The current global economy provides almost unlimited opportunities for entrepreneurs and small businesses in particular. It stands to reason that analysts call globalization of small business and its active invasion of export markets as the main trend in the development of the business landscape in the 21st century. Uzbekistan, where the share of small business in GDP has already exceeded 56%, showing an increase of more than 25% over the last 15 years, has been evolving amidst the dynamic flux.
IN THE MAINSTREAM OF GLOBAL TRENDS
The final stage of the competition Tashabbus 2015 (Initiative) for entrepreneurs, artisans and farmers took place last week in the capital city Tashkent. It is often called a litmus test for assessing the state of small economy in the country and the latest trends in its development. This year’s competition has lived up to expectations. The competition was distinguished by a large number of participants focused on export-oriented production. The demonstration of their success stories is very important for the domestic private entrepreneurship, many representatives of which see the expansion to the international market as a very complicated process. The expansion to foreign markets is certainly not an easy challenge, but the representatives of ‘small economy’ have been turning into the key to unlock international trade barriers, reshape the global economy, and open up the potential for the own growth.
Experts believe that the current situation is best advantageous for businessmen to enter foreign markets. The crisis in the global economy has forced some large companies to leave the niches, or even completely withdraw from the market in many countries, until the situation stabilizes. This largely depends on the fact that multinational companies and corporations have a rather unwieldy structure, appearing unable to quickly refocus their production in the conditions of the falling demand and changing customer needs. Small businesses always face this challenge because they are unable to compete with large-scale industrial production by volumes or dumping. They become effective only is case if they optimally satisfy customer needs. This suggests that they are always ready for market changes.
There is a simple example: small businesses in the United States provide a significant share of the gross domestic product, generate more than a half of new jobs and, most importantly, annually exports goods worth $350-400 billion. This sector employs more than 70% of working-age population in another world’s industrial center - Germany. At the same time, there is a huge number of small craft businesses (500-600,000), covering more than 90 different kinds of activities. Exporters make up nearly a quarter of them, providing 17% of the total foreign trade of the country.
Uzbekistan also has something to show. The share of small business in GDP in the first quarter of 2015 increased to 41.7% (41% in the first quarter of 2014), in the industry - up to 29.8% (26.8%), paid services - to 48.4 % (42.7%) and employment - to 76.8% (76.4%). The consistent measures on creation of the business environment, integrated support and further stimulation of the ‘small economy’ players have contributed to the establishment of over 8,000 new small businesses in the first three months of 2015 alone, which is 10.2% more YOY. Industry and manufacturing sectors (37.7% of the total), construction (11.5%), trade and catering (29.3%) have taken the lead in this area.
Many analysts of the global market note that the Fund for Support of Exports of Small Businesses and Private Enterprises has been actively upholding local entrepreneurs, farmers and artisans in their expansion into foreign markets. Founded in 2013, the Fund has managed to significantly promote domestic products in the world market. For example, last year it assisted in signing contracts worth $1.25 billion. In the first quarter of 2015, the Fund has supported 315 business entities in exporting their products valued at $220.4 million, and assisted 36 enterprises in seeking for foreign customers and making export contracts worth $2.5 million.
A private enterprise Livadiya-Bukhara - the winner of the Bukhara regional stage of ‘Tashabbus-2015 - might be exemplified as a success of export-oriented activity. Several years ago, its experts developed new equipment for processing and drying fruits and vegetables, meat and dairy products, and established a supply to the domestic and foreign markets. The new technology allows saving up to 90% of vitamins and minerals, as well as the flavor and aroma of the food.
“The focus on our own innovations has empowered us acting in two directions - to produce equipment for harvesting agricultural products, and produce a wide range of fruits and vegetables,” says the director of Livadiya-Bukhara private enterprise Ilkhom Sayfiev. “We can annually produce up to 400 cases for infrared drying of fruits and vegetables. They have already been enjoying a high demand in neighboring countries. We are currently working on the development of an innovative project on the production of energy-saving conveyor dryer, which would be also demanded in other countries.
The company has accrued a considerable experience both in the implementation of technological projects and processing agricultural products. It produces artichoke powder, apple chips, sets for stewed fruits, semi-finished products for soups, dried fruit. Their quality was appreciated by Israeli partners. Subsequently Uzbekistan signed a contract for the supply of dried fruits worth $2 million. Over the past few months, the company’s exports totaled $150,000. By the end of the year it is planned to increase shipments abroad up to $500,000.
Triumph Gorniak Copmany, the winner of the Navoi region, is another successful example of the focus on exports and diversification of production backed by tracking the market demands. Founded as a manufacturer of narrow-purpose construction materials, the company is already exporting them; it has established a sewing workshop, manufactures polypropylene bags, and makes plans on expansion.
SPOTLIGHT ON ADVANTAGES
This year’s Tashabbus is surprising in many ways. Despite the long background, the number of enthusiastic applicants has not decreased, but tending to grow. The district and city stages involved over 6,200 entrepreneurs, farmers and artisans. The best participants passed to the regional stage. Finally, 41 winners of regional shows have reached the national stage, where they presented their achievements at the traditional exhibition.
