July 18th, 2010
lamara qoqiauri asked:
For the Support of Small Business in Georgia
Content.
In the conditions of deep economic crisis and during the period of extreme restriction in requisite resources for economic investments of tendency of selecting priority in investing activities enquire upmost importance. According to these circumstances, small and average businesses must be admired in such system of priorities. It follows not only from conjectural, political or ideological purposefulness, but also from objective activities of social-economic conditions; Simultaneously it is also connected to the position perspectives of this field to solve vital questions of the country. (creating concrete atmosphere, increasing employment level and efficiency, treating and spreading technical decisions etc) however, it is baseless to speak that small and average businesses in our country have any kids of advantages in distribution of investing resources, ` moreover, it often moves to the second place.
Financing has always been the urgent problem of small and overage businesses. According to the social research of small industrial management, half of respondents had to use their own savings in organizing these enterprises. Only more than a quarter managed to receive credits, but less than 20% – to attract depositors’ sources.
The employers admit that, the first and main problem is finances and buildings and then follows cooperation with local authorities. However, investment always remains as the main problem in the activities of a particular firm.
Pressent Day Situation of a Small Business.
In western countries outnumbered commercial banks, insurance companies, branch funds, regional commercial departments of tuition structures stimulating small business, regional guarantees, outnumbered charitable funds and associations, actively support them.
Due to not existed similar institutions, the development of small and average businesses is prevented. So it is quite natural, that development of small industrial net is still unable to form the commodity market. Nowadays supporting industrial activity has no main basis in small and overage businesses. The situation of providing these enterprises with material, energetic and financial resources has recently been deteriorated; according to results of selective researches in 2000-2005, in order study small industrial business activities in industry, building and retail trade showed that nearly 40% from small industries have their raw and building material supplies reduced. The existing level of orders and resource maintenance was estimated as “..below average”; however unlike large industries, homogeneous tendency of economical situation in small and average businesses is distincted, e.g. during 200-2005, the amount of employees and usage level of industrial capacity maintained sufficiently stable in small industries.
Although capital investments of small industries include sufficiently large amount of money (11% of investment realized at the expense of financial resources in Georgian economy. The small enterprise activity of industry in the field of investment is still exceptionally low.
Inquiries showed that among active reasons about restriction of investing activities, about 60% of respondents consider high level of taxation, 30% – high rate of inflation, above 30% general economic and political instability.
The leaders of small industries, critically characterize competitiveness of their products over 50 % of leaders consider it as “average” towards the internal market.
Leaders of examined small industries consider lack of their own resources. (75% from inquired people), high payment rate (over 60%), unaccepted conditions of investing and accounting as a main resistance for their innovational activities.
Financing Sources of a Small Business.
Analysis of financing sources for small and overage business shows that the most available for their activities are inner developing sources which are used by over 3/4 of industry, while only one from four, manages to abtain any kind of means from external sources. Enquiries show that their own small business incomes take first place among financing sources. It’s proved by every two participants from three ones. On the second place are the founders of average business with their own sources; (21,7%). And private credit takes the third place, used by 17,9% of these industries. Other sources are used by 10-15% of small businesses. Simultaneously over 20% of enquired leaders consider that their enterprises have no any developing chances. More complete idea about the nature of investing in small and average business field is given by the results; Researches on tendencies of small business investments. According to this data, leaders are those industries which direct their investments towards the equipment and transportation (57,5%); and the enterprises which use investments to fill their sources of circulation. take the second place (44,3%). A lot of enterprises use their sufficient sources in repairing building and commercials (38%). Over 20% of small enterprises spend their sources on their staff training.
Comparison of data according to the groups of small industries prove all the following differences connected with specificity of a business field. e.g. small industries of trade fill their sources of circulation, frequently (76%), but they stay backward in investment of human capital – only 8% of them provide staff training, whilst corresponding average index for all enterprises is 20,8%.
One of the main problems in small business development is their slight investment in the process of crediting due to existing high risks in this field. It is caused by following factors: usually, small industries have no ability to represent absolute guarantee independently over their responsibilities and there’s no complete system of guarantees and insurance of their investing activities.
Usually, personnel of small and average businesses have no sufficient knowledge in economy, which is the main cause of those incomplete projects which are introduced by them. As for consulting service of business management and preparation of investing projects, as a rule it is excessively expensive for enterprises of small and average businesses.
The results show that in the process of providing crediting resources, leaders of small and average enterprises experience not only general inflexibility of crediting, but also discriminative policy of banks towards small and average businesses.
The main difficulty in the process of receiving credits is price restriction (very high percentage was mentioned by 47,6% of leaders of small enterprises); It is followed by the range of nonprice restriction – unpractical mortgage and guarantees (21,9%), innaccessibility of investing credits (10,5%), restriction of crediting terms (14,3%) and subjective evaluation of discriminative conditions. Besides, the role of organizing factors is not sufficient.
The interests of commercial banks are not directed towards crediting of small enterprises due to their non-existing complete technologies of investment; Besides it claims to discuss numerous investing projects, though working procedures are highly significant. Banks don’t take risks, due to their negative experience in disappearing of credited firms, no returned credits and hidden mortgages, including small and average businesses as well. Hence, due to controlling and providing insurance, they choose organizations having accounts in a particular creditor bank.
Banks avoid crediting of newly founded firms and insist on collateral security guaranteeing a small enterprise. The level of percentage implies the level of risk that is significantly high for every small industry. Standard validities of given credits include 3-6 months period.
Thus, Georgian banks. like in western countries must inevitably develop assisted financial services for small and average businesses. First of all, it includes detailed treatment and examination of any kind of projects independently from credited funds and improvement for abilities of banks in estimation of loans. The same time, they must rely more on the knowledge of potential resources for enterprises and markets than in the amount of funds and guarantees.
Who Helps and How to Developa Small Susiness.
Noticeably developing non-governmental specific structures formed for supporting small and average industries are also of great importance. The first similar structure was founded in 1992. It was an agency, supporting small and average businesses. Its purpose is to increase industrial activity among the population with the help of consulting, informational and expert services provided not only for small and average industries but for pioneer implcyers as well. It includes issues on economic, financial and taxation policy; recommendations about keeping a ledger; support for composing constituent documents; registration of enterprises and allowance of their activities; elaboration of a firm mode, teaching business; (hobbits based on special programmers, worked out of the agency together with foreign experts). for the successful development of their own activihes; (business planning; marketing; commercials; industrial experience etc); informational support for the operations of external trade. customs issues and other normative juridical problems. Agency constantly tries to expand its own activities. It mainly includes issues on the support of activity of small and average business industries. Special investing department is created in the structure of agency for this purpose, which is directed towards the preparation, training and conducting of recommendations for composing business plans, investing projection and financial management; working and conducting of examination for investing projects; researches of their financing sources. The given department is an official agent of the federal fund for supporting small industries, that is directed to the selection of industrial projects for providing credits.
