to integration of excluded categories. Adaptation of workers to
industrial changes
Italian policy for small firms is addressed to reduce disadvantages of small scale
production by facilitating financial support. By these objectives; modernization of
production equipment and technology transfer, to improve the competitiveness and
productivity of small firms, promotion of research and applied research, stabilization or
improvement of SMEs’ position on foreign markets, improvement of quality and
136 http://www.unido.org/es/doc/4319
126
increase in quantity of services to SMEs, are envisaged. In other words, assistance
should not only cover financial aid, but it should also include other kinds of aids, such
as the supply of particular forms of counselling and training courses.
Deregulation in respect of labour law with the aim of higher employment and reduced
black-market employment and internationalisation and development of foreign trade137
are also the objectives that are targeted.
In recent years, more attention has been devoted to the creation of new businesses. In
Italy the Ministry of Industry is responsible for most of central government measures
for the development of economic strategies in Italy concerning large and small scale
companies. The Ministry’s main objective is the coordination of the several national
economic activities in industry, commerce and crafts. The Ministry is competent for the
internal policy concerning “Mezzogiorno” ( Southern Italy and the Isles, since they are
less developed )
The Ministry of Industry also provides financial aids up to 60% of costs for the
purchase of machines and for the implementation of research and innovation. Subsidiy
for the purchase or lease of high technology instruments and machines are ruled by law
Sabatini ( 1329/65 ). The main law concerning the dicipline of SMEs are: Law 3179 for
the development and innovation applied to SMEs, and the more recent law 488/92,
concerning specific financial intervention in the least developed areas138.
Other laws provide soft loans to finance research and technological innovation projets
which is the case of Law 46/82, Law 346/88 as well as Law 317/91 art. 8, where part of
the available budget is reserved for the SMEs. Small firms can apply for support for all
projects, while larger companies can only receive loans for projects in certain fields.
137 ibid 138 ibid
127
Besides the Ministry of Industry, also the Ministry of the University and of the
scientific research is partially responsible for research and development projects.
Financial support to industrial actions, is also provided by two public institutions,
Mediocredito centrale and SIMEST as well as by Artigiancasse for the crafts sector.
Banks refinance loans issued by commercial banks and they also issue soft loans for the
purchase of means of production and transport.139
The Ministry of Foreign trade is responsible for aid policy relating to export. Through
its export policy, the Italian government tries to increase the competitiveness of Italian
products and services. Export policy involves; the promoting information of export
consortia consisting of small firms, by offering financial supprt in the field of export
promotion and marketing ( e.g. information, technical assistance, participation in trade-
fairs, organization of trade missions ), schemes of insurance and financing of export
activities and guarantees, soft loans for export activities by companies in Southern Italy.
In collaboration with Mediocredito Centrale, the Ministry also issues loans for export
activities towards countries outside the EEC.
In Turkey new strategies and policies of Ministry of Industry took place in the eighth
development plan for five years. Now Industry policy is aiming; a focus on market
economy, private sector depended economy, competition, to foster export capacity,
balanced distribution of industrialization among regions, the use of high technology,
creation of industrial focal points in Anatolia. For these reasons industry policy wants to
support these goals with some instruments.
In order to improve subcontracting industry, the studies were started to create a
subcontracting Act draft. In this context, the main industry and subcontractor relations
139 ibid
128
can be put in an order. New sectoral reports, investment researchs are organized
inclined towards new entrepreneurs.140
Also with the creation of Technology Development Act ( 6 July 2001 ), supports to
creativity, entrepreneurship, high technology based enterprises have taken place in Law.
In eighth development plan for five years, it is stated strongly that legal and institutional
structure about technoparks and technology development zones, will be organized.
Also some kind of supports are available for organized industry zones and small
industry sites. These support can be defined as; credits for infrastructure and
superstructure, long term credits with low interest rates. Depending on the development
level of regions, the credits for superstructure ranges between 50% and 70% and for
infrastructure the credits can reach to 100%.
The projects related with SMEs are genarally carried out by KOSGEB. KOSGEB
provides SMEs, information support, collaboration intra enterprises services, e-trade
service in order to provide SMEs an internet environment, financial support facilities,
training and consulting support, R&D facilities. Via KOBİ-NET it is tried to establish
an e-trade infrastructure for SMEs and free e-mail addresses are given to enterprises in
the context of technology development centres and technoparks are being established.
Foreign trade undersecretaryship provides market research and training support to
SMEs which want to involve in export business. Some other supports provided by
foreign trade undersecretaryship are; R&D support, support for fairs and exhibitions
abroad, support for environmental costs, employment support, etc.141
Eximbank basicly provides some credit facilities for SMEs which involve in export
business. Recently Eximbank provides “ Credit for Export preparotary for SMEs”. This 140 TC Sanayi ve Ticaret Bakanlığı Haziran 1999- Hziran 2002 Dönemi Faaliyetleri (2002). Ankara. p. 9-28 141 ibid, p. 42-62
129
includes letter of guaranty, valued 50% of the credit in order to help collateral and
finance problems of SMEs. This credit is the cheapest credit of Eximbank. Halkbank is
the bank provides financial and non-financial ( technic and administrative consulting)
services in order to adopt SMEs to the changing economic structure. The other
institutions working in favour of SMEs can be mentioned as ; TOBB, Treasury, Export
Development and Training Centre ( İGEME ), TOSYOV and IKV.
I. SME Development and Constraints
Italy is one of the countries in EU that has high density of SMEs. The permanent incline
of organizations like SMEs is a good instrument in fighting against unemployment in
Italy. Reasons of development of SMEs in Italy that much, are; to respond rapidly to the
demand in the world markets, rapid growth, their success in production
improvement/development. For these reasons large enterprises transfer some part of
their semi products and products to SMEs. This kind of collaboration provides large
enterprises to profit more and small enterprises to get established in order to the needs.
Collaboration intra SMEs also effects interregional collaboration in a good way. So in
Italy, Industrial Districts get more important. Industrial Districts are the zones in which
SMEs are in the production process together and collaborate. The regions which can not
be in the structure of Industrial Districts are in industrial decline.142
The high rate of establishment of new businesses since 1993 has mirrored the recent
decision by the Italian government to change its policies away from the support of state
run enterprises towards the support of SMEs. The growth of SMEs also depended on
142 Industrial Districts and Specialized Services Centers Information Note (2003). Institute for Industrial Promotion. Rome
130
export markets and the control of niche markets. The emergence of networks between
large and SME companies and between SME business has also been a major feature in
this growth ( these are the so-called “distretti” ).
One of the major problem that Italy has, the complicated structure of Italian laws. For
this reason it is needed to be expertised on the matter ( Italy has 160.000 laws, Germany
has 7000, France has 8000 )143. And of course bureaucracy is a serious constraint. As
seen from the graph, to establish a new firm in Italy 10 weeks are required and the cost
of a new firm also is a problem, 2200 Euro is needed to establish a new firm (most
expensive after France ).
