Entrepreneurs’ Perceptionon The Government Support towards Small and Medium Enterprises in Russia and China
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INTRODUCTION 4
CHAPTER 1 6
1.1 LITERATURE REVIEW: THE IMPORTANCE AND SPECIFICS OF SMES 6
1.2 LITERATURE REVIEW: ENTREPRENEURIAL PERCEPTION OF AN ENABLING ENVIRONMENT (GOVERNMENT SUPPORT) 12
1.2.1 Theoretical Framework 12
1.3 CULTURAL CODES AND WHY TO COMPARE RUSSIA TO CHINA 17
1.3.1 Factors Influencing the Entrepreneurs’ Perception of Government Support Methods 24
1.4 SUPPORTIVE LAWS AND POLICIES TOWARDS SMES 25
1.4.1 Introduction 25
1.4.2 Financial support 28
1.4.3 Technology and Innovation 30
1.4.4 Global Market Access 34
Russian policies supporting exports, and participation in global trade fairs 34
1.4.5 Conclusion 35
CHAPTER 2 36
2.1 METHODOLOGY 36
2.1.1 Date Collection 37
2.2 DATA ANALYSIS 37
2.2.1 Description of the data 38
2.2.2 Russian Entrepreneurs 38
2.2.3 Chinese Entrepreneurs 49
2.3 DISCUSSION 52
2.3.1 Economic and Institutional factors 52
2.3.2 Cultural factor 53
2.3.3 Individual factor 54
CONCLUSION 56
THEORETICAL CONTRIBUTION 58
Limitations 58
POLICY IMPLICATIONS 58
REFERENCES 59
APPENDIX 71
CHAPTER 1 6
1.1 LITERATURE REVIEW: THE IMPORTANCE AND SPECIFICS OF SMES 6
1.2 LITERATURE REVIEW: ENTREPRENEURIAL PERCEPTION OF AN ENABLING ENVIRONMENT (GOVERNMENT SUPPORT) 12
1.2.1 Theoretical Framework 12
1.3 CULTURAL CODES AND WHY TO COMPARE RUSSIA TO CHINA 17
1.3.1 Factors Influencing the Entrepreneurs’ Perception of Government Support Methods 24
1.4 SUPPORTIVE LAWS AND POLICIES TOWARDS SMES 25
1.4.1 Introduction 25
1.4.2 Financial support 28
1.4.3 Technology and Innovation 30
1.4.4 Global Market Access 34
Russian policies supporting exports, and participation in global trade fairs 34
1.4.5 Conclusion 35
CHAPTER 2 36
2.1 METHODOLOGY 36
2.1.1 Date Collection 37
2.2 DATA ANALYSIS 37
2.2.1 Description of the data 38
2.2.2 Russian Entrepreneurs 38
2.2.3 Chinese Entrepreneurs 49
2.3 DISCUSSION 52
2.3.1 Economic and Institutional factors 52
2.3.2 Cultural factor 53
2.3.3 Individual factor 54
CONCLUSION 56
THEORETICAL CONTRIBUTION 58
Limitations 58
POLICY IMPLICATIONS 58
REFERENCES 59
APPENDIX 71
The government support policies are being implemented in many emerging and developing economies in order to help those countries’ economies to keep up with the developed countries. Nowadays when Small and Medium Enterprises (SMEs) play a significant key role in developing, innovating and attracting new finances into the economy, it is crucial to encourage development growth of local SMEs by implementing government support policies towards SMEs.
Small and Medium enterprises (SME) are firms that does not exceed the specific border either in number of employees or in revenue . The specific of the border differs from country to country. SME play a crucial role by being the main power of the growth of the economy. The development of SME may increase employment and production.
The definition of SME in China is based on the SME Promotion Law instead of being based on the number of personnel or revenue how it is based in most countries. The law implements that for classification of SME the State Council should also take into consideration the industry where a firm operates, its operating income, total assets and a number of employees .