In the beginning, the functions of agency were distinctly oriented on the demands of developing small and average businesses in Tbilisi region, but now it has begun to play the role of informal-methodical – coordinative organizational structure throughout the country.
Realization of this role is significantly depended on the formation of corresponding regional agencies and their active participation in the country. Above mentioned activity of the agency must necessarily be established by state departments. Namely, it is advisable for the government to elaborate a special document about “regional agencies for supporting small industries”. In this document, it is necessary to be mentioned the labor financing scheme of the regional agencies’ net at the expense of assignation from the state budget. Formation of regional agencies supporting small and average businesses is decisive to serve physical and juridical persons in creating small and average enterprises and to provide their effectiveness. Such schedule of services is defined by developing quality of agencies which may include practically all types of support for small and overage businesses including informational services, legal advice and participation in investments. As a rule, the purpose of agencies is not receiving profits and that is why their quite high level of services compared with ones of other organizations are relatively cheap, but in some cases it is absolutely free of charge; if agencies function into contact with the government and authority organizations of all level. and are based on the assistance of these organizations.
Herewith, the first task is that the agency of small and overage business supporting, leads the work to form united informational net of regional agencies, that will take active part in the field of modern informational technologies, highly quailfield organizations. It is a significant stage of business, for united as well as regional agencies. Practice showed that, distinct division is the most essential task for separate regional agencies and affective organizational development of their net. It implies the gradual development according to the accumulation of organizational experience, stabilization of financial situation and equipment with modern organizational-technical means and so forth. At the some time, determined service must be formed gradually and successively, not only in accordance with the principle of senseless expansion of above men toned factors, but also selecting the variants which are the most profitable and essential for the agencies in this or that concrete region. It must be said that estimation of perspectives in small and average business support activities is connected with the fact, that its significance is constantly outlined by the central government of the country as well as regional authorities. Of course, it clearly gives the chance to make optimistic prognosis. Unfortunately, in reality, the existed mechanism to support small and average businesses can’t still put into practice not only present-day objective demands, moreover the tasks which are not only possible to be solved but should be , for the development of its investing activities.
Wat is the Programme of Small and Average Business Investment Support?
As it is know, programme realization of investment support in small and average businesses, may have double substantiation. The first assistance of a small enterprise development, represents the effective way of solving social and foremost, employment problems. Thus, conception of social direction for financial support in small and average business fields, follows that, grant realization of socially useful functions in a small business, must be fulfilled by state and society. The second-progress of small and average businesses are significant factor from the standpoint of effective use of people’s economic resources. Due to such approach , from the position of market economy, defined means for small and average businesses must be considered as profitable investments.
Nowadays, systematical crisis is proceeded in our country. Factual unemployment problem instead of falling is rising steadily and it requires of taking vast and active measures for small and average business development. Simultaneously, tensity of central and local budgets and lack of foreign investments do not give chance to form such material-financial basis, that includes all the above mentioned factors.
It’s clear that the way out of exiting situation can be found in the treatments of conception, such is investing support (and realization) of small and overage businesses, when all the possible funds used with this purpose will be spent on forming organizations and such financial machinery, that has high level guaranteeing aptitude for the feedback of invested resources. For the realization of this conception, several main directions can be singled out, for the fulfilment of investing activity in small and average businesses.
1. Scientific-analytical and informative provision development of investment support mechanism in small and average business fields. Here, main goal is to study priority system of financing for small enterprises, according to essential directions of development and substantiation of their realization activities with the purpose of reflecting aims at each level. (central, regional as well as small and average enterprises). Strategic research organization and financing, forming development conceptions and treatment of inter-active mechanism for investing support system in small and average businesses. In addition to the point above, the following must be taken into account.
The first and foremost, the mechanism for investment support in small and average businesses must be based on state structural and industrial policy, financing of private investments or definition of essential directions for stimulation, in the section of divisions, subdivisions and enterprises – definition of so called dot priorities.
Second – towards the formation of mentioned mechanisms, maintenance of scientifically proved approach is accessible as far as it reflects the real peculiarities of economic development and investing processes in this or that region.
Third – Improvement of scientific -methodic and informative supply for investment activities, mostly in small and average businesses is simultaneously connected with the existence of investing projects of small enterprises in order to restrict existing risks. The most is financial, technological and marketing accompaniment, i.e. financial analysis, technical examination, and marketing research of investing projects of enterprises in small and average businesses.
2. Reinforcement of objective direction and transfer the obstacle centre of topping-up process of investment activities in small and average enterprises at regional level. It must be taken into consideration that, formation of regional politics of investment support of these enterprises, in accordance with this qualitative index of region economy, that creates the peculiarities for small and average business development and support. Simultaneously, the development level of industrial production, resourceful base, consumers market provision, regional problems of population employment and social defence must be taken into account. Only complex consideration of all these factors, gives chance to study those activities that provide attraction of owners of industries for people’s demands in the most suitable fields and stimulation of economic development, first of all at the expense of local possibilities.
Nonexistence of financing, due to the deficit of state and local budgets, is one of the main reasons, that represents the obstacle for the outcome of central and regional programmers in supporting small industries. In such cases, it is advisable, not only subsidization of industries, but also the assistance for the development of infrastructure in small and average enterprises. (marketing as well as industrial). It must also be admitted, that the state should do its bit to establish special regional banks, innovational funds, informational analitic centers and such organizational-regional structures that serve small and average businesses and keep their interests by means of preferential duties privileged regime of transferring buildings to the possession, licensing, etc.
3. Development of perspective forms of small and average business support and financing. In this field, for reinforcement of purposeful direction of investing process and raising its effectiveness, local administrations should orientate on the creation of main tendencies of progressive investment infrastructure for small and average businesses. Great attention should be paid to the following factors:
Grade 1. Development of crediting system for the purpose of increasing the number of financial support receivers and simplify the way of giving commercial credits to small industries, implies the expansion of financial institutes net, that realize small and average business crediting with preferential conditions. It includes: lowering interest, extension of crediting term, reduction of demands at the expanse of guarantee and free consultations.
Grade 2. Development of guarantee mechanisms of investing credits, given to small and average business industries must include given state guarantees to commercial banks, which took part in financing these enterprises. Compensation of some parts of interests rate. at the expense of commercial credits of banks, could be considered as the significant tendency of using guarantee reserves, especially at the initial stage of project realization, when returning of funds is still delayed in small and overage business field, for the support of investing business activity.
Grade 3. Financial crediting mechanism of small and average business support, implies the assistance of development, including cooperation of small enterprises and establishment of new mutual – crediting forms of societies in crediting field.
