7 - 9 october 2013 istanbul, turkey - kas

FINAL WORKSHOP REPORTon

“FAMILY BUSINESSES and SMEs in the Black Sea Economic Cooperation Region”

organized by

ORGANIZATION OF THE BLACK SEA ECONOMIC COOPERATION (BSEC)

andKONRAD-ADENAUER-STIFTUNG (KAS)

7 - 9 October 2013Istanbul, Turkey

FAMILY BUSINESSES AND SMEsIN THE BSEC REGION

Edited by

Dr. Antal Szabó

7 - 9 October 2013

Istanbul, Turkey

Published by Konrad-Adenauer-Stiftung

Konrad-Adenauer-Stiftung e.V.

All rights reserved.No part of this publication may be reproduced in any form orby any means without the permission of

Konrad – Adenauer – StiftungAhmet Rasim Sokak No: 2706550 Çankaya-Ankara/TÜRKİYETelephone : +90 312 440 40 80Faks : +90 312 440 32 48E-mail : [email protected] www.kas.de/tuerkei

ISBN : 978-605-4679-06-5

Designed & Printed by : OFSET FOTOMAT+90 312 395 37 38 Ankara, 2014

7 | ABBREVIATIONS

9 | PREFACE by H.E. Ambassador Traian Chebeleu

by Dr. Colin Dürkop 15 | INTRODUCTION by Dr. Antal Szabó

15 | 1. FAMILY BUSINESSES IN THE EUROPEAN UNION

by Dr. Antal Szabó

35 | 2. FAMILY BUSINESSES IN GERMANY AND THEIR ROLE IN ECONOMIC DEVELOPMENT

35 | 2.1. SIGNIFICANCE OF FAMILY BUSINESSES IN GERMANY AND THEIR INNOVATIVE ACTIVITIES

by Dr. Daniel Mitrenga

40 | 2.2. CHARACTERISTICS AND MANAGERIAL BEHAVIOUR OF GERMAN FAMILY BUSINESSES

by Prof. Dr. Jörg Freiling and Dr. Steffen Grossmann

53 | 3.NATIONAL COUNTRY STUDIES IN THE BSEC REGION

53 | 3.1. Albania by Erjona Rebi and Arber Demeti

73 | 3.2. Armenia by Rshtun Martirosyan

82 | 3.3. Azerbaijan by Prof. Dr. Ragib Guliyev and Tugal Guliyev

89 | 3.4. Bulgaria by Prof. Tzvetan Davidkov and Assoc. Prof. Desislava

Yordanova

112 | 3.5. Georgia by Eteri Mamukelashvili

135 | 3.6. Hellenic Republic by Dr. Chrysa Agapitou

154 | 3.7. Moldova by Dr. Valentina Veverita, Dr. Elena Aculai and Emilia Cebotari

163 | 3.8. Romania by Assoc. Prof. Dr. Zsuzsanna Katalin Szabó and Katalin Dalma

Szabó

190 | 3.9. Russian Federation by Maria Babko Andreevna

196 | 3.10. Serbia by Prof. Radmila Grozdanic and Prof. Dr. Mirjana Radovic- Markovic

232 | 3.11. Turkey by Asst. Prof. Meltem Ince Yenilmez

247 | 3.12. Ukraine by Eskender Bariiev

262 | 4. BEST PRACTICES OF FAMILY BUSINESSES IN TURKEY

262 | 4.1. KURTSAN HOLDING by Meltem Kurtsan

266 | 4.2. THE KOÇ GROUP by Koç Holding Corporate Communications and External Relations

Directorate

291 | 5. CONCLUSIONS AND RECOMMENDATIONS OF THE BSEC WORKHOP ON FAMILY BUSINESSES

291 | 5.1. CONCLUSIONS

292 | 5.2. RECOMMENDATIONS

294 | INDEX OF AUTHORS

ALL Albanian LekAMD Armenian DramBSEC Organization of the Black Sea Economic

CooperationCIS Commonwealth of Independent StatesCNIPMMR National Council of Small and Medium Sized

Private Enterprises in RomaniaDCFTA Deep and Comprehensive Free Trade

AgreementDM Deutsche Mark (German mark)EC European CommissionERENET Entrepreneurship Research and Education

Network of Central European UniversitiesEU European UnionEUR Euro,officialcurrencyoftheEurozoneFB FamilyBusinessFDI Foreign Direct InvestmentFET FamilyEntrepreneurialTeamFEUSA FamilyEnterprisesUSAFOB Free on boardGDP Gross domestic productGEEF Groupement Européen des Enterprises

Familiales (European Group of Owner

ABBREVIATIONS

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ManagedandFamilyBusinesses,abbreviatedas“EuropeanFamilyBusinesses”)

GEL Georgian LariGNI Gross national incomeGNP Gross national productGVA Gross value addedINSTAT Albanian Institute of StatisticsKAS Konrad-Adenauer-StiftungLSEs Large-scale enterprisesm MillionMDL Moldovan Leuna Not availableNLC National Licensing Center in AlbaniaNRC National Registration Center of AlbaniaPERMIS BSEC Permanent International Secretariat of BSECPwC PricewaterhouseCoopersRSD Serbian DinarSBA Small Business Act for EuropeSMEs Small and Medium-sized EnterprisesUAH UkrainianHryvniaUNECE United Nations Economic Commission for EuropeUS United States of AmericaUSD United States DollarWTO World Trade Organization

H.E. Ambassador Traian ChebeleuDeputySecretaryGeneralPermanent International Secretariat (PERMIS)Organization of the Black Sea Economic Cooperation (BSEC)

On behalf of the Permanent International Secretariat of the Organization of the Black Sea Economic Cooperation (BSEC),IwelcomeyoutoBSECheadquarters.

Let me start by thanking the Konrad-Adenauer-Stiftung(KAS) for its longstanding cooperation with BSEC. KAS’ssupport has resulted in the organization of a series of over 40 workshops and seminars since 1997, all of which sought topromoteSMEsintheBSECregion.

IwouldliketotakethisopportunitytothankDr.AntalSz-abó, Scientific Director of ERENET, for attending most ofthese events and contributing to the success of the ex-changes with his outstanding professional knowledge and incisiveanalysesoftheparticipants’conclusionsandrecom-mendations.

Today’sworkshop isdedicated to the topicof familybusi-nessesandSMEs.Thisisaparticularlysalienttopicbecause

PREFACE

10

familybusinessesrepresentanimportantandstableelementintheecono-miesofourmemberstates. In fact, familybusinessescananddocon-tribute significantly to the BSEC countries’ economic growth and social development.

AstudyundertakensomeyearsagoundertheaegisoftheEuropeanUnionrevealedthatnearly70-80%ofenterprisesacrossEuropeandmostoftheBSECmemberstatesarefamilybusinesses.Thesefamilybusinessesac-countforabout40-50%ofemploymentinEuropeandemphasizethefactthatfamilybusinessesareactiveinallsectorsoftheeconomy.Ibelievefamilybusinessesaccountforsimilarpercentagesinenterprisesandem-ploymentinalltheBSECmemberstates.

DistinguishedParticipants,theveryexistenceoftheBSECworkinggrouponSMEsatteststotheBSECmemberstates’acknowledgementofthesig-nificantroleplayedbySMEsintheireconomic,socialandpoliticaldevel-opment.Asanupshot,BSEChastranslatedthisawarenessintoeffectivepolicies and concrete measures so as to support the development of SMEs intheregion.

Support for the sustainable development of SMEs is one of the goals of the “BSECEconomicAgenda: Towards anEnhancedBSECPartnership”,adoptedbytheCouncilofMinistersofForeignAffairsandendorsedbytheBSEC20thAnniversarySummitin2012.ThisagendaservesasastrategicdocumentguidingtheactivitiesofBSECintheyearstocome.

To foster the growth of SMEs, BSEC has been focusing on high technol-ogyinnovation,entrepreneurshipandsustainabledevelopment,technol-ogyparksandincubators.Theobjectiveistoencourageinnovativeideas,products,servicesandprocedures.Throughthis,ourorganizationaimstobringtogetherbusinesses,academies,businessincubators,andfinancialandstateinstitutionsfromtheBSECmemberstates.Sodoingalsosup-portsSMEs’ collaborationwith largecompaniesandpromotes improvedproductionefficiency.

The development of SMEs is essential to the economic growth of our mem-berstates.Therefore,ourmainobjectiveistocontributetothestimula-tionofSMEsfromtheBSECregion, inparticularfamilybusinesses,andimprovethequalityoftheirperformancesoastobringthemonparwithadvancedEuropeanenterprises.

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Iamconfident that thediscussionsengendered fromourworkshopwilllikewise contribute to the efforts of our working group on SMEs, which will conveneon10-11October2013.

Thankyouallforbeinghere.Ihopethatourexchangetodaywillbefruit-ful.

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Dr. Colin DürkopHeadoftheKonrad-Adenauer-Stiftung(KAS)officeinTurkey

Averygoodmorningtoallofyou.It iswithgreatpleasureandhonouralikethatIwelcomeyou,onbehalfoftheKonrad-Adenauer-Stiftung,totheWorkshoponFamilyBusinessesintheBlackSeaRegion.Thankyouall forgatheringhere in thebeautifulheadquartersofBSEC in IstanbulwhereKAS’ssuccessfulcooperationwithBSECwasinauguratedsome20yearsago.

Since then, international workshops on SMEs have been organized once or twiceayearjointlybyKAS,thePermanentInternationalSecretariatoftheOrganizationoftheBlackSeaEconomicCooperationandERENET,ledbyScientificDirector,Dr.AntalSzabó.Forthepasttwodecades,morethan40suchworkshopstookplacewiththesamecommonaim,viz.provid-ing a dialogue forum between the stakeholders and decision makers so as to enable them to understand the various SME policies in the different BSEC countries.Byfacilitatinganexchangeofexperiencesandinforma-tion between SMEs and other non-governmental organizations (NGOs), these workshops help contribute to a better understanding amongst these regionalplayers.

Asusual,findings,conclusionsandrecommendationsweresubmittedattheendoftheworkshoptotheBSECworkinggrouponSMEs,wheretheywillbeconsideredduringitsnextsessionon10October2013.

We have chosen Istanbul to host this KAS-BSEC workshop in 2013 because Turkeyprovidesverygoodexamplesforfamilybusinesses.

AsDr.Szabóoutlinedinhisconceptpaperforthisevent,wewillspendthe coming two days closely examining the issue of family businesses,assessing the situation and problems of family businesses in the BSECarea,analyzingtheissuesarisingfromthetransferoffamilybusinessinparticularanddiscussingfuturepossibilities.Weshouldalsodevisepos-siblesuggestionstogovernmentauthoritiessothattheywouldtaketheseissuesseriouslyandimplementpositivechangesintheirnationalSMEandemploymentpolicies.

Dr.SzabófurtherpointsoutthefactthattheEuropeanCommissionhases-timatedapproximatelyathirdofEuropeanenterpriseswillbetransferred

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tothenextgenerationinthecomingtenyears.Thismeansanaverageof600,000 small and medium-sized enterprises will be changing hands each year,potentiallyaffectingtwoandhalfmillionjobs.TheEuropeanCom-mission has prepared a comprehensive report and begun helping business makethistransition.Specialmeasuresseemtobeinplacetohelpeasethetransferofthesebusinessestothenextgeneration.

Without going into too much detail at this stage, I would like to conclude byextendingmy thanks toDr.AntalSzabóandERENET for their intel-lectual input in conceptualizing this workshop and nominating speakers throughitsinternationalnetwork.Mythanksalsogoouttoourlong-termpartner, the Permanent International Secretariat of BSEC and its distin-guishedDeputySecretaryGeneral,AmbassadorTraianChebeleu,aswellasMelemHanimforthecloseandsuccessfulcooperation.

Without further ado, let me wish all the participants an interesting and productiveworkshopsession.

1. FAMILY BUSINESSES IN THE EUROPEAN UNION

byDr.AntalSzabóUNret.RegionalAdviserScientific Director of ERENETBudapest,Hungary

Motto:“Ifthefamilyisingoodshape,thenthecompanypicksup.Ifthecompanyisingoodshape,thenthefamilypicksup.Soit’sliketwowheelsgoingtogether.”WilliamO’Hara

“If a family businessworkswell, it is better to anyothercompany,ifitworkswrong,itisworseforeveryone.”Tamás Kürti

FOREWORD“Familyfirmsareimportant,notonlybecausetheymakeanessentialcontributiontotheeconomy,butalsobecauseofthelong-termstabilitytheybring,thespecificcommitment

INTRODUCTION

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theyshowtolocalcommunities,theresponsibilitytheyfeelasownersandthevaluestheystandfor.Thesearepreciousfactorsagainstthebackdropofthecurrentfinancialcrisis.”EuropeanFamilyBusinesses

HISTORY IN NUTSHELL“Beforethemultinationalcorporation,therewasfamilybusiness,”wroteWilliamO’HarainCenturiesofSuccess.“BeforetheIndustrialRevolution,therewas familybusiness.Before theenlightenmentofGreeceandtheempireofRome,therewasfamilybusiness.”Upto2006,theoldest,con-tinuously family-owned firmwasKongoGumi, located inOsaka, Japan,whichwasfoundedin578A.D.andthenmanagedsuccessivelyuntil its40thgeneration.1

TheOsaka located,Japan-basedconstructioncompanyKongoGumiCo.(Kongo Gumi), regarded as the world’s oldest continuously operatingfamily-ownedbusiness,remainedinKongofamilyhandsuntiltheendof2005.InJanuary2006,thecompanywasliquidatedandbecameawhollyownedsubsidiaryofTakamatsuConstructionGroupCo.Ltd.KongoGumi,whichwasrunbytheKongofamilyandbelievedtohavebeenoperatingcontinuouslysince578,hadbeenengagedintheconstructionofBuddhisttemplessinceits inception.Inmorerecenttimes, ithaddiversifiedintogeneralconstructionworksaswell.Asofearly2009,KongoGumioperatedasawhollyownedsubsidiaryofTakamatsu,andthenewmanagementwasabletohelpitturnaprofit.Thecompanyhadreportedaprofitof¥20mil-lioninitsfirstyearofoperationunderthenewmanagement.2

AccordingtotheGuinnessWorldRecords,HoshiRyokanwastheoldesthotspringandhoteluntil2011.Sincethen,ithasbeensupplantedbyanotherolderestablishment.Itwasfoundedin718andcurrentlymanagedbythe46thgeneration.3 According to legend, the god of Mount Hakusan visited Taicho Daishi, a Buddhist priest, telling him to uncover an underground hot springinnearbyAwazuvillage.Thehotspringwasfound,andthepriestrequestedthathisdisciple,awoodcutter’ssonnamedGaryoSaskiri,buildandrunaspaonthesite.Hisfamily,knownasHoshi,haverunahotelinKomatsueversince.Thecurrentstructurehouses450people in100roomsandZengoroHoshiisthecurrentpatriarch.

Accordingtoarecentsurvey,morethan70%ofAsianfirmsarefamily-ownedbusinesses.InAsia,familyloyaltyisintrinsictocultureandConfu-

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cianvaluesaredeep-rooted.Negotiationsandbusinessdevelopmentsareusuallycarriedoutwithaviewtowardsawin-winsituationsoastobenefitboththefamilyownersandnon-familyemployees.

Of the hundreds of reputable firms in Europe, attention should be paid to twofamily-ownedcompanies:(A) Barovier,aglassproductioncompanyfoundedin1295andoperated

bytheBarovierfamilyonMuranointheVenetianLagoon.Itspecial-izes in crystalline glass,mother-of-pearl glass, gold-free cornelianred glass, drinking glasses, chandeliers and wall lamps (see http://www.barovier.com). In 1936, theBarovier family businessmergedwithanotherMurano-basedglassmaking company runby theTosofamily.

(B) MarchesiAntinori,runbytheAntinorifamily,isawinecompanybasedinTuscanyandUmbria.ThiswinecompanystandsoutfromtheotherItalianwinemakersfortworeasons.4

First,thefamilyhasbeenmakingexcellentChiantiandOrvietowinesfor26generations,datingbackto1385.Second,forthefirsttimeinthecom-pany’shistory,thepeoplewhoarepoisedtotakeoverthefamilybusinessarewomen.Sincethecurrentowner,MarchesePieroAntinori,hasnosons,histhreedaughterswilltakeoverthisincrediblefamilybusiness.5

In1790,Zwack,theRoyalPhysiciantotheHabsburgEmperorJosephII,offeredhis royalpatientadarkbrownbittersweet liqueurdistilled fromnearly40differentherbs.“DasiseinUnikum!”shoutedtheemperorac-cordingtoZwackfamilylegend.Thus,anamewasgiventothispopulardrink.ItisstillverypopularinHungaryandsimilartotheBarackPálinka,anapricoteau-de-viefromKecskemét.ThattheEmperorgaveaproductitsnamebecameoneofthebestmarketingtricksintheworld.In1840,JózsefZwack,thedescendentoftheRoyalPhysician,establishedthefirstfactoryproducingthisdrinkwhenhewas20.Thisfactory,intheMoroccoplaygroundinPest,wasnamedJ.Zwack&Co.Thefirsttrademarkslogan,“My treasured liqueur,”was registered in 1881. The nameUnicumwasregisteredin1883,andthisliqueurwasgivenaroundbottleaswellasastrikinglogoconsistingofaredcrossonawhitebackground.6

Probably themost famousadvertisement forUnicum is theposterof amanwithwethairswimmingindeepwaterandinstantlycheeredbythe

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sightofthefloatingball-shapedbottle.By1890,theoriginalsiteofthefactorywastoosmallforbusiness purposes and it moved to the Danube-side of Ferencváros at Soroksári Road. Zwack still operates from thosepremisestoday.In1894,withthetragicnewsofthedeathofHungarianpolitical figureLajosKossuth, inTurin, the factoryswitchedover to thedarkgreen roundbottle. In1915, JózsefZwack’s son,Lajos, tookoverthefactoryandleftittohistwosons,BélaandJános,uponhisdeath.Inthisyear,SándorBortnyikcreatedZwackUnicum’smost famousposterofashipwreckedmanhappytofindabottleofthisliqueurinthestormysea.LajosZwackwasaleadingcapitalistandphilanthropistintheyearsofHungary’sBelleÉpoque.DuringWorldWarII,thefactorywashitbyabomb.Fortunately,thedistilleryequipmentremainedintactandproduc-tion continuedafter thewar. In 1946, thenewdemocratic governmentintroducedthenewHungariancurrencycalledForint,whichwassatirizedin the journal LudasMatyiwhereby theshipwreckedman in theZwackUnicumposterwasdepictedwiththenewForintinhishand.However,in1948,thenewlyinstatedCommunistGovernmentconfiscatedthefactory.Withneitherpossessionsnorcompensation,theZwackfamilyfledabroad.JánosZwackfledtoViennawiththeUnicumrecipe inhisbreastpocketafterbribingaRussiandrivertotakehimacrosstheborder.PéterZwacktookatraintotheYugoslavia.BélaZwackchosetoremaininHungary,butwaslaterdeportedtogetherwiththousandsofother“classenemies”totheGreatHungarianPlain.7

During the communist regime, Unicum was made from a fake recipe that BélaZwackhadgiven thegovernment.ThingsgraduallychangedwhenPéterZwack returned toEurope in1970.By this time,Unicumwasal-readysuccessfullymarketedanddistributedinItaly.Duetothechangingpolitical climate in Eastern Europe, Péter Zwack received overtures from Hungary, invitinghim to returnand takeoverhisold family factory. In1987, two years prior the collapse of theSoviet bloc, he took the riskandreturnedhomewithhisfamily.Atbeginning,heenteredintoajointventurewiththeHungarianState.WithintheframeworkoftheHungarian privatizationprogramme,PéterZwack&ConsortenAGpurchasedtheBu-dapestLiqueurstate-ownedpropertycomposedofthirteenfactoriesand1,300employeesin1991.In1992,ZwackUnicumwastransformedintoashareholdingcompanyandPéterZwackbecameitsPresident.8

In2008,PéterZwackpassedthebatontohisson,Sándor,byappointinghimPresidentoftheBoardofDirectors.Péterremainedeternalhonour-

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ablePresidentanddiedin2012attheageof85.Thefamilybusinessisnowledbyhistwoyoungestchildren,SándorandIzabella,thesixthgen-erationofZwacksinthebusiness.

FAMILY BUSINESSES IN THE UNITED STATESIn 1991, the Small Business Administration published a report prepared byProf.NancyBowman-Upton,DirectoroftheInstituteforFamilyBusi-nessattheHankamerSchoolofBusinessinBaylorUniversity.Thisreportstatedthat90%ofallAmericanbusinesseswerefamily-owned.AccordingtoFamilyEnterpriseUSA(FEUSA),thereare5.5millionfamilybusinessesintheUnitedStates.Family-ownedbusinessesgenerate57%ofGDPandemploy63%ofthenation’sworkforce.9

AccordingtotheLairdNortonTyee,10“familybusinessistheheartandsouloftheAmericanDream.”TheirFamilyBusinessSurvey2007highlightedtherolefamilybusinessesplayedintheUSeconomy.Nearly800seniorleadersoffamily-ownedbusinessesthroughoutthecountrysharedtheirviewsastothecurrentstateoftheirbusinesses.Theyalsospokeoftheuniquechallengesofowningafamilyenterpriseandtheiroutlookforthefuture.Family-ownedbusinessesgenerateapproximately64%ofAmeri-ca’sGNP.Nearly60%of themajorityshareholders in familybusinessesare55orolder.Nearly30%are65orolder.Successionofleadershipwillbeapivotalpointinthesecompanies’futures,yetlessthan30%ofthesurvey’s respondentshadsuccessionplans,and fewer than40%hadasuccessorinlinepreparingforthetransition.11

Nearly60%offamilybusinessesbelievetheirethicalstandardsaremorestringent thanthoseofcompeting firms.Morethanathird(37%)havewrittenethicscodes,anddiscussionsaboutethicswithemployees,custom-ersandpartnersarefrequent.Almostathird(30.5%)offamilybusinessownershavenoplanstoretire,ever;andnearlyanotherthird(29.2%)reportthatretirementismorethan11yearsaway.Sincethemedianageofthecurrentleadersis51,thismeansmanyownersplantoliveouttheiryearsinoffice.Thisposesuniquechallengestothesucceedinggeneration.Furtherexacerbating this risk is the fact thatnearlya third(31.4%)offamily-ownedbusinesseshavenoestateplanbeyondawill(2007).Thisisworsethanthe2002survey,inwhichonly19%hadnoestateplanbeyondawill(MassMutual2007AmericanFamilyBusinessSurvey).

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FAMILY BUSINESSES IN THE EUROPEAN UNIONFamilybusinessesconstituteasubstantialpartofexistingEuropeancom-paniesandhaveasignificantroletoplayinstrengtheningthedynamismoftheEuropeaneconomy.TheSmallBusinessActalreadyhighlightedtheroleoffamilybusinessandtheneedtoexploittheirfullpotential.

TheresearchfieldoffamilybusinessesinEuropeisfairlyyoung–com-paredtootherentrepreneurshipresearchareas–and it isnon-existentintheCIScountries.Familyenterpriseshavebeenthesubjectofsocio-economic researchonly in the last20-25yearsandeven later insomeEuropeancountries.Availableresearchworksoftenfocusonthegeneralcharacteristicsoffamilybusinessbycomparingthemwithnon-familyen-terprises,orbyhighlightingsomespecificfeatureslikethetransferofthefamilybusinesstothenextgeneration. TheDirectorate-GeneralforEnterpriseandIndustryoftheEuropeanCom-missionhascarriedoutspecificactivitiesonthefamilybusinesssector.In2007,anExpertGrouponFamilyBusinesswascreatedbasedonexpertsnominatedby thememberstatesandexpertsworking in this field.Be-tween2007and2009, theExpertGrouponFamilyBusinessconductedresearchonthisissue.AstudywasconductedunderthesupervisionoftheAustrianInstituteforSMEResearch(KMUForschungAustria)inconjunc-tion with the Turku School of Economics in Finland and the Studiecentrum voorOndernemerschap(SVO)inBrussels.Thestudytitled,“Overviewoffamilybusiness relevant issues”,wascompleted in2008andpresentedvaluableinformationtotheExpertGrouponFamilyBusiness.Thestudyaimed to achieve the following:12

•reviewthenationaldefinitionsof“familybusiness”usedinthe33coun-tries covered (i.e., EU-27; non-EU countries in the European EconomicAreasuchasIceland,Norway,Liechtenstein;EUcandidatecountrieslikeTurkey,CroatiaandtheformerYugoslavRepublicofMacedonia)andiden-tifycommonelementsinordertoproposeideasforaconclusiveEuropeandefinition; • provide an overview of the specific characteristics and the current

situationoffamilybusinesses(particularlyincomparisontoSMEs);• identifyexistingnationalnetworksandinstitutionalplayersaswellas

policyactivitiestosupportandpromotefamilybusinesses;and• analyzetheneedforandtheshapeofpossiblefuturepolicyinitiatives

infavouroffamilybusinesses

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vThereisnowageneralunderstandingthatmorethan60%ofallEuropeancompaniesarefamilybusinesses,andtheyaccountforabout40-50%ofemployment.Theyalsoencompassavastrangeoffirmsofdifferentsizesandareactiveinmanydifferentsectors.However,thereisstillalackofrobustdata,whichoftenresultsininaccurateassumptions(suchasequat-ingallfamilybusinesseswithSMEs).TheEuropeanbusinessstatisticstendtofocusoncompanysize,numberofemployeesandturnover.Theavail-abledataaretheby-productsoftheEuropeanUnion’sSMEdefinition,andmaynotbeentirelyrepresentativeoffamilybusinesses.Consequently,thecurrentstatisticalinterpretationisinaccurateandincomplete.MostSMEs(especiallymicroandsmallenterprises)arefamilybusinessesandalargemajorityoffamilycompaniesareSMEs.Ifwetake“theowner’sperspec-tive”insteadofthe“companysize”intoconsideration,thisparadigmshiftwouldimproveourunderstandingoffamilybusinessesasaphenomenon.AccordingtoEuropeanFamilyBusinesses(GEEF),familybusinessesinEu-rope represent: • Over1trillioneurosinaggregatedturnover• 9%oftheEuropeanUnion’sGDPand• Morethan5millionjobs.13

Ifwecomparethisnumberwiththe130millionpeopleemployedbytheSMEsectorinEU-27,itisextremelylow.However,theEuropeanCommis-sionstatesthat20-60%ofallEuropeancompaniesarefamilybusinesses.

