Factors influencing success of small rural Polish enterprises

1. Factors influencing success of small rural Polish enterprises Wadim Strielkowski, National University of Ireland, Galway Research supervisor: Prof. Michael Cuddy A presentation at Raymond Pierre Bodin Conference Centre, The European Foundation of the improvement of living and working conditions, Dublin 2nd of June 2006

2. Research question and research objectives Research question: What factors influence success of small Polish rural enterprises? The aim of this research is: to identify factors influencing Polish rural small enterprise success (measured by profits per employee and rate of revenues). Two sets of hypotheses are tested: • Factors internal to the firm influence success of Polish rural small enterprises; • Factors external to the firm influence success of Polish rural small enterprises.

3. The role of small enterprises in Poland • SMEs (< 249 employees) constitute 99.8% of all Polish enterprises; • Micro-enterprises (<9 employees) constitute 95.2% of all enterprises on the Polish market (Ministry of Economy of the Republic of Poland, 2004). • The role of small enterprise is improvement of quality of life: • Creation of employment in rural areas; • Provision of opportunities for rural population; • Economic stabilization in rural Poland.

4. Importance of small enterprises (1) • In most EU countries micro-enterprise constitute 93% of all economic subjects accounting for 34% of total employment (Observatory of European SMEs, 2003). • Special place in the national economy: • Contribute to the stability of the economy and labor market; • Capable of reducing exposure to asymmetric shock; • General adaptability and flexibility; • Key driver of economic growth

5. Importance of small enterprises (2) • Stimulating competition and market efficiency; • Job creation (creation of employment and reduction of unemployment); • Welfare enhancing due to the previous two; • Product diversity and innovation.

6. The focus of this work: types of enterprises • Rural micro-enterprises (<9 employees); • Food-processing sector (bakery, meet-processing, beverages, etc.); • Two selected regions: Mazowieckie & Warmia-Mazury

7. The focus of this work: location

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

9. Results from the data analysis (2): size of enterprises in sample

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

11. Results from the data analysis (4): enterprise innovation

12. Results from the data analysis (5): enterprises sales

13. Statistical tests: distribution of sales • Significant negative relationship between the size of the enterprise and the fact whether the enterprise has been distributing its production on the local markets only or attempted to expand to other markets – [U (N= 300) = -5.206, p< 0.01]; • Significant negative relationship between the enterprise legal form (physical entity) and the fact whether the enterprise has been distributing its production on the local markets only or attempted to expand to other markets [ρ( N=300) = -0.1198, p<0.05]; • Significant relationship between the enterprise legal form (company limited) and the fact whether the enterprise has been distributing its production on the local markets only or attempted to expand to other markets [ρ( N=300) = 0.2344, p<0.01].

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

15. Statistical tests: obtaining the credit • Significant relationship between the enterprise legal form (family firm) and the fact whether the firm has obtained any credit in the last three years [ρ( N=299) = 0.1375, p<0.05]; • Negatively significant relationship between the enterprise legal form (company limited) and the fact whether the firm has obtained any credit in the last three years [ρ( N=299) = -0.1018, p<0.01]; • Significant relationship between the enterprise legal form (cooperative) and the fact whether the firm has obtained any credit in the last three years [ρ( N=299) = 0.1340, p<0.05].

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

17. Statistical tests: Payments from EU SAPARD • Negatively significant relationship between the enterprise size and the fact whether the enterprise received any payments from EU SAPARD program – [U (N= 277) = -1.797, p< 0.1]; • Significant relationship between the enterprise legal form (family firm) and the fact whether the enterprise received any payments from EU SAPARD program – [ρ( N=300) = 0.1592, p<0.01];

18. Empirical approach Data: survey questionnaires of 300 rural micro-enterprises in food-processing sector in Mazowieckie and Warmia-Mazury provinces, Poland Empirical model: single-equation Tobit, OLS

19. Tobit estimates for small rural enterprise success * significant at 10%; ** significant at 5%; *** significant at 1%

20. OLS estimates for small rural enterprise success * significant at 10%; ** significant at 5%; *** significant at 1%

21. Profit per employee (N=300) Average revenues (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*** 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* Owner/manager age** Owner/manager age squared** Certificates obtained by the enterprise***

22. Results: • The effect of factors internal to the firm and external to the firm on Polish small rural enterprise success is significant: • Positively significant for: Owner/manager risk, owner/manager age, previous experience, enterprise regional location, enterprise innovation, Internet in the enterprise, certificates; • Negatively significant for: enterprise age, enterprise size, financial help of local governments, organizational forms of enterprise. The result shows that support of innovation, education and new technologies in Polish rural enterprises can increase their success. The results are also robust.

23. Policy implications (1): rural enterprise owner/manager • Development of supports for older owners/managers; • Simplifying the constraints (concessions, etc.) for enterprises established by the owners/managers with previous sector experience; • Promotion of entrepreneurial tradition & increasing business ethics in the country.

24. Policy implications (2): rural enterprise • Adopting different strategies for enterprise of different size; • Adopting different policy for enterprises of different age; • Using different criteria for enterprises from different locations (bank loans, credits, assistance, etc.); • Promoting innovation in enterprise rather than increasing financial streams; • Supporting new technologies in enterprises; • Directing EU funds to the enterprises effectively.

25. Some conclusions • Small Polish enterprises in food-processing sector are the key player in Polish economy; • The evidence suggests that there are: (i) areas in which those enterprises can achieve more success and (ii) means to enhance this success; • Research needs to be undertaken in order to identify the factors and means how to increase this success; • Crucial for economic development in Poland & increasing rural and environmental sustainability in Poland.