Grade 4. Leasing development, as the most perspective form, is inevitable process as the most perspective form for small enterprise investors. In industrial countries, leasing includes 25-30% of direct investments annually, but in our country it is not still well expanded. for moving complicacy centre of financial operations from circulation field into real sector of economy in leasing development, it is essential that the participation of reliable commercial banks and insurance companies to be actively stimulated.
Grade 5. Establishment of industrial and technological service system in small and average businesses, implies the consideration of this fact that, nowadays, actual reserve of forming some element of infrastructure of small businesses, can be usage of industrial capacities and properties of poor industries, after their liquidation, reorganization and changing profile. (namely, it is possible to locate supporting units of small groups of ownership and enterprises on their base). Distinct experience of realization of such approaches is already existed in a number of regions from the standpoint of industrial-technologic support of industries.
Grade 6. The problem of developing modern tendencies in small overage and large business cooperations has already been matured, e.g. franchise development of small industries in Russia will help to solve many essential economic and social problems. Here, first and foremost is meant the creation of new working places and broad involvement into business of all these people, who can’t manage it independently, without any support and getting suitable knowledge. In modern conditions, a range of obstacles arised against the franchise development in Russia: non-existence of special normative-legitimate base and suitable informational insurance, owners insufficient knowledge of running business by means of peculiarities of such skills and possibilities; nonexistence of sufficient consultative structures; and common financial-crediting problems.
In the development of modern tendencies of cooperation in large and average businesses, financial-industrial groups play a drastic role. According to the practice of development countries, such groups grow the stability of economy and give chance to solve investing problems. It’s especially important for the regions, where there are outnumbered branches and subbranches with high investment capacity. Such as: (fuel-energetic complex, wine-making, mineral waters, etc) and conversional enterprises. Financial-industrial groups can become the significant means of realization of state selective structural politics, as with the help of these large integrated structures, it is easy to carry out rational manoeuvverability in industrial sector; among them, definition and support of prioritative fields and enterprises.
Grade 7. It’s necessary to put ventural financing schemes into motion and develop investment insurance system in small and average business fields. During realization of the above mentioned schemes, effectiveness of scientific-research and experimental-constructive works are significantly increased in small enterprises. Innovational campaigns of a small business, in most of the countries function by direct backing of the state, that really estimates their great national-economic importance and due to this is ready to assign corresponding financial expenses. Innovational small enterprises, technological development funds, incubator of technologies etc. nowadays, in Georgia, experiments of a range of ventural financing programmes realization, in small and overage business fields take place from foreign financial institutes. These are: European World Bank, Inter-American Development Bank, Development Credit Bank and so on. In the realization of ventural financing of small business, their experience can be acceptable for Georgian banks and financial institutes. In a country market, the most vital subject is insurance problems. In western countries, the insurance is considered as unavoidable mechanism of risk redistribution. Its increased level in small and average industries, causes a number of difficulties in the working process of insurance companies: herewith, simultaneously insurance and reinsurance, also guarantee systems of credit returning can be created. Perhaps, it is necessary, these systems to be supported distinctly by central and regional organs. (e.g. for specialized risk insurance companies, checking privileges or compensation of their loss). In perspective, Georgian financing crediting system must be filled with specialized net of risk insurance, connected with investment credit issue.
4. Establishment of united investment infrastructure in small and average businesses. Specialization of financing-crediting system in small and overage businesses can be carried out in two ways: a) Investment. In the way of forming financial organizations, specialized at the expense of investing operations: 6) In the way of orienting, just connected with small business operations. Different combinations of the above mentioned directions of specialization for financing-crediting organizations in small and average business fields, are also possible. But in any case, these organizations must be given distinct privileges by federal and regional organs. Unfortunately, for fear of next “financing pyramids”, at present, population don’t have eny confidence in establishing these specialized investment banks and sharing investment funds, that assemble the private investors’ funds and after, these are put in small enterprises as well as in small and average infrastructural units as the investment portfolio. Thus, at initial stage ideological training for the sharers of small business and population is necessary. It’s not less important that such specialized investment organizations, for the purpose of guarantee and getting confidence must be created on the initiative of these state, social and commercial organizations, which are highly qualified in successful running of small business industry field and have authority over this field.
5. The role of small and overage business support agencies in the development of crediting and investment mechanism of this field. In the regions, these agencies characterized by a range of peculiarities due to their status, that creates quite profitable atmosphere for them, during the corresponding service. First regional agencies are fully specialized in their field. With the difference from many other organizations, for which small and average business support is either temporary or accompanying with essential business. These agencies can use their priorities for getting experience and advices, attracting highly trained specialists, having permanent relationship with administrative organs and so forth. That is why, the service of regional agencies is famous for its quality. Their consultations and other forms of small and average business support are high trained in all, and recommendations – useful and practically acceptable. Second, such agencies have right to use all the various forms and methods of small and average business support, that on its side securing the complexity of their service. Third, from the very beginning regional agencies are involved in federal, regional and local systems of small and average business support; That is very important for the successful realization of their registration, investment and other functions. Fourth, regional agencies take objective part in the whole net of intercommunicated and inter useful organizations, that is practically expanded all over Russia.
In the case of successful development of regional agencies’ net, this advantage can be essential for small and average business support, due to their specialization and professionalism, treatment of regional politics, development of proper federal and regional programmers and also because of having participation ability in creating similar regional bases.
To maintain the special status and role of their organizations, the staff of regional agencies must take into consideration well, a main point of the politics of small financial industries support, that must be realized on different levels of state government, clearly elucidate all the varieties of useful forms, methods and institutes, necessary for the development of this politics; They must easily manage to orientate on the proper segments of investment-financing, momentary-crediting and stock markets.In the formation and realization of regional politics of small and average business subjects, the first condition for successful participation of regional politics is to know as much as possible about real financial demands of concrete enterprises. But the problem is not only in the manifestation of the demands of additional finances, but also in structural-problematical analysis of the above mentioned and also in the manifestation of these small enterprises, that require financial support most of all; afterwards, selecting the most long-range enterprises from the standpoint of future profitability. (after getting financial support).
The role of regional agencies in deciding these problems will be shown in working out unavoidable systematic-analytical instruments, in leading proper date basis, creating informational guide and findings fulfilled by general as well as individual orders on the basis of their own estimation. Above mentioned orders can be as from enterprises themselves, as from authority and government organs and financial-crediting organizations.
Other direction of activity of the above mentioned agencies, according to the regional politics context of financial support of small industry, must be the research of possible sources of free funds in the region and in solving financial problems of small and average business or working out principal schemes of their usage in investments.
Evaluation of regional politics structure for financial support of small industry. without the arrangement of systematic monitoring of this sphere, its constructive and in-time correction is impossible.
During the time of special and regular researches of industries, regional agencies can evaluate programmer realization results in small and average businesses – (for different level budgets and enterprises, which require assistance) in the concrete regions. Also, practical results of giving credits and establishment of regional taxation privileges for small industries.
