The development of small and medium business: of Kazakhstan and foreign experience

The article presents the results of research of tendencies of development of domestic small and medium-sized businesses, assessed in comparison with other countries. Comparative analysis of the development of the SME sector of Kazakhstan and other countries shows noticeable gap in our country on such indicators as the contribution of SMEs to GDP and employment. World experience shows that if the state wants to develop dynamically and steadily, its socio-economic programs should always include measures to stimulate small  and medium business. The experience of foreign countries shows that the main financial instrument of the innovation policy in SMEs is the use of state budget funds, although the indirect tool of state support for research and development through tax incentives is also important. Thus, the leading role of the state in the development of the innovation process should manifest itself not only in direct funding, but tax incentives and high-tech business, and in encouragement of investment in high-tech industry. The role of small business innovation is determined by such important aspects as a contribution to the production of GDP, the impact on the structure of the economy, creating a competitive environment, the growth of effective demand, the development of scientific and technological progress, as well as in solving social and political problems. In the current difficult situation it SMEs can act as a stabilizer, and therefore entitled to the appropriate attention of society and state. 

The main major component of national economies of developed countries is small and medium enterprises (hereinafter SMEs). Of course, in turn, large enterprises determine the scientific, technical and industrial potential of the country, the SMEs, the most common forms of business life. They provide stable development of the country, as social element, and economic. Increased dynamism, flexibility, innovative activity, ability to quickly create new industries and generate new jobs is the main differences between the SME sector.

The basis of the economy of any state is the development of small and medium-sized businesses. When there is no development of entrepreneurship in the country, it is impossible to talk about stability of the macroeconomic situation in the state. Kazakhstan immediately after independence, the development of small  and medium business as an important direction of the economy [1].

A priority of state policy was comprehensive support for small and medium-sized businesses.And despite the difficult economic situation in the country in the early and mid  90-ies  of the  twentieth  century,  the number of subjects of small  and average  business  and  the  number  of  people employed  in  this sector grew constantly.  The  crisis  economic  situation   which   developed   in   our   country   in   mid-2015 and continued up to the present time, not much impact on the number of active subjects of small and average business.

The total number of active subjects of small and average business in the Republic on March 1, 2016 has made more than 1 million 300 thousand. The share of this sector in GDP is about 25 %. This figure again emphasizes the importance of state support of small and medium-sized businesses.

According to the statistics Committee of the Republic of Kazakhstan as of March 1, 2016 the number of active subjects of small and average business, in comparison with the corresponding date of the previous   year decreased by 1,5 %.The total number of subjects of small and average business, the share of individual entrepreneurs made up of 72.5 %, farming – 13,7 %, legal entities of small business – 13,6 %, legal entities medium enterprises – 0,2 % (Table).

As can be seen from table 1, the most active in this sector are the residents of South Kazakhstan, Almaty and East Kazakhstan regions, as well as the inhabitants of the cities of Almaty and Astana. In most other regions, the number of active subjects of small and medium enterprises is much less. Despite the overall reduction of active subjects of small and average business, the number of legal entities small business by  March 1, 2016 was increased by almost 20 % in comparison with the previous period. According to the Agency statistics, the share of contribution of SME in GDP in our country at the end of 2016 amounted to 31.7 %. However, it is too low. Therefore, the state set a strategic goal by 2020 to increase the share of   SMEs in GDP of 7-10 %.

T a b l e

The number of active subjects of small and average business on March 1, 2016 [2] 

It should be noted that the low contribution of SMEs to GDP (20,2) compared to developed countries (Germany – 57 %, UK – 52 %, US – 52 %, France – 50 %) is caused by the fact that a large share of GDP creates big business (7% big business creates 70 % of GDP represented by oil and mining sectors). This situation reflects the structure of our business, for the most part concentrated in the primary industries [2].

