Dr. Ninko Kostovski UACS Importance of Availability of Sources of Finance for Small and Medium Enterprises Ninko Kostovski,PhD University American College Skopje

Dr. Ninko Kostovski UACS Why this topic? SME can not perform their role in society without diversified sources of finance SME can not perform their role in society without diversified sources of finance Access to funds, loans and investors - vital prerequisites for development of these enterprises and country competiveness Access to funds, loans and investors - vital prerequisites for development of these enterprises and country competiveness

Dr. Ninko Kostovski UACS Problems with SMEs  Survival Rate:  50% will not survive first year of operations  85% will not survive third year of operations  Three most common reasons*:  Inadequate sales and credit terms  Extensive investment in equipment  Lack of long term financing (* Markovski )

Dr. Ninko Kostovski UACS Possibilities for SME Financing in EU

Dr. Ninko Kostovski UACS Bank Loans Count for 70% of the external capital Count for 70% of the external capital Collaboration and dialog between Banks - SME Collaboration and dialog between Banks - SME Round tables & SME Guide for Dealing with Banks Round tables & SME Guide for Dealing with Banks Disadvantages: Disadvantages: Banks rigid & slow Banks rigid & slow Information asymmetry Information asymmetry Innovative firms excluded Innovative firms excluded

Dr. Ninko Kostovski UACS Venture Capital 10,8 Billion Euros for EU27 in form of: 10,8 Billion Euros for EU27 in form of: Seed Capital Seed Capital Start up Capital Start up Capital Risk Capital for Growth Risk Capital for Growth Here (Western Balkans)? Here (Western Balkans)? Not developed properly Not developed properly Owners are not willing to share control Owners are not willing to share control

Dr. Ninko Kostovski UACS Financial Components of other EU Programs Competitiveness and Innovative Framework Program (CIP) Competitiveness and Innovative Framework Program (CIP) Seventh Research Framework Program (FP7) Seventh Research Framework Program (FP7) Can be accessed through financial intermediaries Can be used indirectly! Cross-Border Cooperation Program (CBC) Cross-Border Cooperation Program (CBC)

Dr. Ninko Kostovski UACS Facts SME can capitalize only from concrete and close to ground measures: SME can capitalize only from concrete and close to ground measures: Reality often far from idyllic EU Documents Reality often far from idyllic EU Documents Interventions too sophisticated for average SME (technology transfer, fundamental research, energy efficiency...) to tap Interventions too sophisticated for average SME (technology transfer, fundamental research, energy efficiency...) to tap

Dr. Ninko Kostovski UACS Facts And what about And what about SME lacking innovative component? SME lacking innovative component? Simple family businesses? Simple family businesses? Western Balkans? Western Balkans? In realty dedicated funds are not used! In realty dedicated funds are not used!

Dr. Ninko Kostovski UACS Cluster Approach Could prove convenient to meet the requirements for: – –Innovativeness – –Regional dimension of projects proposed for finance

Dr. Ninko Kostovski UACS Cluster Approach Change of paradigm: – –From blanket approach in disbursement of support & funding – –To vehicles with industry focus Expected: – –To achieve higher marginal efficiency of the external support – –To be able to meet requirement for – –Innovativeness – –Regional dimension of proposed intervention

Dr. Ninko Kostovski UACS Problems with Cluster Approach – –How to trace clusters – –Donors can support only legally established cluster associations & formal links with the R&D institutions – –In Reality: SME change their profile too fast! Links are informal Firms are not necessarily collocated narrowly

Dr. Ninko Kostovski UACS UACS research for Ministry of Economy Survey of existing and potential concentrations using structured focused groups Survey of existing and potential concentrations using structured focused groups Leveraged the presence and capacity of local business support and regional economic development agencies to indicate several existing and potential SME clusters Leveraged the presence and capacity of local business support and regional economic development agencies to indicate several existing and potential SME clusters Structure of SME support network similar & experience gained can prove useful for other countries of Western Balkan, too Structure of SME support network similar & experience gained can prove useful for other countries of Western Balkan, too

Dr. Ninko Kostovski UACS Thank You! Ninko Kostovski University American College Skopje Head of Management Department