Thus, regional agencies can take part in the realization and formation of regional politics of financial support in small enterprises and play a mediator role and such a performer, who has to carry out a range of the functions, which were not paid any proper attention by any kind of elements of regional infrastructure in small and average businesses. With the help of all these, they would like to assist the growth of investment activity of this field.
The Funkcions of Regional Agencies in the Development of Small and Average Businesses.
Functions of above mentioned agencies, for small and average business support, enquire essential analysis in line with the development of progressive investment forms; and in the realization part of prioritative tendencies of its state support.
1. The role of regional agencies in the development of leasing and franchise. In the development of these progressive forms of small and average business investment, participation forms of agencies can be absolutely different. There are united activities together with the organs of federal level, for getting normative acts and working out methodical materials; forming statements about taxation privileges, establishment of specialized data banks etc; Parallel activities at regional level, that supplement central authority actions (e.g. initiative of sentence study about getting privileges for local tax payment , also, independent steps for the development of leasing and franchising.
Such steps represent the following: a) making contact to these firms in Georgia, which are potential organizations of leasing and franchise, working out typical documents jointly (contracts, methodic, checking procedures etc). b) organization of juridical, consulting and informational assistance. (Search and selection of partners, consultations, assistance in teaching and control, etc). c) organization of international cooperation (leaseholders and franchisers ‘ search in Russia and abroad, assistance in market research, selection of potential clients, adaptation of foreign system of leasing and franchise to Russian conditions, assistance in arranging these technical questions, which include partners separation a long way off, corresponding..service..etc).
d) Organization of leasing and franchise propaganda. (Conferences, Seminars, Symposiums, Coarses, Press and Televise etc.) Participation in establishment of their supporting centers and also in the development of leasing and franchise association in regional departments. e) Participation in establishing those specialized mediatory firms, which duty includes: selecting of partners, working of different tasks of leasing and franchise assistance and development on the commercial basis; f) organizational assistance for the participants of leasing and franchise system by transmitting buildings and constructions with preferential conditions.
2. The role of small and average business support agencies in the development of industry in innovative field. These agencies can play an important role in getting contact among innovative firms and their providing with necessary information; They can render assistance to such industries, expressed by investment support. from the side of agencies, main directions of small industries support in innovative sphere are the following: information base development in innovative small enterprises, assistance to establish such data base, were advices about the publication are given in the proper scientific fields; notifications about introduction of distinct types of techniques, about perspective development of scientific-technical approaches. b) rendering assistance of preparing investment projects, in estimation of perspectives of offered scientific-technical projects, in creation and introduction of new techniques and risk determination connected to above mentioned factors. c) in assistance of providing small innovative enterprises with industrial buildings and equipment and for scientific-research realized by them. d) ensuring of small innovative enterprises with consulting and teaching services and keeping intellectual questions: e) assistance in finding partners and making contact with those enterprises, which work in a joining fields.
The law on “supporting the development of small enterprises” adopted on 23 Jule 1999 is considered to be the next step toward supporting the development of country’s small and medium enterprises. The law helped to create “the center for supporting and developing small business”. The year 2002 was very important for providing Georgia’s business enviornment with legislative basis and adopting new normative acts.Much attention is presently given to the changes in the law on supporting small and medium enterprises.The law defines the status of small and medium enterprises according to workers’ requirement and annual turnover of their funds. In the same year small and medium business support program 2002-2004 was finished and adopted on president’s descreet.From then on the law has been improving,but the desirable result hasn’t been achieved yet.It is noteworthy that in 1991 there were 600 small enterprises registered .In 1994 their number increased to 12000,in 1995 to 17000 and in 2000 it increased by 20%, in the year 2006 the total number of small and medium enterprises amounted to 22000,thought 28% of the enterprises are inactive.[
In Georgia, mastering new skills for industrial development in small and average business fields, gives chance to make conclusion that, this field of economy gives vast possibilities for effective investment and its future progress. But it is essential to reveal and put into practice energetically, the most effective ways of using these possibilities. In connection with this , it must be said, that state policy must be more flexible in the tasks of forming own financial sources of investment, which are the most important at present, for the small enterprises. These industries must be given free rein, while establishing amortization norms, which defines the structure of internal financial sources of investment (in the job of using internal sources of investments, except the state legislative support, the effective consultative assistance of small business support organs is also unavoidable). Active state support is very important for the attraction of external financial sources of investment by small and average business enterprises. Small business characteristics, such as flexibility and mobility, implies that small industries must have ability to increase their financial resources fast, in any proper time. Its realization is only possible at the expense of borrowed funds. On its side, it includes organizational state assistance in getting funds, guaranteeing commercial funds given to small industries and accomplishing other supporting activities . It is natural that, the progression of this support must be accompanying process of state control reinforcement from the view point of using investment sources and overall development of small and average businesses.
Thuse, the analysis of current social- economic conditions in Georgia and valuable experience gained from foreign countries show that during transitional period small and medium business must play on important role in forming national economy.
Small business representis one of the main structures of business, that must establish market economy provide the creation of private business as well as new social class- small and medium business managers and help to overcome the crisis in economy.Small and medium business proved its viability. Their exsistence encourages the mobilization of labour and material resourses creation of jobs,quickly reacts on investments and meets market needs and takes part in state and local budget fulfillment process.
We must hope that if we use the experience gained from foreign enterprises,we will be able to support small business. From this point of view the structure “Business incubations” is the most effective. Business incubations hasten the development of small business and reduce fail in business by 22%. This question deserved our particular attention because the conditions of small and medium business in Georgia are unfavorable. We approve the creation of business incubations for supporting the small enterprises that have been chosen for some reasons, and their support is exercised by providing them with machinery, services, consultanting and
education.They act to establish contacts between other sectors of economy,grow innovative activities of business that makes diversification of economy possible and on top of all encourages the growth of small and medium business and their viability.
Business incubations are flexible structures and merge with infrastructural complexes of region very well. The analysis of functioning business incubations based on world experience and especially of those,like Georgia enables us to prevent negative consequences and over come current difficulties. Business incbations proved to be fruitful in Post Soviet area. In Russia,Azerbaijan,kazakhistan and Lithuania,but from this point of view Georgia has significanthy dropped behind. We have to do our best to introduce this progressive infrastructural elements in our economy.
Our recomrndations:
Based on these recommendations we set the goals and main directions of small and medium business development in the following way:
1. To create a stable enviornment for business with the help of business incubations.
2. To create new highly paid jobs in small and medium business.
3. To introduce specialized multilateral business incubations.
4. To provide small and medium business with informational,consulting and financial – credit means.
5. To Supporing the increase of independent traders’ number in small and medium business.
6. To meet the consumers’ needs immediately.
7. Formation of the enterpreuners’ class that should become the stable guarantee for economic security and overcoming poverty.