The definition of SME in Russia is based on “Federal Law No. 209-FL "On the Development of Small and Medium-Sized Enterprises in the Russian Federation" with the updates . The law divides the enterprises by the number of employees and operational income stating the Small business to have not more then 100 employees and an annual operational income not more then 800 millions of rubles (including micro enterprises that have not more then 15 employees and an income not more then 150 millions of rubles) and stating the Medium business to have from 101 employees to 250 employees and an possible annual operational income till 2 billions of rubles. Thus, an enterprise that has 50 employees and an income of 1 billion of ruble is stated as Medium business .
Small and Medium Enterprises are a driver of economic development due to the facts that those firms create workplaces, make the market more competitive and usually stand on the front line of innovation and implementation of new products and services. SMEs also play a huge role in development of regional economy. 90% of firms in the world are SME and they provides 70% of all workplaces globally . However, the World Economic Forum states that 67% of all SMEs worldwide are struggling to survive . Some of the key challenges SMEs face are high interest rates for taking a loan and lack of financing to expand its business . Thus, the government may implement several policies towards SMEs to help them to survive through hard times, to give an opportunity to expand to new possible profitable markets, to grow into a bigger company. It is also beneficial to the government due to the growth of the economy as a whole and increasing of sales of domestic products which means money does not go abroad.
The government support initiatives are one of the most crucial instruments that help SMEs to grow, boost their performance and maintain their business activities. However, there are also problems, challenges that occur when entrepreneurs try to get that very support. In Russia one of them was named an overall difficulty with receiving the support due to the documents that should be made and filled, the complex report of how the support would be used, and the high percentage of rejects . Other problems that were found by researchers are difficulties that entrepreneurs face while trying to find the spot and the market for selling the product, and the instability of legal system in the sphere of tax and finance regulators of small and medium enterprises (Poteryahin, 2018). And even some support methods are not efficient due to the initial high interest rate or the pledge that the banks require when the entrepreneur finally reaches for help and stays in the situation when it gets worse if he uses such support .
The situation in China is a bit different, though they have their own challenges but already on another higher level. The government in China engages with businesses and communicates with them quite often while working on business policies, attracting investment and creating enabling discussion. However, researchers found out that small and medium enterprises have less communication with the government, and see the environment less enable as their “bigger” colleagues, though using every opportunity that the government displays (Wang, Yu, 2017). Chinese researches already working on such questions as “whether the government support helps in bridging psychic distance for SMEs” (psychic distance is a term used to identify the fear of an entrepreneur to export to a distant countries due to economic and cultural difference and forces them to prefer exporting to geographically closer countries) (Yan, Hu, Liu, 2020).
This research sets a goal to get deeper/find out how entrepreneurs in Russia perceive the government support and compare this perception with the one of Chinese entrepreneurs. To achieve this goal the interview-based study was implied as it is crucial to clarify why the support is used or why it is not used and how the government may create the more favourable conditions for it to be used. It is also important to understand how the entrepreneurs perceive the government support, what factors influence that perception and whether that perception becomes a barrier on the way to the use of the support instruments,.
This research has following structure: Literature review, Cultural Codes and their influence, Supportive laws and policies towards SMEs in Russia and China, Methodology, Data Analysis, Conclusion.
Small and Medium enterprises (SME) are firms that does not exceed the specific border either in number of employees or in revenue . The specific of the border differs from country to country. SME play a crucial role by being the main power of the growth of the economy. The development of SME may increase employment and production.
The definition of SME in China is based on the SME Promotion Law instead of being based on the number of personnel or revenue how it is based in most countries. The law implements that for classification of SME the State Council should also take into consideration the industry where a firm operates, its operating income, total assets and a number of employees .
The definition of SME in Russia is based on “Federal Law No. 209-FL "On the Development of Small and Medium-Sized Enterprises in the Russian Federation" with the updates . The law divides the enterprises by the number of employees and operational income stating the Small business to have not more then 100 employees and an annual operational income not more then 800 millions of rubles (including micro enterprises that have not more then 15 employees and an income not more then 150 millions of rubles) and stating the Medium business to have from 101 employees to 250 employees and an possible annual operational income till 2 billions of rubles. Thus, an enterprise that has 50 employees and an income of 1 billion of ruble is stated as Medium business .
