Factors influencing Factors influencing success of small rural success of small rural

Polish enterprisesPolish enterprises

Wadim Strielkowski, Wadim Strielkowski, National University of Ireland, GalwayNational University of Ireland, GalwayResearch supervisor: Prof. Michael CuddyResearch supervisor: Prof. Michael Cuddy

A presentation at Raymond Pierre Bodin Conference Centre, The European A presentation at Raymond Pierre Bodin Conference Centre, The European Foundation of the improvement of living and working conditions, DublinFoundation of the improvement of living and working conditions, Dublin

22ndnd of June 2006 of June 2006

Research question and research Research question and research objectivesobjectives

Research question:Research question: What factors influence What factors influence success of small Polish rural enterprises?success of small Polish rural enterprises?

The aim of this research is:The aim of this research is: to identify factors influencing Polish rural small to identify factors influencing Polish rural small enterprise success (measured by profits per enterprise success (measured by profits per employee and rate of revenues).employee and rate of revenues).

Two sets of hypotheses are tested: Two sets of hypotheses are tested: Factors internal to the firm influence success of Factors internal to the firm influence success of

Polish rural small enterprises;Polish rural small enterprises; Factors external to the firm influence success of Factors external to the firm influence success of

Polish rural small enterprises. Polish rural small enterprises.

The role of small enterprises The role of small enterprises in Polandin Poland

SMEs (< 249 employees) SMEs (< 249 employees) constitute 99.8% of all constitute 99.8% of all Polish enterprises;Polish enterprises;

Micro-enterprisesMicro-enterprises (<9 employees) constitute (<9 employees) constitute 95.2% of all enterprises on the Polish market 95.2% of all enterprises on the Polish market (Ministry of Economy of the Republic of Poland, (Ministry of Economy of the Republic of Poland, 2004).2004).

The role of small enterprise is The role of small enterprise is improvement of quality of life:improvement of quality of life:

Creation of employment in rural areas;Creation of employment in rural areas; Provision of opportunities for rural population;Provision of opportunities for rural population; Economic stabilization in rural Poland.Economic stabilization in rural Poland.

Importance of small Importance of small enterprises (1)enterprises (1)

In most EU countries micro-enterprise In most EU countries micro-enterprise constitute 93% of all economic subjects constitute 93% of all economic subjects accounting for 34% of total employment accounting for 34% of total employment (Observatory of European SMEs, 2003).(Observatory of European SMEs, 2003).

Special place in the national economy:Special place in the national economy:

Contribute to the stability of the Contribute to the stability of the economy and labor market;economy and labor market;

Capable of reducing exposure to Capable of reducing exposure to asymmetric shock;asymmetric shock;

General adaptability and flexibility;General adaptability and flexibility; Key driver of economic growthKey driver of economic growth

Importance of small enterprises Importance of small enterprises (2)(2)

Stimulating competition and market Stimulating competition and market efficiency;efficiency;

Job creation (creation of employment and Job creation (creation of employment and reduction of unemployment);reduction of unemployment);

Welfare enhancing due to the previous two;Welfare enhancing due to the previous two;

Product diversity and innovation.Product diversity and innovation.

The focus of this work: types of The focus of this work: types of enterprisesenterprises

Rural micro-enterprises (<9 Rural micro-enterprises (<9 employees);employees);

Food-processing sector (bakery, Food-processing sector (bakery, meet-processing, beverages, etc.);meet-processing, beverages, etc.);

Two selected regions: Mazowieckie Two selected regions: Mazowieckie & Warmia-Mazury& Warmia-Mazury

The focus of this work: locationThe focus of this work: location

Results from the data analysis (1): types of Results from the data analysis (1): types of enterprises in sampleenterprises in sample

Professional partnership46%

Joint stock company7%

Limited liability company13%

Unlimited partnership5%

Civil law partnership22%

Cooperative5%

State-owned enterprise0%

Other2%

0 20 40 60 80 100 120 140

Number of firms

1

2

3

4

5

6

7

8

9

> 9

Ra

ng

es

: n

um

be

r o

f e

mp

loy

ee

sResults from the data analysis (2): size of Results from the data analysis (2): size of

enterprises in sampleenterprises in sample

Results from the data analysis (3): Results from the data analysis (3): activities of enterprises in sampleactivities of enterprises in sample

0 10 20 30 40 50 60 70 80

Number of firms in main specialization

baking goods

gastronomy

pastry

meat processing

ice-cream production

milk production

mineral water

vegetable processing

production of honey

production of flour

spices

healthy alimantation

consumer goods

other

pro

du

cts

/go

od

s

Results from the data analysis (4): Results from the data analysis (4): enterprise innovationenterprise innovation