For the Support of Small Business in Georgia
Content.
In the conditions of deep economic crisis and during the period of extreme restriction in requisite resources for economic investments of tendency of selecting priority in investing activities enquire upmost importance. According to these circumstances, small and average businesses must be admired in such system of priorities. It follows not only from conjectural, political or ideological purposefulness, but also from objective activities of social-economic conditions; Simultaneously it is also connected to the position perspectives of this field to solve vital questions of the country. (creating concrete atmosphere, increasing employment level and efficiency, treating and spreading technical decisions etc) however, it is baseless to speak that small and average businesses in our country have any kids of advantages in distribution of investing resources, ` moreover, it often moves to the second place.
Financing has always been the urgent problem of small and overage businesses. According to the social research of small industrial management, half of respondents had to use their own savings in organizing these enterprises. Only more than a quarter managed to receive credits, but less than 20% – to attract depositors’ sources.
The employers admit that, the first and main problem is finances and buildings and then follows cooperation with local authorities. However, investment always remains as the main problem in the activities of a particular firm.
Pressent Day Situation of a Small Business.
In western countries outnumbered commercial banks, insurance companies, branch funds, regional commercial departments of tuition structures stimulating small business, regional guarantees, outnumbered charitable funds and associations, actively support them.
Due to not existed similar institutions, the development of small and average businesses is prevented. So it is quite natural, that development of small industrial net is still unable to form the commodity market. Nowadays supporting industrial activity has no main basis in small and overage businesses. The situation of providing these enterprises with material, energetic and financial resources has recently been deteriorated; according to results of selective researches in 2000-2005, in order study small industrial business activities in industry, building and retail trade showed that nearly 40% from small industries have their raw and building material supplies reduced. The existing level of orders and resource maintenance was estimated as “..below average”; however unlike large industries, homogeneous tendency of economical situation in small and average businesses is distincted, e.g. during 200-2005, the amount of employees and usage level of industrial capacity maintained sufficiently stable in small industries.
Although capital investments of small industries include sufficiently large amount of money (11% of investment realized at the expense of financial resources in Georgian economy. The small enterprise activity of industry in the field of investment is still exceptionally low.
Inquiries showed that among active reasons about restriction of investing activities, about 60% of respondents consider high level of taxation, 30% – high rate of inflation, above 30% general economic and political instability.
The leaders of small industries, critically characterize competitiveness of their products over 50 % of leaders consider it as “average” towards the internal market.
Leaders of examined small industries consider lack of their own resources. (75% from inquired people), high payment rate (over 60%), unaccepted conditions of investing and accounting as a main resistance for their innovational activities.
Financing Sources of a Small Business.
Analysis of financing sources for small and overage business shows that the most available for their activities are inner developing sources which are used by over 3/4 of industry, while only one from four, manages to abtain any kind of means from external sources. Enquiries show that their own small business incomes take first place among financing sources. It’s proved by every two participants from three ones. On the second place are the founders of average business with their own sources; (21,7%). And private credit takes the third place, used by 17,9% of these industries. Other sources are used by 10-15% of small businesses. Simultaneously over 20% of enquired leaders consider that their enterprises have no any developing chances. More complete idea about the nature of investing in small and average business field is given by the results; Researches on tendencies of small business investments. According to this data, leaders are those industries which direct their investments towards the equipment and transportation (57,5%); and the enterprises which use investments to fill their sources of circulation. take the second place (44,3%). A lot of enterprises use their sufficient sources in repairing building and commercials (38%). Over 20% of small enterprises spend their sources on their staff training.
Comparison of data according to the groups of small industries prove all the following differences connected with specificity of a business field. e.g. small industries of trade fill their sources of circulation, frequently (76%), but they stay backward in investment of human capital – only 8% of them provide staff training, whilst corresponding average index for all enterprises is 20,8%.
One of the main problems in small business development is their slight investment in the process of crediting due to existing high risks in this field. It is caused by following factors: usually, small industries have no ability to represent absolute guarantee independently over their responsibilities and there’s no complete system of guarantees and insurance of their investing activities.
Usually, personnel of small and average businesses have no sufficient knowledge in economy, which is the main cause of those incomplete projects which are introduced by them. As for consulting service of business management and preparation of investing projects, as a rule it is excessively expensive for enterprises of small and average businesses.
The results show that in the process of providing crediting resources, leaders of small and average enterprises experience not only general inflexibility of crediting, but also discriminative policy of banks towards small and average businesses.
The main difficulty in the process of receiving credits is price restriction (very high percentage was mentioned by 47,6% of leaders of small enterprises); It is followed by the range of nonprice restriction – unpractical mortgage and guarantees (21,9%), innaccessibility of investing credits (10,5%), restriction of crediting terms (14,3%) and subjective evaluation of discriminative conditions. Besides, the role of organizing factors is not sufficient.
The interests of commercial banks are not directed towards crediting of small enterprises due to their non-existing complete technologies of investment; Besides it claims to discuss numerous investing projects, though working procedures are highly significant. Banks don’t take risks, due to their negative experience in disappearing of credited firms, no returned credits and hidden mortgages, including small and average businesses as well. Hence, due to controlling and providing insurance, they choose organizations having accounts in a particular creditor bank.
Banks avoid crediting of newly founded firms and insist on collateral security guaranteeing a small enterprise. The level of percentage implies the level of risk that is significantly high for every small industry. Standard validities of given credits include 3-6 months period.
Thus, Georgian banks. like in western countries must inevitably develop assisted financial services for small and average businesses. First of all, it includes detailed treatment and examination of any kind of projects independently from credited funds and improvement for abilities of banks in estimation of loans. The same time, they must rely more on the knowledge of potential resources for enterprises and markets than in the amount of funds and guarantees.
Who Helps and How to Developa Small Susiness.
Noticeably developing non-governmental specific structures formed for supporting small and average industries are also of great importance. The first similar structure was founded in 1992. It was an agency, supporting small and average businesses. Its purpose is to increase industrial activity among the population with the help of consulting, informational and expert services provided not only for small and average industries but for pioneer implcyers as well. It includes issues on economic, financial and taxation policy; recommendations about keeping a ledger; support for composing constituent documents; registration of enterprises and allowance of their activities; elaboration of a firm mode, teaching business; (hobbits based on special programmers, worked out of the agency together with foreign experts). for the successful development of their own activihes; (business planning; marketing; commercials; industrial experience etc); informational support for the operations of external trade. customs issues and other normative juridical problems. Agency constantly tries to expand its own activities. It mainly includes issues on the support of activity of small and average business industries. Special investing department is created in the structure of agency for this purpose, which is directed towards the preparation, training and conducting of recommendations for composing business plans, investing projection and financial management; working and conducting of examination for investing projects; researches of their financing sources. The given department is an official agent of the federal fund for supporting small industries, that is directed to the selection of industrial projects for providing credits.
