Swot analysis en

Importance of the sector of small and medium-sized enterprises (SMEs) for the Bulgarian economy

Diana Hristozova, senior researcher, Center for Economic Development

The 1998 National Statistical Institute data shows that 92.4% of the enterprises (total number 205 643, without the private agricultural farms which do not have the status of an enterprise) are micro-enterprises, 5.41% - small and 1.05% medium-sized, i.e. about 98.5% of all enterprises come within the SME sector. For the sake of comparison, 99.8% of all enterprises in the European Union are SMEs and provide 66% of the total employment.

The biggest share of SME, by economy branches, belongs to healthcare, trade, education, hotels and public catering - from 99.78% to 99.9%, and the smallest - to production and distribution of electricity, gas, and water and the mining industry - between 65.44% and 68.32%¹. The sector of small and medium enterprises in Bulgaria generates 48% of the total income and holds 22,8% of the long-term tangible assets of all enterprises. The increase in the number of employees in SMEs in 1998 is by 51 742 people and represents 88.74% of the reported reduction in unemployment rate for the country (58 305 p.) That fact shows that small and medium-sized businesses are getting a firm position as the major factor to reduce unemployment and generate new employment opportunities².

In 1998 SME account for 46.2% of the turnover of all enterprises. Their contribution to the gross value added for the same year is as follows: micro-enterprises - 9.08%, small – 9.94%, medium-sized - 6.36%, SMEs total -25,38%³

The achieved net profitability (expressed as a ratio of the net profit to sales revenues) for the entire economy in 1998 is 0.69%, for micro-enterprises - 3.21%, for small enterprises - 0.03%, and for medium-sized enterprises - 0.05%. It should be noted that in the period 1996 - 1998 only micro-enterprises have reported positive net profitability for all three years, while the for the entire economy in 1996 companies report negative profitability - -0.85%, and the biggest companies (with over 250 employees) report negative profitability of - -0.25% even in 1998. Generally, the data show that SMEs exhibit higher flexibility and recover much quicker after a crisis period.

The SME share in 1998 employment rate totals 44.1% (in 1996 it is 36.7%, and in 1997 - 41%) out of which: - micro - 20.5%, small - 14.5%, medium-sized - 9.1%). Considering that in 1998 an average Bulgarian enterprise employed 8 people, it can be inferred that SME own considerable potential for additional employment if the conditions for the development of their business are favourable, and can help to reduce the comparatively high unemployment rate at regional and national level.

The SME share in 1998 imports is 38.52% (micro enterprises - 15.13%, small - 17.7%, medium-sized - 5.69%), and in exports - 22.12% (micro enterprises - 9.53%, small - 7.85%, medium-sized - 4.74%).⁴

Analysis of the National Statistical Institute information for 1998 by economic sectors and industry groups shows that SMEs in the technology sectors comprise 98.8% of all enterprises in those sectors (see Appendix 5, Table 43). The SME total for the industry branch is 95.4%, and the highest relative share of 96.8% belongs to production of medical equipment, precision apparatuses and instruments, where obviously the highest diversification in the size of enterprises has been achieved, while the lowest - 89.9% - belongs to production of cars, trailers, semi-trailers, spare parts and accessories for them. The highest is the share of micro-enterprises in production of transportation vehicles, excluding cars - 90.3%, of small and medium-sized enterprises in production of cars, trailers, semi-trailers, spare parts and accessories for them - respectively 24.6% and 5.1%. The SMEs total 99.7% in services, featuring the highest relative share in businesses providing designs and programs and related services - 99.9%, and lowest - in scientific research - 93.1%.

The share of technology sector related SMEs in employment totals 44%, in the “Industry” branch - 36%, in the “Services” branch - 66.3% (see Appendix 4, Table 44) The share of technology sector related SMEs in turnover is on the average 46.2%, in the “Industry” branch - 18.6%, while in production of office and electronic and computing technical equipment it reaches 59.2%, in the “Services” branch - 69.6%, and in businesses providing designs and programs and related services - 86.2% (see Appendix 5, Table 45). The average turnover per employee (as a measure of clear labour productivity) at 100 average index per each branch group (see, Appendix 5, Table 46), in the “Industry” branch is the highest for micro-enterprises and medium-sized enterprises in production of office and electronic and computing technical equipment - 424 and 257 respectively (where the greatest deviation of 168.4% can be observed), in small enterprises for production of cars, trailers, semi-trailers, spare parts and accessories for them - 206. Generally, average turnover per employee at big enterprises, in most technology sectors in the branch is below 100, being the lowest in production of office and electronic and computing technical equipment - 53. That proves the relatively high efficiency achieved by SME following that indicator. Services feature the highest average turnover per employee in medium-sized enterprises providing designs and programs and related services -253, but generally it is 100 or slightly over for the big enterprises in the sectors of the branch. (see Appendix 4,Table 47)

The analysis of the data for operational profitability (expressed as a ratio between /operational revenues – operational expenses/ : sales revenues x 100) of technological SMEs in 1998 (see Appendix 5, Table 48Table 47) shows that for the “Industry” branch it is the highest - 8.6%- in micro-enterprises (and in the production of electric machinery and apparatuses it reaches 14.9%), 2.9% for small enterprises (production of medical equipment, precision apparatuses and instruments - 8.6%), 2.85 for medium-sized enterprises (production of cars, trailers, semi-trailers, spare parts and accessories for them - 7.8%) and 4.9% for big enterprises (production of transportation vehicles, excluding cars - 10.5%). Operational profitability is the lowest in medium-sized enterprises for production of transportation vehicles, excluding cars - -39.5%. The services feature operational profitability of 4.3% in micro-enterprises, 2.2% in small enterprises, and 1.2% in medium-sized enterprises, while in big enterprises it is 5.7%. If only SMEs are considered by sector in the industry, the lowest operational profitability is shown by micro-enterprises for scientific research - - 16.4% (where only big enterprises show positive operational profitability of 6.1%), and the highest belongs to micro- enterprises providing designs and programs and related services - 10.7%.