143 http://www.eban.org/pays/it.html
131
Graph 8: Establishing a firm
40003160011
5001,534006
22001015001
14001611303
1000124201
340133020
25014507
0 500 1000 1500 2000 2500 3000 3500 4000
japan
EU-8
USA
France
Italy
Iceland
Germany
Sweden
Holland
England
Australia
Spain
İreland
Turkey
period(weeks) 3 11 1,5 6 10 1 16 3 12 1 1 20 1 7
expenses (euro) 400 160 500 340 220 150 140 113 100 420 340 330 250 450
japan
EU-8
USA
France
Italy
Iceland
German
Sweden
Holland
England
Australi
Spain
İreland
Turkey
Source: Avrupa’da Girişimcliğin Özendirilmesi ve Yaygınlaştırılması -UNICE Kıyaslama raporu (1999). TÜSİAD Yayın No.1999-12/270 (Aralık): İstanbul.p.37
The other problem derives from financial matters. External finance for SMEs are very
limited and it can only be achived if state debt is reduced. Because State debt in Italy is
a major problem. As seen from the graph below; total state debt is covering 119.4% of
GDP and this amount causes great pressure on enterprises. To balance the high level
state debt, taxes must be higher too (total tax burden in Italy is 44.9% )144. As a result
144 Avrupa’da Girişimcliğin Özendirilmesi ve Yaygınlaştırılması -UNICE Kıyaslama raporu (1999). TÜSİAD Yayın No.1999-12/270 (Aralık): İstanbul.p.21
132
entrepreneurs and investors are mostly badly effected by the high level of tax. For
example in takeovers, some enterprises have to fail in the business because of the high
level of tax for takeovers. In Italy 22% of tax is paid in the case of takeovers . Both of 3
indicators mentioned in this paragraph are realtively low in Turkey,as seen from the
graph below ( total state debt: 60%, tax burden: 27.7%, takeover tax: 9.5% )145.
Actually Turkey’s indicators are more alike with US indicators ( total state debt: 57.4%,
tax burden: 28.5%, take over tax: 9.9% )146. Perhaps this is related with the EU’s
general point of view about the state duties (in EU average, state supports 1.5 adult,
while US supports 0.8 adult ).
145 ibid,p.21-p.25 146 ibid, p.25
133
Graph 9: Public Debts %
99,9
75,2
57,4
119,4
117,3
108,7
72
67,9
66,4
64
62,6
60
58,3
57,2
56,6
53,2
52,5
37,1
7,1
0 20 40 60 80 100 120
country
japan
EU 16
USA
italy
belgium
greece
spain
holland
france
austria
germany
turkey
portugal
england
ireland
sw itzerland
finland
norw ay
luxemburg
Source: Avrupa’da Girişimcliğin Özendirilmesi ve Yaygınlaştırılması -UNICE Kıyaslama raporu (1999). TÜSİAD Yayın No.1999-12/270 (Aralık): İstanbul.p.20 The ratio of budget deficit to the GDP increased to 2.4% from 1.3% in 2002. This ratio
is above the limit of 1.9% that has determined in the stability and development Pact in
EU in 2001.
Italian banking system is also creating difficulties for SMEs in accessing finance with
high bank charges and slowness of procedures. Banking constraints have been reduced
134
by the placing of monitoring of venture capital under the Bank of Italy but the operating
scheme is still to be publicised and investment legislation is also being introduced.
As the Italian state and regions remain largely interventionist when compared with other
EU member states. This prevents the introduction of financial instruments created by
the market.
And there are also some cultural constraints; SMEs are largely family controlled
businesses which do not want to open equity to third parties.147
However Turkey is not living an institutional difficulty in the harmonization period to
the EU under the heading of SMEs ( there are; privatization agency, competition
agency, development agency, SMEs agency, chambers of commerce, foundations
representing business environment ), additional institutions and new opportunities will
be needed in the future ( for example: Low capacity of R&D is a problem and lack of
commercial relations between R&D services sector and trading partners ).
Also State aids law/act must be simplified and must be made harmonized to the EU.
The system of investment and subsidy must be simplified either.
The SME concept in Turkey has started to develop in 90s. In 1996 it was announced as
“SME year” by Ministry of Industry and at the very same year it has taken place in the
laws with the decision of “State aids in the SME investments”. After that; the share of
SMEs in export subsidies has started to increase but when compared with other
countries Turkey is still lagging behind in the practice.
The importance of SMEs is comprehended by 70s in the World but by 80s SMEs have
come up to the scene in Turkey and have taken place in the Laws by 1996. Turkey was
lagging behind in, following up the developments in SMEs; for this reason Turkey has
147 http://www.eban.org/pays/it.html
135
many lacks in the system of SMEs. Besides, there are not any support mechanisms in
favour of women entrepreneurship and start-ups, etc. And this kind of lacks limit the
entrepreneurship development.
Entrepreneurs struggle most of the time with difficulties like; Venture capital concept is
not fully practiced, guaranty is only given to Halkbank credits.In Leasing method total
rent is collected in the first two years. In the last two years symbolic amounts are
collected from clients.
These kinds of examples can be varied. In such a limited external finance environment,
it should not be a surprise to have the share of 5% from the credits. Likewise it seems
impossible to have credits from banks because of the small amount that is wanted to
lend and the high interest rates of banks caused by insufficient security problem ( there
are not any support initiatives like Micro loan mechanisms, Micro loan provides credits-
average 25.000 Euro ).
It is obvious that to make laws only, is not the solution for problems of SMEs. The
important thing is; usability of these laws and how actively these laws have a part in the
daily life. Such a bad thing that in Turkey, these laws have not been practiced actively
and additionally with the complexity of laws, SMEs can not find a permanent solution
to their problem.
J. SME Capital Markets in Both two Countries
In Turkey; financing SMEs via Capital markets, is weak. In both Turkey and Italy,
financing via capital markets, has not developed sufficiently. In order to benefit from
Capital markets, it is planned to form a system that would function on an electronic base
136
and open to foreign, local investors like Nasdaq in USA and newly Easdaq in Europe.
For this reason, in the context of IMKB, “new enterprises market” has established to
present new enterprises’ stocks via stock exchange by this practice, it is planned to
obtain new financial resources. “Regional markets” project was first put into practice in
Denizli, Gaziantep and Konya in 2001. But neither Regional markets nor new
enterprises market is very well known by most of SMEs.
In Italy as an alternative to “Borsa di Milano”, a new market was put into practice for
small and medium scaled enterprises. This new market was established with the
approval of CONSOB ( Italian Capital Market Committee ) and constituting of a
supporting committee by intermediaries, exporters and chambers of commerce.