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Thedebateonfamilybusinessesisfarfromover.TheThreeCircleFam-ilyBusinessSystemModelwasdevelopedbyRenatoTagiuriandJohnA.Davisin1982toshowthewaysinwhichpeoplefitintofamilybusiness.14 Thisbusinessmodelisbasedonthreemainelements:Family,OwnershipandBusiness.Thethreecirclesrepresentingtheseelementsoverlap,de-finingsevencategoriesofpeoplewhomaywantdifferentthings.TheECExpertGroupdecidedtousethismodel,whilestudyingthephenomenonoffamilybusinesses.

Ofthesethreeelements,ownershipisthekeytothebusinesslifeofthefirm.Ownershipdefinesacleardistinctionbetweenfamilyandnon-familybusinesses. Ifwe consider the “owner’sperspective” rather than “com-panysize”,ourunderstandingofthefamilybusinessphenomenonwillbeimproved.

Itisalsoimportanttonotethatfamilyownerstendtofocusonthequalityofassetsontheirbalancesheets,i.e.afamilybusiness’sfinancialmanage-mentfocusesonthebalancesheetinsteadoftheprofitandlossaccount.

FamilybusinessesinEuropeareofdifferentsizesandcoveravastrangeoffirmsinmanydifferentsectors.TheEuropeanCommissionstudyidentifiedmorethan90definitions,therebydemonstratingtheexistenceofseveraldefinitionswithinthesamecountry.Specializedliteratureclearlyshows,“thereisnotasingledefinitionof‘familybusiness’whichisexclusivelyap-

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pliedtoeveryconceivablearea,suchastopublicandpolicydiscussions,tolegalregulations,asaneligibilitycriterionforsupportservices,andtotheprovisionofstatisticaldataandacademicresearch.”15

Expertsbelieveadefinitionof“familybusiness”needstobeadoptedandintroduced at the European level in order to facilitate collection of data and development of policies related to the specific characteristics and needs of thistypeofenterprise.Thereisgeneralagreementthatdueconsiderationshouldbegiventothreeessentialelements:thefamily,thebusiness,andownership. The definition accepted by the Expert Group was proposedbytheFinnishWorkingGrouponFamilyEntrepreneurshipsetupbytheMinistryofTradeandIndustry in2006.TheExpertGroupproposedthefollowing definition: Afirm,ofanysize,isafamilybusiness,if:1) Themajority of decision-making rights is in the possession of the

natural person(s) who established the firm, or in the possession of thenaturalperson(s)whohas/haveacquiredthesharecapitalofthefirm,orinthepossessionoftheirspouses,parents,childorchildren’sdirectheirs.

2) Themajorityofdecision-makingrightsareindirectordirect.3) Atleastonerepresentativeofthefamilyorkinisformallyinvolvedin

themanagementofthefirm.4) Listedcompaniesmeetthedefinitionoffamilyenterpriseiftheperson

whoestablishedoracquiredthefirm(sharecapital)ortheirfamiliesordescendantspossess25%ofthedecision-makingrightsmandatedbytheirsharecapital.

In addition to this definition, there is another point as important as the previous four:

5) Morethanonegenerationshouldbecomeinvolvedintothebusiness.

The group recommends that opportunities should be explored in order to introduce this definition at national level. National governments shouldconsider adopting measures that create a more favourable environment forfamilybusinesses,suchaseaseoftaxation,simplificationofcompanylawandimprovementoftheeducationsystem.Itisadvisabletoestablishaspecificfamilybusinesscontactpointinnationaladministration.

TheExpertGrouponFamilyBusinessestablishedthattheEuropeanleg-islativeframeworkusedindifferentcountries is imperfectanddeficient.

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HardlyanyconsiderationoffamilybusinessescanbefoundacrossEurope.Insomecountries, the term“familybusiness” ismentioned indifferentregulationswithoutany clarificationas to itsdefinition.Nevertheless,afewexamplesoflegalregulationsexistinwhichfamilybusinessesarenotonlyreferredtobutalsosomedefinitionsoftherespectivetargetgroupare listed below15: • InAustria,aregionallawonshopopeninghoursexplicitlymentions

familybusinessesanddefinesthemasenterpriseswherethebusi-nessownerandtwomorefamilymembers(husbandorwifeofthebusiness owner, other people who are relatives to the business owner inadirectfamilyline)work.

• InanAustrianregionalagricultural legislation,a familybusiness isdefinedasanyautonomouseconomicentityregularlyandsustainablyprovidingforthefarmingfamily’sincome.

• InHungary,legalreferencetoagriculturalfamilybusinessesismadeinconjunctionwiththeprovisionofsubsidiesforfamilyfarms.Familyfarms are defined as entities with an active agricultural production on less than 300 hectares agricultural land ownership, lease or usage whereby(nexttothefarmer)atleastonefamilymemberisfull-timeemployed.Otherfamilymembersmayalsocontributetotheopera-tionofthefamilyfarm.

• The Italian Civil Code describes family businesses as enterpriseswheremembersofthefamilyunit(husband,wife,highdegreeofkin-ship)workandhavetheownership.

• TheLithuanianSupremeCourt(asof4June2007)statedthatifanenterprisewas established during themarriage period, it is by itsnatureafamilybusinessunlessregulatedotherwise.Suchanenter-prisewouldbethejointpropertyofthespousesandencompassthephysicalandintellectualworkofbothspouses.Anybusinessrevenuegarneredfromsuchafamilybusinesswouldbeusedfortheneedsofthefamily.

• InBulgariaandSlovakia,familybusinessesaredeemedtobebusi-nesses co-ownedby both spouses.Co-ownership of a business bybothspousesisalsopresumedinthecaseofself-employmentorsole

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proprietorship unless there are contractual agreements determining otherwiseorotherwiseprovedinlitigation.

• Romanianlawdefinesfamilybusinessesasenterprisesestablishedattheinitiativeofanindividualandcomprisinghis/herfamilymembers(husband,wife,childrenover16years,closerelatives,andrelativesfourtimesremoved).

• InFinlandandSpain, thechallengeofdefining familybusinesseshasbeen considered atministerial level. The FinnishMinistry of TradeandIndustryhassetupaWorkingGrouponFamilyEntrepreneur-shipthat,amongothers,wastodefinetheFinnishconceptoffamilybusinesses.Similarly, theSpanishMinistryofEconomy,through itsdependantbody,theDirectorateGeneralforSMEPolicy(DGPYME),elaboratedadefinitionoffamilybusiness.

• According to Company Law (Law 2941/2001) in Greece, there is nodefinition of family business. However,most businesses in Greecearesmall familybusinesses.Veryoften, thetermsSMEand familybusinessareused interchangeablybecausetheyare thought tobethesamething.16

Itisimportanttonotethattheself-employed/one-personenterprisesareconsideredfamilybusinessesinapproximatelyone-thirdofthecountriessurveyed.Sole proprietors (i.e. companieswith one owner and employother family and/or non-family members) are considered to be familyfirmsinmostcountries.

Therefore, it is important to distinguish the differences between familybusinessesandnon-familyenterprises.AccordingtotheUnitedKingdom(UK)InstituteforFamilyBusiness,familybusinessesoftenstrugglewiththeirbusinessobjectivesandrulesontheonehand,andfamilyprioritiesand emotions on the other: “This is a culture clash and it leads to long-term tensions, friction and values conflicts. Successful families learn tounderstandwhat’sgoingon,andtheydevisestrategiestokeepthesome-timescontradictoryforcesundercontrol.Thishelpsthemmakethemostoftheuniqueadvantagesenjoyedbyfamilycompanies.”17

Thetablebelow,basedontheresearchintheNetherlandsbyThomassen(2007),comparesthemaincharacteristicsoffamilyandnon-familybusi-nesses.18

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CHALLENGES FOR FAMILY BUSINESSESThe European Commission highlights that family businesses are facingchallenges in the following fields: • Challengesthatarisefromtheenvironmentinwhichcompaniesoper-

ate: Policymakers’unawarenessofthespecificitiesoffamilybusinesses,

or their economic and social contribution; Financialissues(e.g.inheritancetax,accesstofinancewithoutlosing

controlofthefirm,favourabletaxtreatmentofreinvestedprofits).• Challengesthatdevelopasaconsequenceofthefamilyfirm’sinternal

matters: Family firms’ unawareness of the importance of planning business

transfersearly; Balancebetweentheaspectsoffamily,ownershipandbusinesswith-

in the enterprise; Difficultiesinattractingandretainingaskilledworkforce.• Challenges related to educational aspects, which impact both the

businessenvironmentandthefamilyfirms’internalmatters: Lack of entrepreneurship education and family-business-specificmanagement training and research into family-business-specific topics,pluseffectivecoordinationwitheducationsystemstoensureproperfol-low-up.

Thelackofawarenessofthefamilybusinesssectorisnotlimitedtothepolicymakers.Thegeneralpublicisonlynowintheprocessofunderstand-ingthatwhichmakesafamilybusiness.Thereisalackofresearchand

Family businesses Non-family Businesses The purpose is continuity The purpose is maximizing near-term

share price The goal is to preserve the assets and reputation of the firm

The goal is to meet institutional investor expectation

The fundamental belief is that the first priority is to protect downside risk

The fundamental belief is that more risk promises more return

The strategic orientation is adaptation The strategic orientation is constant growth

The most important stakeholders are customers and employees

The most important stakeholders are shareholders and management

The management focus is on continuous incremental improvement

The management focus is innovation

The business is seen as a social institution

The business is seen as a disposable asset

Leadership is stewardship Leadership is personal charisma

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commonunderstandingastothevalueofthefamilybusinessforsocietyandthehumanfacebeyondthesebusinesses.Thus,itwouldbeimportanttorenderfamilybusinessesafocalpointatboththeEuropeanCommissionand national governmentlevels.

THE IMPORTANCE OF PREPARING FOR BUSINESS TRANSFERTheEuropeanCommissionestimatesthatathirdofcompanyownerswillretireinthenextdecade.AccordingtotheEU’sreport“MarketsforBusi-ness Transfers” (May 2006),more than 700,000SMEs, providingmorethan3millionjobs,aretransferredtoanewownereveryyear.Thousandsof enterprises are at stake if the EC does not educate these businesses on therightapproachtotransitiontothenextgenerationofowners.Hence,the EC should consider the legal framework of the succession, the simpli-fication of the inheritance tax, introduction of tax allowances and support measures for the new owners are important issues. SMEs are not in apositiontocopealonewithalltheproblemsanddifficultiesofinheritance.

Much attention has been given to encouraging the creation of new busi-nesses, but it is also important to ensure the continuation and growth of existingviableenterprises.Policymakersoftenforgetthatstartinganewfirmisnottheonlywaytosecurejobs.

A business transfer is the transfer of ownership of an enterprise to an-otherpersonorenterpriseinawaythatassuresthecontinuousexistenceandcommercialactivityoftheenterprise.Thiscantakeplacewithinthefamilythroughmanagementbuyouts(salestonon-familymanagement/employees)andsales tooutsidepersonsorexistingcompanies, includ-ingtakeoversandmergers.Asoneofthemajorreasonsforthefailureofbusiness transfer is lack of planning (European Commission, 2002), instru-mentshighlightingtheimportanceofsubstantialandtimelyplanningaswellasmeasuresfacilitatingthisprocessareadvantageousforthefamilybusinesssector.

BusinessTransfersarepartofsuccessionplanning.Itinvolvestransferringownershipandcontrolofabusinesstonewmanagement.Inafamilybusi-ness,thisisoftenduetotheexit,retirementordeathoftheowner.Thethree main options are:• transferringownershiptoafamilymember• transferringownershiptoanon-familymember• voluntaryliquidation.

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Withanestimated450,000businesses,providing2millionjobs,undergo-ingbusinesstransfersintheEUeveryyear,Europeneedstomakeiteasierto transfer businessesanddevelopmoreeffectivesupportservices.Thestudyconcludes thatEurope losesapproximately150,000 firms (repre-senting600,000jobs)ayearsolelybecauseofinefficienciesinbusinesstransfers.19

The2011ECstudyon“BusinessDynamics”,whichmeasurestheimpactofinefficienttransferofbusinessesonjobcreationandbusinessbirthsinEurope, identified the followingmain problems faced by entrepreneursduring the business life of a company: start-up/licensing procedures,transferofbusiness,bankruptcyandsecondchances.Moreover,thestudyexplores potential solutions and recommends policies to ameliorate the easeofdoingbusinessandeventuallyincreasethenumberofentrepre-neurs in Europe. The study covers the current national practices in 33Europeancountries.Italsocoversthekeymomentsofacompany’slifecycle:licensing,transfer,insolvencyandrebirth.Itsfinalgoalistoanalyzethekeyproblemsineachoftheseareasandtheirimpactoncompanies,jobsandGDPloss. In December 1994, the EC published concrete recommendations on im-proving the framework forbusiness transfers in theEUmemberstates.The recommendation addressed issues affecting business transfers such astaxation,reformofacompany’slegalstatute,awarenessraisingmea-suresandaccesstofinance.20

In2004,theDutchMinistryofEconomicAffairscooperatedwiththreeem-ployers’organizationstodevelopatoolkitforbusinesstransfer.Itisknownas “Overdrachtspakket” or transfer package.All entrepreneurs aged55would receive a letter informing them on the importance of business transferplanningandtheavailabilityofthistoolkit.Inadditiontoaware-nessraising,adviceandconsultancyinstrumentsorself-planningtoolsareavailable. The Finnish Employment andEconomicDevelopmentCentres(TE-keskus) launched the ViestinVaihto (Passing the Baton) programme consistingofthreeconsultingdays(experiencedmanagementconsultantson a confidential firm-to-firm basis) where different options and solutions forbusinesssuccessionmaybediscussed. StudioCentroVeneto(SCV),anItalianconsultantcompanyfoundedbyToniBrunello,hasbeenworkingwithmicroenterprisesandSMEssince1968.It

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ispresentlytheforemostconsultantcompanyinEuropehandlingthebusi-nesstransferissue.BrunelloisamemberofERENET.Forthelast20years,SCVhasimplementedawidesystemoftoolstodealwithbusinesstransferasa“territorymatter”.Insodoing,itsworkhascaughttheattentionofmicroenterprisesandSMEsattheregional,nationalandEuropeanlevels.TheKit.Brunello.System(KBS)developedbySCVwasofficiallyrecognizedby theEC in2009asameansofpromotinggoodpractices inbusinesstransfers.ItishopedKBSwillspreadtotheotherEUmembercountries.Todate,theConfederationofNorwegianEnterprise(NHO)hasacquiredit,andTurkey,BulgariaandAustriaareactively involvedwithSCV inaEuropeanprojectaimedatspreadingthispracticewithintheircountries.21

Despitesomeprogress,theEUmemberstateshaveyettoimplementthe1994Commission recommendations.Out of the 33 European countriescoveredinthe“BusinessDynamics”study,only5hadimplementedmorethan75%ofthoserecommendations.Theobstaclesstilltobeaddressedincludethecomplexityofthebusinesstransferprocessaswellasthepo-tential lack of experience and knowledge of support available of the new owner. This is compoundedby legislation and regulationwhich frightenmanywould-beentrepreneursfromtakingoverexistingbusinesses.Thisaffectsmostlysmallcompanies,asbiggercompaniesareusuallyabletorelyontheadviceofinternallegalstafforexternalexpertsfamiliarwiththerelevantlegislationandchallengesahead.Ownersofsmallandmedi-um-sizedenterprisesarelessawareofbusinesstransferissues.22

Fiscalissuesrelatedtofamilybusinessesareofkeyimportancetofamilybusinesses.Themajorconcernsoffamilybusinessesarefostering,pre-servingandcreatingnewjobs,risingtaxrevenues,contributingtosus-tainabledevelopmentandinheritancetax.

ThePan-Europeanumbrellafederationofnationalfamilybusinessassocia-tion,EuropeanFamilyBusinesses(GEEF)statesthatthetaxationoffamilybusinesses has three dimensions: business, current owners and future owners. “Currently, inmost European countries, income from equity issubjecttoatleastpartialorevenfulldoubletaxation.Firstly,profitgener-atedinthebusinessistaxedattheapplicablebusinesstaxrate.Secondly,theprofitdistributedbythebusinesstoitsownersistaxedatownerlevel.Thirdly,whenpassedfromonegenerationtoanother,thebusinessassetsareoftenfurthertaxed.Inmanycases,thistwo-foldoreventhree-fold

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taxationcausesthetotaltaxburdenoffamilybusinessesandtheirownerstobehigherthanthetotaltaxburdenofbusinessesheldbyothertypesofowners.”23

Asof2010,CopenhagenEconomics,aneconomicconsultancy,compiledareportofEUmemberstateswithinheritanceorestatetaxes.Thisreportrevealed that 18 of the 27 EU member states have an inheritance or estate taxintheirdomestictaxrules.24 Most member states have inheritance tax andafewhaveestatetax.Denmarkistheonlymemberstatewithbothestateandinheritancetaxes.• Inheritance taxes exist in the 27 member states of Bulgaria, the

CzechRepublic,Denmark,Finland,Germany,Greece,Hungary,Ire-land,Italy,Lithuania,Luxembourg,theNetherlands,Poland,SloveniaandSpain.

• EstatetaxesexistinBelgium,Denmark,FranceandtheUnitedKing-dom.

The German government places high importance on SMEs for the econom-icgrowthandemploymentofthecountry.Theappraisaloftaxprivilegesin favourofbusinesspropertywasprovidedbytheGermanInheritanceandGiftTaxAct(Erbschaft-undSchenkungsteuergesetz,ErbStG)in2009.TheGermanInheritanceandGiftTaxActappliestotransfersofpropertyand transfers of businesses regardless of transfers resulting from heritage ordonation.

The European Commission prepared a guidebook on business transfer is-suesafterstudyingmaterialpublishedbytheleadingprojectsandreportsin this field25.

The Entrepreneurship 2020 Action Plan is a blueprint for decisive action aimedatunleashingEurope’sentrepreneurialpotential,removingexistingobstaclesandrevolutionizing thecultureofentrepreneurship inEurope.Altering the public perception of entrepreneurs, entrepreneurship educa-tion and increasing support groups for entrepreneurs are indispensable to thecreationofenduringchange.AccordingtothisActionPlan,themem-ber states are invited to: • Improve legal, administrative, and tax provisions for transfers of

business taking into account the 2006 Commission Communication on transfers of businesses and the 2011 Commission Communication on tackling cross-border inheritance tax obstacles within the EU;

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• UseexistingEuropeanfundsaccordingtotheirapplicablerulesandpriorities to support transfers of small and medium-sized businesses to entrepreneurs intending to continue running the business;

• Improveinformationandadviceservicesforbusinesstransfer.• Effectively publicize business transfer platforms and marketplaces

and launch campaigns to raise awareness among potential sellers andbuyersofviablebusinesses.

• Considerreviewingtaxregulationwithrespecttoitsimpactsontheliquidityofasmallormedium-sizedfamilybusinessincaseofasuc-cessionofownershipwithoutimpactingrevenuenegatively.26

SUGGESTIONS FOR SUCCESSION•Carefully lookatthesituationofthecompany, including its long-term

prospects; compare the up-to-datedness of the goods produced or servicesofferedwiththatofcompetitors;analyzethetechnologicalcapabilitiesandfinancialcircumstancesandstrengths.

• Writeupthepossiblepotentialcandidatesforsuccession,lookattheircapabilitiesandtheirtrackrecords.

• Startconversationswithpossiblecandidatesandgetacquaintedwiththeirideasforthefuture.

• Discussthesuccessionwiththefamilymembers.

• Ifthechildpickedtorunthebusinessinthefutureismotivatedtodoso, he/she should be schooled in both domestic and foreign institu-tionssoastoobtainpracticalskills.

• It isadvisable tobring thepossible candidate into thebusiness tolearnabouttheemployeesandthewayinwhichthecompanyoper-ates.Thiswillacquaintthesuccessorwiththecompany’svalues.Itisalsoexpedienttogivehim/heramanagerialtaskinthefamilybusi-ness.

• Ifnecessary,obtainexternalexpertadviceondesigningthecircum-stancessurroundingthetransferofthesuccession.

• Theretiringpartyshouldthinkaboutthethingshe/shewantstodoafter the transfer of the business to avoid the problems within the family.

• Preparetheagendaforourownretirement.

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REFERENCES

[1] O’Hara,W.T.(2004).CenturiesofSuccess:LessonsfromtheWorld’sMostEnduringFamilyBusinesses.Massachusetts:AdamsMediaCor-poration.

[2] KongoGumi: Lessons from theLegendaryFamily-OwnedBusiness’Longevity and Ultimate Demise. (no date). IBS Center for Man-agement Research. Retrieved from http://www.icmrindia.org/cas-estudies/catalogue/Business%20Strategy/BSTR316.htm

[3] SeeHoshiRyokanofficialwebsite.(nodate).Retrievedfromhttp://www.ho-shi.co.jp/jiten/Houshi_E/home.htm

[4] TheHistoryofOurWines.(nodate).MarchesiAntinoriofficialweb-site.Retrievedfromhttp://www.antinori.it/en/26-generazioni/history

[5] Jessica.(2008,October16).AntinoriFamilyofFlorence:600YearsofWinemaking.Italylogue.Retrievedfromhttp://www.italylogue.com/about-italy/antinori-family-of-florence-600-years-of-winemaking.html

[6] Zwach Unicum. (2005, March 29). Hvg.hu. Retrieved from http://hvg.hu/magyarmarka/20050325zwack

[7] ZwackHistory,1944-1945,WorldWarII–TheoriginalrecipefleestotheUnitedStates–CommunisminHungary.Retrievedfromhttp://www.zwack.com/en/cegunk/zwack-tortenet/#tartalom

[8] ZwackHistory,1970,PeterZwack in Italy.Retrieved from http://www.zwack.com/en/cegunk/zwack-tortenet/#tartalom

[9] FEUSA. (2011). Annual Family Business Survey. Retrieved fromhttp://c.ymcdn.com/sites/www.familyenterpriseusa.org/resource/resmgr/annual_survey/2011_annual_family_business.pdf

[10]TheLairdNortonCompany(LNC)wasfoundedin1855.Itisafamily-ownedbusinesswithheadquartersinSeattle,Washington.Itispres-entlyrunbytheseventhgeneration.

[11]OregonStateUniversity.(2007).LairdNortonTyeeFamilyBusinessSurvey. Family to Family 2007. Retrieved from http://www.family-businesscenter.com/public/files/resources/laird-norton-tyee-sur-vey-2007.pdf

[12]European Commission (EC). (2009). Final Report of the ExpertGroup.OverviewofFamily-Business-RelevantIssues:Research,Net-works,PolicyMeasuresandExistingStudies.Retrievedfromhttp://ec.europa.eu/enterprise/policies/sme/promoting-entrepreneurship/family-business/family_business_expert_group_report_en.pdf

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[13]EuropeanFamilyBusinesses (GEEF). (2010).Whoweare?Leaflet.Brussels. Retrieved from http://www.europeanfamilybusinesses.eu/home

[14]Tagiuri,R.andDavis,J.A.(1982).BivalentAttributesoftheFamilyFirm.Reprintedinthe“Classics”sectionofFamilyBusinessReview,9(2),199–208,Summer1996.

[15]Mandl,I.(2008).OverviewofFamilyBusinessRelevantIssues,Con-tractNo.30-CE-0164021/00-51.Vienna:KMUForschungAustria.Re-trieved fromhttp://ec.europa.eu/enterprise/policies/sme/files/craft/family_business/doc/familybusiness_study_en.pdf

[16]Agapitou,C. andTheofanides, F. (2008).Overviewof FamilyBusi-nessandRelevantIssues:CountryFicheGreece.ProjectconductedonbehalfofEuropeanCommissionEnterpriseandIndustryDirector-ate-General.Retrievedfromhttp://ec.europa.eu/enterprise/policies/sme/files/craft/family_business/doc/familybusines_country_fiche_greece_en.pdf

[17]InstituteforFamilyBusiness.(nodate).FamilyBusinessChallenges:UnderstandingFamilyBusiness.Retrieved fromhttp://www.ifb.org.uk/media/35658/understandingfamilybusinessd4.pdf

[18]Thomassen, A. J. (2007,May 24). Family Business in the Nether-lands:Historicalperspectiveandfutureissues.PowerPointPresenta-tionfortheEuropeanCommission,DGEnterpriseandIndustry.