Small and Medium Enterprises are a driver of economic development due to the facts that those firms create workplaces, make the market more competitive and usually stand on the front line of innovation and implementation of new products and services. SMEs also play a huge role in development of regional economy. 90% of firms in the world are SME and they provides 70% of all workplaces globally . However, the World Economic Forum states that 67% of all SMEs worldwide are struggling to survive . Some of the key challenges SMEs face are high interest rates for taking a loan and lack of financing to expand its business . Thus, the government may implement several policies towards SMEs to help them to survive through hard times, to give an opportunity to expand to new possible profitable markets, to grow into a bigger company. It is also beneficial to the government due to the growth of the economy as a whole and increasing of sales of domestic products which means money does not go abroad.
The government support initiatives are one of the most crucial instruments that help SMEs to grow, boost their performance and maintain their business activities. However, there are also problems, challenges that occur when entrepreneurs try to get that very support. In Russia one of them was named an overall difficulty with receiving the support due to the documents that should be made and filled, the complex report of how the support would be used, and the high percentage of rejects . Other problems that were found by researchers are difficulties that entrepreneurs face while trying to find the spot and the market for selling the product, and the instability of legal system in the sphere of tax and finance regulators of small and medium enterprises (Poteryahin, 2018). And even some support methods are not efficient due to the initial high interest rate or the pledge that the banks require when the entrepreneur finally reaches for help and stays in the situation when it gets worse if he uses such support .
The situation in China is a bit different, though they have their own challenges but already on another higher level. The government in China engages with businesses and communicates with them quite often while working on business policies, attracting investment and creating enabling discussion. However, researchers found out that small and medium enterprises have less communication with the government, and see the environment less enable as their “bigger” colleagues, though using every opportunity that the government displays (Wang, Yu, 2017). Chinese researches already working on such questions as “whether the government support helps in bridging psychic distance for SMEs” (psychic distance is a term used to identify the fear of an entrepreneur to export to a distant countries due to economic and cultural difference and forces them to prefer exporting to geographically closer countries) (Yan, Hu, Liu, 2020).
This research sets a goal to get deeper/find out how entrepreneurs in Russia perceive the government support and compare this perception with the one of Chinese entrepreneurs. To achieve this goal the interview-based study was implied as it is crucial to clarify why the support is used or why it is not used and how the government may create the more favourable conditions for it to be used. It is also important to understand how the entrepreneurs perceive the government support, what factors influence that perception and whether that perception becomes a barrier on the way to the use of the support instruments,.
This research has following structure: Literature review, Cultural Codes and their influence, Supportive laws and policies towards SMEs in Russia and China, Methodology, Data Analysis, Conclusion.
The work was done by the interviewing the group of Russian and Chinese entrepreneurs, overall there were 13 entrepreneurs who took part in the research, that aimed to clarify factors that influence the entrepreneurs’ perception on the government support towards Small and Medium Enterprises. It indeed was found out that there are several crucial types of factors that have the most influence on the perception of the government support instruments. The first type is the economic and institutional type – the poor enabling environment for the entrepreneurship, high taxes and high interest rates, bureaucracy of government institutions that operate in the economic sector, the unstable business activities of entrepreneurs. The second place the individual type and cultural type shares together as the individual cases are often correlates with the cultural behaviour. For example, the personal fears of many entrepreneurs and the desire to stick to the current affairs and not to face with new challenges of extending the business correlate with the high uncertainty avoidance in the Russian society, by Hofstede. Moreover, local individual cases also have a bigger impact than only on an individual level, as many people often base their attitude towards something on the experience of their colleagues or friends. Thus, the case of a person whose manufacture burnt down, who was rejected of the government support to reestablish the business, was known also by another entrepreneur whose attitude towards the support methods became worse because of it. The only two persons who used the government support to maintain the specific number of workers in the firm during the Covid had different experience. While one of them received the support and it was fine, another one was unexpectedly state inspected and fined for minor offenses. However, the attitude towards the government of the majority of the entrepreneurs was positive, it did not mean they also have a positive attitude towards the government institutions. Many entrepreneurs reported that they stopped doing business with the government structures due to the late payment from the latter and the overall attitude towards the government orders are rather negative than positive.
