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The SMEs Development Constraints in Transitional and Developing Countries: Georgia & Romania (2018-2019)

Field of study: Development economics, SMEs Development

Georgia has been the world frontrunner in terms of economic reforms. Its economy experienced a double digit growth before the 2008 crisis and it has been the receiver of a record high volume of the foreign direct investments. However, the small and medium size enterprises of Georgia are among the most inefficient in the world, which prevents the inclusive development of a narrow market thus creating the risks of a spiralling downturn. Romania too has been among the fastest growing European Union economies. Despite the impressive growth of the national income, Romania experiences severe uneven growth across its regions. The existing surveys of the small and medium enterprises do not give an answer to such “abnormalities”; however, they give an impression that the current failure is created due to the “transitional process” of the economies of both countries, among other reasons.
The aim of this paper is to research the event in detail through the qualitative methodology, to be able to identify very specific reasons for this deviation and develop a theory based on the empirical findings which would explain or contradict the “transitional” phenomena. Also, to identify the specific drivers – the categories behind the “transitional” process that have strong negative influence over the developments of small and medium size enterprises. The research used unstructured as well as semi‑structured interviewing
instruments to identify the positive and negative impact factors. The findings suggest the “transitional” process from the socialist bloc countries to the market economies has strongly negative input in the enterprises development; however the findings also suggest that the relative underdevelopment during the “socialist governance” does not play an important role; it is rather its economic structure
prohibiting individual entrepreneurship that is the most negative muddling force. In addition, the in‑depth interviews suggest that in both countries the “socialist past” has been an additional disruptive layer to the already existing social‑economical texture, thus its sole role might be exaggerated. It also suggests the governments were passive in correcting the “distortion” and the correction or transition process was left on its own, however heavily contributed to by other economic partners. The findings fully support a holistic approach theory. Based on the findings it is possible to conclude that the pro‑active “holistic involvement” approach is the only viable solution to improve the development speed of the small and medium enterprises in Georgia and Romania.

Keywords: SMEs, Small and Medium Enterprises, transitional economies, Georgia, Romania

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