[19]EuropeanCommission(EC).(2011).BusinessDynamics:Start-ups,BusinessTransferandBankruptcy.Retrievedfromhttp://ec.europa.eu/enterprise/policies/sme/business-environment/files/business_dy-namics_final_report_en.pdf

[20] 94/1069/EC: Commission Recommendation as of 7 Decem-ber 1994 on the transfer of small and medium-sized enterprises.Retrieved from http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31994H1069:en:HTML

[21]Brunello,T.(nodate).Kit.Brunello.System.AtelierStudioCentroVene-to.Retrievedfromhttp://www.studiocentroveneto.com/kit-brunello-system_eng.php

[22]EuropeanCommission(EC).(2013).SmoothTransferofBusinesses.Retrieved from http://ec.europa.eu/enterprise/policies/sme/busi-ness-environment/smooth-transfer/

[23]GEEF. (2010, September 22). European Family Businesses –GEEFContribution to the EU Commission Consultation on Possible Ap-proaches to Tackling Cross-border Inheritance Tax Obstacle within

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the EU. Retrieved from http://www.europeanfamilybusinesses.eu/documents/EFB-GEEF%20contribution%20to%20EU%20consulta-tion%20on%20inheritance%20tax.pdf

[24]Copenhagen Economics (2011, May 13). Survey of the DomesticRulesonTaxeslevieduponDeath.Retrievedfromhttp://ec.europa.eu/taxation_customs/resources/documents/common/consultations/tax/2010/08/inheritance_taxes_report_2010_08_26_attachment_en.pdf

[25]EuropeanCommission(EC).(2012).FacilitatingTransferofBusiness:A Smart Guide on promoting and supporting the transfer of busi-nesseswiththehelpofEUstructural funds.Retrievedfromhttp://ec.europa.eu/enterprise/policies/sme/regional-sme-policies/docu-ments/no.3_transfer_of_business_en.pdf

[26]EuropeanCommission(EC).(2013,January9).Communicationfromthe Commission to the European Parliament, the Council, the Eu-ropean Economic and Social Committee and the Committee of the Regions.Entrepreneurship2020ActionPlan.Reignitingtheentrepre-neurialspirit inEurope.COM(2012)795.Brussels:EuropeanCom-mission. Retrieved from http://eur-lex.europa.eu/LexUriServ/Lex-UriServ.do?uri=COM:2012:0795:FIN:en:PDF

WEBSITES

EuropeanCommission(EC).(2006).MarketsforBusinessTransfers:Fos-teringtheTransferofBusinessesinEurope.ReportoftheExpertGroup.Brussels:EuropeanCommissionEnterpriseandIndustryDirectorate-Gen-eral. Retrieved from http://ec.europa.eu/enterprise/policies/sme/files/support_measures/transfer_business/transfer_markets_en.pdf

MassMutual,KennesawStateUniversity,&FamilyFirmInstitute.(2007).AmericanFamilyBusinessSurvey.Retrievedfromhttp://www.massmutu-al.com/mmfg/pdf/afbs.pdf

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2. FAMILY BUSINESSES IN GERMANY AND THEIR ROLE IN ECO-NOMIC DEVELOPMENT

2.1. SIGNIFICANCE OF FAMILY BUSINESSES IN GERMANY AND THEIR INNOVATIVE ACTIVITIES

byDr.DanielMitrengaChief EconomistGerman Association of Family Enterprises (Die Familienunternehmer –ASUe.V.)Berlin,Germany

ABSTRACTTheGermanbusinessmodel isheavily linkedtotheimportanceoffam-ilybusinesses.Thisarticlemaintainsthatthesignificanceoffamilybusi-nessesisnotamatterofsize,butaspecificwayofdoingbusiness.Beingreliantandpersonallyresponsiblefortheirdecisionsmakesfamilyentre-preneursmorecautious.Whenabusinessisriskaverse,itisindangeroffallingbehindwhenitcomestoinnovation.Thelackofsufficientinnovativepowerisprobablyoneofthemajorreasonsforfailedfamilybusinesses.Theauthorarguesthatthebasicsetupoffamilybusinessesdoesnothin-derinnovationatall.Incontrast,itmightbeanadvantageinredesigningandmodernizingbusinessactivities.

1. SIGNIFICANCE AND SPECIFIC CHARACTERISTICSAquantitativeexaminationof theGermaneconomy reveals that familybusinessesdominateit.Morethan90%ofthecountry’s3.5millionbusi-nessesareownedbyfamilies.Manyofthesearealsorunbyatleastonefamilymember.Asidefromthedivergingconceptsofdefiningfamilyandtheir influence in a company, it is clear that family businesses are thebackboneofGermaneconomy.Thisalsoholdstruewhenonelooksattheshareofemployeesworkingforfamilybusinesses.55%workforafamily-ownedcompany,while38%workfornon-familyownedcompanies.Familybusinessesgeneratealmosthalf(47%)ofGermanturnover.Thisimpres-sive position of German family businesses hasmany historical causes,whichcannotbediscussedindetailhere.Ontheonehand,itseemsthattheGermaneconomyhasnevercompletelydeindustrialized.Ontheother

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hand, companies recognize the need for specification in order to be inter-nationallycompetitive.

Not a matter of sizeClosescrutinyofthenearly3.2millionGermanfamilybusinessesrevealsthat65%ofthemaresinglemembercompanies.Eventhoughtheymakea measurable contribution to the overall German business outcome, I will focusontheremaining35%.Tobeprecise,Iwillconcentrateonfamilybusinesseswithatleastamillioneurosturnoverand10employees.Theselimits reflect the minimum criteria of the organization “Die Familienun-ternehmer–ASUe.V.”.DieFamilienunternehmer,ortheGermanAssocia-tionofFamilyEnterprises, is themain interestgroupofGerman familybusinessesanditwasfoundedin1949.

In focusingonadefinedgroupof familybusinesses, Iamemphasizingthefactthatafamilybusinessisnotamatterofsize.Familybusinessescannot be put on the same level with small and medium-sized enterprises (SMEs), even though many family businesses are medium-sized busi-nesses.FamilybusinessesinGermanyspanallsectorsandcoverawidespectrumofbusinesssizes.Forinstance,bothacraftsmanenterprisewith15employeesandMielewitha3.2billioneuroturnoverandmorethan17,000employeesworldwidearefamilybusinesses.Theconceptoffamilybusinessesisdeeplyconnectedwithaspecialmindsetdominatedbytheprincipleof liability.Familyentrepreneursactdifferently frommanagersmainlybecausetheyare liable forallof theirentrepreneurialdecisions.Basically,theyhavealong-termperspectivewhichisnotdrivenbyquar-terlyoptimisedfigures.

Regional rootsOne of the specific characteristics of German family businesses is thattheoldercompaniesareverydeep-rootedinregionalandlocalstructureswhichoftenhaveevolvedovergenerations.Theinterconnectivitybetweena family-runcompanyand local society, the local sportsclubandotherstakeholders is tremendously high. The qualitative role of family busi-nessesbecomesclearwhenthevocationaltrainingmarketisexamined.Familybusinessesoffer80%oftheGermanapprenticeshiptrainingposi-tions.Withthisinvestmentinupcomingskilledworkers,theypreparetheircompaniesandtheeconomyasawholeforfuturechallenges.

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ManyhiddenchampionsTheflipsideofthishistoricallydevelopedregionalnetworkisthatmanyof these family businesses are still at the locations theywere foundedgenerationsbefore.Fromamodernlogisticalperspective,theselocationsmightnotatalloptimal.However,eventhisdistinctivefeatureispartofanothersuccessstory.AccordingtoanacademicconceptofProf.HermannSimon,atleast1,200Germanfamilybusinessesbelongtoaspecialgroupthathecalls‘hiddenchampions’.Bydefinition,thesecompaniesbelongtotheworldmarket leadersoftheir industriesandaremostlyunknowntothegeneralpublic.Additionally,mostofthemarehighlyinventive.Hiddenchampions often manage to bring some product or production process to perfection.Thisgivesthemauniquepositioninaglobalizedmarket.Solongastheyremainopentoinnovation,theywillnotbeveryvulnerable.

Importance of financial independenceAnotherspecial featureofGermanfamilybusinesses istheirurgetobefinanciallyindependent.Theirhigher-than-averageequityratiogivesthemthefreedomtoreactquicklyandindependentlytomarketdevelopments.Notsurprisingly,GermanfamilybusinessesprovedtoberesilientduringtheEuropeancrisis,especiallywhenitspeakhitGermanyin2009.Hav-ingareasonablestrongequitypositiongreatlyhelpedthemwhenordersdecreasedupto70%.Evenifmostfamilybusinesseshavegoodrelationswiththeirbanks,theyaremorelikelytoavoidbankfinancingthannon-familyownedcompanies.

This cautious financial attitude is also reflected in the investment behav-iouroffamilybusinesses.Theequityratioofinvestmentsundertakenbyfamily businesses is outstandingly high. In an internal survey, 42% ofthemembers of theGermanAssociation of Family Enterprises have anaverageequityshareof0%to40% in their investments. Impressively,58%answeredthattheyhaveanaverageequitysharebetween41%and100%.Thisstrategymightnotbethemostprofitable,but itexcellentlyreflectstheimpactofliability.Theinvestmentrateininnovativeactivitiesbyfamilybusinessesisestimatedtobeabout2%,eventhoughoutlierswithratesover10%exist.Atthispoint,itshouldbenotedthatmeasuringinnovationactivitiesinfamilybusinessesisanuncertainapproachnotonlyforexpertsbutalsoforthefamilyentrepreneursthemselves.Thisfactiscrucial for the following findings on innovation activities and the conclud-ingpolicyadvice.

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2. INNOVATION ACTIVITIESMyanalysisoftheinnovationactivitiesdoesnotraisethequestionwhetherfamilybusinessesareingeneralmoreorlessinnovativethannon-fami-lybusinesses.Thisenquiryshouldbe leftwith researchers.Mypositionstemsfrommyprofessionalexperiencewithfamilybusinesses.Manysuc-cessfulfamilybusinessesaretypicallyveryinnovativeandinternational-ized.Thegeneral characteristicsof familybusinessesareadvantageoustoinnovation.Thelong-termperspectiveoffamilycompaniesreducesthepressurethatnewinventionshavetopayoffimmediatelyorwithinaveryshortperiod.Typically,thedecision-makingprocessisnotasformalizedandbureaucraticasitisinaffiliatedgroups.Decision-makingisoftende-centralizedandinformal,whichinturnleadstospontaneousinnovation.Evenifthisadvantagedeclineswiththegrowingsizeofafamilybusiness,adifferentapproachcanalsobeseeninlargefamilycompanies.

Themindsetoffamilyentrepreneursisquicktoadaptandflexibletomar-ketdemands.Latestmarketdevelopmentsandbusinessopportunitiesareoftenpickedupbyfamilybusinesses.

Onthecontrary,itissometimesstatedthatthegenerationalperspectiveoffamilybusinessesmightbeahindrancetoinnovation.Thelogicbehindthisargumentisthatriskadversitymightrisewitheverygeneration,re-sultinginaslowingdownofmomentum.Theremightbesomeprominentexamples where founders of companies were so focused on conserving theirgrowththattheybecamefixatedonprevioussuccessfulstrategies.Consequently,thesubsequentgenerationmightnothavetheopportunityto bring new innovation into the firm because of a still dominant predeces-sororbecauseofanincurablebusinessdownturn.However,mycontactwithyoungentrepreneurshaspointedmeinadifferentdirection.

There is a lot of pressure on the next generation for survival and to renew thecompanythroughinnovation.Pressureincreasesfromonegenerationtothenext.Inolderfamilybusinesses,itisevidentthatthemorestake-holdersthereare,thegreaterthepressure.Thesubsequentgeneration,ontheotherhand,hasastrongabilityandwillingnesstodiversifyorcom-pletelychangebusinesssubjects.Sometimesthebusinessunitworkinginthefieldinwhichthecompanywasoriginallyfoundedcontributesjusttoasmallpercentageofcurrentoperatingresults.Modernfamilybusinessesarehighlydiversified,andhavedevelopedveryspecificcompetencesandcapabilities.

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EvolutionaryapproachOnemajorsourceof innovativepowerinfamilybusinessesistheirveryclose relation to customers. This often takes the form of business-to-businessrelations.Byworkingcloselytogetherwiththedemandside,acompanyisabletofindnewsolutionstovariouschallenges.Opencommu-nicationwiththemaincustomersplaysakeyroleintheevolutionaryinno-vationapproachoffamilybusinesses.Theongoingprocessofoptimizationistriggeredbythetrustfulexchangeofknowledgebetweenfamilybusi-nessesandtheirclients.Thenewknow-howisusedforprocessinnovationaswell asproduct innovation.Not surprisingly,many familybusinessesarepatentholdersinordertoprotecttheirintellectualproperty.However,somefamilybusinessesaresospecializedandthetimeframeofnewideasissolimitedthattheychoosenottoapplyforapatent.Inbothcases,theinnovationisoflittlevalueforpotentialcompetitors.

OftennoR&DdepartmentDependingontheirsize,familybusinessesrarelyhaveclearresearchanddevelopment(R&D)structures.Ifinnovationoccursalongtheproductionprocess,extraresearchanddevelopmentisnotnecessaryandthereforedoesnotfrequentlyoccur.Thiscircumstanceunderlinestheimportanceoftheworkforceforfamilybusinesses.Theinnovativepotentialisaccumulat-edintheemployees,whoareextraordinarilycommittediftheyworkforafamilybusiness.Humanresourcesareacrucialcomponentofinnovation,whichfamilyentrepreneurssupportwiththeirspecialsetup.

3. POLICY ADVICEThesefindingsgiverisetothequestionastohowagovernmentcanfosterinnovationinfamilybusinesses.ThemostcommonapproachinwesterneconomiesistaxbreaksforR&Dactivities.Countriesusethisinstrumenttopromoteinnovativepoweringeneral.Unfortunately,themechanismisapreferentialtreatmentfortrustsandaffiliatedgroups.Asshown,familybusinesseswithnoclearR&Dstructuresdonotbenefitfromthistypeofsubsidy.Thetaxbreaksapproachistosomeextentapenalizationoftheinnovativeflexibilityoftenfoundinfamilybusinesses.Inevitablearbitrageeffects isanothernegative feature impactingbusinesseswhenever theyredesigntheirshapeinordertoapplyfortaxbreaks.

Duetotheoftenhighequityratiosinfamilybusinesses,thereisanalter-nativewayoffosteringinnovation.Inventingneutralityoffinancingwould

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abolishtheprivilegeofcreditcapital.Inmosttaxsystems,interestpay-mentsforloansarecommonlytaxdeductible.Thisisastimulusfordebtfinancinginvestmentsthatdoesnotcontributetothestabilityofecono-miesatall.Any(innovative)investmentfinancedwithequityhasanarti-ficialdisadvantagebecauseofthetaxdeductibilityofinterestpayments.This imbalance couldbeeliminatedby the introductionof fictitiousandofficiallypublicizedinterestratesonequitywhichthencouldbemadetaxdeductible. As shown, family businesses act and function differently not only withregard to innovation.Helping familybusinesses toaccumulateequity isthereforeatwofoldapproachtofosteringthegrowthoffamilybusinessesandtheirinnovativeactivities.

2.2. CHARACTERISTICS AND MANAGERIAL BEHAVIOUR OF GER-MAN FAMILY BUSINESSES

byProf.Dr.JörgFreilingHeadofLEMEX,ChairinSmallBusinessandEntrepreneurship(LEMEX)FacultyofBusinessStudies&EconomicsUniversityofBremen,Germany

Dr.SteffenGrossmannResearchAssistant,ChairinSmallBusinessandEntrepreneurship(LEMEX)FacultyofBusinessStudies&EconomicsUniversityofBremen,Germany

ABSTRACTAmongfamilybusinessesinGermany,onecanoftenfindhiddenchampi-onsthathavehadoutstandingperformancesoveralongperiodoftime.Thekeyfactorsoftheirsuccesslieintheprofessionalmanagementofthecompanyaswellastheowningfamily.Therefore,anadequategovernancestructure for both business and family is mandatory to preserving thecharacteristicspiritofentrepreneurshipasasourceofsuccess.Inthiscon-text,thechangingroleofthefamilyinGermanyaffectssomeofthekeychallengesoffamilybusinesses,suchasthemanagementofsuccession.

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1. FAMILY BUSINESSES IN GERMANY: AN OVERVIEWFamily businesses in Germany presently face a number of challenges.Familybusinessesarechallengedbythelargerinterconnectedworld.Hav-inginternationalizedveryearly,Germanfamilybusinesseshavemanagedtoachieveatransnationalposition.Transnationalityimpliesbeingactiveina number of different countries and integrating the activities in the respec-tivecountriesmuchmorethaninprevioustimes.Asaresult,networksofinternalunitsandqualifiedexternalpartnersemergeundertheumbrellaofthetransnationalfamilybusiness.Familybusinessesconsequentlyde-velop new governance structures, which give much more discretion to regionalandlocalunitsthanbefore.Moreover,someGermanfamilybusi-nessespartnerupwithinternationalvaluechains.Inthiscase,the‘old’governancestructuresarenolongeradequate.Networksofinternalsub-sidiaries and external partner companies, as outlined above, have to be managed.Thisveryoftenimpliesashiftfromamorehierarchicalmodeofgovernancetoheterarchicalones.

AnothercorechallengeofGermanfamilybusinessesisthevolatileworldinwhichwelive.Thisvolatilitynecessitateshigherlevelsofcorporatere-sponsiveness.Suchflexibilitycanoftenonlyderivefromthedevelopmentofnewmodesof leadershipandgovernance.Germanfamilybusinessesdifferfromdevelopingcorporateresponsivenessinthattheylookfornewwaystosetstandardsincompetition.Sincethevolatilityinthebusinessenvironmentveryoftenchangestherulesofthegame,thereare,infact,newwaystodothebusinessthataredifferentfrombefore.

MostGerman family businesses are simultaneously small andmedium-sized companies. As such, they,more so than bigger businesses, needtobringotherresourcestothefore.Inthissense,theyoftenbuildlonglasting relationships with customers based on trust, commitment, and reli-ability.ReputationandbrandawarenessareothercrucialfactorsputtingGermanfamilybusinessesinfavourablepositionsinworldmarkets.

Againstthisbackdrop,Germanfamilybusinessesoperateinaparticularbusinessenvironment.Theyfacesocialdevelopmentssuchasthedimin-ishingroleofthefamily,andbusinessdevelopmentssuchastheneedforprofessionalization.Theformerissueisacorechallengewhenitcomestobusinesssuccession.

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Allinall,Germanfamilybusinessesaresaidtobehighlycompetitiveonaglobalscale.Itisnottheintentionofthisarticletoprovethat.Thenextsectionswillsimplyshinesomelightonthepeculiaritiesofthesecompa-nies.

2. FAMILY BUSINESSES IN GERMANY: AN INSIDE LOOKThe listof internationally renownedGerman family firms is rather long.Aldi,Metro,BMW,Lidl,Heraeus,Tengelmann,Viessmann,Dr.Oetker,orMielearesomeprominentexamples.Againstthisbackground,afewques-tionsarise:First–isthereanold,‘Methuselah-like’familybusinessmodelinGermany?Ifso,whatarethecorepeculiarities?Second,istheinfluenceofthefamilyofdecreasingsignificanceinGermansociety?Third, isthesuccessfulGermanbusinessmodeloutdated?

LetusexaminethepresentsituationfacedbyGermanfamilybusinessesbeforewebeginourin-depthanalysis.First,theGermanfamilybusinesslandscapeisindeedchanging.However,thechangesareslightandmoreevolutionary than revolutionary.Second,newwaysofgovernancehavereplaced formerones. This implies that the influenceofGerman familybusinessesremains,albeitinadifferentway.Third,manynewgovernancemodesaccompanytheolderones.Germanfamilybusinesseswillremainstrongandsomehowberenewed.

HermannSimoncoinedtheterm,‘HiddenChampions’.InhisstudyofthesmallbusinessandfamilybusinesslandscapeinGermany,Simonpointedout a number of different reasons for the enduring strength of these com-panies.ThereasonsforthecurrentsituationofGermansmallandfamilybusinesses canbe tracedback to a situation two centuries ago. In thenineteenthcentury, therewasnounifiedGermannational state.At thetime,Germany consisted ofmany different countries forming a looselycoupled network. Internationalization of smaller companies and copingwithborderswas,therefore,moreorlesstakenforgranted.Thus,Germancompaniesinternationalizedveryearlyonandhaddevelopedconsiderableskillsandcapabilitiesininternationalization.Furthermore,thepostWorldWarIIrebuildingoftheeconomicinfrastructureinGermany(especiallyinthewesternpartsofthecountry)provedtobeafertileenvironmentforthegrowthofnewlyfoundedfamilybusinesses.Theso-calledWirtschafts-wunderoreconomicmiracleyearsareanotherreasonforthepresent-day

43

strengthofmanyGermanfamilybusinesses.Thisisbecausethesecompa-nies developed a number of traditional skills that are still relevant to their businesstoday.Forinstance,thespecializationandtheknow-howtransferinregionalnetworksnurturedthedevelopmentoftheseskills.

The local and regional units in Germany have traditionally been ratherpowerful.ThestronginfluenceofacapitallikeParis,London,orMoscow,could,apartfromafewyears,neverbeobserved.Economicdevelopmentisveryoftenlocallyand/orregionallydriven.LocalandregionalclusterssuchasBaden-Wuerttembergor inWesternpartsofGermany(e.g. theBergischesLandandSauerland),becameverypowerfulcentresofinnova-tion.Duetofirst-moveradvantagesandconsequentdevelopmentinlatertimes,theseregionsarestilleconomicstrongholdsinGermany.Germany’scentralpositioninEuropealsorendersitcompetitive.Thesemacro-andmeso-factorsprovidesmallenterprisesandfamilybusinessesinGermanywithparticularstrengthsininternationalmarkets.

Other micro-level factors, such as the strong manufacturing base of these companies as well as their strong focus on innovation and experimen-tation, accompany these aforementioned issues. Another reason is theparticularwayinwhichthecompanies’humanresourcemanagementde-partmentsarebackedupbyGermany’sdualeducationsystem.Thisdualeducationsystemdiffers fromtheeducationsystems inotherEuropeancountries.

WenowhaveaprofileoffamilybusinessesinGermany.FamilybusinessesinGermanyarecharacterizedbyapassionfortechnologyandarelatedfocusonintellectualpropertyrights,strongcommitmenttosocialvalues,focus on the social embeddedness of their companies and owning families, a strong emphasis on developing strong brands and reputation on inter-national markets, strong international orientation, and an entrepreneurial orientationandmindset.

TobetterunderstandthenatureofGermanfamilybusinesses, thegov-ernancesystemandentrepreneurialorientationhavetobeexplored.Thenexttwosectionswilladdressgovernanceandentrepreneurialissues.

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3. FAMILY BUSINESSES IN GERMANY: THE GOVERNANCE PER-SPECTIVE

Thereare severaldifferentdefinitionsof familybusinessesemployed inGermanyandinternationalfamilybusinessresearch.2OnewasdevelopedbytheInstituteforSMEResearchinBonn,theInstitutfürMittelstands-forschung(IfM)Bonn.IfM’sdefinesfamilybusinessesintermsofunityofownershipandleadership,wherebyuptotwopersonsandtheirfamiliesownatleastfiftypercentoftheshares.3TheWittenInstituteforFamilyBusiness(WIFU),ontheotherhand,definesfamilybusinessesasenter-prisesownedbyatleastoneorseveralfamilieswhoconsiderablygovernthefirm’sissues.4Theresponsibilityofthefamilyisreflectedinleader-shiporboardmembershipinthesupervisoryboard.Overandabovethis,familybusinessischaracterizedbythetrans-generationalprospect,i.e.arealfamilybusinessinvolvesbusinesssuccessionfromonegenerationtothenext.

DavisandTagiuridefinefamilybusinessesasfollows:“(…)anybusiness,largeorsmall,publicorprivatelyowned,whoseownershipiscontrolledbyasinglefamilyandwheretwoormoremembersofthesamefamilysignifi-cantlyinfluencethebusinessthroughtheirkinshipties,managementand/orgovernanceroles,orownershiprights.”5Thesethreedefinitionscon-tributetoourunderstandingoffamilybusinessesinthispaperhenceforth.