Comparative analysis of the development of the SME sector of Kazakhstan and other countries shows noticeable gap in our country on such indicators as the contribution of SMEs to GDP and employment. In the world practice a large number of small and medium-sized companies and enterprises. For example, in the US, the EU operates more than 20 million companies in China, there are about 40 million small and medium enterprises, while in Kazakhstan two dozen times less. However, when comparing it is necessary to remember about the objective specific features of development of entrepreneurship in different countries, due to historical and cultural traditions, level of economic development,and the legislative and institutional conditions of SME sector support in one country or another [3].

The share of annual volumes of output by subjects of SME in the United States, the European Union  and Asia (China) ranges from 52 % to 60 % (picture 1). In Kazakhstan, this share is almost 3 times lower and amounts to 17 % [2]. In foreign countries small and medium business is the main employment of the population, thus contributing to the innovative potential of the economy. The share of employed in small and medium-sized companies in developed countries and also in Russia makes approximately 50 % to 75 % economically active population. In Kazakhstan the share of the population employed in the SME sector in total employment is also much lower than in developed countries in 2015, this figure has reached level 37 %.

At the same time, the share of SMEs in total all enterprises in Kazakhstan is 95 and almost reached the world average values of the same indicator, which is 98-99 % [2].

Figure 1. Comparisonof macroeconomic indicators of SMEs of Kazakhstan with other countries in 2015 

Thus, to some extent, modest in comparison with developed countries the contribution of small and medium-sized enterprises of Kazakhstan in production of value added and job creation due to the current sectoral structure of production, which, in turn, is determined by the availability of natural resources, technologies and production scales [4].

On the sectoral structure of the Kazakhstan SME sector also differs from developed countries. If the SMEs in our country are mainly based, as noted earlier, in the sphere of wholesale and retail trade – their share is 44 %, in agriculture – 19 %, in economically developed countries, the structure of SMEs by sector looks different. So, in the US, obviously the predominance of the service sector (58 %), more than 20 %  small businesses operates in the spheres of  construction and trade, while the industry employs only 2 %  small businesses. The EU is also the largest number of SMEs is concentrated in the service sector – 23 %, at the same time in the sphere of construction and trade, 33 % and in the industries employing 7 %.In Russia, as in Kazakhstan, the largest share in sectoral structure of SME to trade, while agriculture employs only 3 % SMEs and in industry – 16 % (Fig. 2).

Figure 2. Sectoral structure of small and medium business in the world for 2015

The President of the Republic of Kazakhstan Nursultan Nazarbayev in his message to the people of Kazakhstan New Kazakhstan in the new world tasked: state holding companies which play an important role in the diversification of the economy, should encourage, support and involve in the process of small and medium business of Kazakhstan [5]. Our Republic adopts the successful experience of advanced countries, and therefore the attention of the Government of the Republic is constantly tied to the mechanisms of improvement of state support of small and medium businesses. The experience of developed countries shows that in countries with developed market economy, small and medium business has a significant impact on solving social problems, increasing the number of employees and the development of the national economy. The government has taken several measures for development of small and medium-sized businesses [6].

However, despite all efforts by the state to support small and medium businesses, entrepreneurs working in this sector, and those who wish to do their work, there are many doubts. The main issue is the high interest rates on loans. Bets 14-20 % are not the most attractive, and many are deterred. In developed countries rates for lending to small and medium businesses is much lower. For example, in Canada, a starting entrepreneur can obtain a loan for 10 years at 2-3 % per annum, in Japan encouraged the unification of small enterprises into cooperatives, and in this case, entrepreneurs can get a loan at 2-4 % a year, in Singapore when obtaining a loan for a period up to 4 years has a rate of 5 % per annum, and in obtaining long-term loan of 6.5 %. In these countries, due to favorable conditions from the state, the share of small and medium enterprises in GDP is 50 %, in Kazakhstan this index is about 25 [2].