Addition to this; a new project has put into practice in December 2003 in Italy.A new
stock Exchange market for SMEs was introduced, the name of this new market is
‘mercato Expandi’. By this way, financing SMEs via Capital markets is tried to be
varied148
K. Female Employment and Self Employment in Both two
Countries
In Italy women participation in unemployment has increased since 1972 except an
interruption between 1992 and 1994, because of the employment crises between those
years.The service sector has drawn women into the labour force, as it had been
relatively immune to cyclical downturns at least until 1992. In 1995 women’s
participation again turned upward but largely in the status of “other job seekers” 148 Ali Küçükoğlu (1997). KOBİlerin Finansman Sorununun Sermaye Piyasaları yoluyla çözümü. İMKB Yayınları. p. 79-81
137
demonstrating their marginal role within the labour market. During the current year the
female employment rate has risen in the Northern and Central regions, where the men’s
rate has been essentially stable. The data for the South however shows a persistent
decline in both female and male employment rates. The reasons for South’s lagging
behind, are described in the criteria E.149
Graph 10: Employment rate by gender in Italy
Source: Labour market studies- Italy(1996). Fondazione Giacomo Brodolini, European Commission.p:34
As seen from the graph; female employment had started increasing at the end of 1993.
After a decrease at the end of 1994, the participation of women have increased.
Self employment represents a large share of total employment in Italy than the
European average, depending also on small firms’ dominance in Italy among European
countries. According to ISTAT data in 1998, Italy has the largest share of self employed
149 Labour Market Studies-Italy (1996). Fondazione Giacomo Brodolini, European Commission. Luxemburg. p. 8
138
with no employees ( own workers ). There are 5.720.000 self employed workers which
was equivalent to 28.4% of total employment.150 According to 2002 data; female self
employment has 90 points while EU averageis between 75 and 100 points. The percent
of female self employment in total self employment is, 24.9%. So it is obvious that self
employment is more widespread among men.151
Here is a table showing some characteristics about self employment. So we can analyse
women’s situation in total self employment.
Table 23: Self Employment by sex, age and position in Italy Men Women Total 1993 1997 1993 1997 1993 1997
By Age 15-29years 17.3% 16.2% 19.6% 18.4% 18% 16.9% 30-49 years 49.2% 52.7% 50% 53% 49.5% 52.8%
Over 50 years 33.5% 31.1% 30.4% 28.6% 32.6% 30.3% Total 100 100 100 100 100 100
By Professional Position
Entrepreneurs 7% 7.8% 3.2% 4.7% 5.9% 6.9% Freelance
Professionals 12.6% 15.1% 7.3% 10.7% 11.1% 13.8% Own Workers 68.8% 64% 52.7% 50.5% 64% 60.1%
Members of Production Cooperatives 2.7% 4.7% 3.8% 6.5% 3% 5.2%
Family Workers 8.9% 8.5% 33% 27.5% 16% 14% Total 100 100 100 100 100
Source:Labour Force Surveys. http://www.eu-employment-observatory.net
It can be seen from the table that young women are more active than young men in self
employment but as age goes up ( over 50 ) men become more dominant.
150 http://www.eu-employment-observatory.net 151 A Pocketbook of Enterprise Policy Indicators (2003). European Commission Enterprise Directorate-General. p. 20
139
By professional position, women are lagging behind men. Then, it is clearly seen that
women in self employment are mostly family workers. Women’s percentage as family
workers is nearly three times higher than men’s (men; 8.5, women; 27.5 ).
But also self employment composition is changing according to regions ( South versus
North and Central ), very much similar reasons of region differences in employment
composition.
The general employment is low in South and women participation is also low in self
employment ( men; 14.2%, women; 20.9% ). The reason that women participation is
higher than men, is the high rate of women participation in family businesses in South
and South’s self employment is mostly determined by family businesses.
And also one of the reason for women to choose self employment instead of working
dependently, is the flexible working time of self employment.
In Italy self employment is supported by EU funds and government. EU’s structural
fund gives subsidies to young people and unemployed in crises areas who wishes to
start up a business in agricultural, crafts or manufacturing sectors. Government criteria
for giving subsidy to self employment is very much alike except a positive action
towards a female entrepreneurship. This support includes capital grants in order to
create or modernise a business in disadvantaged regions and mostly it is given to
firms,which are run by women.152
The situation in Tukey, does not seem very gladdening. In 2003, total employment was
estimated 21.147.000 persons ( 6.325.036 persons were working in enterprises ). 26.4%
of this total employment, that is 5.891.000 persons of total employment, was female.
The women employment has increased to 2.4% (114.000 people ) since 2001 while
152 http://www.eu-employment-observatory.net
140
employment rate decreased from 42.4% to 39.9% since 2001. But all these rates can be
misleading. Because between the years 2002 and 2003, there semed to be a decline in
female employment and 53.2% of employed women was working in agriculture sector
despite agriculture has a declining share in employment (2001; 32.6%, 2002; 30.5% ).
Industry and services sectors have increasing shares in employment ( for industry sector
2001; 18.9%, 2002; 19.8% - sevices sector 2001; 43.2%, 2002; 45.6% )153.
And also in 2003, 49% of employed women in Turkey (2.888.000 people ) was working
as unpaid family workers. The share of female unpaid family workers in total unpaid
family workers was 69.8%. That is, most of women are working as unpaid in a
declining sector ( according to DIE data, 2.747.000 female workers are working in
agriculture sector as unpaid while total unpaids in agriculture sector are 3.646.000
persons ).154
According to indicators of DIE , there are 1.604.000 self employed enterprise and
6.302.000 people are working in these kind of enterprises. But what is the state of
women workers in these self employed enterprises? It is obvious that most of female
workers are employed as unpaid family workers like in Italy ( especially like South
Italy, in Turkey female workers, employed in agriculture are mostly living in Black Sea
region and East Anatolia region, having employment ratios respectively 61% and
53.2%).
According to the table below, the existence of female workers in services and industry
sectors is very weak in 2002 and also in 2003 (in 2003 total self employment amount is
observed as 6.302.000 people despite only 758.000 of them are female ). As a
153 http://www.die.gov.tr/english/SONIST/ISGUCU/090304ie.htm 154 ibid
141
conclusion; female workers in Turkey are especially unpaid family workers in
agriculture, and women can not show any existence in services and industry sectors.