Thesedefinitionsgivearise to thequestion– is thereonlyone typeoffamilyfirm?Itisnotaneasyquestiontoanswerbecausewecanidentifyagoodnumberofdifferentfamilybusinesses.DrawingupontheworkofGimeno, Baulenas and Coma-Cros,6 two different dimensions come to the forewhendifferentclustersoffamilybusinessesaredelimited-namelythe complexityof the familyand the complexityof thebusinessor thefirm.Given these twodimensions,German familybusinessesandotherfamilycompaniesworldwidedevelopcertainorganizationalstructures inorder to cope with both external and internal challenges as well as struc-tural risks.Six different types of family businesseswere identified in asurveyof1,500Spanishcompanies.Wewillnextappraisefourofthesefamilybusinesstypes.Wedidsofullyacknowledgingthatthereisnorealdevelopmentorevolutionarypath fromthe firstover thesecondor thethirdtothefourthtype.Thetypesreflecttheunderlyingmentalmodelofthefamilybusiness,andthesemodelsmaychange.Nevertheless,thereareexamplesfrombusinesspracticeswheresuchevolutionarystepsmaybeobserved.

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Thefirsttypeistheso-calledpatriarch(ormatriarch)model.Thepatri-archmodelrestsonaverycomplexfamilybusinesssituationwithinthefirm.Thegovernancestructureisinfluencedbythethoughtthatsomeonemustbetheleaderofboththefamilyandthecompany.Inthiscase,thepatriarch is the dominant person of the firm and manages all strategic and, veryoften,tacticalissuesaswell.Duetotheclearlineofcommand,thispatriarchoremperortypeisusefulincopingwithahighlevelofcomplex-ityanduncertaintywithwhichthefamilyandthefirmisconfronted.ManyfamilybusinessessuchasHeraeus,Würth,andthebankruptfirmSchleck-erexplicitlyemploythismodel.Thismodelistypicalforfamilybusinessesinthefoundergeneration.

Thenextmodelisthatofthefamilyteam.Inthismodel,ateamofsole-ly(orpredominantly)familymembersreplacesthepatriarchasprimarydecision-maker. This family involvement penetrates the entire companytosomeextent.Inthismodel, thefamilyteamisnotonly inchargeofstrategicdecision-making,butarehighlyinvolvedintheoperationofthefirmandholdboardmembershipsaswell.Thecompanywiththismodelishighlycomplexandthefamilybehindthisenterpriseisofmediumcom-plexity.ThistypeoffamilybusinessisoftenfoundinGermanyandotherpartsoftheworld.Inthismodel,managerialdiscretionisboundtomem-bersofthefamilywhohavealignedtheiractivitiesandstrategicmoveswiththecompany.Coordinationisnotthateasyinthismodel.ExamplesofGermanfamilybusinessesfunctioningthroughthismodelareMiele,Dr.OetkerandBoehringer.

Theprofessionalfamilymodelisthethirdmodel.Thismodelischaracter-izedbyfamilyownershipaccompaniedbyexternalleadership,thatis,thefamilybusinessexplicitlyemploysexternalknow-how.Managerialdiscre-tion is given to external managers for the sake of increasing the com-pany’sprofessionalism.Theinfluenceofthefamilyinthismodel,however,is rather limited. It ismostly restricted tomonitoring issues.When thecomplexityofthecompanyisbetweenmiddleandhigh,andthefamilyishighlycomplex,thismodeloftenischosen.Familybusinessessuccessfulinthefinancialmarkets,particularlyininternationalcapitalmarkets,oftenfavour thismodel.Here, the family is to someextent able to separatetheiridentityfromthatofthecompany.CompaniessuchasMerck,Haniel,Wieland,Brose,orSchaeffler,haveadoptedthisprofessionalfamilymodel.

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Thefourthandlastmodelconsideredinthispaperisthefamilyinvestmentgroup.Thismodelisnotrestrictedtoacertainrangeofcomplexitywithinthecompanyorfamily.Inthismodel,thefamilyactsasaportfoliomanag-eranddecides,forinstance,onbuyingandsellingcompaniesandshareswithinaholding.Returnoncapitalemployedisoneofthekeyperformanceindicators familymembers typically employ.The family isno longer in-volvedinoperationalissues.Mostofthestrategicdecisionsaremadebymanagerswhoarenotfamilymembers.Familyinfluencestillexistsinthismodel,butitnolongerplaysaconsiderablerole.Keepingthefamilyassetsandaddingtothefamily’swealthareprimaryobjectives.CompaniessuchasSteinbeißerorHeindlbelongtothisparticulartypeoffamilybusiness.

As previouslymentioned, there is no logical flow to be empirically ob-servedfromthepatriarchmodeltothefamilyteammodelandthepro-fessionalteammodeltothefamilyinvestmentgrouptype.Nevertheless,somefamilybusinessesinGermanyandothercountrieshavefollowedthispath.Aquestionweshouldaskourselvesatthispointisthecircumstancesfavouringthedifferenttypesoffamilybusinesses.Itisamanagerialtasktoanalyzethesituationoffamilybusinessesthoroughlybeforemakingadecisionastothemodelsthatwouldbestfitafamilybusiness.Suchdeci-sionswouldinturnframethecompany’sentiregovernancestructure.

4. FAMILY BUSINESSES IN GERMANY: AN ENTREPRENEURSHIP PERSPECTIVE

Governanceandentrepreneurshipissuesareoftencloselyrelated.Infam-ilybusinesses,theentrepreneurtakesfullresponsibilityformanagerialac-tion.Inlargefirms,thesituationisverydifferent.Managersareappointedandworkinprincipal-agentrelationships.Asagents,theyaremonitoredbytheowners.Thus,theirmanagerialdiscretionislimited.

To better understand the different facets of entrepreneurship, let us define entrepreneurship. Entrepreneurship theory provides us withmany sys-tematizationsastothenatureofentrepreneurship.OnesuchtheoryistheentrepreneurialorientationconceptdevelopedbyLyon,LumpkinandDess(2000).7Inadditiontothis,entrepreneurshiptheorydevelopedasetofentrepreneurialfunctions.Lyonetal.’s(2000)entrepreneurialorientationconstructissolelyexplorativeinnature,wherebythesystemoftheentre-preneurialfunctionconsistsofbothexplorativeandexploitativefeatures.We next outline the cornerstones of entrepreneurial function according to

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Freiling(2008).8Therearefourbasicentrepreneurialfunctions.Thefirsttwofunctions,namelyinnovationandriskmanagement,areexplorativeinnature;thatistheyarerequiredtorenewbusinesses.InnovationisbestdefinedbySchumpeter(1912/1934),9whostressesthatinnovationcanbeaprocessof‘creativedestruction’.Thisimpliesthatprovenconceptsincompetitioncanbereplacedbybettersolutions.InGermanfamilybusi-nesses,thisnotionofcreativedestructionisoftennurtured.Aninnovativeculturecanbeobservedinmanyofthesefamily-runcompanies.Anotherfeatureoftheinnovationfunctionisnon-linearthinking.Non-linearthink-ingpro-activelyquestionsthestatusquoandlooksforsolutionsoutsidetypicalmodesofthought.Non-linearitycanbefosteredifthereisenoughroomforstrategicmovesandalowdependenceoncapitalmarket.Withincreasing capitalmarket dependence, however, the pressure for quickresultsincreases.Hence,thereisnotmuchroomforideaswithareturninmuchlateryears.Innovationitselfrestsondifferentinnovativesources.The most prominent sources are product innovations, process innovation, organizational innovations, market innovations, purchasing innovations andbusinessmodelinnovations.Tosetaprocessofcreativedestructioninmotion,morethanoneinnovationhastobedeveloped.Theinnovativesourcesshouldalsobewellaligned.ItisnoteasyforfamilybusinessesinGermanytobeinnovativebecausetheyhavelimitedresourcesdevotedtoresearchanddevelopment.Nevertheless,smallerfamilybusinessesareintheprivilegedpositionofhavinglittleobstaclestoinnovation.

Theinnovationfunctionisaccompaniedbytheriskmanagementfunction,whichseekstotriggerexplorativemoves.Riskmanagementshouldpro-videinnovativemoveswithabeltofprotection.Itrestsontherecognitionof risks, a thoughtful assessment of them, a distribution of identified risks, andfinally,atransferofriskstootherparties ifnecessary.Onceagain,familybusinessesareinadisadvantageouspositionbecauseprofessionalriskmanagementsystemsareoftennotavailabletothem.Moreover, inorder to cover the risks of a business, it is important to accumulate a cer-tainfinancialstrengthandcorporatereliability.This,however,isveryoftenabsentinsmallerfamilybusinessesinGermany. ThereareseveralexamplesfromGermanfamilybusinesspractices.HiPP,Delo, Schmitz Cargobull and the Schreiner Group illustrate this connec-tionbetweeninnovationandriskmanagement.Let’sdelvefurtherintothematterbydiscussingHiPP’sexplorativemeasures.HiPPisamanufacturer

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ofbabyfoodandconsciousofyoungparents’concerns.ItisexpedientforHiPPtobeperceivedasareliablemanufacturerofhighqualitybabyfood.It also has to rise to the challenge of introducing innovative products ev-eryonceinawhile.HiPPrespondedtothesechallengesbydevelopinganewapproachofmanagingitssupplychain.HiPPintroductionofcontractmanufacturingplaceditasafirst-moverintheindustry.Thefirmonlycol-laborateswithtrustworthypartnerstheyarewellawareofandwithwhomtheyhavecollaboratedforaverylongtime.HiPPandtheseselectedsup-plierscarefullydevelopproductionanddevelopmentconcepts.Byregu-laron-sitevisits,HiPPpermanentlymonitorsthevalueaddedprocessesoftheirselectedpartners.HiPPisinapositiontoguaranteethehighestqualityoftheproductsandservicesprovided.Besidesthis,HiPPinvestsalotoftheirbudgetinresearchanddevelopment.Duetoitsconsiderableexperience,HiPPbelongstothefirs-moversoftheindustry.HiPPbecameaninnovativeleaderinthemarket.AllofHiPP’smovesareaccompaniedbyinnovativebrandandreputationmanagement.Carefulreputationman-agementhasputHiPPintoasituationwheretheyareabletoconnectwiththecustomersinahighlycrediblemanner.Asaresult,HiPPisamarketleaderinmanydifferentEuropeanmarkets.

Entrepreneurshipdoesnotinvolveonlycreatingnewbusinesses.Reapingthebenefitsofnewlyestablishedbusinessesisanimportanttaskaswell.According to Kirzner (1973),10 it also consists of internal coordination of theentirevalueaddedsystemandarbitrage. Internal coordinationandarbitrage go hand in hand because the former is an internal task and the latterisanexternalone.Bothinterconnectedfunctionsareofutmostrel-evancetothesalesandcostsituationsofacompany.

Internal coordination is about setting up the value added process of a companyandtheirorchestrationwithinthefirm.Resourceallocationisaveryimportantpointofinternalcoordinationaswell.Internalcoordinationimpliesthemotivationofemployeesandasetofsensemakinginitiativestofullyexploitthepotentialofthehumanresources.Morethanthat,thispotentialshouldbenurturedanddevelopedovertime.FamilybusinessesinGermanyarefamiliarwithleanproduction,asespousedbyWomacketal.(1990).11Tounfoldcreativityandmotivationamongthepeoplework-ingforthefamilybusiness,personalrelationsandachallengingcorporateculture are vital. Internal coordination in family businesses is favouredbycompanieswithlowstructuralcomplexity.Anexampleforacompany

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with a sound internal coordination system is the Schreiner Group. TheSchreinerGroupmanagedtobuildachallengingorganizationalculturebyfocusing on talent orientation as well as respecting good personal relations andemployerbranding.

Arbitrage isaboutmakingprofitabletransactions inmarkets.Successfularbitrage is dependent on a sound grasp as to that which the markets reallyneedandknowinghowtoconnectsupplyanddemand.Arbitragefocuses on business opportunities, i.e. identifying promising exchangepartners, building valuable customer relationships and making most of a transactionbynegotiationandbargaining.It isalsoconcernedwithde-velopingmarketrelatedassetsthatputthefirminafavourableposition.Examplesofmarketassetsarebrands,reputation,etc.Acoreadvantageoffamilybusinessesistheirhighlevelresponsivenesstoexternalchangesandthehighlevelspecializationwroughtbytheirnicheorientation.Familybusinesses are often dependent on collaboration partners and lack bar-gaining power. AmongGerman family businesses, Sennheiser is a verygood example of a companywith an excellentmarketmaking system.Sennheiserhasaglobalmarketaccesswith85%ofitsturnoverrealizedininternationalmarkets.Moreover,theirvaluesystemisratherglobalized.Sennheiseremploysveryselectivedistributionchannelsandinvolvesex-ternalpartiesthroughaheterarchicalnetwork.

Ourdiscussionso farproves that it isnotenoughto focusonlyononeor two entrepreneurial functions. Muchmore is required to connect allthe aforementioned entrepreneurial functions and relate them to the chal-lengesfacedinmarkets.Figure1portraysthisdynamicinterplayofentre-preneurial functionsandpinpoints theconstituentsofentrepreneurship.Furthermore, there is a strong positive impact of entrepreneurship in this understandingoffinancialperformance.

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Figure 1: Entrepreneurial Functions and Performance (Source: Freiling, 2008: 16)

5. SUMMARY AND OUTLOOKWhenanalyzing thephenomenonof thehiddenchampions,wecanseethat it is not a riddle. Family businesseswith outstanding performanceover a longer period of time appear to professionalize their companies aswellastheirfamiliescomprehensively.Governanceandentrepreneur-shipareessentialtoincreasingacompany’sprofessionalism.Professionalgovernanceofacompanyisdependentonboththefamilymembersandexternalexpertise.Thiscanbearrangedinfourtypesoffamilybusinessgovernancesolutions.Byactivatingcreativity,implementingcoherenceinthe entire organization and activating entrepreneurial forces, entrepre-neurshipandentrepreneurialbehaviourcanbestrengthened.Inthefu-ture, entrepreneurial and governance issues will come to the fore when businesseshandoverthereinsofpowertothenextgeneration.Between2010and2014,approximately110,000familybusinessesinGermanywillundergoabusinesssuccessionprocess.That is3%ofallGermanbusi-nesses,accordingtoarecentsurveyofIfMBonn(2010).12Thismeanssuccessorsof22,000businesseswithapproximately287,000employeeswillhavetodevisenewsolutionsfortheircompanies.Generallyspeaking,86%ofbusinesssuccessionsarecausedbyseniority,10%occuronthedeathoftheentrepreneursand4%resultfromthepredecessors’healthissues.Theintra-familybusinesssuccessionwillstillbethedominanttypeinthenearfuture.54%ofallbusinesssuccessionswillbehandledinter-

effects(dependent variables)

causes(independent variables)

sustaining competitive-

ness

entrepre-neurship

innovation

risk management

arbitragecoordi-nation

syst

em

expl

oita

tion

syst

em

rene

wal

syst

em

prot

ectio

n

(financial) performance

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nally.29%ofallsuccessionswillbeexternallydrivenand17%will findsolutionswithinthefirmbylookingtoemployeesandmanagers.

Whetherthiswillcontinuetoholdtrueinthemoredistantfutureisunclear.It is expected that the roleof families inGermanywill decrease in thefuture.Thiscouldimplythatthepatriarchmodelmaybeinaprecarioussituationinthenextcoupleofyears.Howeverthepatriarchmodelcangoalongwithotherhybridsolutionsof familygovernance, i.e.the involve-mentofexternalpartiesinthecompany’sgovernance.Finally,theagingsocietyandthehumanresourcebottleneckwillexertpressureonfamilybusinessesinGermany.ItalsopaintstheissueofbusinesssuccessioninGermanyinanewlight.Familybusinesseshavetohandlerealproblemswith legitimation in the society. Corporate social responsibility (CSR) isatopicpervadingallbusinesses.Familybusinessesdonotneedtobeacrucialchallenge,astheyhaveoftendonea lot forsocialpurposesandaretosomeextentstandardsettersinCSRactivities.Forthesereasons,itwillnotbeeasyforGermanfamilybusinessesinthefuture.However,itisclearlyevidentthatfamilybusinessesaredriversofeconomicdevelop-mentandarethusanindispensablepartofourbusinessworld.Itmaybeconcludedthattheyfacemuchpressuretoimprovegovernancestandardssoastoappearinanewlightwithrenewedstrength.

REFERENCES

[1] Simon, H. (1996). Die heimlichen Gewinner. Frankfurt, New York:Campus.

[2] Chua,J.H.,Chrisman,J.J.,&Sharma,P.(1999).DefiningtheFamilyBusinessbyBehavior.Entrepreneurship:TheoryandPractice,23(4),19-39. Retrieved from http://faculty.utep.edu/Portals/167/11%20Defining%20the%20family%20Business%20by%20behavior.pdf

[3] InstitutfürMittelstandsforschungBonn.Retrievedfromhttp://en.ifm-bonn.org/definitions/family-enterprises-as-defined-by-ifm-bonn

[4] WittenInstituteforFamilyBusinessResearch.Retrievedfromhttp://www.wifu.de/en/research/definition-of-family-business/9187-2

[5] Davis, J. A.,&Tagiuri, R. (1985).Bivalent attributes of the familyfirm.PaperpresentedattheWesternAcademyofManagementMeet-ing,March29.

[6] Gimeno,A.,Baulenas,G.,&Coma-Cros,J.(2010).FamilyBusiness

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Models:PracticalSolutionsfortheFamilyBusiness.Houndsmills:Pal-graveMacMillan.

[7] Lyon,D.W.,Lumpkin,G.T.,&Dess,G.G.(2000).EnhancingEntrepre-neurialOrientationResearch:OperationalizingandMeasuringaKeyStrategicDecisionMaking Process. Journal ofManagement, 26(5),1055-1085. Retrieved fromhttp://www.utdallas.edu/~gdess/2000_Enhancing%20Entrepreneurial%20Orientation%20Research.pdf

[8] Freiling, J. (2008). SMEManagement –What CanWe Learn fromEntrepreneurshipTheory?InternationalJournalofEntrepreneurshipEducation,6(1),1-19.

[9] Schumpeter,J.A.(1912/1934).TheTheoryofEconomicDevelop-ment.Cambridge/Mass.:HarvardUniversityPress.

[10]Kirzner,I.M.(1973).CompetitionandLeadership.Chicago:Univer-sityofChicagoPress.

[11]Womack, J. P., Jones, D. T., & Roos, D. (1990). TheMachine thatchangedtheWorld:TheStoryofLeanProduction.NewYork:Harper-Collins.

[12]Hauser, H.-E., Kay, R., & Boerger, S. (2010). Unternehmensnach-folgen in Deutschland 2010 bis 2014 - Schätzung mit weiterent-wickeltem Verfahren. Institut für Mittelstandsforschung Bonn(Hrsg.): IfM-Materialien Nr. 198. Bonn. Retrieved from http://www.ifm-bonn.org/statistiken/unternehmensuebertragungen-und-nachfolgen/#accordion=0&tab=0andhttp://www.ifm-bonn.org//up-loads/tx_ifmstudies/IfM-Materialien-198_2010.pdf

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3. NATIONAL COUNTRY STUDIES IN THE BSEC REGION 3.1. FAMILY BUSINESSES IN ALBANIA

byErjonaRebiPhD CandidateFacultyofEconomics,UniversityofTiranaTirana, Albania

Arber DemetiPhD CandidateFacultyofBusiness,AleksanderMoisiuUniversityDurres, Albania

1. MACROECONOMIC OVERVIEWBeforetheglobalfinancialcrises,AlbaniawastheBalkancountrywiththehighesteconomicgrowth (6%). Italsohadsatisfactorymacroeconomicperformancesupportedbytherapidgrowthofdomesticdemandandcon-solidation of the banking system.Meanwhile, the increase in consumerpriceshasbeenstableatlowlevels,closeto3%,contributingtomacro-economic stability and the strengthening of the financial sector.Duringthis period, the current account deficit widened due to import-oriented consumption.This,therefore,highlightsoneofthemainvulnerabilitiesoftheAlbanianeconomy.

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Table 1. Macroeconomic indicators*

Data sources: MOF, INSTAT, Bank of Albania* Data for 2012 are prelimenary

After 2008, macroeconomic indicators show a visible slowdown of eco-

nomicgrowth.ThefirstsignoftheglobalfinancialcrisesinAlbaniamani-

festedasalackofpublicconfidencetowardbanks.Fromthefourthquarter

of2008tothefirstquarterof2009,Albaniaexperiencedabankrun.Due

to liquidityconstraints,bankshadtostrengthentheir lendingstandards

andweremorereluctanttolendmoney,therebyconsiderablyslowingtheir

intermediationactivities. The strengtheningof the lending standardas-

sociated with high uncertainties and sluggish economic growth reflected

in lower credit demand, which in turn contributed to the further slowdown

ofprivateconsumptionandinvestments.Thankstothecoordinatedmea-

suresbythegovernmentandtheBankofAlbania,theconfidencecrisis

wasquicklyovercome.However,Albaniaisasmallopeneconomy,highly

exposed to theperformanceof theglobaleconomyandparticularly the

2006 2007 2008 2009 2010 2011 2012

Real GDP growth (in %) 5.4 5.9 7.5 3.3 3.8 3.1 1.6

Employment (in thousands) 935.1 939.0 974.0 909.7 895.7 948.0 964.4

Unemployment rate, % 13.8 13.2 12.7 13.6 13.8 13.1 12.8

Inflation rate, % (year

average)2.4 2.9 3.4 2.3 3.6 3.5 1.5

Budget balance (incl. grants,

in % of GDP)(3.3) (3.5) (5.5) (7.0) (3.1) (3.6) (3.4)

Public debt (in % of GDP) 56.2 53.5 54.7 59.4 58.5 59.5 61.5

Current account(excl. official

transfers, in % of GDP)(7.3) (11.3) (15.9) (15.6) (12.1) (13.3) (11.0)

FDI/ GDP 3.5 5.9 6.9 7.9 8.9 7.8 7.6

Remittances/ GDP 13.1 12.1 9.4 9.0 7.8 7.3 7.1

Export/ GDP 8.8 10.0 10.3 8.6 13.2 15.4 16.0

Average exchange rate,

ALL/USD98.1 90.4 83.9 95.0 103.9 100.8 108.2

Average exchange rate,

ALL/EUR123.1 123.6 122.8 132.1 137.8 140.3 139.0

Credit to economy (In % to

GDP)22.2 30.4 36.4 38.4 39.5 42.3 41.7

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Eurozone.Eurozonecountries,especiallyGreeceandItaly,areAlbania’smaineconomicandfinancialpartners.ThedeteriorationoftheGreekdebtcrisis,whichquicklyturnedintoaEuropeancrisis,hasfurtheraffectedtheperformanceoftheAlbanianeconomy.Theeconomicgrowthsloweddowneven further during the Greek debt crisis, causing GDP growth to drop to 1.6% in 2012 from3% in 2010-2011. These shocks from the externalenvironmenthavesubstantiallyincreasedtheuncertaintyforthefuture.Theyalsoresultedinthecontractionofprivateconsumptionsandinvest-ments.Allwasnotgloomybecausethepublicsectorprovidedapositiveimpetus in2009.After2009, itconsolidatedfiscalpolicytoaddressthehigh level of the public debt to GDP ratio, which has remained one of the mainvulnerabilitiesoftheAlbanianeconomy.

Theservicesector isvital to theAlbanianeconomy,as itwas themaincontributor to economic growth in the last few years.Within this sec-tor,tradeandfinancialservicesarethemajorcontributors.Thisisunsur-prising,astheyarecloselylinkedwiththeconsumption-driveneconomicgrowthmodel. In contrast, themanufacturing sector has reflected thenegative contribution of construction and the good performance of the export-orientedindustrysector.

Meanwhile,thepositiveeconomicgrowthwassupportedbythegoodper-formanceofnetexports.Albanianexportsin2019-2012haveincreasedannuallybyanaverageof28.2%,reflectingpositiveperformanceofmin-erals,energyand industrialprocessorsproducts.Domesticdemandhasbeensluggishoverall,asitwasmostlydrivenbylowerconsumptionduetoprecautionarybehaviourofhouseholds.Likewise,remittancesdeclinedconsiderably,therebyreducingthefinancingsourcesthatwouldhaveoth-erwisegonetoconsumption.Consumptionbehaviourwasinitiallyreflectedin the slowdown and then in the shrinkage of annual imports. In fact,importsin2012haveshrunkenannuallyby3.4%.Thisperformancetrans-latedintoacorrectionofthecurrentaccountdeficitfrom15%toroughly10%ofGDPduringthisperiod.

Thecurrentaccountdeficitisfinancedbyforeigninvestmentinflowsfromthe privatization of state enterprises and from economic sectors such as bankingandhydropowerenergyetc. Foreigndirect investment in2012amountedtoEUR727m(almost9%ofGDP).Theintroductionandimple-mentationofsomestructural reformsby theAlbaniangovernment,has

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helped to improve the business climate in the country, supporting theongoingforeigndirectinvestmentinflow.Therefore,addressingthehandi-capbyensuringpropertyrightsandtheenforcementoflawcontractwillpositivelyinfluencetheinternationalinvestors’imageforAlbania.

2. DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES AND FAMILY BUSINESSES IN ALBANIA

2.1. Current development in SMEs

AccordingtotheAlbanianlegaldefinitionofSMEs,theyaresmallandme-diumenterpriseswithlessthan250employees.DetailsarelaidoutinlawNo.8957,dated17October2002.Althoughitwasmodifiedin2008,thedefinitionofSMEaccordingtonumberofemployeesisinlinewithEUdefi-nition,namely:microenterpriseshave1-9employees;smallenterpriseshave10-49employeesandmediumenterpriseshave50-249employees.However, Albania’s definition of SMEs according to the turnover differsfrom the EU definition because it is has been enshrined in the Albanian economy.Microenterprisesaredefinedasbusinessesgeneratinganan-nualturnoverlessthanALL10m(EUR0.08m);smallenterprisesgeneratelessthanALL50m(EUR0.4m)andmediumenterprisesgeneratelessthanALL250m(EUR2m).Furthermore,thedefinitionforfamilybusinessisab-sentfromtheAlbanianregulatoryframework.Forpracticalreasons,familybusinessesareconsideredaproxyof theself-employedso longas thisself-employedindividualemploysrelativesintheirbusiness.

TheSMEsectorcontributesgreatlytoAlbanianeconomicgrowthandem-ployment.TheofficialdatapublishedbyINSTATin2013showsthatthenumberofactiveenterprisesattheendof2012wascloseto104,275.2 Comparedto2005,thisnumberisalmost72%higher.Thenumberoftheenterprisesmanagedbyfemalesrepresents27.4%ofthetotal.Theover-allcontributionofSMEsisestimatedcloseto73%ofGDPandmorethan71%ofemploymentintheeconomy.

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Figure 1: SME-by size Figure 2: SME-by economic activity :

Source: INSTAT, Register of economic enterprises 2012

Theactiveenterprisesin2012aredominatedbymicroenterpriseswith1to9employees,whichrepresent95.3%ofthetotalnumberofactiveen-terprises.Smallenterprisesrepresent3.7%ofthetotalactiveenterprisesandmediumenterprisesrepresentonly0.7%ofthetotalnumberofactiveenterprises.Meanwhile the large enterprises employingmore than 250personsrepresentonly0.2%ofthetotalnumberoftheactiveenterprises.Thestatisticsshowthat62%ofthetotalactiveenterprisesareself-em-ployedorfamilybusinesses.

ThedistributionofeconomicactivityamongtheactiveenterprisesinAlba-niain2012is:trade43.4%,hotelsandrestaurants16.2%,transportandcommunication9.9%,industry9.6%,construction4.3%,agricultureandfishing1.7%andotherservices4.9%.Thetrade,hotelsandrestaurantssector isdominatedbydomesticentrepreneurship.Inrecentyears,thissectorshiftedslightlytowardsinternationaltrade,especiallyduringsum-mermonthsofhightourism.

Themostdevelopedregionsof thecountry,TiranaandDurres,operateover50%ofactiveenterprises.Averyslightincreaseinthenumberofen-terpriseshasbeennoticedintheprefecturesofElbasan,DiberandKorca.Regionaldistributionoftheactiveenterprisesintherestofthecountrydidnotchangefromthepreviousyear.Predominanceofserviceproducersisacommonphenomenoninalltheprefectures.

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Figure 3: SMEs by region

Source: Register of Economic Enterprises - INSTAT 2012

2.1.1. Financial Facilities and Credit

According to the Doing Business World Bank 2012-2013 report, Albania is ranked 23rd in the world for credit facilities, which is considered one of the bestperformancesintheselectedcriteriaofthereport.

Thebankingsystemisthemainactorofthefinancialsector.Itsroleasfinancialintermediationhasincreasedsubstantiallyafter2004,whenthelargeststate-ownedbankofthesystemwasprivatizedbyRaiffeisenBankInternational.Fromthenon,bankshavebeenmoreinvolvedwiththepri-vatesector,notablythebusinesssector.Beforethebeginningofthefinan-cialcrises,creditactivityacceleratedconsiderablybyanaverageof56%ayearduetoforeignsupportofparentbanksaswellashighdomesticde-mandandGDPgrowth.Afterthe2008crises,creditactivitysloweddownconsiderably, averaging 14.5%, initially reflecting the tightening of thelendingpolicy(conservative lendingpolicydictatedbythegrouppolicy)andthensluggishdomesticdemand(SuljotiandNote,2013).

Figure 4: Financial intermediation and credit development

Source: Bank of Albania

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According to the Annual Report of the Bank of Albania (2012), the credit toeconomyratioasapercentagetoGDPwas41.7%,slightlylowerthan2011’sfigure.Theannualgrowthrateofthecreditportfoliototheprivatesectorslowedto2.4%attheendof2012,andturnednegativeinthefirsthalfof2013.Creditportfolioisdominatedbycredittobusinessesandinforeigncurrency,whichrepresentsalmost73%and61%ofthe lendingportfolio.After the financial crises, lending indomestic currencygainedmomentuminordertoaddressfundscarcityintheinternationalmarketand because of higher awareness of exchange rate risk (to unhedged bor-rowersinparticular).Thecredittobusinessesisalmostequallydisbursedforinvestmentandliquiditypurposes.Afterthecrises,thelackofinitiativeto investalmostputahalt to investment financing.During thisperiod,banksmostly financedfor liquiditypurposes.After2011,themaincon-cernofthebankingsystemremainsthedeteriorationofthecreditqualityandthehighratioofnon-performingloanstototalloans.Uptotheendof2012however, thebankingsystemremainedprofitablywell capitalized.ItsbuoyantliquiditysubsequentlycontributedtothefinancialstabilityinAlbania.

To improve the financing environment for SMEs, the Albanian government has adapted some measures from other European governments in recent years.ThesemeasuresculminatedintheintroductionofcreditguaranteeschemesforSMEsinAlbania.

• ImplementationoftheSMEscreditschemewiththesupportoftheItalian government. From the official launch of the programme inJanuary2009toSeptember2013,credit loanstoSMEsamountingtoEUR25mfunded79projectsworthEUR17.4m.10oftheseproj-ectswere start-ups.During the same period, a guarantee fund ofEUR2.5mwasavailableaspartoftheprogrammeforSMEdevelop-ment.Thisguaranteedbanklending.

• TheEuropeanFundforSoutheastEurope(EFSE)providedaloanofEUR20mtotheNationalCommercialBank(NCB).EUR23.8mloanstosome 332 clients have been granted so far, providing funds to busi-nessesinmanydifferentcitiesforthepurposesofbolsteringwork-ingcapital,inventoryandfixedinvestmentsassets.TheoutstandingstatusfortheseloansisEUR17.9m,astheyhaveaverysatisfactoryrepaymentperformance.

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2.1.2. Small Business Act for Europe (SBA)

According to the OECD SME Policies Index 2012, which caps at a maximum of5points,SMEdevelopmentinAlbaniaisatanestimated3.01points.This is only slightly less than the average of the region,which is 3.07points.

Figure 5: SME policy index for Albania, year 2012

Source: OECD 2012

In accordance with the Small Business Act (SBA),3 scores are evaluated through10 performance indicators. Albanian policies during 2007-2011havebeenimpressive.Thereareimprovementsin6performanceindica-torssincethe2009IndexofSMEpolicies,especiallyintheareaofbusi-ness climate policies (such as the registration of companies, licensing of companies,regulatoryreform,financingaccessandpromotionofexports).Meanwhile, areas needing improvements are: SME development of human capitalandtechnologicalcapacities,andpaymentinfrastructureofcom-mercialtransactions.

2.2. SME contribution to the Albanian economy

According to INSTAT (ASN 2011), SMEs contributessizeablytototalem-ploymentinthenon-agriculturalprivatesectorbyemploying81.4%ofthe

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workingpopulation.Theyalsocontributeto46.8%oftheexportedvalueandrepresent68.4%ofthetotalvalueaddedtotheeconomy.Infact,mi-croenterprisescontributed44.8%toemploymentinthenon-agriculturalprivatesector,7.7%inexportsand27.2%invalueadded.Smallenter-prisescontributed20.0%toemployment,15.4% inexportsand25.6%invalueadded.Mediumenterprisescontributed16.6%toemployment,23.7%inexportsand15.6%invalueadded.

Table 1: Contribution of SME to economic activity

Source: INSTAT

3.1. Doing business in Albania

The annual Doing Business report of the World Bank evaluates and ranks countries according to 10 performance indicators, including the speed of registeringabusiness,obtainingconstructionpermits,electricitysupply,getting credit, protecting investors, paying taxes, registering property,cross-bordertrade,enforcingcontractsandclosingabusiness.

Starting a business When entrepreneurs draw up a business plan to start a business, the first difficultyencounteredisundertakingtherequiredproceduretoincorporateand register thenewbusinessbefore theymay legallyact.Fourproce-dureshavetobefollowedinordertostartabusinessinAlbania.Ittakes4daysandwillcostapproximately22.1%ofincomepercapita.Accordingto Doing Business 2013, Albania is ranked 62nd, dropping two places from thepreviousyear.However,Albania’s2013rankingismuchbetterthanits2007one.In2007,Albaniawasinthe121stposition.

Obtaining construction permitsAnother performance indicator is the time it takes to obtain construction permits. Construction companies are under constant pressure from the

Size of enterprises

Micro (1-9)

Small (10-49)

Medium (50-249)

Large (250+) Total

No. of employees 44.8% 20.0% 16.6% 18.6% 100% Added value 27.2% 25.6% 15.6% 31.6% 100% Exports 7.7% 15.4% 23.7% 53.2% 100%

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governmentowing to thehigh frequencyof inspectionsvis-à-vis licens-ingandsafetyregulations.Customersalsoexpectthemtobequickandcosteffective.AccordingtotheDoingBusinessreportsof2013and2012,therearenopracticalmeansofobtainingbuildingpermitsinAlbania.Thecountry thus ranks 185th in this area,making this itsworst evaluatedperformanceindicator.

Power energy supply PowersupplyisanewperformanceindicatorincludedintheDoingBusi-ness2012 report. It is vital forbusinesses tohavesafeandaffordableelectricity.Whenthereisnoconstantpowersupply,manyfirmsindevel-opingeconomieshave to relyonself-supply,oftenataveryhighcost.According to Doing Business 2013, Albania ranks in the 154th position inpowersupplyasitrequires6procedures,takes177daystoenactandcosts537.7%ofincomepercapita.

Property right Amarketeconomycanonlyfunctionproperlywhenformalpropertyrightsare ensured. This entails the effective administration of land. If formalpropertytransferistoocostlyorcomplicated,formaltitlescanbecomein-formalagain.Intheoverallpropertyregistration,Albaniaisranked121st,droppingtwoplacesfromthe2012report.Thisisalsoasignificantdeclinefromitsstandinginthe2007reportwhereitwasranked76th.AccordingtoDoingBusiness2013,registeringapropertyinAlbaniarequires6pro-cedures,takes33daysandcosts11.4%ofpropertyvalue.

Access to finance Accordingtothe“accesstofinance”performanceindicator,DoingBusiness2013ranksAlbania23rd.Albaniaholdsthesameplaceinthisareaasitdidthepreviousyear.

Protection of Investors Strong investorprotection isan important factorvis-à-visthecapabilityofcompanies,asitenablesthemtoincreasetherequiredcapitalandbemorecompetitive.AccordingtoDoingBusiness2013,Albaniaranks17thintheprotectionofinvestorsandmoney,andranksfirstamongtheWestBalkans countries in this field.Albaniameasures7.3 in the InvestmentProtection Index, significantly better than its performance in the sameindexin2007whereitwasonly2.7.Albania’simprovementisindicativeof

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thesuccessfulreformsitimplementedin2008.Ofthese,thelawoncom-mercial companies is almost in full compliance with the EC directives and ensuresbetterprotectionofminorityshareholders’rights.

Tax payment Taxesarenecessaryinorderforgovernmentstoprovidethepublicgoods,infrastructureandservicescrucialtoawellfunctioningmarketeconomy.Albaniahastakenstepsbackwardsinthefieldoftaxpayment.AccordingtoDoingBusiness2013,Albania ranks160th in taxpayment,droppingfiveplacesfrom2012.Thisisbecausethereare44differenttaxesthatwilltake357hourstofileandtaxburdenis38.7%oftotalprofit.

External trade Cross border trade between countries is becoming more and more impor-tant nowadays. Excessive red tape, toomany documents, burdensomecustomsprocedures,inefficientportoperationsandinadequateinfrastruc-tureleadtoadditionalcostsanddelaysforexportersandimporters.Ac-cording to Doing Business 2013, Albania ranks 79th in facilities in the foreigntrade,droppingoneposition from2012.Whencomparedto theDoing Business 2007 report where Albania was ranked 101st, Albania has improved.In2012,timeandcosttoexport fromand importtoAlbaniawerereduced.ExportsinAlbaniarequire7documents,take19daysandareatacostofUSD745/container.Importsrequire8documents,take18daysandwillcostUSD730/container.

Contracts enforcing Albania ranked 85th in enforcing contracts in both the 2012 and 2013 Do-ingBusinessreports.Thisisanimprovementfromitsstandinginthe2007reportwhereitranked99th.Enforcingcontractsrequires390procedures,takes35.7daysandcosts39%oftheexpectedprofit.

Closing a business Of particular importance are the procedures and timing of closing a busi-nessorliquidation.AccordingtoDoingBusiness2013,Albaniaisranked66th, down by one place from2012.However, this is a significant im-provementfromitsplacementinthe2008reportwhereitranked181st.Reforms made during 2006-2007 with the establishment of the National Business Registration as a one stop shop for business registration, made itpossiblenotonlytoreducethetimeitwouldtaketoregisterabusiness,

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butalsoreducethetimeforcancellingorliquidatingabusiness.Onaver-age,ittakes2yearstocloseabusiness.Closureofbusinessisatacostofabout10%ofthepropertyandprovidesareturncoefficientof39.7%USDinvested.

3.2. Albania’s ranking versus that of other countries in the West-ern Balkans

Macedonia is ranked first among the countries of Western Balkans in the 21stposition,havingmadeasignificantimprovement(by69places)fromitsstandingin2007.Furthermore,Macedoniaranksfirst intheWesternBalkan region for the following specific performance indicators: starting a business (5), licensing in construction (65), access to finance (23) and paymentoftaxes(24).Formoredetails,refertotable2.

Table 2: Ranking of the Western Balkans countries according to the 10 performance indicators in Doing Business 2013

Source: Doing Business 2013, World Bank.

Montenegroisranked51standsecondintheWesternBalkans.Montene-gro is ranked first in the region in obtaining credit (4), cross-border trade (42)andclosingofbusiness(44).

Croatiaisin84thpositionandthirdintheWesternBalkans.ItranksfirstintheWesternBalkansinpowersupply(56)andenforcingcontracts(52).

Ease of Doing Business

Starting a business

Dealing with licenses

Getting Electricity

Registering property

Getting credit

Protecting investors

Paying taxes

Trading across borders

Enforcing contracts

Closing a Business

Macedonia 23 5 65 101 50 23 19 24 76 59 60Montenegro 51 58 176 69 117 4 32 81 42 135 44Croatia 84 80 143 56 104 40 139 42 105 52 97Albania 85 62 185 154 121 23 17 160 79 85 66Serbia 86 42 179 76 41 40 82 149 94 103 103Kosovo 98 126 144 116 76 23 100 44 124 138 87Bosnia Herzegovina 126 162 163 158 93 70 100 128 103 120 83

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Figure 6: Ranking of Western Balkans countries according to Doing Business (2006-2013)

Source: Doing Business 2006-2013 and authors’ calculations

Albaniaisranked85thandfourthintheWesternBalkans.Itrankedfirstintheregionininvestorprotection(17)andaccesstofinance(23).Butitappears weak in the field of construction licenses, in which it ranked last intheoverallstandingsandintheWesternBalkans.Itisalsoweakinthepaymentoftaxes(160)andregisteringproperty(121).Albaniawasinthepenultimatepositionforpowersupply(154).

KosovoandBosnia&HerzegovinarankedlastintheregioninmostoftheperformanceindicatorsusedbyDoingBusiness.

3.3. Comparative analysis of Albania’s performance in the 2009 and 2012 SME Policy Indices

Accordingtothe2012SMEPolicyIndex,publishedbyOECDin2013,Al-baniaachievedapproximately3.01points.Thisisquiteanachievement,giventhatthemaximumforbestpracticelevelis5points.At3.01points,Albaniaranksslightlylowerthantheregionalaverageof3.07.Thisisanimprovementof0.24pointsfromAlbania’sperformanceinthe2009SMEPolicy Indexwhere it scored2.86.Closer study of theAlbania’s stand-

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inginthe10performanceindicatorsrevealsthatitimprovedin6areas.Conversely,Albaniadeterioratedinaccesstofinance,andincommercialtransactionsandpayments.

Figure 7: SME Policy Index 2012 – Albania, Turkey and the other Western Balkans countries

Source: OECD 2012 and authors’ calculations

Albania’s developments in the 10 performance indicators of the SmallBusinessAct(SBA)forEuropeareanalyzedindetailbelow:

1.Entrepreneuriallearningandwomen’sentrepreneurship.AccordingtheSMEPolicyPerformance2009report,Albaniascoredalmost2.25inthisfield.In2012,Albaniaimproveditsscoreto2.46.

2.BankruptcyandsecondchancesforSMEs.ThisperformanceindicatorwasnewlyusedtoassessAlbaniain2012.Inthisarea,Albaniascored3.2.

3.RegulatoryframeworkforSMEpolicy-makingIn2009,Albaniascoredanestimated3.5points.Itsscoreforthisperfor-manceindicatorremainedalmostunchangedintheSMEPolicyIndex2012reportat3.55points.

4.OperationalenvironmentforSMEsAlbania isatnearly4.5pointsbecauseof its lowcoststart-upwithina

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minimal time frame in 2009. It continued to hold the same rating forcompanyregistrationinthe2012SMEPolicyIndex.Meanwhile,Albania’sscoreine-governancewas3in2009.Itimproveditsscoreto3.3in2012.

The improvements Albania has made since 2009 reflects the Albanian gov-ernment’sdedicationtoreducingadministrativebarriersvis-à-visstartingupabusiness.Somegovernmentreformsmaking iteasier forbusinessstart-ups in Albania include:

• TheestablishmentoftheNationalRegistrationCenter(NRC)asaonestopshopforpeopledesirousofsettingupabusiness.SincetheNRCopened in September 2007, business registration can be done in one dayandataminimumcostof100ALL(lessthanEUR1).

• TheestablishmentoftheNationalLicensingCenter(NLC)asaonestopshop.NLCworksontheprinciplethatsilenceindicatesconsent.Licenses in group I and II are given by the NLCwithin 2-4 days.LicensesingroupIIIwillbegrantedwithin10-30days,aftersomefollow-upfromtherelatedgovernmentministries.

5.SupportservicesforSMEsandstart-upsInSMEPolicyIndex2009,Albaniascored2.5pointsforsuccessfulbusi-nessmodels.InSMEPolicyIndex2012,Albaniaimproveditsscoreinthisareato2.8points.

6.AccesstofinanceforSMEsThis performance indicator measures SMEs’ access to finance and de-termines whether the legal and business environments are conducive to timelypaymentsincommercialtransactions.Albaniahad3.5pointsinthisperformanceindicatorin2009.In2012,Albaniadroppedto3.0.

7.SupportingSMEssothattheybenefitfromtheopportunitiesofferedbytheEUSingleMarket.In2012,Albaniascored3.06points.Thisisanimprovementofitsscoreof2.75inthe2009SMEPolicyIndex.However, itshouldbenotedthatthe 2012 evaluation sub-indicators for this dimension differ from those of 2009.

8.Promotingskillimprovementandinnovation.Inthe2009SMEPolicyIndex,Albaniascored2.0inthisperformancein-

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dicator.Inthe2012SMEPolicyIndex,Albaniaimprovedsignificantlywithascoreof3.3.

9.MakingitpossibleforSMEstoturnenvironmentalchallengesintoop-portunities.Albaniawasevaluatedbythisnewperformanceindicatorforthefirsttimeinthe2012SMEPolicyIndex.Itobtainedapproximately1.86pointsforthisperformanceindicator.

FAMILY BUSINESS PORTRAITS

Vila Borsh - guest houses on the beach (Case 1)

Vila Borsh is one of the newest hotels at the beautiful stretch of beach inBorsh,southofAlbania.Itbeganconstruction in2010andhasbeenopentothepublicsince2012.VilaBorshisahotelwherecustomerscanrent a one-room apartment, a one bedroom apartment, or a two bedroom apartment.Itofferscomfortableaccommodationforfamiliesinsummer.Theseapartmentsareequippedwithcookingfacilitiestoensurethatvisi-torshaveapleasantholiday.It isownedbyKocoCito,anAlbanian im-migranttoAustria.DuringhistimeinAustria,Cito,hiswifeandtwosonsadaptedtotheAustrianwayoflife.Hiseldestsonmajoredininformationtechnologyandhasamaster’sdegreefromAmerica.Inearly2000,Citoand his wife came to Borsh with their life savings and bought a house and somelandfromanoldcouple inthevicinity.Duringtheglobalfinancialcrises,CitoandhisfamilyfacedconsiderabledifficultiesinfindingjobsinAustria.Asaresult,theyreturnedtoAlbaniaandinvestedinthepropertytheyboughtyearsago.AftertwoyearsofhardworkanddealingwiththeAlbanianrealestatemarketmachinery,Citoconstructedhishotelguesthouses and furnished themwithmodern amenities. His experiences inAustriaandhiswife’spriorknowledgeoftheserviceindustrymeantthattheywereabletoensureonlythebestforthehotelguesthouses.

Although Vila Borsh opened in the summer of 2012, it was a difficult time forCito.Itwasnotenoughforhimtoprovidefamilieswithbeautifulguesthouses for their vacation; he also wanted to develop the infrastructure of thesurroundingbeach.NaysayerspouredscornonCito’splansbecausethe stretch of beach on which his hotel guest houses stand was then an

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underdevelopedtouristarea.However,Cito’soptimismandhardworkpaidoff.HeandhisfamilyworkedtogethertoadvertiseVilaBorshasasummerresortwherepeoplecanenjoynature,thebeachandthemanyfacilitiesonoffer.Withthehelpofhiseldestson,VilaBorshcametohaveawebpage(www.vilaborsh.com)detailingallthefacilitiesofthehotelguesthousesandthesurroundingenvirons.Photographswereincludedandinformationis available in three languages, along with the choice for potential custom-erstobookaholidayatVilaBorshonline.In2013,theirhardworkwasrewardedandmanyfamiliesfromAlbaniaandotherEuropeancountriesstayedatVilaBorshforthesummer.ThissuccessenabledtheCitofamilytorepaysomeoftheloantheyhadtakenfromAustriaandtheirAlbanianfriends.Atpresent,theyareworkingtoimprovetheamenitiesatthevillaandarecooperatingwitharestaurantopenedbyaGreekemigrantsoastoprovidemorefacilitiestovacationers.Theyhavealsocontinuedtheiradvertisements and promotion of Vila Borsh through the Google search engineandsocialnetworks.Throughthesemeans,CitohascollatedmanyphotographsandopinionsofpersonswhohavestayedatVilaBorsh.Thesecommentsandpicturesareverydetailedandwouldproveusefultopoten-tialvisitors.CitoaimstonotonlypromoteVilaBorsh,buttoensurethatpreviousvacationerswillreturn.

Wintergarten - a bistro close to the centre of Tirana (Case 2)

WintergartenisapleasantbistrosituatedclosetothecentreofTirana.Itwas established in 2000, and is a small restaurant serving authentic Ger-mancuisine.ItsownerisTatjanaKarcanaj.ThesiteofWintergartenusedtobeanethnicsupermarketravagedbyhighhumidityandpoormainte-nance.Wintergartenisthebrainchildofawell-educatedcoupleandtheirson, who returned to Albania in 2000 after working in a guest house in Germanyfor8years.Thesonreturnedwithhiswife,aGermancitizenwithadegreeingastronomy.Theirknowledgeofrunningarestaurant,coupledwiththeirparents’cannyabilitytoseekoutopportunitiesintheAlbaniamarket,heraldedsuccessforthisbistro.Thisfamilydippedintotheirsav-ings and took out a USD5,000 loan from a non-banking financial institution soastostartWintergarten.Owingtothehighinterestrate,theyhadtobeverycarefulwiththeirfinances.In2003,thesecondsonofthefamilyjoinedtheminthebusiness.Collectively,thefamilyoverseesnotonlythemanagement of the restaurant, but the cooking and introduction of tradi-tionaldishesfromGermany,AustriaandItalyaswell.Theirknowledgeof

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traditional German cuisine and local Albanian tastes has helped this busi-nessfamilytoadapttospecialneedsoftheirclients.Italsoplacedthemingoodsteadtoofferspecifictraditionaldishes.Theexistenceofacorestable clientele is a good indicator that Wintergarten has managed to suc-cessfullycompeteinthemarket.

Businesshasbeensuccessfulandiscontinuingtogrow.Atthemoment,they have 13 employeeswho arewell-paid and undergoing continuoustrainingtoenhancethespecificproductsandservicesofferedbytheres-taurant.Withvisaliberalization,theirturnoverreduced.Thiswasbecauseof the reduced number of people coming to the ethnic neighbourhood in whichtherestaurantissituated.Theyarecurrentlystrugglingwiththeirclientele’sunwillingnesstospendtoomuchwhendiningout,doubtlesslybecauseoftheglobalfinancialcrises.Asbothsonsarewell-trainedandknowledgeableininformationtechnology,theyactivelyadvertisedtheres-taurantanditsspecialitiesonwebsitesorsocialnetworks.Asasmallbusi-ness,theydonothavegovernmentprotectionandlackspecificstrategiestohelpthemwiththeirstrugglesagainstincreasedcompetition.