In the beginning, the functions of agency were distinctly oriented on the demands of developing small and average businesses in Tbilisi region, but now it has begun to play the role of informal-methodical – coordinative organizational structure throughout the country.
Realization of this role is significantly depended on the formation of corresponding regional agencies and their active participation in the country. Above mentioned activity of the agency must necessarily be established by state departments. Namely, it is advisable for the government to elaborate a special document about “regional agencies for supporting small industries”. In this document, it is necessary to be mentioned the labor financing scheme of the regional agencies’ net at the expense of assignation from the state budget. Formation of regional agencies supporting small and average businesses is decisive to serve physical and juridical persons in creating small and average enterprises and to provide their effectiveness. Such schedule of services is defined by developing quality of agencies which may include practically all types of support for small and overage businesses including informational services, legal advice and participation in investments. As a rule, the purpose of agencies is not receiving profits and that is why their quite high level of services compared with ones of other organizations are relatively cheap, but in some cases it is absolutely free of charge; if agencies function into contact with the government and authority organizations of all level. and are based on the assistance of these organizations.
Herewith, the first task is that the agency of small and overage business supporting, leads the work to form united informational net of regional agencies, that will take active part in the field of modern informational technologies, highly quailfield organizations. It is a significant stage of business, for united as well as regional agencies. Practice showed that, distinct division is the most essential task for separate regional agencies and affective organizational development of their net. It implies the gradual development according to the accumulation of organizational experience, stabilization of financial situation and equipment with modern organizational-technical means and so forth. At the some time, determined service must be formed gradually and successively, not only in accordance with the principle of senseless expansion of above men toned factors, but also selecting the variants which are the most profitable and essential for the agencies in this or that concrete region. It must be said that estimation of perspectives in small and average business support activities is connected with the fact, that its significance is constantly outlined by the central government of the country as well as regional authorities. Of course, it clearly gives the chance to make optimistic prognosis. Unfortunately, in reality, the existed mechanism to support small and average businesses can’t still put into practice not only present-day objective demands, moreover the tasks which are not only possible to be solved but should be , for the development of its investing activities.
Wat is the Programme of Small and Average Business Investment Support?
As it is know, programme realization of investment support in small and average businesses, may have double substantiation. The first assistance of a small enterprise development, represents the effective way of solving social and foremost, employment problems. Thus, conception of social direction for financial support in small and average business fields, follows that, grant realization of socially useful functions in a small business, must be fulfilled by state and society. The second-progress of small and average businesses are significant factor from the standpoint of effective use of people’s economic resources. Due to such approach , from the position of market economy, defined means for small and average businesses must be considered as profitable investments.
Nowadays, systematical crisis is proceeded in our country. Factual unemployment problem instead of falling is rising steadily and it requires of taking vast and active measures for small and average business development. Simultaneously, tensity of central and local budgets and lack of foreign investments do not give chance to form such material-financial basis, that includes all the above mentioned factors.
It’s clear that the way out of exiting situation can be found in the treatments of conception, such is investing support (and realization) of small and overage businesses, when all the possible funds used with this purpose will be spent on forming organizations and such financial machinery, that has high level guaranteeing aptitude for the feedback of invested resources. For the realization of this conception, several main directions can be singled out, for the fulfilment of investing activity in small and average businesses.
1. Scientific-analytical and informative provision development of investment support mechanism in small and average business fields. Here, main goal is to study priority system of financing for small enterprises, according to essential directions of development and substantiation of their realization activities with the purpose of reflecting aims at each level. (central, regional as well as small and average enterprises). Strategic research organization and financing, forming development conceptions and treatment of inter-active mechanism for investing support system in small and average businesses. In addition to the point above, the following must be taken into account.
The first and foremost, the mechanism for investment support in small and average businesses must be based on state structural and industrial policy, financing of private investments or definition of essential directions for stimulation, in the section of divisions, subdivisions and enterprises – definition of so called dot priorities.
Second – towards the formation of mentioned mechanisms, maintenance of scientifically proved approach is accessible as far as it reflects the real peculiarities of economic development and investing processes in this or that region.
Third – Improvement of scientific -methodic and informative supply for investment activities, mostly in small and average businesses is simultaneously connected with the existence of investing projects of small enterprises in order to restrict existing risks. The most is financial, technological and marketing accompaniment, i.e. financial analysis, technical examination, and marketing research of investing projects of enterprises in small and average businesses.
2. Reinforcement of objective direction and transfer the obstacle centre of topping-up process of investment activities in small and average enterprises at regional level. It must be taken into consideration that, formation of regional politics of investment support of these enterprises, in accordance with this qualitative index of region economy, that creates the peculiarities for small and average business development and support. Simultaneously, the development level of industrial production, resourceful base, consumers market provision, regional problems of population employment and social defence must be taken into account. Only complex consideration of all these factors, gives chance to study those activities that provide attraction of owners of industries for people’s demands in the most suitable fields and stimulation of economic development, first of all at the expense of local possibilities.
Nonexistence of financing, due to the deficit of state and local budgets, is one of the main reasons, that represents the obstacle for the outcome of central and regional programmers in supporting small industries. In such cases, it is advisable, not only subsidization of industries, but also the assistance for the development of infrastructure in small and average enterprises. (marketing as well as industrial). It must also be admitted, that the state should do its bit to establish special regional banks, innovational funds, informational analitic centers and such organizational-regional structures that serve small and average businesses and keep their interests by means of preferential duties privileged regime of transferring buildings to the possession, licensing, etc.
3. Development of perspective forms of small and average business support and financing. In this field, for reinforcement of purposeful direction of investing process and raising its effectiveness, local administrations should orientate on the creation of main tendencies of progressive investment infrastructure for small and average businesses. Great attention should be paid to the following factors:
Grade 1. Development of crediting system for the purpose of increasing the number of financial support receivers and simplify the way of giving commercial credits to small industries, implies the expansion of financial institutes net, that realize small and average business crediting with preferential conditions. It includes: lowering interest, extension of crediting term, reduction of demands at the expanse of guarantee and free consultations.
Grade 2. Development of guarantee mechanisms of investing credits, given to small and average business industries must include given state guarantees to commercial banks, which took part in financing these enterprises. Compensation of some parts of interests rate. at the expense of commercial credits of banks, could be considered as the significant tendency of using guarantee reserves, especially at the initial stage of project realization, when returning of funds is still delayed in small and overage business field, for the support of investing business activity.
Grade 3. Financial crediting mechanism of small and average business support, implies the assistance of development, including cooperation of small enterprises and establishment of new mutual – crediting forms of societies in crediting field.