Table 24: Turkey employment status
Annual 2002 Annual 2003
Total Male Female Total Male Female
1) employment status
Total 21.354 15.232 6.122 21.147 15.256 5.891
a) Regular and causal employees 10.625 8.361 2.264 10.707 8.462 2.246
b) Self employed and employees 6.274 5.451 824 6.302 5.544 758
c) Unpaid family Workers 4.455 1.421 3.034 4.138 1.250 2.888
2) non agricultural activities 13.896 11.448 2.448 13.982 11.538 2.444
a) Regular and causal employees 10.230 8.121 2.109 10.319 8.194 2.124
b) Self employed and employees 3.117 2.931 186 3.171 2.992 179
c) Unpaid family Workers 549 397 152 492 351 140
3) Total (%)
a) Regular and causal employees 49.8 54.9 37.0 50.6 55.5 38.1
b) Self employed and employees 29.4 35.8 13.5 29.8 36.3 12.9
c) Unpaid family Workers 20.9 9.3 49.6 19.6 8.2 49.0
4) Agriculture 7.458 3.784 3.674 7.165 3.718 3.447
a) Regular and causal employees 395 240 155 389 267 121
b) Self employed and employees 3.154 2.520 637 3.130 2.552 579
c) Unpaid family Workers 3.906 1.024 2.881 3.646 899 2.747
Source:http://www.die.gov.tr/tkba/English_TKBA/istatistikler4_2.htm
142
L. Tertiary Graduates and Graduates in Science and Technology
Large investments in education have led to a general rise in educational success which
is reflected in employment. On average, 28.2% of employed persons in OECD countries
have a tertiary level degree. The share in EU is 24%. But Turkey, Italy, Portugal, Czech
Republic and Poland remain below 15%.
Unemployment rates are generally much lower for university graduates than for the
overall population, at 2% or below in countries with low overall unemployment rates.
They exceed 5% in Italy, Poland, Greece, Spain and Turkey, where the overall
unemployment rates are also among the highest. Unemployment rates are generally
higher for women with a university degree than for men. They are significantly higher
in countries with the highest overall unemployment rates for university graduates
(Turkey, Greece, Spain, Italy, Poland, France ).155
The share of tertiary level graduates in total employment is an important indicator of the
labour market’s innovative potential. Also innovative SMEs will be the enterprises of
future, many support mechanisms are distributed according to the firm’s innovative
activities ( for example; venture capital mechanism ). For this reason tertiary graduates
and graduates in science and technology has an importanat role in the existence struggle
of SMEs. But it can also be seen the low participation rates of Turkish and Italian
tertiary graduates in employment. This is the most important thing to be improved.156
155 http://www.europa.eu.int/rapid/pressReleasesAction.do?reference=STAT/04/8 156 http://www.oecd.org/publications/e-book/92-2003-04-1-7294/1DF%5CA83.pdf
143
Table 25: Tertiary Graduates in 2001
Total graduates
% women in total of which in science
of which in engineering,manufacturing,construction
total %women total %women EU 15 1.963.415 55.9 11,1 41.0 14.6 20.9 Italy 202.309 55.9 7.7 54.5 15.4 27.6 Turkey 241.464 42.8 9.6 44.4 20.0 34.8
Source:Eurostat,http://europa.eu.int/rapid/start/cgi/guesten.ksh?p_action.gettxt=gt&doc=STAT/04/8%7C0%7CRAPID&lg=EN&display=
When the ‘graduates from tertiary education in Europe in 2001’ graph is considered,
the situation is seen more clearly. Turkey is below the average in women partcipation in
total. The participation ratio in tertiary education is respectively higher in engineering,
manufacturing, construction than in science rather than in Europe and in Italy. Both
Turkey and Italy have to support tertiary education participation in ‘science’ because the
ratios are below the EU ratio.
Generally SMEs spend less on R&D than big firms , they produce almost twice as many
innovations on a “per employee basis”. In 1993 in the USA, SMEs received 3.8% of
federal R&D dollars and performed 14.5% of company funded industrial R&D. In 1991
SMEs received 40% of all domestic utility patents granted in the USA.157
157 Acs, Zoltan J., Yeung Bernard (2002). Small and Medium sized enterprisess in the Global Economy. The University of Michigan Press. P:45-48
144
Table 26:Innovative and non innovative firms, 1998-2000
ISIC, REV 3 and size of establishment(person) Total Innovative firms
Non innovative firms
Economic Activities 100 38.5 61.5Telecommunications 100 80 20Financial Intermediation 100 25 75Insurance and Pension Funding 100 62.5 37.5Activities Auxiliary to Financial Intermediation 100 28.2 71.8Computer and related Activities 100 49.5 50.5 100 Size Groups 100 38.5 61.51-9 100 35.4 64.610-19 100 24 7620-49 100 16.7 83.350-99 100 42.3 57.7100-249 100 55.6 44.4250-499 100 76.5 23.5500+ 100 76 24Source: DIE, Türkiye İstatistik Yıllığı, 2003. p: 369
As seen from the table, the density of innovative firms is on the small sized firms and
on the big firms. Medium sized firms remains non innovative when compared with the
others. So there is a big difference between US SMEs and Turkish ones. Although both
of them spend not much on R&D; US SMEs are motivated to innovate because of the
property rights advantage in small firms.In small firms innovator can hold clear
property rights in contrast to innovative employees in large firms. In large firms new
product belongs to the firm, not the employee who invented it in USA.158
The most innovative sector is seen Telecommunications sector with a percent of 80 and
Insurance sector with a percent of 62.5. The lack of innovation in Computer and related
activities is really striking with a percent of 50.5.
158 ibid
145
By this comparative analyses of Turkey with an EU State – Italy, both differences and
similarities have been shown. First of all, it can be said that the definition differences is
a disadvantage for Turkish SMEs. On the other hand, the scale of SMEs in Turkey and
in Italy are very similar, they are both micro scaled. SMEs work mostly as
subcontractors in both countries. Till 1993 Italian government changed its policies
away from the support of state run enterprises towards the support of SMEs. The
growth of SMEs also depended on export markets and the control of niche markets.
The network between large enterprises and SMEs has also been a major feature in this
growth. As sectoral, in both countries SMEs are active in manufacturing and
commerce. But Turkey lags behind in start-up amounts, it is necessary to facilitate both
firm start-ups and firm closings. Both countries have not a significant position in
technology based firms, but we have to mention that Italy is lagging behind in EU
average, Turkey has a weak performance in EU average. Innovative SMEs will be the
enterprises of the future, many support mechanisms are distributed according to the
firms’ innovative activities ( for example: venture capital mechanism). For this reason
tertiary graduates and graduates in science and technology has an important role in the
existence struggle of SMEs. Both Turkey and Italy have to support tertiary education
participation in science because ratios are below the EU ratio.
Italy has unemployment problems deriving from regional disparities, there are great
differences between North Italy and South Italy. In Turkey, there is also an
unemployment problem deriving from regional underdevelopment of East. SMEs are
good instruments in fighting against unemployment in Italy. Reasons of development of
146
SMEs in Italy that much, are to respond rapidly to the demand in the world markets,
rapid growth, their success in production and export.