The Chinese Entrepreneurs on the other hand spoke much about enabling environment in their country and that it is quite easy to maintain the current affairs, and the majority of the entrepreneurs are willing to expand their business in future by using the government support methods, as they offer low interest rates and the small enterprises in general enjoys the low tax rates. Moreover, the Chinese entrepreneurs reported that they feel quite comfortable due to the great logistics and the easy possibilities to find local suppliers in China and cooperate with them. While the majority of Russian companies use the import supplies to produce goods for inner market.
Overall the current findings correlate with the previous studies about the high percentage of rejects , difficulties that entrepreneurs face while trying to find the spot and the market for selling the product (unstable business activities) ,and the initial high interest rate or the pledge. The new findings that are connected to cultural codes of high uncertainty avoidance, the individual characteristics such as fear of extending the business also play a role, while other entrepreneurs did not say straight about their fears, it was seen in their words of “not desiring to face new challenges in order to expand”. Another finding is that the majority of Russian entrepreneurs do not like to take loans due to the cultural specifics of the nation such as the long-term orientation, where the loan seems more as a burden, while the major help from the government consists of loans. The main difference that was found during the research is that the Chinese government always communicate with small, medium and large enterprises while working on their support initiatives and special policies so to keep in touch and to create the most efficient instruments as they capable of, it might correlate with high collectivism culture in Chinese nation. While the Chinese entrepreneurs connect the extending of business with their future opportunities, which correlates with their uncertainty tolerance and masculinity code. The latter in this case means that the Chinese are quite competitive nation and in order to get a good position in the society they try to use any resources available.
Theoretical Contribution
The culture plays a huge role in our daily life, and even individual traits may be based on the culture. The findings that this work provides with are the poor enabling entrepreneurship environment, a cultural aspect of the Russian nation in the high uncertainty avoidance, xenocentrism of Russian people, that partly blocks the demand for the domestic goods; a long-term orientation code helps us to identify why Russians do not like to use loans and they see it as a burden. Overall, the target group of Russian entrepreneurs proved the previous results once again, while many of them were made six and less years ago, which leads to the conclusion that not many things changed in the entrepreneurship environment in Russia, and there yet to be a lot of work on it. But also, the cultural aspects make us think about changing the behaviour of people as those who play active role in the economy from the school or university, to cultivate an entrepreneurship spirit.
Limitations
There are a few limitations in the research that was made due to the small number of Chinese entrepreneurs, and the majority of Russian entrepreneurs are manufactures. I did not take IT industry, while it has a lot of support mechanisms from the government, their case is more unique and, from my perspective, should be studied separately from other industries. Another limitation might be that among the target group there no one with the finance or business education and the average age of those Russian entrepreneurs is 45, while the average age of the Chinese entrepreneurs is around 25.
Policy Implications
Though the Awareness code is almost always positive in the data analysis section, the majority of entrepreneurs know only that the government support “exist” but they did not study it in details, and I believe it might be changed only if there will be a specialist who will inform them in details not only about the existing support, but the suitable one for their firm as well. As the government already has special business seminars to educate entrepreneurs, it seems the problem lies deeper. If we look deeper in the case of China and those answers of Chinese entrepreneurs from the target group, we may see that the entrepreneurial spirit they get from the enabling environment with favourable conditions. In the case of Russia, when the help exists but no one even in the critical situation wants to use it, can mean that the environment itself is not enabling enough or the support mechanisms are not the right ones. In China loans exist as a boost mechanism for firm’s extension, but they maintain well due to another instrument – various tax reductions. Entrepreneurs do not want to take loans; they want tax reductions and the stable business activity in the first place. It seems the work should be done with the tax legal system in order to create a more favourable realistic conditions and to increase the efficiency of the government institutions.The market should be changed to favour the domestic goods, as we also see from the Chinese experience, and it can be done by promoting the quality of local products, and in the modern times the instrument is government influencers’ and celebrities’ advertisements. The advertisements should mention that the product is locally made and the nation should be educated why the domestic goods are better and more preferrable.What about support mechanism, as we can see from the target group and the previous researches, the probability to get that support is quite low. Due to the high percentage of rejects and the complexity of applying for the government support, it should be analyzed whether the government support is used efficiently or not.