Grade 4. Leasing development, as the most perspective form, is inevitable process as the most perspective form for small enterprise investors. In industrial countries, leasing includes 25-30% of direct investments annually, but in our country it is not still well expanded. for moving complicacy centre of financial operations from circulation field into real sector of economy in leasing development, it is essential that the participation of reliable commercial banks and insurance companies to be actively stimulated.
Grade 5. Establishment of industrial and technological service system in small and average businesses, implies the consideration of this fact that, nowadays, actual reserve of forming some element of infrastructure of small businesses, can be usage of industrial capacities and properties of poor industries, after their liquidation, reorganization and changing profile. (namely, it is possible to locate supporting units of small groups of ownership and enterprises on their base). Distinct experience of realization of such approaches is already existed in a number of regions from the standpoint of industrial-technologic support of industries.
Grade 6. The problem of developing modern tendencies in small overage and large business cooperations has already been matured, e.g. franchise development of small industries in Russia will help to solve many essential economic and social problems. Here, first and foremost is meant the creation of new working places and broad involvement into business of all these people, who can’t manage it independently, without any support and getting suitable knowledge. In modern conditions, a range of obstacles arised against the franchise development in Russia: non-existence of special normative-legitimate base and suitable informational insurance, owners insufficient knowledge of running business by means of peculiarities of such skills and possibilities; nonexistence of sufficient consultative structures; and common financial-crediting problems.
In the development of modern tendencies of cooperation in large and average businesses, financial-industrial groups play a drastic role. According to the practice of development countries, such groups grow the stability of economy and give chance to solve investing problems. It’s especially important for the regions, where there are outnumbered branches and subbranches with high investment capacity. Such as: (fuel-energetic complex, wine-making, mineral waters, etc) and conversional enterprises. Financial-industrial groups can become the significant means of realization of state selective structural politics, as with the help of these large integrated structures, it is easy to carry out rational manoeuvverability in industrial sector; among them, definition and support of prioritative fields and enterprises.
Grade 7. It’s necessary to put ventural financing schemes into motion and develop investment insurance system in small and average business fields. During realization of the above mentioned schemes, effectiveness of scientific-research and experimental-constructive works are significantly increased in small enterprises. Innovational campaigns of a small business, in most of the countries function by direct backing of the state, that really estimates their great national-economic importance and due to this is ready to assign corresponding financial expenses. Innovational small enterprises, technological development funds, incubator of technologies etc. nowadays, in Georgia, experiments of a range of ventural financing programmes realization, in small and overage business fields take place from foreign financial institutes. These are: European World Bank, Inter-American Development Bank, Development Credit Bank and so on. In the realization of ventural financing of small business, their experience can be acceptable for Georgian banks and financial institutes. In a country market, the most vital subject is insurance problems. In western countries, the insurance is considered as unavoidable mechanism of risk redistribution. Its increased level in small and average industries, causes a number of difficulties in the working process of insurance companies: herewith, simultaneously insurance and reinsurance, also guarantee systems of credit returning can be created. Perhaps, it is necessary, these systems to be supported distinctly by central and regional organs. (e.g. for specialized risk insurance companies, checking privileges or compensation of their loss). In perspective, Georgian financing crediting system must be filled with specialized net of risk insurance, connected with investment credit issue.
4. Establishment of united investment infrastructure in small and average businesses. Specialization of financing-crediting system in small and overage businesses can be carried out in two ways: a) Investment. In the way of forming financial organizations, specialized at the expense of investing operations: 6) In the way of orienting, just connected with small business operations. Different combinations of the above mentioned directions of specialization for financing-crediting organizations in small and average business fields, are also possible. But in any case, these organizations must be given distinct privileges by federal and regional organs. Unfortunately, for fear of next “financing pyramids”, at present, population don’t have eny confidence in establishing these specialized investment banks and sharing investment funds, that assemble the private investors’ funds and after, these are put in small enterprises as well as in small and average infrastructural units as the investment portfolio. Thus, at initial stage ideological training for the sharers of small business and population is necessary. It’s not less important that such specialized investment organizations, for the purpose of guarantee and getting confidence must be created on the initiative of these state, social and commercial organizations, which are highly qualified in successful running of small business industry field and have authority over this field.
5. The role of small and overage business support agencies in the development of crediting and investment mechanism of this field. In the regions, these agencies characterized by a range of peculiarities due to their status, that creates quite profitable atmosphere for them, during the corresponding service. First regional agencies are fully specialized in their field. With the difference from many other organizations, for which small and average business support is either temporary or accompanying with essential business. These agencies can use their priorities for getting experience and advices, attracting highly trained specialists, having permanent relationship with administrative organs and so forth. That is why, the service of regional agencies is famous for its quality. Their consultations and other forms of small and average business support are high trained in all, and recommendations – useful and practically acceptable. Second, such agencies have right to use all the various forms and methods of small and average business support, that on its side securing the complexity of their service. Third, from the very beginning regional agencies are involved in federal, regional and local systems of small and average business support; That is very important for the successful realization of their registration, investment and other functions. Fourth, regional agencies take objective part in the whole net of intercommunicated and inter useful organizations, that is practically expanded all over Russia.
In the case of successful development of regional agencies’ net, this advantage can be essential for small and average business support, due to their specialization and professionalism, treatment of regional politics, development of proper federal and regional programmers and also because of having participation ability in creating similar regional bases.
To maintain the special status and role of their organizations, the staff of regional agencies must take into consideration well, a main point of the politics of small financial industries support, that must be realized on different levels of state government, clearly elucidate all the varieties of useful forms, methods and institutes, necessary for the development of this politics; They must easily manage to orientate on the proper segments of investment-financing, momentary-crediting and stock markets.In the formation and realization of regional politics of small and average business subjects, the first condition for successful participation of regional politics is to know as much as possible about real financial demands of concrete enterprises. But the problem is not only in the manifestation of the demands of additional finances, but also in structural-problematical analysis of the above mentioned and also in the manifestation of these small enterprises, that require financial support most of all; afterwards, selecting the most long-range enterprises from the standpoint of future profitability. (after getting financial support).
The role of regional agencies in deciding these problems will be shown in working out unavoidable systematic-analytical instruments, in leading proper date basis, creating informational guide and findings fulfilled by general as well as individual orders on the basis of their own estimation. Above mentioned orders can be as from enterprises themselves, as from authority and government organs and financial-crediting organizations.
Other direction of activity of the above mentioned agencies, according to the regional politics context of financial support of small industry, must be the research of possible sources of free funds in the region and in solving financial problems of small and average business or working out principal schemes of their usage in investments.
Evaluation of regional politics structure for financial support of small industry. without the arrangement of systematic monitoring of this sphere, its constructive and in-time correction is impossible.
During the time of special and regular researches of industries, regional agencies can evaluate programmer realization results in small and average businesses – (for different level budgets and enterprises, which require assistance) in the concrete regions. Also, practical results of giving credits and establishment of regional taxation privileges for small industries.
