Publication detail

Threats and Opportunities for SMEs of Joining the Single European Market: The Czech republic Country Report, Occassional Paper IES , Prague, 2001

Author(s): prof. Ing. Michal Mejstřík CSc., A. Zemlinerová
Type: IES Occassional Papers
Year: 2001
Number: 1
ISSN / ISBN:
Published in: IES Occassional Paper 1/2001
Publishing place: Praha
Keywords:
JEL codes:
Suggested Citation: Mejstrik M., Zemplinerova A.,Threats and Opportunities for SMEs of Joining the Single European Market: The Czech republic Country Report, Occassional Paper IES No.2, Prague, 2001
Grants: P97-8178R (1999-2001) The Adjustment Process of SMEs in Poland and the Czech Republic to the Single Market
Abstract: Our conclusions are of importance for economic policy-making. We affirm that the development in transition may depend on how privatisation has been initiated and later conducted. Adjustments may be difficult, as many firms still rely on state interventions and
lobbying rather than on own efforts. That was partially confirmed by the results of the survey explained above and by the Czech history of privatisation (Mejstrik,1997, Benacek, 2001).
A relative success of SMEs development must be attributed to the spontaneous motivation of the population to use their entrepreneurial abilities, which played a key role in the revival of private business. The boom in the SMEs was the most dynamic economic factor generating
the changes and a surprising stability in the new developments, which were initiated practically from scratch in November 1989. Small businesses contributed to the maintenance of low rate of unemployment, to the improvement of the performance of the economy (SMEs contribute around 50% of Czech GDP formation) and to the creation of the stable political structure of the society during the period of transition. EU accession is providing new opportunities and threats for "middle class" that might have certain political consequences due
to the high share of SME related population.
In our study comparable to similar study made for Poland, first we found out that "de nuovo" private sector has somewhat different characteristics that firms established from the previous state enterprises. Second, Czech survey included both traditional industries, namely textile, clothing and wood industries, and also part of the "new economy" representing by information technology (IT). These two aspects allowed to go deeper into the structure of SMEs and its role in the adjustment processes as related to the joining the Single European
Market.
Companies were selected from the complete address register received from Czech statistical office. Out of the register, there were firms with 10-199 employees have been selected is four traditional industries and each third firm sent the questionnaire. (480 in food, 366 in textile
and clothing, 290 in wooden and 152 in plastics). In addition to it all firms in information technology (IT- 520) have been selected. Hence altogether 1807 questionnaires have been sent out. The response rate was about 11%, what is the usual rate in case of such surveys.
Certain new preconditions for SME development related to EU integration are now being discussed by the experts. The limited availability of loans caused by the banking crisis (writing off huge bad loans) and credit crunch in 1997-1999 has been properly jointly
identified both by experts and central bank (Niedermayer, 2001) as the threshold for SMEs that are mostly affected due to their character (high risk involved, low collateral available) with recommended solution to be wider use of leasing (huge groth), venture funds provided often by EU owned companies. New opportunities are offered by the new SME programs of Czech retail banks recently sold into hands of international banks mostly with its seat in EU (Erste Bank, KBC bank, HypoVereins, GE Capital) that are bringing EU widely used products
tailored to SMEs. This is supplemented by the limited public support through 17 government programs managed by Ministry of Industry and Trade such as collateralisation of SME´s loans and equity investments, loan subsidization etc.
The main policy instrument, is not only making credit available, but also aiding in upgrading skills. Since the single most important asset these small businesses have is labour, improving skills help them most. Industrial policy was oriented on large enterprises while neglecting the
sector of small and medium firms. The role of SMEs in transition was underestimated similar to the role of foreign direct investment.
The large inflow of FDI reaching Euro 5 bill. in average (1997-2000) generated new global firms plants in the Czech Republic that are export oriented (limited threat to domestic producers) but generate further demand for relevant SMEs either domestic or foreign owned.
Rising number of SMEs with pozitive demand expectations have been able to upgrade their products up to the level required by the international companies and do not any more rely on the only purchaser but offer their products to number of them. New opportunities for SMEs
are expected in underdeveloped regions also from EU structure funds. At the same time the SME clusters around old, dying industrial "dinosauruses" (such as metallurgy works in Northern Moravia) must be reshaped and reoriented into new dynamic international players.
Specific impact should be pointed out: Still prevailing relatively insufficient enforcement of law has hampered SME development as SME has not been often able to cash their receivable. Legal services for litigation were too inefficient, costly and especially have been coming too late due to SMEs´ fragile working capital. Newly created clusters around new FDI players bring new internal and external contractual architecture that improves behavioural patterns of Czech SMEs as well as their clients and business is getting less risky then.
The results of our field research survey based on 195 respondents from SMEs, interviews with experts and three SME case studies have shown limited optimism of the Czech SMEs regarding the foreseen impacts of SMEs joining EU single market. Another "Eurochambers field research" produced from Czech side by Czech Chamber of commerce with smaller sample of around 100 SMEs (48% of 207 companies) independently confirmed number of our findings that were subject of its interest. The most important was limited optimism of Czech SMEs (Smejkal (2001)).
Downloadable: OP 2001_01_Mejstrik, Zemplinerova

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