Challenges for Romanian small and medium-sized entreprises on the European single market.

Bretcu, Angela ; Milos, Marius

1. INTRODUCTION

The contribution of small and medium-sized companies to the economic growth is very important in most European Union's member states. If traditionally the small firms were acting mainly on national internal markets, nowadays, a larger number of SMEs manage to reach the global markets. Approximately one fifth of the small and medium-sized companies, involved in productive activities in the OECD countries, achieve in latest times a percentage of 10 to 40 of the turnover from businesses developed by activities on external markets (Klapper et al., 2002). The way in which companies are able to obtain finance may offer an important advantage for future development. Romanian SMEs have been confronted for a long period of time with a lack of financial support.

2. THEORETICAL BACKGROUND

The SMEs participate with 25% to 35% to the world industrial exports and have a significant contribution to the foreign investments achieved at global level. Furthermore, regarding the situation for the European Union approach, it could be stated that the SME sector contributes with an important part to the GDP formation and to diminishing the unemployment rate (60% of GDP and approximately 70% of the total work force).

The lack of competitiveness in Romania of the SMEs sector is due, mostly, because of their maladjustment to the European standards. SMEs in Romania face a low internal demand, instability of the legislative framework and there is also little correlation of the active work force to the qualifications requested by the market workforce. The Romanian SMEs may become vectors of the economic growth only in case they will manage to face the global competition and the new knowledge based economy. The lack of present-day competitiveness of SMEs is also present because of the difficulties in obtaining the necessary capital for new investment projects and of the existence of serious constraints towards financing alternatives. Unlike the large economic entities, the SMEs do not have the possibility to access the financing opportunities offered by the capital markets. These continue to be limited to self-financing, requesting loans from banks, financing through leasing and also some of them use factoring, in order to receive the money quicker from their solvable debtors. Consolidating positions on the European Unique Market requires increasing competitiveness and also profitability for the developed activities. Implementing some investment strategies depends now also on the access to the new financing sources supplied by structural European funds. The financial aid obtained through structural funds refers mainly to the introduction of new technologies, implementation of some quality systems and improving environment protection requirements.

Romania's accession to the European Union has been perceived by most SMEs as a major opportunity for their future development. Considering a recent survey on the factors that represent the most positive impact of the European Unique Market on the SMEs activity in Romania, there are very interesting results worth being analysed. Firstly it has been indicated a better access to markets( by 35.67 % of companies), secondly the improved legislation (31.67 %), then the existence of some better and /or cheaper suppliers (19.76 %), access to new technologies (5.14 %), more fair public procurement procedures (3.76 %) and better cooperation regarding innovation process with firms and public institutions (3.43 %). A graphic representation is supplied in diagram 1.

[FIGURE 1 OMITTED]

So within an economy based on knowledge, the competitiveness of Romanian SMEs depends on their capacity to value adequately the existing financing opportunities. Only in this way, the SMEs sector may become the backbone of the economy, role which is fulfilled successfully in most countries of the European Union.

3. TRADITIONAL FINANCING MEANS USED BY ROMANIAN SMEs

As regards the financing sources used by SMEs, an important step for choosing the bank loans as external financing option was achieved in 2002 by creating the National Fund for Loans Guaranteeing. Partnerships with the most important Romanian commercial banks have been consolidated, determining the stimulation of crediting activity and developing the investment capacities of SMEs, facilitating their access to bank credits despite the existence of some insufficient guarantees. Through the guarantees supplied, the Fund contributed to maintaining and creating approximately 35,000 direct jobs. The first three positions regarding the activity areas where guarantees have been granted are held by commerce, services supplying and constructions. Equal percentages have been recorded for the food industry, transportation and wood processing areas (White Book of SMEs, 2006).

The obtained results confirm that good business plans improved the access to financing for many SMEs, although there was a significant lack regarding sufficient material guarantees or financial resources (please see table 1).