As an institutional difficulty in the harmonization period to the EU, Turkey is not living
any problems. Because there are many institutions; privatization agency, competition
agency, development agency,SME agency,chamber of commerce, foundation
representing business environment. Additional institutions and new opportunities will
be needed in the future, for example, low capacity of R&D is a problem and lack of
commercial relations between R&D services sector and trading partners will be a
problem too.
Looking to the production amount, it is very low in Turkey when compared with Italy
and also as percentages, Turkey again lags behind of Italy; the share of Italian SMEs in
production is 53%, while Turkish SMEs share is 36%. The contribution of Italian
SMEs to trade also important (58%). This ratio is really low in Turkey (8%). Turkish
SMEs must be encouraged to trade. The production and trade rates, both in total and for
SMEs are very low in Turkey when compared with Italy. It is a truth that banking
sector prefers to give bigger credits to larger firms. Financing in both countries is
mostly alike, they use mostly internal sources. There is a similarity in the finance of
SMEs in Turkey and in Italy. Main finance sources for SMEs in Italy are, personal
resources, family, retained profit and bank overdrafts. Bank loans are available as a
minor source because of the high bank charges. SMEs in both countries are living the
same difficulties in accessing external finance. In Turkey Venture capital concept is not
fully practiced, guaranty is only given to Halkbank credits. In Leasing method, total
rent is collected in the first two years. In the last two years symbolic amounts are
collected from clients, so these causes difficulties for SMEs. Bureaucracy, state debts
147
and tax burden are important problems for SMEs in both countries. But also these
indicators (except bureaucracy) are relatively low in Turkey Perhaps this is related with
the EU’s general point of view about the state duties ( In EU average, state supports 1,5
adult while US supports just 0,8 adults).
When the self employment of women is considered, the similarity can be seen in both
countries that most of female workers are employed as unpaid family workers.
Women’s participation to self employment is higher than men in Italy. The reason is
the high rate of women participation in family businesses and instead of working
dependently, the flexible working time of self employment is an advantage. In Turkey
49% of employed women was working as unpaid family workers in 2003 (this is the
similarity with Italy). And women can not show any existence in services and industry
sectors in Turkey.
Also in education Turkey shares the parallel situation with Italy. Both countries are
lagging behind the EU average in tertiary level degree.
Anothe thing is: State aids law must be simplified and harmonized to the EU, the
system of investment and subsidy must be simplified either. It is obvious that to make
laws only, is not the solution for problems of SMEs. The important thing is, usabilty of
these laws and how actively these laws have a part in daily life.
As a conclusion it can be said that not only Turkey but Italy has got problems in many
subjects. But great attention has to be paid on the differences in Italian SMEs clustering
success and production, trade and amounts. Because there are great differences
between Turkey and Italy in these subjects while the rest of subjects remain
significantly similar. It has to be said that none of an economic element can be
evaluated seperately from societies’ realities. For this reason these two indicators are
148
the results of our economic reality and the situation of our SMEs is dependent to these
economic facts.
149
CONCLUSION
This thesis aimed to analyse Turkish SMEs in three main headings. In the first chapter
‘basics of entrepreneurship’ has been explained. It was emphasized that a strong
entrepreneurship depends on the creation of new opportunities, a supporting
environment, technologic innovations, financial and legal possibilities.
Then, SME definitions have been made. After EU definition, some examples have been
given from Turkey, from various institutions. It is clear that this excess of definition of
SMEs causes many problems and this definition problem has also mentioned in the last
progression report.It is not possible to make a healty planning and distribution of state
aids, it is not possible to have realistic statistics and it becomes very hard to reach right
conclusions in making comparisons and analyses. To eliminate these problems, it is
necessary to have unique definition of SMEs in Act.
Afterwards, importance of SMEs have been determined. For EU, small enterprises are
the backbone of European economy and have a dominance in the world economy. 95%
of total enterprises in the world economy, 99% of total enterprises in Turkey are SMEs.
And they are accepted as a solution to unemployment problem and a key for
competitiveness.Their flexibility obtains an easy adaptation to new and changing
economic environment.
Then the problems of SMEs have been explained. In Turkey there are problems
deriving mostly from being subcontracters so SMEs should have tight bounds with the
main firm in order to be succesful, and there are also financial, educational problems,
just 18% of the managers are university graduates. It is clear that more high educated,
innovative managers are needed for SMEs. And also lack of technology ,bureaucratic
150
impediments are other important problems.Simplification of procedures in bureaucracy
and the laws will foster entrepreneurship.
The next subject was the ‘access to finance by SMEs’. Access to finance is always a
major problem for SMEs. Using more internal or external finance depends on country
structures in the EU. For example; Germany uses external finance much more but Italy
uses internal finance rather than external finance. Financing from banks are limited
because of collateral problems either in Turkey or in some EU countries. In Turkey,
SMEs used 36% of short termed Eximbank credits. This shows that SMEs could not
benefit from these support mechanisms. The rate of benefiting from bank credits is very
low: 1995,2,18%; 1999,4,82% ( EU average is 45%). But also SMEs constitute 99,5%
of total enterprises and 27,3% of total added value. Considering the low added value, in
this sense the share from bank credits should not be percepted very low.
In external finance, venture capital is an important mechanism but in Turkey there are
insufficient institutional and individual investors, even existing ones seem to withdraw
their money from the economy because of inconfidance problem.More important thing
is, SMEs may become more competent after an effective venture capital practice,
because investments result with production, employment and export and then these
competitive SMEs will have the attention of international capital. But also in the EU
the share of high technology in venture capital investments is not sufficient and must be
increased. For the factoring mechanism, it can be said that it has an increasing trend in
Turkey but lack of information and sources are important problems in this mechanism.
Leasing becomes a popular financial method because it is hard for SMEs to buy
expensive assets. But also information lack about leasing is again an important lack,
and collecting the whole rent amount in first 2 years puts clients in a difficult position.
151
Credit guaranty fund practices are not developed well in Turkey. Credit guaranty
Company is functioning as a guarantor, it does not give credits but it provides guaranty
for Halkbank credits. Financing from capital markets is not very well known and used
by SMEs. In order to achieve in this mechanism, regional markets and new enterprises
markets are established in Turkey.
Chapter three has started with the ‘initiatives’ subject. Multiannual programme, some
EU funds favouring SMEs have been explained. Later on, initiative mechanisms have
been mentioned. Crea, Eurotech Capital, Mutual Guarantee Companies, The
Roundtables of Bankers and SMEs etc. have been explained. Then the instruments of
the European Union for Turkish SMEs have been mentioned.