Thus, regional agencies can take part in the realization and formation of regional politics of financial support in small enterprises and play a mediator role and such a performer, who has to carry out a range of the functions, which were not paid any proper attention by any kind of elements of regional infrastructure in small and average businesses. With the help of all these, they would like to assist the growth of investment activity of this field.
The Funkcions of Regional Agencies in the Development of Small and Average Businesses.
Functions of above mentioned agencies, for small and average business support, enquire essential analysis in line with the development of progressive investment forms; and in the realization part of prioritative tendencies of its state support.
1. The role of regional agencies in the development of leasing and franchise. In the development of these progressive forms of small and average business investment, participation forms of agencies can be absolutely different. There are united activities together with the organs of federal level, for getting normative acts and working out methodical materials; forming statements about taxation privileges, establishment of specialized data banks etc; Parallel activities at regional level, that supplement central authority actions (e.g. initiative of sentence study about getting privileges for local tax payment , also, independent steps for the development of leasing and franchising.
Such steps represent the following: a) making contact to these firms in Georgia, which are potential organizations of leasing and franchise, working out typical documents jointly (contracts, methodic, checking procedures etc). b) organization of juridical, consulting and informational assistance. (Search and selection of partners, consultations, assistance in teaching and control, etc). c) organization of international cooperation (leaseholders and franchisers ‘ search in Russia and abroad, assistance in market research, selection of potential clients, adaptation of foreign system of leasing and franchise to Russian conditions, assistance in arranging these technical questions, which include partners separation a long way off, corresponding..service..etc).
d) Organization of leasing and franchise propaganda. (Conferences, Seminars, Symposiums, Coarses, Press and Televise etc.) Participation in establishment of their supporting centers and also in the development of leasing and franchise association in regional departments. e) Participation in establishing those specialized mediatory firms, which duty includes: selecting of partners, working of different tasks of leasing and franchise assistance and development on the commercial basis; f) organizational assistance for the participants of leasing and franchise system by transmitting buildings and constructions with preferential conditions.
2. The role of small and average business support agencies in the development of industry in innovative field. These agencies can play an important role in getting contact among innovative firms and their providing with necessary information; They can render assistance to such industries, expressed by investment support. from the side of agencies, main directions of small industries support in innovative sphere are the following: information base development in innovative small enterprises, assistance to establish such data base, were advices about the publication are given in the proper scientific fields; notifications about introduction of distinct types of techniques, about perspective development of scientific-technical approaches. b) rendering assistance of preparing investment projects, in estimation of perspectives of offered scientific-technical projects, in creation and introduction of new techniques and risk determination connected to above mentioned factors. c) in assistance of providing small innovative enterprises with industrial buildings and equipment and for scientific-research realized by them. d) ensuring of small innovative enterprises with consulting and teaching services and keeping intellectual questions: e) assistance in finding partners and making contact with those enterprises, which work in a joining fields.
The law on “supporting the development of small enterprises” adopted on 23 Jule 1999 is considered to be the next step toward supporting the development of country’s small and medium enterprises. The law helped to create “the center for supporting and developing small business”. The year 2002 was very important for providing Georgia’s business enviornment with legislative basis and adopting new normative acts.Much attention is presently given to the changes in the law on supporting small and medium enterprises.The law defines the status of small and medium enterprises according to workers’ requirement and annual turnover of their funds. In the same year small and medium business support program 2002-2004 was finished and adopted on president’s descreet.From then on the law has been improving,but the desirable result hasn’t been achieved yet.It is noteworthy that in 1991 there were 600 small enterprises registered .In 1994 their number increased to 12000,in 1995 to 17000 and in 2000 it increased by 20%, in the year 2006 the total number of small and medium enterprises amounted to 22000,thought 28% of the enterprises are inactive.[
In Georgia, mastering new skills for industrial development in small and average business fields, gives chance to make conclusion that, this field of economy gives vast possibilities for effective investment and its future progress. But it is essential to reveal and put into practice energetically, the most effective ways of using these possibilities. In connection with this , it must be said, that state policy must be more flexible in the tasks of forming own financial sources of investment, which are the most important at present, for the small enterprises. These industries must be given free rein, while establishing amortization norms, which defines the structure of internal financial sources of investment (in the job of using internal sources of investments, except the state legislative support, the effective consultative assistance of small business support organs is also unavoidable). Active state support is very important for the attraction of external financial sources of investment by small and average business enterprises. Small business characteristics, such as flexibility and mobility, implies that small industries must have ability to increase their financial resources fast, in any proper time. Its realization is only possible at the expense of borrowed funds. On its side, it includes organizational state assistance in getting funds, guaranteeing commercial funds given to small industries and accomplishing other supporting activities . It is natural that, the progression of this support must be accompanying process of state control reinforcement from the view point of using investment sources and overall development of small and average businesses.
Thuse, the analysis of current social- economic conditions in Georgia and valuable experience gained from foreign countries show that during transitional period small and medium business must play on important role in forming national economy.
Small business representis one of the main structures of business, that must establish market economy provide the creation of private business as well as new social class- small and medium business managers and help to overcome the crisis in economy.Small and medium business proved its viability. Their exsistence encourages the mobilization of labour and material resourses creation of jobs,quickly reacts on investments and meets market needs and takes part in state and local budget fulfillment process.
We must hope that if we use the experience gained from foreign enterprises,we will be able to support small business. From this point of view the structure “Business incubations” is the most effective. Business incubations hasten the development of small business and reduce fail in business by 22%. This question deserved our particular attention because the conditions of small and medium business in Georgia are unfavorable. We approve the creation of business incubations for supporting the small enterprises that have been chosen for some reasons, and their support is exercised by providing them with machinery, services, consultanting and
education.They act to establish contacts between other sectors of economy,grow innovative activities of business that makes diversification of economy possible and on top of all encourages the growth of small and medium business and their viability.
Business incubations are flexible structures and merge with infrastructural complexes of region very well. The analysis of functioning business incubations based on world experience and especially of those,like Georgia enables us to prevent negative consequences and over come current difficulties. Business incbations proved to be fruitful in Post Soviet area. In Russia,Azerbaijan,kazakhistan and Lithuania,but from this point of view Georgia has significanthy dropped behind. We have to do our best to introduce this progressive infrastructural elements in our economy.
Our recomrndations:
Based on these recommendations we set the goals and main directions of small and medium business development in the following way:
1. To create a stable enviornment for business with the help of business incubations.
2. To create new highly paid jobs in small and medium business.
3. To introduce specialized multilateral business incubations.
4. To provide small and medium business with informational,consulting and financial – credit means.
5. To Supporing the increase of independent traders’ number in small and medium business.
6. To meet the consumers’ needs immediately.
7. Formation of the enterpreuners’ class that should become the stable guarantee for economic security and overcoming poverty.