The Chinese Entrepreneurs on the other hand spoke much about enabling environment in their country and that it is quite easy to maintain the current affairs, and the majority of the entrepreneurs are willing to expand their business in future by using the government support methods, as they offer low interest rates and the small enterprises in general enjoys the low tax rates. Moreover, the Chinese entrepreneurs reported that they feel quite comfortable due to the great logistics and the easy possibilities to find local suppliers in China and cooperate with them. While the majority of Russian companies use the import supplies to produce goods for inner market.
Overall the current findings correlate with the previous studies about the high percentage of rejects , difficulties that entrepreneurs face while trying to find the spot and the market for selling the product (unstable business activities) ,and the initial high interest rate or the pledge. The new findings that are connected to cultural codes of high uncertainty avoidance, the individual characteristics such as fear of extending the business also play a role, while other entrepreneurs did not say straight about their fears, it was seen in their words of “not desiring to face new challenges in order to expand”. Another finding is that the majority of Russian entrepreneurs do not like to take loans due to the cultural specifics of the nation such as the long-term orientation, where the loan seems more as a burden, while the major help from the government consists of loans. The main difference that was found during the research is that the Chinese government always communicate with small, medium and large enterprises while working on their support initiatives and special policies so to keep in touch and to create the most efficient instruments as they capable of, it might correlate with high collectivism culture in Chinese nation. While the Chinese entrepreneurs connect the extending of business with their future opportunities, which correlates with their uncertainty tolerance and masculinity code. The latter in this case means that the Chinese are quite competitive nation and in order to get a good position in the society they try to use any resources available.
Theoretical Contribution
The culture plays a huge role in our daily life, and even individual traits may be based on the culture. The findings that this work provides with are the poor enabling entrepreneurship environment, a cultural aspect of the Russian nation in the high uncertainty avoidance, xenocentrism of Russian people, that partly blocks the demand for the domestic goods; a long-term orientation code helps us to identify why Russians do not like to use loans and they see it as a burden. Overall, the target group of Russian entrepreneurs proved the previous results once again, while many of them were made six and less years ago, which leads to the conclusion that not many things changed in the entrepreneurship environment in Russia, and there yet to be a lot of work on it. But also, the cultural aspects make us think about changing the behaviour of people as those who play active role in the economy from the school or university, to cultivate an entrepreneurship spirit.
Limitations
There are a few limitations in the research that was made due to the small number of Chinese entrepreneurs, and the majority of Russian entrepreneurs are manufactures. I did not take IT industry, while it has a lot of support mechanisms from the government, their case is more unique and, from my perspective, should be studied separately from other industries. Another limitation might be that among the target group there no one with the finance or business education and the average age of those Russian entrepreneurs is 45, while the average age of the Chinese entrepreneurs is around 25.
Policy Implications
Though the Awareness code is almost always positive in the data analysis section, the majority of entrepreneurs know only that the government support “exist” but they did not study it in details, and I believe it might be changed only if there will be a specialist who will inform them in details not only about the existing support, but the suitable one for their firm as well. As the government already has special business seminars to educate entrepreneurs, it seems the problem lies deeper. If we look deeper in the case of China and those answers of Chinese entrepreneurs from the target group, we may see that the entrepreneurial spirit they get from the enabling environment with favourable conditions. In the case of Russia, when the help exists but no one even in the critical situation wants to use it, can mean that the environment itself is not enabling enough or the support mechanisms are not the right ones. In China loans exist as a boost mechanism for firm’s extension, but they maintain well due to another instrument – various tax reductions. Entrepreneurs do not want to take loans; they want tax reductions and the stable business activity in the first place. It seems the work should be done with the tax legal system in order to create a more favourable realistic conditions and to increase the efficiency of the government institutions.The market should be changed to favour the domestic goods, as we also see from the Chinese experience, and it can be done by promoting the quality of local products, and in the modern times the instrument is government influencers’ and celebrities’ advertisements. The advertisements should mention that the product is locally made and the nation should be educated why the domestic goods are better and more preferrable.What about support mechanism, as we can see from the target group and the previous researches, the probability to get that support is quite low. Due to the high percentage of rejects and the complexity of applying for the government support, it should be analyzed whether the government support is used efficiently or not.