With the Customs Union, especially SMEs found themselves in a great competition
environment after the abolishment of customs, with the CU the necessity of technologic
production, production development, modernization and standarts was understood
better. SMEs were effected from the changes in incentive, competition and trade
policies. The negative effect of Customs Union on employment in the first instance
must be compensated with FDI but the great difference of FDIs in Turkey and in Italy
can be noticed easily, the entrance of FDIs to Turkey has not changed extremely
positive; to give an example, in 2002 FDI in Italy was 14.699 million US $ while in
Turkey, FDI remains 863 million US$ (See Annex II,III). Since 1993 there occured no
improvement in Turkey. As a general investment note: Stable number of taxpayers
effect the investment environment negatively. And also serious tax burdens, budget
deficits and unrestricted economy and the delays of the innovative actions for the tax
policies are the negative elements that effect investment environment.The
competitiveness of Turkish firms are generally low and especially low in small
152
enterprises for this reason; firms must consider technology based production as soon as
possible. In trade, many SMEs around the world are recognized as exporters, and
Turkish SMEs has to have this qualfication of exporter as soon as possible. It seems big
firms are effected more from the diminishing of subsidy mechanisms in Turkey with
the Customs Union.
To conclude; I think that it could not be thought that SMEs as a seperate element in
economies. Every country’s economy has its own operation mechanisms and realities
and SMEs are just one part effecting and being effected in the economy. The
incentives must be obtained not only in order to have a big quantity of production but in
order to have effective production. This can only be achieved by technology based
production and by investing on technology. Duties of government in this scene are to
diminish bureaucracy in SME supporting programmes, to accelerate resource finding
process, to attempt to find foreign resources for SMEs and lastly to eliminate the unfair
competition conditions.
The conclusion of the comparison of Turkey and Italy can be; exporting and clustering
SMEs are favoured in the economies. In these decades it is an obligatory thing to make
a technology based, high quality production with being such a pressure group on the
policies by clustering and benefiting from this synergeticeffects. Even Italian SMEs
have difficulties and are far from an ideal environment (regional disparities in
production and employment, bureaucratic impediments, state debts and high tax
burdens, low amunt of science graduates regarding other EU States) they fşnd a way to
success by forming regional clusters which have dominance in exporting. Also the help
of EU initiative mechanisms in building this business alliances have facilitated the well
153
functioning of these clusters (like Business Angels Network, JEV, BC-NET, BRE,
Europartenariat, Roundtables of Bankers and SMEs).
Turkey can attend some of these initiative mechanisms like BRE, BC-NET and
Europartenariat. The thing that must be done is to concentrate on clustering of Turkish
SMEs by having help from these kinds of initiatives and building a healthy, strong
infrastructured, technology based SME alliances directed towards exporting.
154
REFERENCES
Acs, Zoltan J., Yeung Bernard (2002). Small and Medium sized enterprisess in the Global Economy. The University of Michigan Press. AB KOBİ Destek Politikası (2002). Avrupa Birliği Avrupa Komisyonu Türkiye Temsilcilği Yayını: Ankara. Aernoudt, Rudy (2001). Access to Finance for SMEs. Enterprise Europe 3 (April-June), 8-9. Aernoudt, Rudy (2001). Small Companies Helping Each Other. Enterprise Europe 2 (January), 10-11. Altay, N. Oğuzhan (2003). Küçük ve Orta Boy İşletmelerin Finansman Sorunlarının Çözümünde Banka Dışı Fnansal Kurumlar ve Venture Capital Örneği. Active Finans 28 (Ocak- Şubat), 18-28. Audretsch, B. David & Feldman, P. Maryann (1995). Innovative Clusters and the Industry Life Cycle. Discussion Papers FSIV 95-7 Wissenschaftszentrum Berlin für Sozialforschung (February). Audretsch, B. David; Santarelli, Enrico; & Vivarelli, Marco (1996). Start-up Size and Industrial Dynamics: Some Evidence from Italian Manufacturing. Discussion Papers FSIV 96-17 Wissenscaftszentrum Berlin für Sozialforschung (July). A Pocketbook of Enterprise Policy Indicators (2003). European Commission Enterprise Directorate- General Publication: Luxemburg. Avrupa’da Girişimcliğin Özendirilmesi ve Yaygınlaştırılması –UNICE Kıyaslama Raporu (1999). TÜSİAD Yayın No.1999-12/270 (Aralık): İstanbul. Byron, Justin & Solomon M. Karmel (2002). A Comparison of Small and Medium Sized Enterprises in Europe and the United States. London: Routledge. CC BEST Raporu Türkiye (2002). Kosgeb İdaresi Başkanlığı: Ankara Çebi, İsmet Rıza (2003). KOBİlerin 6. Çerçeve Programına Katılımı. İGEME’den Bakış Sanayi Özel Sayısı 23 (Ocak-Nisan), 59-61. Çetindamar, Dilek (2002). Türkiye’de Girişimcilik. TÜSİAD Yayın No.2002-12/340 (Aralık): İstanbul. Çolakoğlu, H. Mustafa (2002). KOBİ Rehberi. TOBB Yayın No.359-PM:2 (Nisan): Ankara.
155
European Guide to Alliances between Subcontracting SMEs (1988).Office for Official Publications of the European Communities: Luxemburg. Han, Oya (2001). Şirket Yapıları ve Kuruluş Aşamaları. KOSGEB Girişimciliği Geliştirme Enstitüsü Yayını (Mayıs): Ankara. Industrial Districts and Specialized Services Centers Information Note (2002). Institute for Industrial Promotion (IPI): Rome. Karluk Rıdvan (1998). AB ve Türkiye. Beta Yayımcılık. Küçükçolak, Ali (1997). KOBİlerin Finansman Sorununun Sermaye Piyasaları Yoluyla Çözümü. İMKB Yayını: İstanbul. Labour Market Studies- Italy (1996). Fondazione Giacomo Brodolini, European Commission Publication (December): Luxemburg. Müslümov, Alövsat (2002). 21. Yüzyılda Türkiye’de KOBİler: Sorunlar, Fırsatlar ve Çözüm Önerileri. İstanbul: Literatür Yayıncılık. Observatory of European SMEs 2002, SMEs in Focus (2003). Enterprise Publications: Luxemburg. I.Orta Anadolu Kongresi “KOBİlerin Finansman ve Pazarlama Sorunları” (2001). KOSGEB Yayını (Ekim): Ankara. Ölmez, Hüseyin (2003). KOBİlerin Finansmanı Bu Alanda Yapılan Kıt Kaynakların İsrafı ve Çözüm Önerileri. Active Finans 29 (Mart-Nisan), 70-77. Pepe, Cosetta (1984). Lo sviluppo Internazionale delle piccole e medie imprese. Milano: F. Angeli Sanayi Politikası ve KOBİler (2001). İKV yayınları (Haziran): İstanbul. T.C. Sanayi ve Ticaret Bakanlığı Haziran 1999 Haziran 2002 Dönemi Faaliyetleri (2002). Sanayi ve Ticaret Bakanlığı Yayını (Haziran): Ankara. Turkish Small and Medium sized Enterprises in the Integration Process of Turkey with the European Union: Implications and Consequences (1998). Friedrich Naumann Foundation and Akdeniz University: Ankara.