Flutura & Sons - Private institute of translation (Case 3)

Flutura&SonsisoneofAlbania’sfirstprofessionaltranslationcompany.It was established in 1992. The owner of this foundation,Mrs. FluturaXhabija,wasaFrenchlecturerattheUniversityofTirana.Whenthere-gimechanged,shebecameunemployed.Toearnherbread,shetookawriting machine with her to the law courts and offered to translate from French,Italian,EnglishandRussiantoany interestedparty.Aftersomeinitial struggle to find clients within the first few months, she managed to rent a small room in a traditional Tirana house from which she offered all servicesrelatedtotranslation,suchasphotocopying,scanning,faxingetc.Shestartedherbusinesswith limited fundsbecauseshehadvery littlesavings.After3years,shereceivedherfirstloanofDM6,000fromaGer-manbankthatworkedwithmicroenterprises.Duetohighinterestrates,sherepaidtheloanquicklyandtookanotherfromamicrofinanceinstitu-tion.Sherepeatedlyinvestedinstate-of-the-arthightechequipmentsoastodeliverthelatestandmostmodernservicetoherclients.Eventually,hersonanddaughterstartedworkingwithher.Theyhavedegreesinju-risprudenceandforeignlanguages.Theirtalentsandqualificationshavebroughtnewvalue to the institute. Theyhaveexpanded their business

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activitiesinrecentyearsandtheycontinuetoprovidenewservicesuponreceiptoffinancialsupportfrombanks.

Flutura&Sonshaveareputationforprofessionalism,fulfillingeveryre-questandcompletingprojectsontime.Atthemoment,Flutura,hersonandherdaughter-in-lawareinchargeoftheinstitute.Whenthereisalotofadditionalworktobedone,herdaughterworksasapart-timeemploy-ee.Shehas10employeesandnowprovidedtheinstitutewiththecapacityoftakingonforeignlanguagestudentsasinterns.Flutura’sentrepreneurialexperience has taught her the importance of persistence, self-confidence andlookingahead.However,shehastroublefindingnewclientsinrecentyearsowingtoincreasedcompetitiveness.Hersonislookingfornewwaysofpromotingtheinstitutebybolsteringtheinstitute’sservices.HeplanstousetheinternetandsocialnetworksmoreintensivelysoastohighlighttothetruevalueofFlutura&Sons.

REFERENCES

BankofAlbania.(2013).BankLendingSurvey,aquarterlypublication.BankofAlbania.(2013).MonetaryPolicyReport,aquarterlypublication.BankofAlbania.(2013).AnnualReport2012,anannualpublication.EuropeanCommission.(2012).SBAFactSheet2011:Albania.Brussels:EuropeanCommissionEnterpriseandIndustry.INSTAT. (2013). Results on Structural Survey of Economic Enterprises,2012.Retrievedfromhttp://www.instat.gov.al/media/215178/sbs_2013_english_version.pdfINSTAT. (2012). Results of the Annual Structural Survey of Enter-prises, 2011. Retrieved from http://www.instat.gov.al/media/178154/rezultatet_e_asn_2011.pdfNationalRegistrationCenter.(2013).AnnualReport2012.Suljoti,E.,&Note,S.(2013).PrivateSectorCredit:DevelopmentsinAl-baniaandtheRegion.EconomicBulletin,BankofAlbania.OECD. (2009).SMEPolicy Index2009:Progress in the Implementationof TheEuropeanCharter forSmall Enterprises in theWesternBalkans.Retrieved from http://ec.europa.eu/enterprise/policies/international/files/2009_charter_report_en.pdfOECD.(2012).SMEPolicyIndex:WesternBalkansandTurkey2012.Prog-ress in the Implementation of the Small Business Act for Europe. Key

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findings retrieved from http://www.oecd.org/investment/psd/SMEWBal-kansTurkey.pdfWorldBank.(2006).DoingBusiness2007:HowtoReform.Washington:World Bank. Retrieved from http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-Reports/English/DB07-FullReport.pdfWorldBank.(2007).DoingBusiness2008.Washington:WorldBank.Re-trieved from http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-Reports/English/DB08-FullReport.pdfWorldBank.(2008).DoingBusiness2009.Washington:WorldBank.Re-trieved from http://www.doingbusiness.org/~/media/FPDKM/Doing%20Business/Documents/Annual-Reports/English/DB09-FullReport.pdfWorld Bank. (2009). Doing Business 2010: Reforming through DifficultTimes.Washington:World Bank. Retrieved from http://www.doingbusi-ness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-Re-ports/English/DB10-FullReport.pdfWorldBank. (2010).DoingBusiness2011:MakingaDifference forEn-trepreneurs.Washington:WorldBank.Retrievedfromhttp://www.doing-business.org/~/media/GIAWB/Doing%20Business/Documents/Annual-Reports/English/DB11-FullReport.pdfWorld Bank. (2011). Doing Business 2012: Doing Business in a MoreTransparentWorld.Washington:WorldBank.Retrievedfromhttp://www.doingbusiness.org/~/media/FPDKM/Doing%20Business/Documents/An-nual-Reports/English/DB12-FullReport.pdfWorldBank.(2012).DoingBusiness2013:SmarterRegulationsforSmalland Medium-Size Enterprises. Washington: The World Bank. Retrievedfrom http://www.doingbusiness.org/~/media/GIAWB/Doing%20Busi-ness/Documents/Annual-Reports/English/DB13-full-report.pdf

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3.2. FAMILY BUSINESSES IN ARMENIA

byRshtunMartirosyanHead of Economic Development ProgramsChildren of Armenia Fund (COAF)Yerevan, Armenia

LikethemajorityofBSECmembercountries,therearenopoliciesdirectlytargetingfamilybusinessesinArmenia.Thisisespeciallyupsetting,sincethe overwhelmingmajority of small andmedium businesses (SMEs) inArmeniaarefamilybusinesseswithspecificchallengesandlimitationstotheirdevelopment.However,thingslooksettochangeatthemomentbe-causesupporttoSMEsisnowconsideredapriorityinArmenia.

Studiesonfamilybusinessesaimtocreatedialoguewiththedecisionmak-ersandbringfamilybusinessestotheirattention.Itisexpectedthatdia-logue with decision makers will lead to policies targeting the development offamilybusinesses(FBs). SinceArmeniadoesnothaveaformallyaccepteddefinitionoffamilybusi-ness and does notmaintain its statistical registry, figures and findingsinthispaperrepresenttheopinionsofexperts.Theyaremostlyderivedfrom SME-related studies, as well as extensive experience and observa-tionsfromdevelopingSMEpolicy implementationschemesatthestate-supportedandinternationallevels.

ThemainfindingsoftheseSMEstudiesmaybesummarizedbelow:1. Familybusinessesarecharacterizedbybusiness-specificadvantages/

strengths,weaknesses,opportunitiesandchallenges.2. PoliciesinsupportofFBsandFBdevelopmentprogrammesshouldbe

examinedwithinthelargerSMEcontext.3. EconomiclegislationsshouldcontributetoincreasedFBefficiencyand

promotethenumberoffamilybusinesses.4. Decisionmakersshouldbeinconstantcontactwiththeentitiesrep-

resentingFBinterests,includingthepublicsector.5. Thepublicshouldsparenoeffortinenhancingtheimageofthefamily

businesses.

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HISTORY OF FAMILY BUSINESSES IN ARMENIAArmenian families have a strong tradition of transmitting the skills of the familialtradefromgenerationtogeneration.SomeArmenianfamiliesareknownaroundtheworldasdoctors,goldsmithsorlawyers.Thisisbecauseof strong family ties and the family’s reliance on one another. In turn,thisprovesthatthefamilyistheprerequisitefactorforasuccessfulfam-ilybusiness.BeforetheSovietera,severalwellknownfamilybusinessesoperatedbothwithinandwithoutArmenia.

During the75yearsofSoviet rule,privatebusinesses, including familybusinesses,werenon-existent.TheonlyexceptioncanbetracedbacktotheintroductionofPerestroika,whereprivateownershipwasallowedinsomeindustries.Duringthistime,Cekhaviksorsmallproductionownersemerged.Mostofthesesmallpro-ductionownerseventuallyconsolidatedfamilybusinesses.

The third Armenian Republic (1992) has been supporting and promoting theprivatesectorsincethecountry’sindependence.

Legal foundation for the engagement in private enterprises was estab-lishedalmostimmediatelyin1992,whenagriculturallandwasprivatized.Thisledtotheemergenceofprivatelyownedfarms.Everycitizenoflegalagereceivedhis/hershareofagriculturalland.Asarule,ruralfamiliesinArmenia consisted of 3-4 adults and their land slots were pulled together and farmed jointlyby the family. Itwasduring thisperiod thatprivatefamilyfarmswereformed.

Vouchers were used in 1993-1997 to privatize stores, small productions or serviceentities.Inthiscase,businessownershipwasgrantedtotheem-ployeesofthatparticularinstitutionratherthanfamilymembers.Forex-ample,aninstitutionoccupying250squaremetreswasprivatizedequallyamong15employees.

Thus,thelegacyoffamilybusinessinArmeniaislimitedtothelast15-20yearsbecausesmallandmedium-sizedfamilybusinessesonlyemergedthen.Inrecentyears,however,theyhavebeguntoplayasignificantroleinthecountry’seconomy.

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1. Definition of family businesses in ArmeniaThereisnoofficiallyacceptedlegaldefinitionoffamilybusinessinArme-nia.Theonly legislativeregulationsconnectedwithfamilymembersarerelatedtocompanyregistrationandtaxation.Thereasonforthisliesintheabsenceofstatelevelpoliciesaddressingfamilybusinesses.

Thedefinitionsofafamilybusinessusedbydifferentorganizationsincludethe following components: -Afamilybusinessisaneconomicunitthatfunctionscommerciallywiththe intention of making a profit;-Majorityownershipoftheenterpriserestswithamemberormembersofonefamily;-Managementoftheenterpriseisexercisedinwholeorinpartbyamem-berormembersofasinglefamily;-Thestrategiesoftheenterprisearedeterminedinwholeorinpartbyamemberormembersofasinglefamily.

Themostcommondefinitionoffamilybusinessesusedbydifferentorgani-zationsperformingfamilybusinesssupportprogrammesare:

Afamilybusinessisabusinesswhichisactivelyownedand/ormanagedbymorethanonememberofthesamefamily.

Accordingtoexpertestimates,80-85%oftheSMEsarefamilybusinesses.

SMEs are defined under the Republic of Armenia Law on State Support of SmallandMediumEntrepreneurship.AccordingtothatLaw:• Micro-business Averagenumberofannuallyemployed–notmorethan10persons Revenuefromoperationsofthepreviousyear-notmorethanAMD

100m(USD250,000).• SmallBusiness Averagenumberofannuallyemployed–notmorethan50persons Revenuefromoperationsofthepreviousyear-notmorethanAMD

500m (USD 1,250,000)• MediumBusiness Averagenumberofannuallyemployed–notmorethan250persons

Revenue from operations of the previous year – not more than AMD1,500m (USD 3,750,000)

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Thus, themajority of registered and operational businesses are familybusinesses.Also,thepoliciesappliedtoSMEsarerelevanttomicro,smallandmedium-sizedfamilybusinesses.

Importance of family businesses in Armenia’s national economySinceArmeniadoesnothaveaformallyaccepteddefinitionoffamilybusi-ness, there is no statistical registry system.However, our observationsindicate: • 80-85%ofregisteredlocalcompaniesarefamilybusinesseswithsus-

tainabledevelopment.• Mostfamilybusinessesworkmoreeffectivelythanothercompanies.• Familybusinessesareagoodandnecessaryprerequisiteforthefor-

mationofamiddleclass.• Almost90%offamilybusinessessolvesocialproblemsinthecountry,

providingjobsforfamilymembers.

Characteristics and unique qualities of family businesses

Human capital:Familymemberspossessadditionalknowledgeandskillswhichcouldservebusinessinterests.Social capital:Familymembersbringvaluablesocialcapitaltothebusi-nessintheformofnetworkingandotherexternalrelationships.Financial Capital:The familybusiness typicallyhas financial capital intheformofbothequityanddebtfinancingfromfamilymembers.Survivability capital: Familybusinessesaremanagedby their surviv-abilitycapitalandfamilymembers’willingnesstoprovidefree labouroremergencyloans.Lower costs of governance:Thefamilybusinessmanagesitsabilitytoholddownthecostsofgovernance.Innon-familyfirms,theseincludesuchcosts as special accounting systems, security systems, policymanuals,legal documents and other mechanisms aimed at reducing theft and moni-

Number of enterprises in Armenia number from the total that are family businesses number from the total that are SMEs number from the total that are individuals, i.e. solo proprietors acting as FB

161,492 Approximately 130,000 (80%) 158,260 95,520

Number of employees number from the total that are in private sector (business) number from the total that are in FB number from the total that are is SMEs only number from the total that are individuals - solo proprietors acting as FB

1,138,000 1,010,000 Approximately 750,000 423,000 Approximately 85% - 81,200

Share of contribution of the SME to GDP in % Share of contribution of the SME FB to GDP in %

43% Approximately – 38.4%

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toringemployees’workhabits.Thefamilyfirmcanminimizeoreliminatethesecostsbecauseemployeesandmanagersarerelatedandtheytrusteachother.

Clearlydelineatingtheseuniquefamilyresourcesandleveragingthemintoawellcoordinatedmanagementstrategygreatlyimprovesafamilybusi-ness’schancesofsuccesscomparedtonon-family-ownedcompanies.

Institutional actors, support policies and initiatives. Are Govern-ments supporting family firms?FamilybusinessesendorseSMEsupportprogrammes.TobringfamilybusinesssupportsystemsintotheSMEsupportstructure,policymakingandpolicyimplementationmeasureshavetobetaken.

The National SME Council is the core structure created for improving the SMEenvironment.ItisledbythePrimeMinisteroftheRepublicofArme-nia and is made up of experts from international organizations and repre-sentativesfromvariousenterpriseassociations.

TheMinistryofEconomyoftheRepublicofArmeniahastheleadroleinelaboratingstatepolicyonSMEdevelopment.Itisresponsiblefordevel-oping policies and evaluating the effectiveness of programmes based on thepolicies.

TheMinistryofEducationandScience:Whiletheimportanceofbusinesseducation isalreadyon theagenda, furthercapacitybuilding isneededbeforeitmaybeimplementedondifferentlevels.

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SME Development National Center of Armenia (SME DNC of Armenia) is governedbyaBoardofTrusteesandheadedbytheMinisterofEconomy.SME DNC carries out its activities through a well developed network of re-gionalbranches.IthasrepresentativeofficesinallregionsofArmeniaandiscoordinatedbythecentralofficeinYerevan.

The activities of the SME Development National Center of Armenia target: •IncreasingefficiencyandcompetitivenessofSMEs•EnsuringavailabilityofbusinessdevelopmentservicesforSMEs•ExpandingthefinancialopportunitiesforSMEs•PromotinginnovationsandR&DactivitiesofSMEs•AssistingintheestablishmentofnewSMEs•SupportingtheinternationalizationofSMEs’activities.

SME Investments Universal Credit Organization closed joint-stockcompany(CJSC)wasestablishedin2009tosupportSMEenterprisede-velopment. Themain function of SME Investments is to finance SMEs’functionsinprioritydirectionsoftheeconomy.SMEDNCofArmeniaistheonlyshareholderofSMEInvestments.

The purpose of the organization is to support small and medium-sized businessdevelopmentandconsolidateArmenia’seconomy.Insodoing,SMEInvestmentsaimstobeareliableandtrustworthypartnerforsmallandmedium-sizedentrepreneurs.Itseekstomaintainandfosterthegoodopinionofpresentcustomers,whilemakingthecreditingprocesseasyandstraightforwardforpotentialcustomers. OrganizationsinArmeniadirectlysupportingenterprisesinclude:•ThebranchesofSMEDNC;•Theregionalchambers;•Thebusinesscentres;•Non-governmentalorganizations,unions,andassociations;•Craftscolleges;

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•Universities;•Branches of banks and universal credit organizations; and•Accreditedmentors

1. Challenges of succession

• Thereisnospecialsupportpolicyforfamilybusinesses.Giventhatthemajorityof smallandmediumenterprisesare family-runbusi-nessesandtheirregulationrequiresauniqueapproach,thisisverydisappointing.

• Projects supporting family businesses are carried outwithin SmallandMediumBusinessDevelopmentProgrammesasspecialprojectsandinitiatives.Oftentimes,theyaresuperficialandlackin-depthun-derstandingofandresearchontheissuesoffamilybusinesses.

• Familymembersinvolvedinthemanagementofthefirmdonotal-wayshavethenecessaryknowledgeandskillstomanagethebusi-ness.Thiscantaketheformoflackofknow-how,skillsandexperi-ence in management, as well as lack of competence in the specific business areas such as tourism, small production units, services, or others.

• Mostnewlyestablishedfamilybusinessesarestart-ups.Theyfaceallthe challenges of start-up businesses, such as lack of knowledge and skills, insurmountable red tape, lack of access to financing and busi-nessservices,andothers.

• Separationofthefamilyoftenleadstothedestructionofthefamilybusiness.AlthoughweemphasizethefortitudeofArmenianfamilies,thepercentageofdivorceshasincreasedsignificantlyinrecenttimes.Thisrealityhashadanegativeimpactontheefficiencyoffamilybusi-nesses, sometimes going so far as to challenge their mere existence andcausingtheirliquidation.

• Asarule,familybusinessesfoundedbythefirstgenerationaremorestablethanthosemanagedbythesecondorthirdgenerations.Thisisbecausetheyoungergenerationoftenhaveverylittleinterestinthebusinessactivityundertakenbytheirgrandparentsandparents.

2. Suggestions for Governments and Civil Society vis-à-vis the

recognition and support of family businesses

Firstandforemost,familybusinesseshavetobeclearlydefinedbythelaw.Thus,aregistrymustbestartedsoastoregisterthem.The

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specific features of FBs should be taken into account when micro, small andmediumbusinesssupportprojectsaredeveloped.Thefollowingcom-ponents should be incorporated: • Education:Shorttermspecializedtrainingintourism,therestaurant

business, food processing, trade, IT, new technologies and other ar-eas.

• Business trainings:Management, communication,marketing, busi-nessrelations,accountingandtaxreporting.

• Business consulting: Financial and human resourcesmanagement,accountingandtaxes.

• Financing:Preferentialloans,loanguarantees.• Networking: Business relations, cooperation, value chain develop-

mentprojects.• Andlastbutnottheleast,effortstoimprovetheimageoffamilybusi-

nesses.

CONCLUSIONFamilyisthekeyfoundationforstabilityinanysociety.Soundfamiliesareanimportantpreconditionforasuccessfulfamilybusinessandviceversa.In societies where families are strong, sound family businesses thrive.Whensoundfamilybusinessesthrive,theseenterpriseshavemorechanc-estosucceed.

Familybusinesses,morespecificallysmallandmedium-sizedfamilybusi-nesses,needsupport.Largerfamilybusinessesarelessinneedofsupportbecause they are established enterprises and havemany opportunitiesavailabletothem.ManyofthemholdamonopolisticpositioninArmeniaandareabletodictatetheirconditionsinthemarket.Thesebusinessesdonotneedsupportandareabletoovercometheirissuesindependently.

Nationalorstate-levelpolicysupportshouldbeextendedonlytobusiness-esthatwillboostthecountry’seconomicalperformance.Smallandme-dium entrepreneurial endeavours in Armenia, as well as small businesses ininformationtechnology,tourismandsoonfallunderthiscategory.

Stablefamilybusinessesenhancethecountryandstrengthenthesocietalbuildingblockknownasthefamily.Well-grounded,financiallystablefami-liesareoneofthefoundationsonwhichamiddleclassisformed.

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Gourmet Dourme Chocolate Production (Case 1)GourmetDourme(http://gd.am/)isabrandofchocolatefoundedinAr-meniabytwobrothers,PierreandDiranBagdadian.ThisAustro-Armenianmaisonduchocolatproduceshighqualitychocolateinexceptionalboxes.Thechocolatesaremainlyproducedandpackedbyhandwithmuchcareandattention.Theword “Gourmet”meansepicure inFrench,while theword“Dourm”meanschocolateinArmenian.Otherthanitsowncollection,GourmetDourmealsocreatesspecialchocolatemodelsforcompanies.

PierreandDiranBagdadianreturnedtoArmeniain2005.TheyhadspentsomeyearsinLebanon,wheretheyhadasuccessfulpackagingbusiness.Ontheirreturn,ittookthemtwoyearstodecidetosetupshopinArme-nia.In2007,theyestablishedtheirfamilybusinessinAshtarak,asmalltownnotfarfromthecapital,Yerevan.Theirfather’swordsguidedtheirbusiness fromtheverystart.Hesaid “twobrothers,onebusiness,onepocket”.Accordingtotheirfather,moneyisnotthatimportant;itismoreimportant to implement an excellent idea, have the same mindset and showkindnessthroughwork.Fromtheverybeginning,theseguidingprin-ciples became the foundationblock of P&DGroup Ltd that representedthe Gourmet Dourme brand. The Bagdadian brothers are the foundersandonlyownersof thebusiness. Theyarealso in chargeofmanagingthebusiness.Pierreisresponsibleforlogisticsandfinancialmanagement,whileDiranisinchargeofmarketingandcoordinatingtheboutiques.Theirchildren,whoarestillsmall,havealreadyexpressedtheirinterestinthefamilybusiness.

In2007,GourmetDourmebeganwithseventypesofhighqualityhand-made chocolate. Five years later, the assortment of chocolate on offergrewto170andtheybecamethesupplierofchocolatestotheArmenianPresident.TheyhavetwoboutiquesinArmeniaandadutyfreeshopatZvartnotsInternationalAirport.

GourmetDourmeisanexcellentexampleofafamilybusiness.Duringthefiveyearstheyhavebeen inoperation,theywereabletocreateawellknownbrandinArmeniaandconsolidatetheirpositioninthemarket.Theirbusinesssuccessmaybealsoduetothefactthattheyintroduceanewproducttothemarketeverytwomonths.ThecompanyintendstoexportoftheirchocolatestoRussiaandEuropeinthefuture.

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Alvina Melikyan Sole Proprietorship (Case 2)AlvinaMelikyanlivesinMyasnikyan.Alongwithherhusbandandson,sheset up her own business of semi-manufactured food production and deliv-eryin2006.Thisgrowingfamilybusinessnowproduces,packsanddeliv-erslunchesanddinnerstodifferentorganizations.Asprofessionaldevel-opmentandcontinuedtrainingoffamilymembersinvolvedinthebusinessareconsideredveryimportantbytheowners,theyactivelyparticipateinvariousprogrammesformicroandsmallbusinesses.Theseprogrammeshavebenefitedthemimmensely.Alvina’shusband,KhachaturVardanyanispresentlythestrategydeveloperandfinancialmanagerofthebusiness,while Alvina’s son, Ara Avetisyan is amanager. Alvina’s grandchildren,SargisandKhachaturAvetisyan,aredistributors.Therearealsofivenon-familymembersemployedinthebusiness.

Alvina and Khachatur believe their success is attributable to the solidar-ity,seriousandresponsibleattitudeoftheirfamilymemberstowardstheirbusiness.Overthepast4years,totalturnoverhasincreasedmorethantenfoldandprofitabilityhasincreasedbymorethanfourtimes.

Due to thehighquality of productsdistributedaswell as theaccuracyandhonestyoftheowners,several largecompaniesincludingZvartnotsInternational Airport and Tierras de Armenia have established long-term partnershipswithAlvina’sbusiness.Thecompanyplanstoestablishare-frigerationunitsoonsoastoensurethesupplyoffreshvegetablesandfruitstotheirclientsthroughouttheyear.

3.3. FAMILY BUSINESSES IN AZERBAIJAN

byProf.Dr.RagibGuliyevDepartment of EconomicsAzerbaijanTechnicalUniversityBaku,Azerbaijan

TuralGuliyevPh.D.StudentAzerbaijanStateEconomicUniversityBaku,Azerbaijan

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THE SITUATIONAcademicians andpoliticians both agree that family businesseswill notstrengthen and develop unless there are policies specifically targetingthem.Despitethisconsensus,thereiswidespreaddissatisfactionwiththeformulation, implementationand realizationofpolicies related to familybusinessesinCISeconomies.1

BusinesspoliciesinAzerbaijantoday,includingthosepertainingtosmallandmediumenterprises(SME),donotovertlyfocusonfamilybusinesses.Itseemsasthoughtheissueoffamilybusinesseshasnotgainedsufficientmomentumtowarrantsignificantinvestigationsanddiscussions.Indeed,therearenopublicationsorstudiesdelvingintofamilybusinesses.Therearealsonoofficialdefinitionsoftermslike“familybusiness,”“familyentre-preneurship,”“familyenterprise,”“familyownership,”“familygovernance,”“familymanagement”and“familycontrol”.Thereareno reliabledefini-tionsthroughwhich familybusinesses(FBs)maybedifferentiated fromnon-familybusinesses(NFBs).