Interest rates on loans is not the only stopping factor. For the successful development of small and medium businesses need to take some additional measures:

• to educate representatives of small and medium business in all areas – ranging from registering your business to use distance learning;
• to simplify rules for licensing, registration, certification etc;
• to improve the tax system for entrepreneurs;
• to improve financial and credit policy of small and medium businesses, leasing service;
• to simplify financial reporting and accounting;
• to ensure the safety of business;
• to improve information support of entrepreneurs

For the effective functioning of small and average business it is necessary to strengthen public support for this in the first place, it is necessary: to form a concept, to prioritises and justify the role of small business in the economy; to develop public policies for the support and development of small and medium entrepreneurship in the economy; improve regulatory support and development of small and medium businesses; to improve legislation in the sphere of investments and creation of favorable investment climate in the country; to improve regulatory support and development of small and medium businesses; to improve legislation in  the sphere of investments and creation of favorable investment climate in the country; to develop financial and credit mechanisms and to introduce new financial technologies to the development of small and medium-sized businesses. When the right conditions are created, providing comprehensive support for small  and medium businesses at the national and regional levels and opportunities for relative risk-free financing (loan), extract the normal rate of profit, then the investors inevitably flock to the small and medium business, thus contributing not only to the formation and development of the latter and increases the efficiency of the economy as a whole.

World experience shows that if the state wants to develop dynamically and steadily, its socio-economic programs should always include measures to stimulate small and medium business. Today, in developed countries SMEs account for between 40% to 90% gross domestic product (GDP). And therefore it is quite natural that the governments of these countries place a priority on supporting the sector [7].

Small innovative business is developed primarily in the field of scientific and technical development, debugging and implementation into production of discoveries and inventions, many innovations having a risky, but promising in nature. The term «innovation” in the world economic literature is interpreted as the final result of innovation activity, has been embodied in the form of new or improved product introduced on the market, new or improved technological process used in practical activities. Small innovative business in the innovation process performs a consolidating function, interacting not only with large corporations, but also the scientific sector (universities, academic institutions, government laboratories, etc.). The creation of small firms allows you to implement a certain amount of new knowledge that arise in research establishments [8].

Thus, we see that small and medium-sized innovative firms are technological leaders in emerging sectors of the economy, opening new market segments, developing new industries, increasing knowledge intensity and competitiveness of production and thereby contributing to the formation of the new technological order. Given the current modern conditions of development of the economy and observed trends of increased dependence of the country's wealth and innovative capacity there is a need for the development of small enterprises of a new type corresponding to an innovation economy, it can be small innovative enterprises.

The main engine of industrial-innovative development is the private sector, and the state acts as a catalyst and initiator in raising the competitiveness of the economy and facilitates the creation and modernization of small and medium enterprises by involving them in innovation processes. 

The advantages of small and medium enterprises in the field of innovations:

• quick adaptation to changing external conditions economic activity;
• flexible control of production process, reached by minimizing formal evaluation criteria and a simplification of various procedures;
• flexibility and internal communications;
• the narrow specialization of scientific research and development of a small circle of creative

The emergence and development of innovative entrepreneurship in small businesses due to a number of socio-economic factors:

• the limitations of large corporations in the field of development and innovation (bureaucracy, features of the organizational structure, significant cost pressures, );
• the emergence of new knowledge-intensive sectors of the economy, where the ability to operate a small business and there is a possibility of high returns;
• the ability of small businesses to implement innovative activities at the appropriate level based on the use of advanced achievements STP and the tendency to use such achievements;
• increasing demands for flexibility, liquidity, business mobility;
• comprehensive state support to foster innovation, increase employment;
• segmentation of consumer demand for high-tech products (individual customer).

Studying foreign experience is important. We can distinguish the following structural sources of economic development of the country:

• development on the basis of the factors of production;
• development through investment;
• development through

Every country uses all the sources of development. For example, in many developed countries small enterprises are created and are funded by various budgetary programs.

The United States has several programs to support innovation Innovative research in small business (SBIR) and the Transfer of technology for small businesses.

The basis of the program SBIR is a thematic research and development work carried out by innovative SMEs, subsidized by the state structures.

A different program of stimulating the development in the US – technology Transfer for small businesses is aimed at creating joint ventures and innovation projects between science and business organizations.

Israel has a fairly large Luggage innovative engineering, which was quite difficult to bring to market  due to the shortage of funds to private entrepreneurs. To solve this problem, the government has taken a number of constructive attempts of the innovative sector of the economy.