As always, the winners of the republican stage will be selected in three main categories - the year’s top entrepreneur, farmer and artisan. There are also some additional categories like ‘The Year’s Youngest Entrepreneur’, ‘The Year’s Top Business Woman’, ‘The Year’s Top Innovative Project’, ‘The Top Employer for the Young’, ‘The Top Exporter’, ‘The Most Reliable Social Partner’, and others.
For the second year run the selection criteria says on behalf of transparency and selection of the most deserving candidates. Previously, the winners were determined by the outcomes of the two-day exhibition, while now an expert commission scrutinizes all achievements of competitors and makes the choice. For this reason, the winners of the review competition Tashabbus-2015 will be announced on June, 11 2015.
This year’s competition, and actually the entire domestic small business sector, has been strikingly active in its pursuance of the global trend on changing business mentality. Previously, the answer to the question on what a small business is came to hairdressers, shop, repair, tailoring, restaurants and that sort of thing. To date, the trend has changed. The representatives of ‘small economy’ have been trying science and high technologies, Internet and communications, pioneering innovative products.
In Germany, for instance, such giants as BMW, Volkswagen, Daimler, Siemens and others are backed by numerous small and medium-sized businesses, which make calculations, manufacture certain parts and subassemblies, invent electronic stuffing.
Uzbekistan has been actively promoting a proven model of creation of technological startups. Chamber of Commerce and Trade of Uzbekistan jointly with the Brand.uz Company has created a like platform entitled a 'Startup Mixer’. Startups are small businesses that focus on the development of new innovative ideas and services, occupying a free niche in the market, or even creating a new one. Mobility and competitiveness are key distinguishing features.
In a short time the Startup Mixer has turned into the ambitious project in information and communication technologies. It empowers young professionals to present their own products, find investors for making their ideas true, get advice from experienced entrepreneurs, provides lectures on promotion of innovative projects.
Modern communication technologies, primarily the Internet, stay in focus. Internet has become a breakthrough for small businesses into the global trade. Today, any small store or company can create its own trading platform and sell goods to customers around the world. One can also take advantage of specialized websites like Amazon, eBay and others. Internet has simplified the implementation of promising and commercially successful projects on a global scale. Moreover, the Internet space has itself become a field for numerous microfirms that develop software applications for smartphones, build websites, that is, produce the most expensive intellectual products.
The newspaper space is too small to describe all the steps and the path traversed by Uzbekistan towards the development of small business and private entrepreneurship. Therefore, it makes sense to focus on the latest steps of the government, which many experts have already assessed as fateful in terms of promoting this sector to foreign markets, and drawing domestic and foreign investment. In this regard, the past month was particularly important for ‘small economy’ - the state’s leader approved a program of measures on ensuring protection for private property, small business and private entrepreneurship, and elimination of barriers to their rapid development. The document envisages specific measures to further simplify all kinds of registration, permits and licensing procedures, including those related to foreign economic activities, create appropriate conditions and opportunities for the accelerated development of the business sector, and expands access to loan and financial resources.
The measures will be taken despite the fact that the country has already achieved a significant progress in abovementioned directions. As part of business support and assistance in the establishment of small industries 2.8 trillion soums of loans have been allocated in the first quarter of 2015 with a 1.3 times increase YOY, $38.3 million of credit lines of international financial institutions have been channeled for the development of small businesses. Besides, 14 projects worth over 10 billion soums have been funded with the support of the Fund for Financing the Development of Project Documentation for Investment Projects under the Association of Banks of Uzbekistan.
The current measures on expanding access of private enterprises to commodity and feedstock markets have contributed to the four-time increase YOY in the number of small business entities that have been accredited to supply their goods and services for public procurement. Their number totaled to 34,200 entities, or 98.3% of all participants in public procurement. As a result, as of the beginning of 2015, the volume of public procurement from small businesses has amounted to 77.9 billion soums, or 99.6% of total public procurement through electronic trading. At the same time, the introduction of electronic trading on public procurement has saved 22 billion soums or 21.9% of the budget provided for this purpose.
The government provides business entities with a range of supportive benefits in order to reach the new heights. For instance, the new benefits have been granted to individual entrepreneurs as they provide a significant share of the service sector in Uzbekistan. As of July 1, they have the right to hire from one to three employees, depending on the type of activity, paying insurance fees to the Pension Fund in the amount of 50% of the minimum wage and the fixed tax of 30% of the established rate for the individual entrepreneurs-employers for each hired employee. In addition, they are exempt from fixed tax for employed workers - graduates of vocational colleges within twelve months after graduation.
Meanwhile, another initiative is likely to become the most useful for the business. A centralized system of a ‘single window’ centers will start operating across the country as of January 1, 2016. Single centers of public services for businesses will be established on the platform of inspections for business entity registration under rural and urban administrations.
A new system of checks is destined to simplify the activity of many entrepreneurs. As of July 1, 2015, all checks of microfirms, small businesses and farms are eligible no more than once every four years, other economic entities - no more than once every three years and solely by the decision of the National Council for Coordination of Regulatory Authorities of Uzbekistan. The terms of the scheduled inspections unrelated to non-financial and business activities should not exceed 10 calendar days. Scheduled inspections of financial and economic activity of business entities cover only the period following the last scheduled inspection.