The Polish SME Sector

Seminar Paper , 2003 , 28 Pages , Grade: 1,0 (A)

Business economics - Economic Policy

In the following paper I want to pay attention to the SME (Small and Medium-sized Enterprises) Sector in Poland. Researches within this Sector are very important, because that sector is the most dynamic in the whole Economy. Entry and Exit Rates of Businesses are about 10 % in the EU (European Union) and are even more in Poland. Noreen Doyle described it as the backbone for a lasting and effective business environment. As well as in the Transitional Period, which will be examined in detail in this paper, as in the accession phase of Poland to become member of EU, the development of the SME Sector will determine the future of Poland to a great extent. After defining this Sector, I will show the development separated in phases since 1980. In the following chapter, I will try to sum up the most important influencing factors for SMEs. Finally, I will consider some specific problems of Poland joining the EU.

Inhalt

Introduction

1. Definition and quantitative statistics
1.1 Europe
1.2 Poland

2. Development of SMEs in 4 Stages
2.1 Pre-transformation Phase (1980-1988)
2.2 Phase of Entrepreneurship Explosion (1989-1991)
2.3 Phase of Stabilisation (1992-1994)
2.4 Pre-accession Phase, Transition Period (1995-2004)

3. Polish SMEs in Single European Market
3.1 Analytic model
3.2 Levels of Influence
3.2.1 Macro- economic level
3.2.2 Mezo- economic level
3.2.3 Micro-economic level
3.3 Results of Analysis
3.4 Problems of polish SMEs in a single European market
3.4.1 Weak starting position
3.4.2 Domination of large companies
3.4.3 Full membership
3.4.4 Hidden economy

Final Comment

Appendix

Bibliography:

Introduction

In the following paper I want to pay attention to the SME (Small and Medium-sized Enterprises) Sector in Poland. Researches within this Sector are very important, because that sector is the most dynamic in the whole Economy.

Entry and Exit Rates of Businesses are about 10 % in the EU (European Union) and are even more in Poland. Noreen Doyle¹ described it as the backbone for a lasting and effective business environment. As well as in the Transitional Period, which will be examined in detail in this paper, as in the accession phase of Poland to become member of EU, the development of the SME Sector will determine the future of Poland to a great extent.

After defining this Sector, I will show the development separated in phases since 1980. In the following chapter, I will try to sum up the most important influencing factors for SMEs. Finally, I will consider some specific problems of Poland joining the EU.

1. Definition and quantitative statistics

1.1 Europe

Every country has its own measurements to define the matching to the group of Small and Medium-sized Enterprises (SME), therefore a real general definition is not possible. As a whole, however, four characteristics are used in different combinations and quantifications, i.e.:

- Relative low number of employees
- Not dominating the industry
- Early stage of Organisation²
- Limits in Turnover and Total Balance Sheet

To reach comparability and to allow country comparison and sectoral analysis between the European Union (EU) members the European Commission (EC) introduced a general definition in 1996, which is now quite used among the European statistical offices. It is distinguishing between very small enterprises (VSE), small enterprises (SE) and medium enterprises (ME). Table 1 shows its criteria:

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Table 1: Definition of SME Sector according European Commission 1996

1.2 Poland

In the case of Poland, the Central Statistic Office (GUS) is using a harmonized Criteria One since 1999. The Economic Activity Law from 2000 is referring to the number of workers instead the number of employees, which includes owners, co-owners and working family members. In the REGON Register³ all business entities are registered and subdivided into private and public units and further in the economic specifications according to NACE (Nomenclature statistique des activités économics dans la Communauté européenne).

The number of active enterprises was estimated by GUS using the European statistical classification system NACE on the basis of this register, and the providing of GUS with the so-called “structural questionnaire” or publishing of financial statements. As you can see in Table 2, it does not divide between very small enterprises (VSE) and small enterprises (SE). The data refers to 1999.