156
Nota di Sintesi prospettive dell’OCSE sulle PMI (2002). http://www1.oecd.org.tr (05.10.2003 – 20.53) Coşkun, Gülay Kasap . Türkiye’deki KOBİ’ler ve Gümrük Birliği Bariyerleri. www.iktisat.uludag.edu.tr/dergi/5/gulay2/gulay2.html (29.04.2004 - 13.10) http://www.unido.org/es/doc/4319 (01.13.2005 - 21.34) http://www.italtrade.it (07.06.2005 – 10.45) http://www.eu-employment-observatory.net (21.03.2005 – 21.41) http://www.die.gov.tr/english/SONIST/ISGUCU/090304ie.htm (13.03.2005 - 22.37) http://www.europa.eu.int/rapid/pressReleaseAction.do?reference=STAT/04/8 (10.04.2005 - 17.24) http://www1.oecd.org/publications/e-book/92-2003-04-1-7294/IDF%5CA83.pdf (05.12.2004 – 18 15) http://www.kosgeb.gov.tr (27.03.2005 – 23.51) http://www.kosgeb.gov.tr/Ekler/Dosyalar/BilgiBankası/29/forfaiting.doc (11.09.2004 - 23.12) http://www.kosgeb.gov.tr/Ekler/Dosyalar/BilgiBankası/27/leasing.doc (11.09.2004 - 22 56) http://www.kosgeb.gov.tr/Ekler/Dosyalar/BilgiBankası/28/factoring.doc (11.09.2004 - 22.34) http://evca.com/html/about.asp (14.04.2005 - 21.33) http://europa.eu.int/comm/enterprise/entrepreneurship/financing/docs/sec_2001_1667_en.pdf (11.02.2004 - 15.13) http://europa.eu.int/comm/enterprise/entrepreneurship/financing/docs/factoring_en.pdf (01.12. 2003 - 19.25 ) http://eban.org/pays/it.html (13.07.2004 – 22.13) http://www.oecd.org/dataoecd/6/1/33826979.pdf (27.03.2003 –18.51) http://www.eif.eu.int/portfolio/ecport (02.05.2004 –09.30)
http://unpan1.un.org/intradoc/groups/public/documents/un/unpan002587.pdf
(08.10.2003- 18.05)
157
http://www.girisimciliknetwork.gen.tr/kitaplar/franchisingrehberi.pdf
(13.06.2003- 14.20)
http://www.kosgeb.gov.tr/ekler/dosyalar/yayin/106/kobitarihi.pdf (21.06.2004- 19.20 ) http://www.europa.eu.int/scadplus/leg/en/lvb/n25000.htm (22.10.2001-20.37 )
http://ue.eu.int/ueDocs/cms_Data/docs/pressData/en/ec/00200-r1.en0.htm
(14.08.2005-21.00)
http://europa.eu.int/comm/research/fp5/fp5-intro_en.html (08.03.2005- 14.25) http://www.italydati.it/Invest.pdf (28.10.2005-.22.08) http://www.europa.eu.int/comm/enterprise/enterprise_policy/analysis/doc/smes_observatory_2003_report2_en.pdf (28.10.2005- 20.13) http::// www.dtm.gov.tr/ead/DTDERGI/OCAK2001/tekstil.htm (05.12.2005-
18.15)
158
APPENDICES
159
ANNEX I: 12 Comparison Criteria Turkey
Number of SMEs Definition differences
_Many different definitions based on employee numbers, turnover and asset aspects _Micro scaled enterprises (3,8) _98,8%of total enterprises are SMEs _Incorporation ratio is low (31 enterprises per 1000 people)
Sectors that are dominant
_Mostly subcontractors _Sectoraly manufacturing and commerce
Business Start-ups _Dominant entry rate in traditional sectors like footwear and clothing Business Failures _Hazard rate is high in traditional sectors like agriculture, manufacturing and wholesale retail Small Business Employment
_SMEs constitutas 61% of total employment in Turkey. But most of them are established in developed regions. East West dualism may be diminished by small businesses _Trade, manufacturing and agriculture are the leading sectors in employment.
Economic Impact
_Low GDP and the dominance of manufacturing in GDP _6,5% share of SMEs in investment _37,7% share of SMEs share in production _8% share of SMEs in exports _4% share of SMEs in credits _increasing trend in export but not sufficient in aggregate (38th place in world rankin in export)_foreign trade deficit _insufficient FDI shares
Financing of SMEs
_Family businesses (source is family again) _Low utilization of bank loans _Venture capital mechanism is not sufficient _Factoring is a high coasted method _Leasing is a popular despite some problems _Guarantee fund doesn't operate well
Institutional Policies
_8th development plan comprises competition, export capacity, fostering industrialisation among regions, fostering high technology _Credit for infrastructure, superstructure, long term credits, consulting and training support are provided to SMEs _KOSGEB, EXIMBANK, Mınıstry of Industry, HALKBANK, Treasury, TOBB,IKV are responsible organizations
SME Development and
Constraints
_No institutional lack except R&D heading _Bureaucracy, state aids law must be simplified _Venture capital mechanism has not developed
160
_Following up developments is not sufficient _Limited external finance environment, family controlled businesses
Capital Markets
_Financing via capital markets is not sufficient and has not developed _Regional markets and new enterprises market are not well known
Female employment _Women are working as unpaid family workers in adeclining sector; agriculture
_Tertiary level in employment is below 15% Tertiary Graduates
_Low participation in science in tertiary education _Lack of innovation in computer and realted activities
Italy Number of SMEs _After the creation of EU criteria Italy adopted this definition Definition differences _Micro scaled enterprises (4) _97% of the total enterprises are SMEs _Incorporation ratio is higher (84 enterprises per 1000 people) Sectors that are dominant _Mostly subcontractors _Sectorally manufacturing and commerce Business Start-ups _Mostly in traditional industries which have low barriers to entry to the market. But still lagging behind in Start up rates in EU average. Business Failures _Hazard rate is high in traditional industries, low in high- tech based industries Small Business Employment _Small and Micro firms are the main source of job creation while larger ones
destroying. By this way small firms are the solution to diminish regional disparities
and obtain the development of South _Services sector is leading in employment while agriculture sector is diminishing. Economic Impact _GDP indicators are 5,6 times greater than Turkey's GDP indicators