0

20

40

60

80

100

120

140

160

180

200

nu

mb

er

of

po

sit

ive a

nsw

ers

certificates/licenses

Results from the data analysis (5): Results from the data analysis (5): enterprises salesenterprises sales

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

share in % by year

Local markets

Region

Rest of the country

Abroad

Geo

gra

ph

ic s

pre

ad o

f sa

les

2002

2003

2004

Statistical tests: distribution of salesStatistical tests: distribution of sales

Significant negative relationship between the Significant negative relationship between the size of size of the enterprise the enterprise and the fact whether the enterprise and the fact whether the enterprise has been distributing its production on the local has been distributing its production on the local markets only or attempted to expand to other markets markets only or attempted to expand to other markets – [U (N= 300) = -5.206, p< 0.01]; – [U (N= 300) = -5.206, p< 0.01];

Significant negative relationship between theSignificant negative relationship between the enterprise legal form (physical entity) enterprise legal form (physical entity) and the fact and the fact whether the enterprise has been distributing its whether the enterprise has been distributing its production on the local markets only or attempted to production on the local markets only or attempted to expand to other markets [ρ( N=300) = -0.1198, expand to other markets [ρ( N=300) = -0.1198, p<0.05];p<0.05];

Significant relationship between theSignificant relationship between the enterprise legal enterprise legal form (company limited) form (company limited) and the fact whether the and the fact whether the enterprise has been distributing its production on the enterprise has been distributing its production on the local markets only or attempted to expand to other local markets only or attempted to expand to other markets [ρ( N=300) = 0.2344, p<0.01].markets [ρ( N=300) = 0.2344, p<0.01].

Results from the data analysis (6): getting Results from the data analysis (6): getting bank creditbank credit

0 50 100 150 200 250 300

number of answers

preferential credit forsmall business in the

last 3 years

business credit for smallbusiness in the last 3

years

yes

no

Statistical tests: obtaining the creditStatistical tests: obtaining the credit

Significant relationship between the enterprise legal Significant relationship between the enterprise legal form (family firm) and the fact whether the firm has form (family firm) and the fact whether the firm has obtained any credit in the last three years [ρ( N=299) obtained any credit in the last three years [ρ( N=299) = 0.1375, p<0.05];= 0.1375, p<0.05];

Negatively significant relationship between the Negatively significant relationship between the enterprise legal form (company limited) and the fact enterprise legal form (company limited) and the fact whether the firm has obtained any credit in the last whether the firm has obtained any credit in the last three years [ρ( N=299) = -0.1018, p<0.01];three years [ρ( N=299) = -0.1018, p<0.01];

Significant relationship between the enterprise legal Significant relationship between the enterprise legal form (cooperative) and the fact whether the firm has form (cooperative) and the fact whether the firm has obtained any credit in the last three years [ρ( N=299) obtained any credit in the last three years [ρ( N=299) = 0.1340, p<0.05].= 0.1340, p<0.05].

Results from the data analysis (7): receiving Results from the data analysis (7): receiving government & public supportgovernment & public support

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Share in %

Grants or investments loans

Funds for research and development

Funds for the promotion of local production groups

Assistance in schooling of the personnel

Space for the enterprise (housing)

Export guarantees

Consulting in the sphere of governance

General economic consulting

Other

Form

s of

pub

lic a

ssis

tanc

e

Regional sources

Governmental sources

EU (SAPARD)

Statistical tests: Statistical tests: Payments from EU Payments from EU SAPARDSAPARD

Negatively significant relationship between the Negatively significant relationship between the enterprise size and the fact whether the enterprise size and the fact whether the enterprise received any payments from EU enterprise received any payments from EU SAPARD program – [U (N= 277) = -1.797, p< SAPARD program – [U (N= 277) = -1.797, p< 0.1];0.1];

Significant relationship between the enterprise Significant relationship between the enterprise legal form (family firm) and the fact whether the legal form (family firm) and the fact whether the enterprise received any payments from EU enterprise received any payments from EU SAPARD program – [ρ( N=300) = 0.1592, SAPARD program – [ρ( N=300) = 0.1592, p<0.01];p<0.01];

Empirical approachEmpirical approach

Data:Data: survey questionnaires of 300 survey questionnaires of 300 rural micro-enterprises in food-rural micro-enterprises in food-processing sector in Mazowieckie and processing sector in Mazowieckie and Warmia-Mazury provinces, PolandWarmia-Mazury provinces, Poland

Empirical model:Empirical model: single-equation single-equation Tobit, OLSTobit, OLS

Tobit estimates for small rural Tobit estimates for small rural enterprise successenterprise success

* significant at 10%; ** significant at 5%; *** significant at 1%

Dependent variable: Profit per employee (in PLN)