Therearealsonospeciallocallegislationsforfamilybusinessespertain-ingtothemarketeconomyandentrepreneurship.DiscussionsonFBsdonot feature in the universities or other institutions specializing in business management.

REASONS WHY THERE HAS TO BE RESEARCH IN FBAlthoughfamilybusinessesarelaudedasthe“drivingforceoftheAmeri-caneconomy,”Azerbaijaniacademicians,politiciansandthelocalbureau-cracycontinuetohavea limitedunderstandingofthem.Perhapsthis isduetothefactthatfamilybusinessesinAzerbaijanarenotthemaindriv-ingforceofthelocaleconomy.Thisissomuchsothattherearenoref-erences to FBs in official Azerbaijani statistics on entrepreneurship andtaxes.Incontrast,thereisagreatdealofinformationaboutFBinotherpartsoftheworld.Forinstance,weknowfromotherinternationalstudiesthatFBintheUSform90%oflegalentities,80%inSpain,95%inItaly,85%inSwitzerlandand95%inTurkey.CursoryattemptstoempiricallyassessFBinAzerbaijaninvolvehypothesisandanalysisofcircumstantialstatistics.AlthoughthedirectdataonAzerbaijanFBsisratherlimited(orabsent), thissector isan importantpartof thecountry’seconomy.Duetolackofresearch,theroleofFBsintheAzerbaijanieconomycannotbesatisfactorilyansweredatthemoment.

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Two questions should first be addressed before any research can takeplace.HowmanybusinessesinAzerbaijanareFBs?Howmanylocalfami-liesarebusinessfamilies(BF)?Itisimportanttocalculatethenumberoffamilyenterprises in thecountrybecausefamilyvaluesconstituteabigpartofthewaytheydobusiness.Thisinturnaffectshowthefamilyowns,governs,managesandconductsitsbusiness.AccordingtotheOECD’sof-ficialassessmentofSMEsinAzerbaijan,theyaccountfor15%ofGDPand25%ofemployment.Thesefiguresdifferradicallyfromlocalresearchers’.Accordingtothe2011reportpublishedbytheStateStatisticalCommitteeoftheAzerbaijanRepublic,thereareover14,000entrepreneurialentitiesandover210,000individualbusinessesinthecountry.

ThereissufficientevidencetosupposethattheoverwhelmingmajorityofbusinessesinthecountryareSMEsandFBs.EvidencealsoindicatesthatanoverwhelmingmajorityoflargeenterprisesintheAzerbaijan’sprivatesectorareFBs.SincemanylargeenterprisesinAzerbaijan’sprivatesec-torareFBs,theydonotneedtodependonthestateforhelpinexertingtheirdirectand indirect influence in theeconomy.To identifysmallFBsand microenterprises in need of state assistance, clear official delineation is needed to differentiate between formal and informal as well as real and shadowfamilybusinesses.

A BRIEF HISTORICAL LOOK AT FBFamilybusinesseshavebeenthriving inthepost-Sovietera.This isbe-causethesefamilybusinessesenableenterpriseownerstohaveprivatepropertythattheycanstrengthenandgrow.

IntheSovietera,particularlyinthe1960s,“roofing”(krishovaniya)wasawayofallowingcertainbusinesses toexist. In thepost-Sovietyears,“roofing”becameanimportanteconomicphenomenongearedtowardsthetransformationoftheeconomicsystem.Thisissomuchsothat“roofing”isnowunderstoodtohavetwoeffects.Firstly,itisconducivetostrengthen-ing business entities, as it draws on external stimuli and adapts accord-ingly. Secondly, it detrimentally affects the institutionalmechanisms ofmarketeconomy.

HOW MANY LOCAL FAMILIES ARE BF?ItisvitaltoknowthenumberofbusinessfamiliesinAzerbaijanbecauseafamily’sbusinessactivitiescanimpactthemindsetsofthefamilymem-

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bers.Simplyput,thefamilyvaluesofaBFareaffectedbythedegreetowhichafamilyenterprise issuccessful.Thesevaluescanbeselfishandmercenaryontheonehand,andgenerousandunderstandingontheother.

Thefamilyvaluesofbusinessfamiliesdifferdependingontheirprimaryenterprises,theirlocationandtheirwayoflife.Also,thesizeofafamilyenterprise impacts the family. Forexample, the ruralwayof lifeexertsstronginfluenceonfamily-runfarmingbusinessesintheAzerbaijancoun-tryside.WhenafamilyunitisattheheartofFB,thebusinessfamily’swayoflifeeventuallybecomespartofthewayinwhichthebusinessfunctions.ThisisnotuniquetothemodernAzerbaijansmallfamilybusiness,forthenotion of the country gentleman and his family involved in agriculturalbusinesseshasbeenentrenchedinAzerbaijan’shistorysincetheMiddleAges.

LACK OF A CLEAR-CUT DEFINITION OF FBThereisnoconcretedefinitionofFBinAzerbaijanbecausethegovernmentdoesnotknowwhichWesterncountry’sestablisheddefinitions itshouldadapttoitslocalcontext.InAzerbaijan,familybusinessesaremorethanenterprisesownedbyfamilyunits,fortheyalsoentailthefamily’sabilityto govern,manage and control a business. Moreover,most politicians,researchers and entrepreneurs still cleave to the old Soviet understand-ingofFB,whichisnolongerapplicableinthepresent-day.Thereisalsoinsufficient researchoncurrent familyenterprises inAzerbaijanto formaconclusivedefinitionoftheterm.Thelackofresearchisfurtherham-peredbylocalresearchers’unwillingnesstodoanythingmorethanutilizeadefinitionlaiddownbyotherdevelopedcountries.AnydefinitionforFBinAzerbaijanshouldworktowardsconsolidatingthestandingandgrowthoffamilyenterprises.Inmyanalysis,FBinAzerbaijanhavethefollowingcharacteristics:

1. oneorseveralfamiliesholdasignificantpartofthecapital;2. familymembersretainsignificantcontroloverthecompany,i.e.they

decide on the distribution of capital and have voting rights where non-familyshareholdersdonot;

3. familymembersholdtopmanagementpositions.2

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FACTORS CONTRIBUTING TO START-UPS AND FIRST GENERA-TION FBChanging socio-cultural situations, political regimes, economic policies, taxation and other regulations have affected both the activities as well as organizationalandmanagementstylesofFBsinAzerbaijan.Thesefactors,alongwith historical events, population growth and families’ traditionalwayoflife,areresponsibleofshapingthemodernAzerbaijanifamilybusi-ness.

The positive changes in the business climate and private sector wrought bypost-socialistinstitutionalmechanismsofmarketeconomyandlaissez-faireeconomicshavealsoshapedFBsinthecountry.

FBs in Azerbaijan also face many challenges such as adapting to theemergingmarketeconomy,learninghowtoformgoodstate-entrepreneurrelationships,overcomingregulatoryburdensandtheinfluenceofstrongpoliticalfigures,andobtainingfinancialsupport.

RELATIONSHIP BETWEEN SMEs AND FBsBothSMEsandfamilybusinessesareconcernedwiththegrowthoftheirenterprises.Theybothhavetocomeupwithstrategiesandnewentrepre-neurialactivitiestoremainrelevantinthemarketeconomy.Theyalsofacethesamechallengesindevelopingtheirbusinesses.

However,theirresponsestoexternalstimulimaydifferdependingontheircompany’smission,valuesandvisionforthefuture.

OBSTACLES FACED BY START-UPS AND FIRST GENERATION FBTherearemanycultural,national,institutional,political,social,ethicalandmanagementobstaclesimpactingstart-upfamilybusinesses.Thesehin-drancescouldalsoaffectthebusinessactivitiesoffamilyunits.MySWOTanalysisoffamilybusinessesinAzerbaijandemonstratesthis.

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SWOT ANALYSIS OF FAMILY BUSINESSES IN AZERBAIJAN

THE DIFFICULTIES IN HANDING OVER FAMILY BUSINESSES TO THE NEXT GENERATIONTheoverwhelmingmajorityofFBsinAzerbaijanarefirstgenerationenter-prises.Therearenofamilybusinessesinthecountrythatarerunbythethirdorfourthgenerations.AsevincedbytheSWOTanalysis,thereisalack of local knowledge as to the steps a business should take in handing overcontroltothenextgeneration.

Local traditions and beliefs further impede this process, for there is a pop-ularadagethatgoes,“eatanddrinkwithyourrelativesbyallmeans,but

STRENGTHS WEAKNESSES 1) The confidential relationship between

members of family promotes accelerated business decisions, particularly in the start-up stage. 1. Confidential relationship between family

members contributes to increased transparency within the business environment. 2. The family environment is conducive to

discussions and decision-making. This could lead to reduced business costs.

3. The family environment also promotes increase risk capacity of the entrepreneurial structure.

4. Because the company works as a family, creditors will find it easier to do business with it.

Familial relationships within the company boosts business aims and fosters customers’ trust, as it creates a positive public image. This will result in suppliers’ and business partners’ confidence in the business as well.

• Conflating family values with business values could complicate the way in which the enterprise is run. This is because there is no distinction between the interests of the family and the interests of the company. The lack of a boundary between the family and the business could lead to problems with family expenditure and business expenditure,

• Conflict between family duties and business duties could arise. The different relationships within the family could also lead to tensions. Blood relatives of the owners may assume their decisions carry more weight than their in-laws. This could in turn cause the development of the company to stagnate, rendering it less competitive in the market. Conflicts between the owners and individual family members could also arise, owing to different values and beliefs. This would lead to inter-family tension and unnecessary competition within the company so much so that it will result in the breakdown of the business. Because family businesses are held by successive generations of the same family, they might not see the need to innovate or renew the company and the way they do business.

OPPORTUNITIES THREATS (L) Family ties are strengthened because the business

is managed by its own family members. The average number of employees related to the business owner in family businesses in 2012 is 4.72. Working together with the family enhances family values and helps facilitate decision-making discussions. It also prevents conflicts and fallings-out that could arise from working with people unacquainted with the family and its values. It could also prevent divorce as families work together for the sake of the business. As all the employees are family members, they cooperate in the business so as not to disgrace the family.

(S) Family businesses are also conducive to population growth as business owners will want to produce heirs to take over their enterprises. Family businesses also help to keep unemployment figures low by ensuring that their family members have jobs within the company. As of 2012, 50% of the active population in the country are gainfully employed.

§ Family businesses are overlooked in official SME statistics because they lack an official definition and have yet to be accepted as a distinct business entity by the government. Due to this, they do not have any means of cooperating with the state, academicians, other non-family businesses and other entrepreneurs. They are unable to tap into the resources, support systems and business education programmes available to SMEs because they are not represented in official state statistics. There is no comprehensive government policy on FB. They are also at risk of converting family failures and conflicts into FB failures and conflicts. Family businesses are also vulnerable to stagnation because they lack access to flexible non-governmental organizations that could promote them and help devise new business strategies with them. There are no official and unofficial mechanisms to help them deal with economic and business conflicts within the family. There is no official legislation protecting the property and intellectual rights of family businesses in the country.

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donotdobusinesswiththem.”WhenamaninAzerbaijanwishestomarryagirlfromagoodfamily,hehastoprovetoherfamilythatheiseitherworkinginaprominentstatedepartmentorownshisownbusiness.Un-less the man is in a fast-track career in one of the government ministries orinapositiontoinheritasteadyfamilybusiness,heisunlikelytomakea goodmarriage.Whether his family owns a small business or a largeone,andwhetherhisfamilyownsanyprivatepropertycouldalsoimpactaman’smarriageprospects.Dr.L.Yalcin-Heckmannhascarriedoutre-searchoneconomicanthropologytothiseffectintheruralsectorsofmanyCIScountries.3

OTHER FAMILY BUSINESSES Otherfamilybusinessesarebusinessenterprisesownedbyotherethnicgroupsinthecountry.Theseotherfamilybusinesscanbelargeorsmall.Veryoften,thefoundersoftheseotherfamilybusinesseshailfromothercountries in the CIS or are individuals who had run successful SMEs out-sidetheRussianFederation.Althoughthereareanumberofothernon-Azerbaijanifamilybusinessesinthecountry,therearenostudiesonthem.Ifstudiesareconductedontheseotherfamilybusinesses,localsmightbesufficiently impressedor inspired to setup theirown familybusinessestoo.

WAYS IN WHICH THE END OF SOCIALISM BENEFITS SME POLICY AND FB TODAY While the transition period has ended for most former Eastern Bloc and USSR countries, some fundamental aspects of socialism are still present inCISeconomies.Thisisevidentinthelegislationandeconomicpoliciesofthesecountries.Azerbaijanisnoexception.Asaresult,somebusiness-peopleinthecountrydonothavemuchconfidenceinthegovernment.Toremedythis,thegovernmenthastoimplementSMEpoliciesandlaydownspecificpoliciesforfamilybusinessesinthecountry.

REFERENCES

[1]CracowUniversityofEconomics.(2012).PaperspresentedattheCon-ferenceonEntrepreneurship, Family FirmsandEconomicDevelopment.Krakow,Poland,27-28April.[2]Klein,S.B.(2000.)FamilyBusinessesinGermany:Significanceand

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Structure.FamilyBusinessReview,13(3),157-182.[3]SeeGrant,B.,&Yalcin-Heckmann,L.(Eds.).(2007).CaucasusPara-digms:Anthropologies,HistoriesandMakingofWorldArea.HalleStudiesin theAnthropologyofEurasiaNo.13.Berlin,Münster:LITVerlag.Seealso, Yalcin-HeckmannL. (2010). TheReturnof PrivateProperty:RuralLifeafterAgrarianReformsintheRepublicofAzerbaijan.Berlin:LITVer-lag.

3.4. FAMILY BUSINESSES IN BULGARIA

byProf.TzvetanDavidkovFacultyofEconomicsandBusinessAdministrationSofiaUniversity“St.KlimentOhridski”Sofia, Bulgaria

Assoc.Prof.DesislavaYordanovaFacultyofEconomicsandBusinessAdministrationSofiaUniversity“St.KlimentOhridski”Sofia, Bulgaria

ABSTRACTAlthough familybusinessesrepresentasignificantpartof theBulgarianeconomy,therearefewresearchstudiesandscarcestatisticaldataonthecharacteristicsandproblemsoffamilybusinessesinBulgaria.Thisstudydescribes the history, economic importance, definition, characteristics,uniquequalities and challengesof succession inBulgarian family firms.This paper also presents the institutional actors, support policies and ini-tiativessupportingthefamilybusinesssectorinBulgaria.Itwillalsomakerecommendationsforpolicyactions.

Keywords:familybusiness,characteristics,succession,institutionalframe-work,Bulgaria.JELClassification:M10,L5.

1. HISTORY OF FAMILY BUSINESSES IN BULGARIAIn the ex-communist countries in Central and Eastern Europe, including Bulgaria,entrepreneurshipwasnotalwaysalegalactivity(Tkachevand

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Kolvereid,1999).Until recently, theeconomiesof these countrieswerebased on large state-owned industrial enterprises using mass production methodsandrelativelyinflexibleproductionprocesses,producingforgeo-graphicallyrestrictedmarkets(McMillanandWoodruff,2002;TkachevandKolvereid,1999;Smallboneetal.,2001).Privatebusinesswaspracticallyeliminated in these countries (Manolova et al., 2007); and when exis-tent,waspartof thegreyeconomy(SmallboneandWelter,2001).Theunprecedentedreformsaimedatthedemocratizationofsocietyandtheliberalizationoftheeconomyresultedinthelegalizationofprivateown-ership (Tkachev and Kolvereid, 1999) and prompted the emergence of smallprivately-ownedfirmsintransitioneconomies.Duringthetransitionperiod, entrepreneurship became an important factor for the transition fromcentrally-plannedtomarketeconomy(McMillanandWoodruff,2002).

Bulgarianfamilyfirmsappearedasseparatelegalentitiesasaresultoftheprofoundpoliticalandsocio-economicchangesthatbeganafter1989.Duetothosespecifichistoricalcircumstances,theydifferinsomeaspectssuchas age, growth plans and involvement in international business opera-tionfromfamilybusinessesinothercountries(Yordanova,2013).Atthesametime,theyareverysimilartofamilybusinessesinothercountriesinaspectssuchassizedistribution,industrysector,andreluctancetosharecontrolwithexternalinvestors,(Yordanova,2013).

In2007,theAssociationoftheFamilyBusinessinBulgariawasestablishedasanopencivilstructure fornewmemberssharingthephilosophyandprinciplesoffamilybusiness.TheAssociationaimstocollaborateandco-ordinate its activities with the governmental and municipal authorities, as wellaspublicinstitutionsforthepurposeofdevelopingfamilybusinessesinBulgaria.AlthoughtheAssociationhasattracted51members,mainlyrepresentativesofthelargebusinessinBulgaria,itstillplaysaminorroleininfluencinggovernmentpolicyandactionsvis-à-visfamilybusinessinBulgaria.

2. DEFINITION OF FAMILY BUSINESS IN BULGARIAThereisnoofficialdefinitionoffamilybusinessinanylegalregulationsinBulgaria.FamilybusinessisnotapolicyissueintheNationalStrategyforSMEDevelopment.Until recently,annual reportsof theBulgarianSmalland Medium Enterprises Promotion Agency also did not focus on fam-

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ilybusinessissuesanddidnotdifferentiatefamilybusinessesfromnon-familySMEs.The firstOperationalProgramme“Competitiveness”of theBulgarianeconomydidnotincludeanyfamilybusinessissuesinitsobjec-tives,prioritiesandmeasureseither.

In2007, theEuropeanCommission setup theExpertGrouponFamilyBusiness,which is comprised of experts nominated by the EUmemberstatesandsomeexpertsfromthefield.TheExpertGroupaimstodiscussthemainproblemsforfamilyfirms,identifyexistingfamilybusinessrelat-edresearch,goodpracticesintheareaoffamilybusinessandfamilybusi-nessorganizations,andtogivetheir inputtotheCommissiononfamilybusinessrelevantissues.TheExpertGroupadoptedacommonEuropeandefinitionforfamilybusinesses.Accordingtowhichdefinition,afirm,ofanysize,isafamilybusiness,if:1. Themajority of decision-making rights is in the possession of the


2. Themajorityofdecision-makingrightsareindirectordirect.3. Atleastonerepresentativeofthefamilyorkinisformallyinvolvedin

thegovernanceofthefirm.4. Listedcompaniesmeetthedefinitionoffamilyenterpriseiftheper-

sonwhoestablishedoracquiredthefirm(sharecapital)ortheirfami-lies or descendants possess 25 per cent of the decision-making rights mandatedbytheirsharecapital.

TheAssociationofFamilyBusinessesinBulgaria,whichisanon-profitor-ganizationsupportingtheestablishmentanddevelopmentoffamilybusi-nesses,acceptedseveralextremelynarrowcriteriaformembership:• Thecompanyshouldbeentirelyconceptualized,registeredandes-

tablishedasthebusinessactivityofoneparticularfamilymember.• The family companyshoulddemonstrate continuityandprove that

twoormoregenerationsof thesame familyareworking together.This means that the children of the current business owners and/or relatives who are direct descendents of the original founder of the businessshouldbeworkinginthecompanyorpreparingtoworkinthe company. This newgenerationhas toparticipate as anowner,managerorparticipant.

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• It isadvisablethatthecompany’snamecoincideswiththefamily’sname.

• Clearoriginofthecompany’sstartingactivityandcredit.• Thecompanywouldhavetobeinexistenceforatleast5years.• Duringtheperiodofitsexistence,thecompanyshouldhavegoodref-

erences and a good name so as to ensure that its economic activities areofthehighestpossiblestandards.

• Thecompanyshouldhaveclearlywrittenobjectivesanddevelopmentstrategiesvis-à-vis itseconomicactivity, inaccordancetotheprin-cipleof“familybusiness”.

In2010,theNationalStatisticalInstitute,inconjunctionwiththeAssocia-tionoftheFamilyBusiness,conductedasurveyonfamilybusinessesinBulgaria.ThesurveyadoptedthecommonEuropeandefinitionoffamilybusinesses.In2012,theBulgarianSmallandMediumEnterprisesPromo-tionAgencypresentedaspecialchapterdealingwiththeissueoffamilybusinesssuccessioninitsannualreportonSMEsinBulgaria.

3. IMPORTANCE OF FAMILY BUSINESSES IN THE BULGARIAN ECONOMY

Untilrecently,therewasnoofficialstatisticalinformationastothenumberofBulgarianfamilybusinessesandtheircontributiontotheeconomy.Fam-ilybusinesseswerenotmentionedinpublicationsbytheNationalStatisti-calInstitute.ThefirstsurveyonfamilybusinessinBulgariawasconductedin 2010 by the National Statistical Institute and the Association of theFamilyBusiness. It reveals that family businesses representmore than42%ofallenterprises(Table1).Theyemploy28.3%oftheworkforceintheprivatesector(Table1).Morethan43%ofBulgarianfamilybusinessesoperateinthetradesector.Familybusinessesintradeemploy34%ofthetotalworkforce.Morethan37%ofBulgarianfamilybusinessesoperateintheservicesectorandtheyemploymorethan28%ofthetotalworkforce.Whileonly9%ofBulgarianfamilybusinessesareinvolvedinmanufactur-ing,thesefamilybusinessesprovideemploymenttoalmost25%oftheto-talworkforce.Othersectorsinwhichfamilybusinessesareactiveincludeconstruction,agriculture,andthefinancialsector.

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Table 1: The role of family businesses in the Bulgarian economy

Source: The National Statistical Institute, the Association of the Family Business.

Severaltrendsinthesizeandeconomicactivityoffamilybusinessescanbeoutlined.Solotraders,whichcanberegardedasfamilybusinessesifthe owner is married, are concentrated in the trade and service sectors (Todorov,2011).Themanysmall familyfarms intheagriculturalsectorrepresentthemainsourceofincomeforthepopulationintheruralareas.Medium-sizedandlargefamilyfirmsoperatepredominantlyinthemanu-facturing, import of equipment, construction and real estate, and tour-ismandhospitalitysectors(Todorov,2011).Fewmedium-sizedandlargefamilyfirmscanbefoundinmanufacturingofmachineryandequipment,buildingofshipsandboats,importandtradewithconstructionequipment,importandtradewithboats,securityservices,manufactureofwine,insur-ance,etc.(Todorov,2011).

Theturnoveroffamilybusinessesisabout20%ofthetotalturnoverofBulgarian enterprises, while the amount of investments in fixed assets of familybusinessesare16%ofallinvestmentsinthecountry.Familybusi-nessesprovidemorethan17%ofthetotalamountofproductsandser-vicesproducedbytheBulgarianenterprises.Mostfamilybusinesseshaveto transfer ownership and management control to the next generation in thenext5yearsbecausetheywerefoundedin1990-1995.Table1sum-marizesthecontributionofBulgarianfamilybusinessestotheeconomy.

Indicator Number Number of enterprises in the country

Number from the total that are family businesses

Number from the total that are SMEs

Number from the total that are individuals - solo proprietors acting as FB

366,929

156,000

na

na

Number of employees in the country

Number from the total that are in FB

Number from the total that are in SMEs only

Number from the total that are individuals - solo proprietors acting as FB

2,242,607

474,544

na

na

Share of contribution of FB to GDP in % na

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4. CHARACTERISTICS AND UNIQUE QUALITIES OF FAMILY BUSINESSES

Although entrepreneurship in transition economies in Central and Eastern Europehasattractedsomeresearchattention,theroleoffamilybusinessesislargelyneglected(Pistruietal.1997).InBulgaria,fewempiricalstudiesinvestigatefamilybusinesses(DavidkovandYordanova,2013;Yordanova,2012; Todorov, 2011; Yordanova and Davidkov, 2012; Yordanova, 2011, 2010;Pelov,2005;UniversityforNationalandWorldEconomics,2006).

Empiricalinvestigationof284Bulgarianfamilybusinesses(UniversityforNational and World Economics, 2006) reveals that the main reasons for the creation of family businesses are the desire for economic indepen-dence, willingness to test personal knowledge and skills, threat of unem-ployment,and lackofalternativesourcesof income.Themainstart-upproblemsmentionedbythestudiedfirmsarerelatedtoacquiringqualifiedpersonnel, accessing markets and establishing relations with clients, and gettingpermissions,licensesetc.Thesecompaniesprefertooperateintheserviceortradesector,andmostofthemfunctionassoleproprietors.Mostofthesebusinessesaremicroenterprisesandonly40%ofthemareabletofullyguaranteethesubsistenceofthecontrollingfamily.Almostonethirdof the sample firms have no staff and more than half of the sample firms possessonlyoneshop,storehouseorworkshop.Theyarealsoawarethattheirpersonnelneedtraining.