Consider a Program of Israeli venture capital Fund Yozma. Most of the funds generated Fund was directed exclusively to the financing of start-UPS involved in the development of technological innovation in such sectors as communications, software, information technology, medical equipment and biotechnology, national (domestic) security.

The program was successful because in the activities of venture capital funds the state had limited participation, key decisions were invited foreign specialists.

The economy of the Republic of Korea is considered one of the most dynamic and strong – she takes  the 4th place among the countries of the Asia-Pacific region according to nominal GDP.

The development of SMEs is characterized by the fact that the South Korean government actively supports the development of innovative SMEs in several strategic areas:

• the promotion of SMEs through the extension of the public procurement system – the creation of a system of mandatory competition between SMEs, the creation of the System increase percentage of planned procurement;
• integrate large companies with SMEs;
• the development of non-financial instruments to support SMEs – creation of a consulting, technical, personnel centers, carrying out of training of training, the program of assistance to

Support for SMEs is one of the priorities in the economy of France. In the structure of state power has a special body dealing with problems of entrepreneursthe Ministry of small and medium business, trade and crafts. the government and specialists of the Ministry developed various assistance programs to small and medium enterprises to stimulate production and create new jobs. 

Effectiveness of policies to support SMEs in France should be judged on the results achieved. In  France, about half of the business belongs to small business. Just a small business in France involved more than 15 million people, accounting for 54% of total employment. The share of output of small enterprises in the GDP varies in the range from 55% to 62%.

For small business France is characterized by strong ties with major companies. Work guarantee funds, which provide assistance in finding sources of funding for budding entrepreneurs.

French tax law provides for the application of the regime of simplified taxation for small businesses. Small innovative enterprises during the first two years are completely exempt from income tax, and only since 6 years of existence, pay this tax in full.

Important role in supporting small businesses played by the state organization OSEO in 2005, bringing together the French national innovation Agency ANVAR, the development Bank small and medium enterprises BDPME and French insurance company capital Sofaris. The mission of OSEO is to provide assistance and financial support to SMEs. Sharing the risk, the company facilitates the access of SMEs to financing through partnerships with banks and investors.

The main activities of the OSEOare:

• support and Finance innovation, technology transfer and development of innovative projects with real prospects;
• guarantee;
• funding of technology investments and operating cycle alongside the banks;
• through its regional network programs, covers all regions of France [9].

The experience of foreign countries shows that the main financial instrument of the innovation policy in SMEs is the use of state budget funds, although the indirect tool of state support for R &d through tax incentives is also important.

Thus, the leading role of the state in the development of the innovation process should manifest itself not only in direct funding, but tax incentives and high-tech business and encouragement of investment in high-tech industry.

The experience of developed countries shows that the role of small business is determined by such important aspects as the contribution to the GDP, impact on the structure of the economy, creation of competitive environment, growth in consumer demand, the development of scientific and technological progress, as well as in solving social and political problems.

Kazakhstan adopting the successful experience of developed countries, because the improvement of mechanisms of state support of small and medium business is constantly the center of attention of the head of state and Government of the country.

New quality of growth must be ensured the transition to innovative content development. In this regard, the President of RK N.A. Nazarbayev drew attention to the correct understanding of innovation. This is a  new technology that significantly improve the quality of life of the population and reduce the price of access to this quality compared with the old technology [10].

Development, support and protection of SMEs, and of innovative development is very well reflected in the annual messages of the President of Kazakhstan, State program of forced industrial-innovative development 2010-2014, the program «Business Road map 2020”, «The concept of innovative development until 2020”. 2015 should be fully operational national innovation system, and by 2020 it should already yield results in the form of development patents and prepared technologies introduced in the country.

It is necessary also to stimulate private companies to invest in research and innovation. I would like to emphasize the introduction of innovation is important, but it is not an end in itself. Comprehensive support of entrepreneurship – leading force in the national economy. Domestic entrepreneurship is a driving force in the new economic policy. We must create conditions so that people could try themselves in business, become a full member of the country's economic transformation.