_Dominance of manufacturing in GDP _37% share of SMEs in investments
_53% share of SMEs in production
161
_increasing trend in exports (8th place in world ranking in exports) _stable foreign trade _growing FDI shares Financing of SMEs _Family businesses (source is family again) _Low utilization of bank loans _Venture capital is a developing method among financing methods _Factoring is more common among large enterprises _Leasing is a popular way of finance Institutional Policies _Italian policies concerning SMEs are diciplined by EU rules _equipment and technology transfer, modernization, research, foreign market improvement are the Italian policies' priority _Institutional policies are shaped with the aim of diminishing regional disparities _Ministry of industry, Ministry of university and scientific research, Mediocredito centrale SIMEST, Ministry of foreign trade; are responsible of institutional policies SME Development and _The good network between large and small enterprises and intra small enterprises( distretti)Constraints _Complicated structure of Italian laws _Bureaucracy, financial difficulties, high taxes, lacks in banking system interventionist state, family controlled businesses Capital Markets _Financing via capital markets is not sufficient _'Mercato Expandi' and a new market in favor of SMEs are tried to be developed Female employment _Women in self employment are mostly family workers _Self employment is supported by EU funds and governments(subsidy) Tertiary Graduates _Tertiary level in employment is below 15% _Low participation in science in tertiary education
Source: Prepared by the researcher by using various sources
162
ANNEX II : Italy at a glance
1993 2002 GDI/GDP 18.4 19.9 Export/GDP 22.3 26.9 GDSaving/GDP 19.0 19.6 (% of GDP) Agriculture 3.4 2.7 Industry 3.4 28.5 Manufacturing 22.5 20.6 Services 65.2 68.7 Import 19.0 25.8 (average annual growth) 93-2003 2002 Agriculture 1.0 -2.6 Industry 1.6 0.0 Manufacturing 1.7 -0.7 Services 2.1 0.9 Import 6.2 1.5 Trade (US $ million) 1993 2002 2003 Total Export 169.229 254.420 290.231 Food, agricultue, raw materials 12.698 18.825 Fuels, ores and metals 5.703 7.833 Manufactures 149.314 223.957 Total Import 148.095 247.008 289.017 Food, agricultue, raw materials 19.882 22.658 Manufactures 95.786 173.781 Resource balance 32.235 13.243 8.319 FDI 3.749 14.699 17.825 Source: http://www.worldbank.org/data/countrydata/aag/ita_aag.pdf
163
ANNEX III : Turkey at a glance
1993 2002 2003 GDI/GDP 27.6 21.3 22.8 Export/GDP 13.7 29.2 27.4 GDSaving/GDP 21.9 19.8 19.5 (% of GDP) Agriculture 16.2 13.0 13.4 Industry 29.8 23.7 21.9 Manufacturing 18.3 14.0 13.3 Services 54.0 63.3 64.7 Import 19.3 30.7 30.7 (average annual growth) 93-2003 2002 2003 Agriculture 1.0 7.4 -2.4 Industry 2.2 5.6 5.0 Manufacturing 3.0 8.2 8.4 Services 3.0 7.3 6.4 Import 7.8 15.8 27.1 Trade (US $ million) Total Export 15.345 40.124 51.206 Agriculture 1.044 2.089 2.545 Mining and quarry products 233 387 543 Manufactures 14.068 33.565 43.913 Total Import 29.428 51.554 69.340 Food 969 1.245 2.006 Fuel and energy 3.903 9.192 11.568 Capital goods 7.499 9.103 11.792 Resource balance -7.457 -458 -3.529 FDI 622 863 1.063 GDI 1.0 35.9 20.4 Source:http://www.worldbank.org/cgi-bin/sendoff.cgi?page=/data/countrydata/aag/tur_aag.pdf
164
ANNEX IV: State incentives in favour of SMEs in Turkey
165
166
167
Source: Çolakoğlu, H. Mustafa (2002). KOBİ Rehberi. TOBB Yayın No.359- PM:2 (Nisan): Ankara.
168
ANNEX V : Distribution of employment by territory and age in Italy
Total 100 100 100 By Territorial distribution North-West 35.6% 34.4% 35.1% North-East 28.1% 22.7% 25.9%
Centre 22.1% 22.1% 22.1% South 14.2% 20.9% 16.9% Total 100 100 100
By Age <18 years 0.1% 0.7% 0.3%
19-30 years 18.1% 34.6% 24.9% 31-50 years 50.5% 49.5% 50.1% 51-61 years 21% 11.7% 17.1% >60 years 10.3% 3.6% 7.5%
Total 100 100 100 Source: INPS Data, 1998. http://www.eu-employment-observatory.net
169
ANNEX VI: Competitiveness according to the sectors in 2001
Small
Scale
Medium
Scale
Big
Scale
Competition
Power(%)
Competition
Degree
Competition
Power(%)
Competition
Degree
Competition
Power(%)
Competition
Degree
Transport equipment
32.4 + 50.3 + 47.5 +
Machinery and equipment
34.5 - 57.4 + 21.3 +
Electrical machines
27.8 - 42.9 + 75.6 +
Steel Metal - - 20.6 - 34.5 +
Fabricated metal goods
38.1 + 20.6 + 49.3 +
Basic metals and non metalic mineral products
87.0 + 81.8 + 61.3 +
Steel main industry
41.9 - 70.8 + 27.2 +
Rubber,Plastics 12.0 - 51.7 + 58.6 +
Glass - - 24.1 + 54.4 +
Chemical products 62.9 + 39.9 + 55.1 +
Petroleum Products
- - 76.2 + 36.2 +
Wood works-furnitures
0.0 - 5.6 + 84.8 +
Paper-printing,publishing
0.0 - 43.2 + 74.4 +
Clothing 46.7 + 36.3 + 82.6 + Fur-Leather-Shoes 0.0 - 36.9 - 44.4 - Food-beverage-tobacco
13.8 + 58.3 + 48.2 +
Textiles 43.1 + 55.2 + 68.7 + Source: http://www.dtm.gov.tr/ead/DTDERGI/OCAK2001/gumruk.htm
170
(-) Sectors with no competition (+) Sectors with competition ANNEX VII: International Comparisons of Industrial Performance
Indicator Year/Period TURKEYDeveloping Europe and West Asia
Developing countries
1993-1998 6.4 5.7 5.4 MVA, average annual real growth rate (in %) 1998-2003 1.5 3.3 4.4
1993-1998 4.4 3.4 4.7 Non-manufacturing GDP,average annual real growth rate (in %) 1998-2003 1.4 2.5 3.4
1993 489 501 239
1998 574 571 292 MVA per capita, in constant 1995 US$
2003 583 615 356
1993 17.8 13.8 22.7
1998 18.9 14.9 22.7 MVA as percentage of GDP at constant 1995 prices 2003 19.2 15.7 22.8 Source: http://www.unido.org/data/country/stats/statablea.cfm?c=TUR
171