Just 3.2 % of all active businesses are public, and approximately 10% out of this had the status of commercial enterprises. Thus, I will consider only private registered units or, if data is available, private active units in this paper.

In the specifications, I exclude agriculture, forestry, fishing, financial services and public administration to allow comparison with other European countries.

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Table 2: Total Number of Private Active Enterprises in Poland 1999,

Source: Report on the Condition of the Small and Medium-Size Enterprise Sector in Poland for the Years 1999-2000, p.301

Table 3 also considers employment and revenues from the sale of products, goods and materials as total number and as share.

It shows that 96.45% of all business units in the Polish economy are private SMEs. This share is proportionally high but, as I try to use a scientific based research of the SME Sector, I also took into consideration the participation in the working population and the contribution of these companies made to the Gross Domestic Product (GDP). Nearly half of the employees are working in private SMEs and they contribute 61.15% to the Polish Gross Domestic Product (GDP). Taking these three measurements together, one can easily recognize the importance of this sector.

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Table 3: Importance of Private Active Enterprises in the polish Economy 1999, Source: ibidem, p. 301ff

2. Development of SMEs in 4 Stages

In the following part I want to describe the development of the SME Sector according to a certain model⁴ dealing with three aggregates and four phases. The first aggregate is the driving forces or the causes, which (might) change the economic environment. The second aggregate is the impact, which describes the effect of the driving force and the results. Finally the third aggregate is proving the cause and effect paradigm with statistical data characterising the changes in the sector. In the statistical part, I have chosen to show just growth rates instead of total numbers because of two reasons. Firstly, I want to present consistent data for all years, but there is a lack of appropriate databases. My research required different calculation bases, for example, in 1994 I used data of active enterprises instead of registered units. In my opinion, this reflects the real development best. Secondly, by just showing growth-rates, the changes become more obvious than with total numbers.

2.1 Pre-transformation Phase (1980-1988)

Already during the central planned economy the tradition of polish entrepreneurship was well established. VSEs always existed as a kind of spin-off of the larger stateowned companies. A worth mentioning part of these small firms was run by women⁵. Therefore the entrepreneurial spirit always existed in Poland and even the working selfemployed woman was component of the common business-life.

But anyway, the private sector development was modest, and the revival of entrepreneurship started in the beginning of the eighties with a number of driving forces. All of them were legislative actions, which lowered the barriers for running your own business:

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The impact of all the reforms during the last decade of planned economy could be described as the gradual opening of a valve for oxygen. The new laws led to a deconcentration of state-owned industry and built modest elements of market infrastructure. The climate and entrepreneurial spirit made a visible progression.

The statistics shown in Table 4 describe the steady increase of registered private enterprises. Data was only available for registered enterprises and not for active ones. The average growth rate concerning the number of firms is almost 7 % and the average growth rate of employment during the eight years is even 11%. As a consequence, the average number of employees per enterprise also increased. In contrast the GDP grew to a significant lower level (4,5% in average).

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Table 4: Growth rates in the private sector in Poland,

Source: Statistical Yearbooks 1982-1989, Central Statistical Office

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¹ Vice-president European Bank for Reconstruction and Development (EBRD) at 14th February 2003 in Frankfurter Allgemeine Zeitung (FAZ)

² L.E.Greiner, Harvard Business Review, 1972: Organizational phases of growth

³ National Register of Economic Entities (Rejestr Podmiotów Gospordarkeij Narodowej)

⁴ Bogdan Piasecki, SMEs in Poland: Development Paradigms, !ód" 2002

⁵ Anna Rogut, Polish woman in private business, Polish Chamber of Commerce Institute for Private Enterprises and Democracy, Warsaw 1994

• College: University of Lodz (Department of Entrepreneurship)
• Grade: 1,0 (A)
• Author: Alexander Wunder (Author)
• Publication Year: 2003
• Pages: 28
• Catalog Number: V29370
• ISBN (eBook): 9783638308939
• ISBN (Book): 9783638650236
• Language: English
• Tags: Polish, Sector