Owner/manager risk 23877.12***

Owner/manager need of cash -6788.393***

Owner/manager organization of work -4297.242**

Owner/manager age 1521.34**

Owner/manager age squared -15.75961**

Enterprise age -231.9323**

Enterprise regional location 3880.727*

Enterprise size -840.5918**

Enterprise certificates 14084.08***

Limited liability company -5181.882*

Y-hat 12880.35**

Const -28038.5

Pseudo R2 0.0162

Observations 249

OLS estimates for small rural OLS estimates for small rural enterprise successenterprise success

Dependent variable:

Average revenues (in PLN)

Owner/manager family tradition 61732.2**

Owner/manager knowledge of marketing and selling -59185.56***

Owner/manager age 9436.304*

Owner/manager age squared -101.8933*

Owner/manager previous sector experience 58727.69***

Physical entity -55314.06***

Ownership of the enterprise 70231.76**

Internet in the enterprise 60588.36***

Trademark share of the enterprise 32266.12**

Enterprise area of advantage in innovativeness of its product -105051.2***

Some form of innovation in the enterprise 85978.56***

Certificates obtained by the enterprise 76972.95**

Licenses obtained by the enterprise -61894.16**

Financial help of local governments to the enterprise -105301.5**

EU SAPARD funds in the enterprise 134229.5***

Const -113529.7

R2 0.269

Observations 300

* significant at 10%; ** significant at 5%; *** significant at 1%

Owner/manager age**

Owner/manager age squared**

Certificates obtained by the enterprise***

Owner/manager org. work** Owner/manager need of cash*** Owner/manager org. work** Enterprise age** Enterprise regional location* Enterprise size** Limited liability company* Y-hat*

Profit per employee (N=300)

Owner/manager family tradition**Owner/manager knl.mtkg&sales***Owner/manager prevsecexp***Physical entity***Ownership of the enterprise**Internet in the enterprise***Trademark share of enterprise**Area of adv.: product innovativeness***Innovation in enterprise***Licenses obtained by enterprise**Financial help local governments**EU SAPARD funds***

Average revenues (N=300)

Results:Results: The effect of factors internal to the firm and external The effect of factors internal to the firm and external

to the firm on Polish small rural enterprise success is to the firm on Polish small rural enterprise success is significant:significant:

Positively significant for:Positively significant for: Owner/manager risk, Owner/manager risk, owner/manager age, previous experience, owner/manager age, previous experience, enterprise regional location, enterprise enterprise regional location, enterprise innovation, Internet in the enterprise, innovation, Internet in the enterprise, certificates;certificates;

Negatively significant for: Negatively significant for: enterprise age, enterprise age, enterprise size, financial help of local enterprise size, financial help of local governments, organizational forms of enterprise.governments, organizational forms of enterprise.

The result shows that support of innovation, education The result shows that support of innovation, education and new technologies in Polish rural enterprises can and new technologies in Polish rural enterprises can increase their success. The results are also robust. increase their success. The results are also robust.

Policy implications (1): rural enterprise Policy implications (1): rural enterprise owner/managerowner/manager

Development of supports for older Development of supports for older owners/managers;owners/managers;

Simplifying the constraints (concessions, etc.) Simplifying the constraints (concessions, etc.) for enterprises established by the for enterprises established by the owners/managers with previous sector owners/managers with previous sector experience;experience;

Promotion of entrepreneurial tradition & Promotion of entrepreneurial tradition & increasing business ethics in the country.increasing business ethics in the country.

Policy implications (2): rural Policy implications (2): rural enterpriseenterprise

Adopting different strategies for enterprise of Adopting different strategies for enterprise of different size;different size;

Adopting different policy for enterprises of Adopting different policy for enterprises of different age;different age;

Using different criteria for enterprises from Using different criteria for enterprises from different locations (bank loans, credits, different locations (bank loans, credits, assistance, etc.);assistance, etc.);

Promoting innovation in enterprise rather Promoting innovation in enterprise rather than increasing financial streams;than increasing financial streams;

Supporting new technologies in enterprises;Supporting new technologies in enterprises; Directing EU funds to the enterprises Directing EU funds to the enterprises

effectively.effectively.

Some conclusionsSome conclusions

Small Polish enterprises in food-processing Small Polish enterprises in food-processing sector are the key player in Polish economy;sector are the key player in Polish economy;

The evidence suggests that there are: (i) areas The evidence suggests that there are: (i) areas in which those enterprises can achieve more in which those enterprises can achieve more success and (ii) means to enhance this success and (ii) means to enhance this success;success;

Research needs to be undertaken in order to Research needs to be undertaken in order to identify the factors and means how to increase identify the factors and means how to increase this success;this success;

Crucial for economic development in Poland & Crucial for economic development in Poland & increasing rural and environmental increasing rural and environmental sustainability in Poland. sustainability in Poland.