Although the Guaranteeing Fund has improved its efficiency and the capacity to support a higher number of small and medium-sized companies regarding the access to financing, it is still necessary for the existing facilities that companies adapt to the several requirements of the European Union. Therefore it is important to enhance the added value created by the SME sector and to increase the investments volume achieved by the small and medium-sized companies. There are still certain constraints connected to financing that might be compensated through accessing the new financial sources under the form of structural funds designated to the investments in new technologies and implementing quality systems. Structural funds are also available for consultancy services, consultancy which may help the beneficiaries of structural European funds.

Romania's recent accession to the European Union has a positive impact on the Romanian economy through valuing also the additional opportunities SMEs have received also regarding the financial support.

The financing perspectives of SMEs show a multitude of funds meant to bring important contributions to increasing the competitiveness of SMEs, a prerequisite for increasing the competitiveness of the whole Romanian economy.

The estimated value of structural funds granted to the SMEs sector is approximately of 800 million EUR for the whole period of 2007-2013. This financial aid is ensured within the European Regional Development Fund (ERDF).

Following a recently survey, it states that the financing manners used by SMEs in Romania were the following ones:

* 77.72 % of the companies supplied self-financing

* 47.32 % have obtained bank loans

* 29.71 % have used leasing

* 3.29 % used factoring

* 2.76 % have obtained loans from specialized financial institutions

* 0.54 % used other financing forms (credits from suppliers, natural persons and from shareholders, sponsorships)

* 0.08 % of the companies accessed the National Fund for Loans Guaranteeing.

This situation is due mostly to the difficult financing conditions existing in Romania, especially for crediting (red tape, high interest, large guarantees), but also to the opportunities held by some companies to finance their activities on their own.

If we consider the age of SMEs, it is found that the SMEs older than 15 years have the highest percentage (60 %) regarding financing through bank loans. This could be explained by considering that they are more trustworthy for bank institutions. At the same time, they hold the smallest percentage of companies undergoing self-financing (65%). In contrast, the SMEs with a low seniority choose financing sources under the form of self-financing (77.47 %). If we take into account the regions in Romania from where SMEs come, it can be seen that, in the West region, self-financing holds the most significant percentage among the traditional financing sources (85.14 %)

4. CONCLUSIONS AND FURTHER RESEARCH

Increasing the economic competitiveness and developing the economy based on knowledge is part of the six national development priorities comprised in the National Development Plan strategy. This objective focuses further on a variety of priority areas and sub-areas. By reaching the established economical targets, the existent social and economic gaps between Romania and the other European Union member states will be overwhelmed. Also the support for developing a strong SMEs sector is part of the stimulation social and economic development according to the Cohesion Policy of the European Union (National Strategic Development Frame, 2006).

It is very important for the Romanian economy to support also the development of the financial intermediation and of the capital market. In this way, the access to financing will be easier for SMEs and new investments could be targeted. It has been stated that only through permanent investments SMEs may be able to compete on a free market. The coming years must also be valued by spending wisely the European structural funds. These should diminish the existent development gaps within regions in Romania but also within different countries of the European Union.

5. REFERENCES

Klapper, L., Allende, V. S. & Sulla, V. (2002). Small and Medium-Size Entreprise Financing in Eastern Europe, World Bank Policy Research Working Paper, No.2933, Available from: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=63629, Accessed: 2009-02-01

*** (2006) http://www.fonduri-structurale.ro--2007-2013 National Reference Strategic Development Frame, Accessed on: 2009-02-01

*** (2004) http://www.aniimmc.ro--National Agency for Small and Medium Entreprises, Governmental strategy for sustaining and supporting the development of SME in the 2004-2008, Accessed on: 2009-02-01

*** (2006) http://www.cnipmr.ro--CNIPMR, White Book of SMEs, Accessed on: 2009-02-01

*** (2003) http://ecc.europa.eu--European Comission, 2003 Observatory of European SMEs, Accessed on: 2009-02-01

Tab. 1. Financial data at the level of year 2006 belonging to the
National Fund for Loans Guaranteeing for SMCs

 INDICATORS 2005 2006

Turnover (lei) 1,300,620 7,501,720
Net profit (lei) 3,179,580 10,206,000
Guarantees (millions EUR) 122