Can Alternative Support Mechanisms Cure Problems of Small and Medium Sized Enterprises ?

The Turkish Economy is mainly dominated by SMEs, where 99.9% of all companies and 76% of total employment in 2012 is consisted of them. Although SMEs dominate the economy yet they have variety of problems in terms of regulatory framework, access to finance, competitiveness, innovation, marketing and institutional capacity.

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By Arzu Karaarslan  @ArzuKaraarslan  / Mardin

Dağ Medya Economy Writer

In this article I will examine the SMEs current problems and alternative support mechanisms to contribute the solution of these problems. My purpose will be to highlight why and how alternative support mechanisms could be implemented in regional level.

Regulatory framework has great influence on new businesses as well as operating ones. Turkey ranks 69 in the World Bank’s Ease of Doing Business Index. Although the new Trade Code contributed to ease of doing business indicators still there are many areas in need to be improved in terms of regulatory framework and doing business.

2014-05-20 17-27-06 Ekran görüntüsü

Bank loans is the most frequently used external financing mechanism for the SMEs in the country. However, SMEs use approximately 25% of the loans. The most frequently stated difficulty in access to bank loans is the heavy collaterals, required by the banking sector before extending loans. Public financial resources, available to the SMEs and entrepreneurs, include diverse financial support schemes provided by KOSGEB, Ministry of Science, Industry and Technology. In addition to these, the development agencies also extend grants to the SMEs in their regions, through calls for proposals. In Turkey, relatively few international donors provide grant support.

There are structural problems such as; intellectual property rights, university-industry collaboration and amount of research & development expenses that need to be addressed in order to improve the innovative and entrepreneurial capacity of the economy.

The business skills and capabilities of the SMEs depending on the size of the enterprises, as well as across regions demonstrate significant variability. Especially the level of development of the regions plays crucial role in terms of institutional capacity. Most SMEs, especially micro-enterprises and small-sized businesses are family-owned businesses, with little or no delegation of authority to professional management cadres, and very limited willingness to engage in formalized partnerships with non-family persons.

So what can be done to reduce these problems? The 10th National Development Plan, approved by the Parliament in 2013, sets four main priorities and policies to be followed in the 5-year period between 2014 and 2018. In the area of entrepreneurship and SMEs, the Plan’s policy-level objectives include (a) increasing the share of small- and medium-sized enterprises in the total number of enterprises in Turkey, signaling a policy-level preference to grow micro-enterprises into small- and medium-sized enterprises and (b) increasing the number of start-ups. The Plan also indicates that the public support schemes to be provided to the entrepreneurs and SMEs will prioritize innovation, productivity, employment creation, growth and collaboration, in addition to women, youth and social entrepreneurship.

From the last decade regional development policy is used as a key policy area in Turkey, where actors in public and private institutions as well as civil society organizations at regional and local level participate in the decision making process and mobilize resources for the development of their regions. Main objectives of this policy are reducing regional and rural-urban disparities, increasing productivity and competiveness of regions and creating a development environment based on local dynamics and internal potential.

Saying that how regional development agencies could play role to contribute the solution of SMEs’ stated problems? There are some suggestions have made during the Second Development Agency Conference which took place in Gaziantep between16-19 April 2014. According to views of participants regional development agencies could play crucial role especially in terms of access to finance and institutional capacity building for SMEs.

It is clear that neither the private equity nor the venture capital market can be considered developed or real alternate means of external financing for entrepreneurs and SMEs in Turkey. Development agencies could contribute or even take a role in order to spread out such mechanisms in the regional level by sector, thematic and investor oriented programs. Furthermore primary sectors for each region could be determined and grant programs that focus particularly on these sectors could be implemented accordingly.

Technical assistance one of the tools that has great importance to solve SMEs stated problems. Development agencies should provide consultancy services, technical and administrative planning education for SMEs through investment support offices and technical support programs. Moreover, development agencies also could contribute to solve problems with industry infrastructure and other structural problems as university-industry collaboration, research & development infrastructure in regional levels.

Hence, alternative support mechanisms and other tools that suggested by development experts could cure financial and institutional problems of SMEs and reinforce the economic growth of the country.

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