A special role in the further development of small innovative business in Kazakhstan, will play an international exhibition of EXPO 2017 held in Astana. New serious impulse to development will receive small and medium businesses. It is expected high activity in the development of certain directions of innovation in the public sector, the formation of the innovation environment, increasing the efficiency of science, the development of effective system of technologies commercialization, stimulation of innovative activity of business, building regional innovation systems, the development of innovation infrastructure and international integration for innovations development. 

For owners of small and medium business conduct «EXPO-2017” in Astana may become a good opportunity for review and subsequent introduction of new energy saving technologies, search for investors and ideas for further business development. Thus, the role of small business is determined by such important aspects as the contribution to the GDP, impact on the structure of the economy, creation of competitive environment, growth in consumer demand, the development of scientific and technological progress, as well as in solving social and political problems.

Thus, small and medium business is the basis of stability of a modern civil society and its development will depend on the welfare of all Kazakhs. SMEs not only performs an important social role, supporting the economic activity of most of the population, but also provides considerable tax revenues to the budget. In the current difficult situation, the SME can act as a stabilizer, and therefore entitled to the due attention of society and the state. 

References

1. Poslanie Prezidenta Respubliki Kazakhstan N.Nazarbaeva narodu Kazakhstana «Novoe desiatiletie – Novyi ekonomicheskii podieem – Novye vozmozhnosti Kazakhstana» [The message of the President of the Republic of Kazakhstan N. Nazarbayev  to people of Kazakhstan «New decade – New economic growth – New opportunities of Kazakhstan»]. zakon.kz Retrieved from http://online.zakon.kz/Document/?doc_id=30559064 [in Russian].
2. Ofitsialnyi sait Ahentstva RK po statistike [Official site of the Agency for statistics of the RK]. Retrieved from http://stat.gov.kz/ [in Russian].
3. Morozov, Yu.P. (2000). Innovatsionnyi menedzhment [Innovation management]. Moscow: UNITY-DANA [in Russian].
4. Poslanie Prezidenta  Respubliki  Kazakhstan  —  Lidera  natsii  Nursultana  Nazarbaeva  narodu  Kazakhstana  «Stratehiia «Kazakhstan 2050»: novyi politicheskii kurs sostoiavshehosia hosudarstva» [The message of the President of the Republic of Kazakhstan — Leader of nation Nursultan Nazarbayev to people of Kazakhstan «Strategy Kazakhstan 2050: new political course of the established state»]. online.zakon.kz Retrieved from http://online.zakon.kz/document/?doc_id=31305418 [in Russian].
5. Poslanie Prezidenta Respubliki Kazakhstan N.Nazarbaeva narodu Kazakhstana «Novyi Kazakhstan v novom mire» [The Message of the President of the Republic Of Kazakhstan N. A. Nazarbayev to people of Kazakhstan «New Kazakhstan in the new world»]. zakon.kz Retrieved from http://online.zakon.kz/Document/?doc_id=30090760 [in Russian].
6. Goncharov, V.V. (1998). Novye prohressivnye formy orhanizatsii v promyshlennosti [New progressive forms of organization in industry]. Moscow: MNIIPU [in Russian].
7. Malyi i srednii biznes. Dvoe s lozhkoi, ne schitaia bankirov [Small and medium businesses. Two with a spoon, not counting the bankers]. (2008). Mezhdunarodnyi delovoi zhurnal KAZAKHSTAN – International business magazine KAZAKHSTAN, 5/6. com Retrieved from http://investkz.com/journals/58/597.html [in Russian].
8. Rol innovatsii v razvitii sovremennykh tekhnolohii [The role of innovation in the development of modern technologies]. (2002). Ekonomika i upravlenie v zarubezhnykh stranakh. Informatsionnyi Biulleten – Economics and management in foreign countries. Newsletter, 2, 34 [in Russian].
9. Malyi i srednii biznes v Kazakhstane [Small and medium businesses of Kazakhstan]. kz Retrieved from http://www.keden.kz/ru/bussines_kz.php [in Russian].
10. Turgimbaeva, N. (2008). Innovatsii i riski [Innovation and risks]. Almaty: Kazakh National University [in Russian].