Archive 2001

  • 23.12.2001

    The Development of Industrially Oriented Small and Medium Size Enterprises in Ukraine in 2000: Results of a Business Survey


    Small and medium sized enterprises (SMEs) play an important role in both developed and transition countries. Recent studies provide evidence of an increasing role for the SME sector in the global economy, though its share in GDP and in employment varies from country to country. For example, in Great Britain the SME sector produces 50-53% of GDP, in Germany - 50- 54%, in the USA - 52-55 %, in Italy - 57-60% and in France - 63-67% (Semikolenova, 1999). It has been found that on the average SMEs account for 31% in industrial value-added and 46% in employment in countries with low-income levels. In countries with a high-income level the same indicators are 31% and 24% respectively (Snodgrass, Biggs, 1995).

    Though the development of SMEs in transitional economies has attracted a lot of attention, Ukraine was not in the research focus for some time. The situation changed in 1999-2000 when Management Systems International (MSI) together with the Kyiv International Institute of Sociology, as well as IFC undertook several surveys on SME activities. These surveys concentrated on studying the changes in the regulatory environment in which SMEs operate (enterprise registration, licensing, inspections, taxation, state interventions, etc.), as well as on their performance results. They covered mainly those sectors, which dominate the SME sector, namely trade, catering and services.

    The focus of our study is the analysis of the main tendencies, determinants and obstacles of the development of industrially oriented small and medium Ukrainian enterprises. By industrially oriented enterprises we mean enterprises that are involved (at least partly) in manufacturing and construction activities. We define small and medium enterprises as enterprises with less than 250 employees. Focusing on industrially oriented companies, we tried to fill the informational gap concerning this group of SMEs, since most of the studies on SME development in transitional economies have concentrated on firms operating in the trade and services fields.

    We have enlarged the scope of our research by looking into aspects such as the competitive environment of SMEs, the softness of budget constraints (including different type of arrears, state orders and barter transactions), problems of contract enforcement and the protection of property rights, as well as changes in ownership structure and restructuring activities of the firms. Special attention was paid to SME financing. Our study is based on the results of a survey that has been conducted in three regions of Ukraine in the fall of 2000 by the Institute of Economic Research and Policy Consulting.

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