The family businesses surveyed have low access to external financing.Family savings and loans from friends and relatives formed the mainsources of start-up capital, while undistributed profit, bank credit and loans from friends or relatives were the main sources of working capi-tal.Thebusinessstrategiespursuedinvolvedmaintaininglowpricesandlargeturnoverorincreasingconstantclients.Thegreatmajorityoffamilybusinessesstudieddemonstratehighstabilityastheyhavenotchangedtheirareaofeconomicactivitysincetheirstart-up.Thediversificationofbusinessactivitiesisperceivedtobeabiggeropportunityforgrowththaninvestmentinproperty.Themostimportantsuccessfactorshighlightedbythese firms include management experience and skills, risk taking, com-municationskills,usefulpersonnelcontactsandgoodeducation.Thesaleofgoodswasnotintegratedwithotheractivitiesinthemajorityoffamilybusinessesstudied.Their relationshipswithclientsareunderdeveloped.Familybusinessesusuallydonothavemarketingdatabases,donotknow

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thesortsof informationtheyneededabouttheircustomers,anddonotuseanysystemsformanagingtheircustomers.Thesecompaniesdonotrecognizetheopportunitiesofcooperatingwithotherfirms.Thus,mostofthemdonotparticipateinanyformofcooperation.

AmorerecentempiricalstudycomparingBulgarianfamilyandnon-familybusinesses describes the following profile of the family businesses sur-veyed(Yordanova,2013).TheBulgarianfamilybusinessessurveyedtendtobeyoungerthanfamilybusinesses inothercountries.Thegreatma-jorityoffamilybusinessesinBulgariaare20yearsyoungerthanthatofothercountries.In2007,asurveyofmorethan1,450familybusinessesin28 countries revealed that50%havebeenoperating for at least 50years(PwC,2007). In2010,asimilarsurveyofmore than1,600 fam-ily businesses in 35 countries discovered that 82%of firms have beenoperating formore than20years,while42%havebeen trading for atleast50years(PwC,2010).Bulgarian familybusinessesaredominatedbysmallandmedium-sizedenterprises(SMEs).Familybusinessesseemto be reluctant to share control with external investors and tend to keep ownershipwithinthefamily.Only9.1%ofthefamilybusinessesincludedin the sample admitted foreign legal entities and/or allowed individuals toacquireownershipinthefamilybusiness.Asignificantnumberofthefamilybusinessesinthestudy(39.8%)ratedtheiraccesstofinancialre-sourcesasunsatisfactoryanddeclaredthattheirpooraccesstofinancialresourceswasdetrimentalforthedevelopmentoftheirbusinesses.LikefamilybusinessesinotherEuropeancountries(Mandl,2008),thefamilybusinesses included in the sample were more prevalent in labour intensive sectorssuchasservicesandtrade.

SimilartothemajorityofprivatebusinessesinBulgaria(Davidkov,2005),themajority of family businesses in this study have plans for growth.These findings contradicted previous studies of other countries where the datarevealedgrowthwasalessimportantbusinessobjectiveforfamilybusinesses than sustaining the enterprise and maintaining it for future generations(AustrianInstituteforSMEResearch,2008).Thisstudyindi-catesthatinthecontextoftheBulgarianeconomy,familybusinessesmaytrytoachievelong-termsustainabilitythroughgrowth.

Themajority of the studied family businesses are focused on national,regionalorlocalmarkets.ThelocalbusinessfocusisalsotypicalforEu-

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ropean family businesses (Mandl, 2008). However, in comparison withfamily businesses in other countries (PwC, 2010), a smaller proportionof the familybusinessessurveyedhave internationalizedtheirbusiness.Mostfamilybusinessesincludedinthestudywerelocatedinthecountry’scapital. Unlike companies located in other Bulgarian towns or villages,familybusinessessituatedinthecapitalenjoyadvantagesuniquetothelocation.Theseadvantagesareaccesstoforeigninvestments,well-devel-opedtransportinfrastructure,highlyskilledemployees,researchandde-velopmentinstitutions,andalargetertiarysectorincludingrepresentativesites of financial institutions, businesses, and legislative, executive and judiciaryauthorities(DevelopmentplanofSofiaMunicipality2008-2013).

Thechiefexecutiveofficers in thestudied familybusinessarerelativelyold.Theaverageageofthechiefexecutiveofficersofthesamplefamilyfirmsis41years.Morethan51%ofthemareolderthan44years.Inage,thechiefexecutiveofficersinfamilybusinessesaresimilartotheircoun-terparts inBulgarianprivatebusinesses.Davidkov(2005) reported thatBulgarianprivatebusinessowner-managersareonaverage44yearsoldin2004.Theauthorcommentsthattheiraverageagehasbeenincreasingsteadilysince1991.

The resultsof thestudy reinforce findingsofprevious research inCen-tral and Eastern Europe that women are less involved in entrepreneurship and top management of existing enterprises than men, despite their good educationandhighlabourforceparticipation(UNECE,2002;Stoyanovska,2001;SmallboneandWelter,2001;Davidkov,1993,2003,2005).Theseempirical findings reveal that the share of female owner-managers in the familybusinessessurveyed is less than30%.The lower involvementofwomen in entrepreneurship in Bulgariamay be explained by their lessfavourable attitudes towards entrepreneurship, their unfavourable per-ceptionsof thesubjectivenormsofentrepreneurialbehaviourand theirunwillingnesstoperformdeedstheydeemunethical(YordanovaandTar-razon,2010).

Inthegreatmajority(67%)offamilybusinessesstudied,thechiefexecu-tiveofficersarealsoownersofthecompanytheymanage.Thegreatma-jorityofchiefexecutiveofficersinthecompaniessurveyedpossesshighformalqualifications,giving their companiesasignificantadvantage.Atthesametime,mostofthechiefexecutiveofficersinthefamilybusinesses

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surveyedlackpreviousmanagementexperience.Thisfindingcanbeat-tributed to the fact that familybusinesses tend toexhibitnepotism i.e.theemploymentof familymembers regardlessof qualifications (Mandl,2008; Lansberg, 1983).Thelackofpreviousmanagementexperienceoftopmanagersmaybeaseriousdisadvantage for the familybusinessesstudied because empirical research has demonstrated that previous man-agement experience of entrepreneurs and top managers is important for firm performance, survival and growth (Brush and Chaganti, 1999; Stuart andAbetti,1990;Manolovaetal.,2007).Europeanfamilybusinessesareawareoftheimportanceofmanagementexpertiseastheytendtoestab-lishqualificationrequirementsformanagers(Mandl,2008).Themajorityofchiefexecutiveofficersinthefamilybusinessesincludedinthesamplehavemanaged the company since its creation. This is unsurprisingbe-causemembersofthecontrollingfamilyinbusinessareoftenappointedtothepositionofchiefexecutiveofficerandtheytendtokeepthispositionuntiltheirretirement.

Yordanova (2013) identifies both similarities and differences between fam-ilyandnon-familybusinesses.Despitethepaternalisticmanagementstyleprevalentinfamilybusinesses(Mandl,2008),Bulgarianfamilybusinessesare not less likely to appoint female chief executive officers than non-familybusinesses.Thechiefexecutiveofficersinthefamilyandnon-familybusinessessurveyeddonotdifferwithregardtoage.Thereasonsfornotdetecting differences in the age of executives in family and non-familyfirmsinthesamplemayduetothefactthatthegreatmajorityofBulgar-ianfamilyandnon-familybusinesseshavebeenestablishedinthepast15years.Perhapsthisperiodoftimeisnotlongenoughforthepreferencesofthefoundersoffamilybusinessestobevisible.Thechiefexecutiveofficersinthefamilyandnon-familybusinessesstudiedareverysimilarintermseducationlevel.Thegreatmajorityofthechiefexecutiveofficersinbothfamilyandnon-familybusinesseshaveuniversitydegrees.Incontrasttothesefindings,empiricalresearchinothercountriesindicatethatfamilybusinessmanagers generally possessed lower formal qualification thannon-familybusinessmanagersbecausetheydonothavetheformaltrain-ingoftheoldergenerationsthatestablishedthefamilybusinesses(Mandl,2008).Thechiefexecutiveofficersinnon-familyfirmshavesignificantlyshortertenuresthanchiefexecutiveofficersinfamilyfirms.Thesefindingsreinforceones fromothercountrieswhereby familybusinessexecutivestendtoremainintheirpositionssignificantlylongerthannon-familybusi-nessexecutives.

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Thecentralroleoffamilymembersinbothfamilybusinessownershipandmanagement and the reluctance to share control with external managers unacquaintedwithfamilybusinessprinciplesandvalues(Mandl,2008)re-vealthatthechiefexecutiveofficersinthefamilybusinessaremorelikelytobeownersofthecompanytheymanagethanthechiefexecutiveof-ficersofnon-familybusinesses.Inthesample,familybusinessexecutivesaremorelikelytoreportthattheyhaveentrepreneurialrolemodelsthannon-familybusinessexecutives.Thiscouldbeduetothefactthat fam-ilybusinessexecutives insecondgenerationorolder familycompanies,usuallybelongtothefamily,andhence,tendtobesocializedwithfamilybusinessculture fromtheirearlychildhood.Non-familybusinessexecu-tives,whoarenotdescendedfromentrepreneurialfamilies,arelesslikelytohavebeenexposedtoentrepreneurialrolemodels.SeveralgenerationsofBulgarianentrepreneurswereexposedtoonlynegativeentrepreneurialrolemodelsduetothecountry’scommunistpast.Ourempiricaldatare-vealsthatnon-familybusinessexecutivesaremorelikelytohavepreviousmanagement experience than family business executives. In this case,personal relationships seems to be a more important selection criterion thanpreviousmanagementexperience.

Family firmsweremore likely tobeSMEs thannon-family firms.Thesedifferencesinfirmsizebetweenfamilyandnon-familybusinessesareduetodifferencesinstrategicfocus,riskbehaviourandfirmresources.Fam-ily businesses are significantly older than non-family businesses in thesample.This couldbeattributed to the roleof the controlling family infamilyfirms,whoareusuallystronglymotivatedtocontinuethebusiness.Thefamilyandnon-familybusinessesdonotdifferintheirperceptionsofaccesstofinancialresources.Itshouldbenotedthatasignificantpropor-tionofbothgroupsofbusinesses(40%offamilybusinessesand44%ofnon-familybusinesses)declaredthattheyaredissatisfiedwiththeirac-cess to financial resources and that lack of proper access to such resources aredetrimental to thedevelopmentof theirbusinesses.The familyandnon-familybusinessessurveyedareequallylikelytohavegrowthplans.Inthisstudy,non-familyfirmsaremorelikelytohaveinternationalizedtheirbusinessthanfamilyfirms.Familybusinessesarereluctanttointernation-alizetheirbusinessbecauseoftheirlocalbusinessfocusandproximitytothemarketstheyacton(Mandl,2008).Familybusinessesaresignificantlylesslikelytohaveforeignindividualsorlegalentitiesamongownersthannon-familybusinesses.Thisisduetothefundamentaldifferencebetween

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familyandnon-familybusinessesinownershipstructure.Thefamilyisthecontrollingownerinfamilybusinessesanditaimstoretainownershipcon-trolforsuccessivegenerations.Bulgarianfamilybusinessesmaybelessvisible and attractive to foreign investors because of their local business focusandsmallscale.

Familyandnon-familyenterprisesareequallylikelytoexhibithighlearn-ingorientation.Familyandnon-familyenterprisesinthesampleperformedsimilarly.Theanalysisofthelevelofenvironmentaldynamismrevealsthatnon-familybusinessesaresignificantlymorelikelytobeconfrontedwithhighenvironmentaldynamismthanfamilybusinesses.IncontrasttothefamilybusinessesinotherEuropeancountries(Mandl,2008),familyfirmsinthestudytendtobeconcentratedinmoretraditionalsectorswherethechanges in technologies, the number of product and process innovations, the level of research and development, and growth opportunities are lower thaninothersectors.Thus,Bulgarianfamilyfirmsarelikelytoconfrontlowerenvironmentaldynamism.

Thestudyalsorevealedthatfamilyfirmswerelesslikelytoexhibithighentrepreneurialorientationthannon-family firms.Thegreatmajorityoffamilybusinesseshave long-termgoalsandthereforeavoidedhighriskstrategies vis-à-vis business growth and external financing (Todorov,2011).Familyandnon-familybusinessesinthepresentstudydonotdif-fersignificantlyintheirchoiceoftrade,serviceormanufacturingsector.Both the family and non-family businesses included in the sample aremorelikelytobeconcentratedinlabourintensivebusinesssectorssuchasservicesandtrade.Accordingtotheseresults, familyownershipandmanagementarenotthedecisivefactorsaffectingthefirm’smainsectorofbusinessactivity.

5. INSTITUTIONAL ACTORS, SUPPORT POLICIES AND INITIA-TIVES.

It is difficult to identify institutional actorswithwell defined goals andsufficient resources thataresupportiveof familybusinesses inBulgaria(Todorov,2001).

TheAssociationoftheFamilyBusiness,establishedin2007,isanon-profitorganization with the following avowed purposes:

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•toassistthefamiliesinbusinessbyhelpingthemtounderstandandcopewith challenges both at the regional and global levels; to support and encouragethesuccessoffamilybusinessessoastoensuretherec-ognition of their business;

•toensurecomprehensiveaccesstothemostsignificantsourcesof in-formationonfamilybusinessthroughassociations,meetings,confer-encesandequalnetworksofallkinds.Itwillalsohelpbusinessestoestablish and maintain contact with other information carriers, includ-ingscientistsandcounsellors.

•tosupportthefamiliesinbusinessandserveasaconnectionbetweenthe separate persons and organizations included in the system offamilybusinesses;

•toworkforthedevelopmentandrecognitionofthefamilybusinessinBulgaria;

• todevelopand implementprojects regarding the realizationof familybusiness growth in the Bulgarian economic landscape;

• to realize the exchangeof information, ideas, knowledgeandexperi-ence;

•tocollaborateandcoordinate itsactivitieswithpublic institutions, thegovernmentandmunicipalauthoritiessoastodevelopfamilybusi-nesses in Bulgaria;

•toenrichthehumanresourcesinvolvedinfamilybusinessactivitiesinBulgaria;

•toencourageandfacilitatetheinteractionandparticipationofinterestedrepresentatives of family businesses in Bulgaria. Thiswill create apositiveclimateforthedevelopmentoffamilybusinessesintheBul-garianeconomy.

AtageneralmeetingofEuropeanFamilyBusinesses(GEEF)in2007,Bul-garia’sAssociationoftheFamilyBusinesswasapprovedasaregularmem-ber.TheAssociationhas fewmembers,mainly large familybusinesses,andhasnot beenable to significantly influencegovernment policy andactionsonfamilybusinessinBulgaria.

Theseminar,“TheKnowledgeableFamilyEnterprise,”wasfundedbytheHumanResourcesDevelopmentOperationalProgramme.ItwasorganizedbytheZnanieAssociationandtheMalteseAssociationforFamilyEnter-prises.Thetargetgroupoftheprojectweresmall,mediumandlargefam-ilycompaniesaswellasnon-governmentalorganizationsrepresentingthis

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lineofbusiness.TheseminarofferedtrainingandconsultativeservicestofamilycompaniesandenterprisesfromMaltatoBulgaria.Insodoing,iteducated participants in the importance of a sound business model and goodbusinesspractices.Itaimedtoresearch,appropriate,adaptandin-troducesustainablepracticesforemployeesandownersofbusinesses.Itdidsobytakingintoconsiderationtheparticularitiesandcharacteristicsofthefamilybusinessenvironment,thechangingworkconditionsandtheuseofnewtechnologiesinthesmall,mediumandbigcompanies.

Severalorganizationsprovidefinancingfor family firms inBulgaria.TheMunicipal Guarantee Fund for Small and Medium Enterprises (MGFSME) wasestablishedin2002bytheSofiaMunicipalCouncil(SMC).MGSFSMEsoughttoimplementSMC’spolicyofsupportingregisteredSMEsandhelp-ingthemtodeveloptheiractivitiesinthemunicipalityofSofia.Itdidthisbyguaranteeingapartofthecreditriskon loansextendedbyfinancialinstitutions.TheMunicipalGuaranteeFund,incompliancewithallrequire-ments, assigns priority to the projects of small family businesses.Mik-rofond AD is a sustainable microfinance institution with 10 branches in thecountry.Itsuppliesalternativefundingforstart-up,microandsmallbusinesseswithoutaccesstobankfunding.Theinstitutionprovidesmicro-loanstomicroandsmallfamilybusinesses.FinancingisprovidedthroughtheEuropeanProgressMicrofinanceFacility,establishedbytheEuropeanUnion.Bulgaria’slargestbank,UniCreditBulbankprovidesmortgageloanforhotelsand restaurants.UniCreditBulbankalso finances familybusi-ness initiatives related to the building and furnishing of small hotels and restaurantsintouristsettlements.Themicrofinanceinstitution,Nachala,wasfoundedin1997andfunctionswiththefinancialsupportofUSAID.Itseekstosupportthedevelopmentofsmallfamilybusinesses,createnewjobsandcreateopportunitiesforthegenerationofincome.

TheBulgarianSmallandMediumEnterprisesPromotionAgency(BSMEPA)wasestablishedin2004bytheMinistryofEconomyandEnergyoftheRe-publicofBulgaria.BSMEPAimplementstheBulgariangovernment’spoli-ciesonSMEs.TheAgencyprovidesinformationandconsultationservices,organizes training courses and implements promotion activities to raise BulgarianSMEs’competitivenessandstrengthentheirinternationalposi-tions.ThemainBSMEPA functionsare realized through theactivitiesoftwo directorates:• TheProjectsandProgrammesDirectorateimplementsthepro-inno-

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vationpolicyoftheBulgarianGovernment.Itadministratesandmon-itorsprogrammes,projectsand initiativesrelatedtothe innovativeactivityandtechnologicaldevelopmentofBulgariancompanies.

• TheSMEDevelopmentandInternationalizationDirectoratesupportstheinternationalizationofBulgarianSMEsbyprovidingservicesandimplementing instruments that strengthen the international positions ofSMEs.

TheAgencyhasnospecificpoliciesorinitiativessupportingfamilySMEs.In2012,BSMEPA’sannualreporttouchedthesuccessionprocessinBul-garian familySMEs.Specifically, it focusedon thepreparednessofBul-garianfamilySMEsvis-à-visthetransferofownershipandmanagementleadership to a successor and the attendant business challenges of such atransfer.

The Bulgarian Association for Management Development and Entrepre-neurship (BAMDE) is a national, non-governmental, non-profit organi-zationinthefieldofmanagementtraininganddevelopment.Itwases-tablished in 1997 under the Phare Management Training Programme in Bulgaria.BAMDEunitesseveralBulgariantraininginstitutions,promotesandsafeguardsthequalityoftrainersandtrainingprogrammes,andactsas a platform between professional management development in Bulgaria and internationalmanagement development organizations. Its foundingmembers are leading organizations in the sphere of economics and man-agementtraining.BAMDEofferstrainingandconsultationservicesforin-cumbentsandsuccessorsinBulgarianfamilyfirms.

SomeBulgarianuniversitieshavepublishedresearchinthefieldoffamilybusinessmanagement.Severalinvestigationsonissuesrelatedtofamilybusinesses have been conducted in the last decade (Davidkov and Yor-danova, 2013; Yordanova, 2012; Todorov, 2011; Yordanova and Davidkov, 2012;Yordanova,2011,2010;Pelov,2005;University forNationalandWorldEconomics,2006).

6. CHALLENGES OF SUCCESSIONInoneofthefirststudiesonfamilybusinessintheBalkans,Poutziourisetal.(1997,p.244)notedthatfamilybusinessactivityinBulgariaisinthe foundation phase and transition from one generation to the next is

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ararephenomenon.Morethan15yearsafterPoutziourisetal.’s(1997)research,manyfamilybusinessesinBulgariaareintheprocessofpassingownershipandmanagement toa successor.Yordanova (2010)exploressuccessionplanningin51Bulgarianfamilybusinessesofdifferentsizes,firmageandsectors.Theresultsindicatethatowner-managersofBulgar-ianfamilyfirmsareawaretheywouldnotbeabletomanagethebusinessforever, but choose to leave important aspects of the succession process tochance.Thegreatmajorityofthefirmssurveyedhaveconsideredsomeaspectsofthesuccessionprocess.However,thesefirmsplacesignificantlyless attention on the handing off stage, transition process and installation ofthesuccessorinthebusiness.Almosthalfthecompaniesreportedhav-inganunwrittensuccessionplan.SuccessionplanninginBulgarianfamilybusinessesisessentiallyinformalasthemajorityofthefirmshaveneitherestablish a written succession plan, nor a formal plan regarding the roles and responsibilities of the outgoing president, nor explicit decisions about ownershipdistributionafterthesuccession.Companiessurveyedhavenotseriously considered important succession issues, includingexplicit suc-cessioncriteriaanda list ofpotential successors.Despite thegenerallyinformalnatureofsuccessionplanning,thevastmajorityoffirmsstudiedhave made concerted efforts in training potential successors for their future role in the business and ensured that potential successors are familiarized withthebusinessanditsemployees.Mostfirmsinthesampletendedtocombineinternalandexternalnurturinganddevelopmentactivities.Theirincumbents have also considered the attributes of potential successors suchastheireducation,skills,experienceandcommitmenttobusiness.

Anempirical surveyof thesuccessionprocess inBulgarian family firmsrevealsthatthesefirmsexperiencediverseproblems(Todorov,2011).Thelackofappropriatetrainingforsuccessorsisthemajorproblemfor40%ofthefamilyfirmsstudied.Nextinimportancearethedistributionofpowerand thedistributionofownershipamongsuccessors.Otherproblems inthis area include choice of successor, family conflicts, reluctanceof theincumbenttoretire,etc.Todorov(2011)emphasizesthatBulgarianfamilyfirmshavedelayedthestartofthesuccessionprocess.Theylackresourc-esandarenotsufficientlypreparedtomeetthechallengesofsuccession.

ThesustainabilityoftheSMEsector,morespecificallytheissueoffamilybusiness succession, is a central topic in BSMEPA’s 2012 report on thesituationandfactorsimpactingthedevelopmentofSMEsinBulgaria.The

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reportprovidesinformationofthechallengesofsuccessionfacedbyBul-garianfamilySMEs.ThegreatmajorityofthefamilySMEssurveyedarestillmanagedbytheirfounders.OfthefamilySMEssurveyed,only12%hadalreadytransferredownershiptotheirsuccessors.Almost20%oftheowner-managersinfamilySMEsplantotransferownershipandmanage-mentcontroltoasuccessorinthenext5years.About12%oftheowner-managersplanforsuccessiontooccurinthenext6-10years.Althoughmorethan30%ofthefamilySMEsreportthattheyplannedforabusinesstransfertooccurwithinthenext10years,almosthalfofthemhavenotdevelopedanyformalor informalsuccessionplan.Themajorityoffam-ilySMEssurveyedhavenotmadeanyexpliciteffortstopreparepotentialsuccessorsfortheirfuturerolesinthebusiness.Thereportoutlinesthefollowing reasons for the weakness of succession planning in Bulgarian familySMEs:• ownersandmanagersarenotawareoftheimportanceofthesucces-

sionplanningforthesurvivalandcontinuityofthefamilybusiness;• ownersandmanagersdonotpossessenoughknowledgeandskills

formanagingsuccessionprocesseffectively;• lackofanofficialdefinitionoffamilyfirms;andlackofpublicpolicies

andmeasuresforsupportingfamilyfirms;• lackofconsultationservicesinthefieldoffamilybusinessmanage-

ment and succession; • educationandtraininginthefieldoffamilybusinessmanagementis

rarelyprovidedbyBulgarianeducationalinstitutions.

BulgarianfamilySMEsuseavarietyofapproachestotrainanddevelopthepotentialoffuturesuccessors.Overhalfthebusinessesrelyontheex-perienceacquiredinthecompanytofacilitatethedevelopmentofpoten-tialsuccessors.Nearly48%ofbusinessesprovidedsupportforthehighereducation of their potential successors, and over 41% have supportedvarioustrainingprogrammesforpotentialsuccessors.Acquisitionofpro-fessionalexpertiseofpotentialsuccessorswasonlyactualizedin30.4%offirms.Theacquisitionofexpertiseinotherorganizationsispracticedby26.1%ofbusinesses.Only23%ofthefamilySMEssurveyedanalyzedthecapabilitiesofpotentialsuccessorsagainstofthecompany’srequirementsandneeds.

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7. RECOMMENDATIONS FOR POLICY ACTIONSSpecificpolicyactionsaimedatsupportingthedevelopmentoffamilybusi-nessesinBulgariaarenecessaryinthefollowingareas:• Acceptingalegaldefinitionoffamilybusiness Thegovernmentshouldaccepta legaldefinitionof familybusiness

thatreferstothethreemajorpillarsoffamilybusiness,i.e.family,businessandownership.

• Fosteringresearchinthefamilybusinesssector Thereisalackofsystematicanddetailedstatisticaldataonthechar-

acteristicsandspecificchallengesandneedsoffamilybusinessesinBulgaria.TheavailableempiricalresearchreliesonsmallconvenientsamplesandtheempiricalfindingsmaynotbeapplicabletoBulgarianfamilybusinessesasawhole.Futureresearchshouldalsooutlinethespecific characteristics and problems of significant groups within the Bulgarian familybusinesssector,suchas familySMEs, rural familybusinesses, first-generation family businesses etc. The informationfromthisresearchshouldbeusedbypolicymakersforthedevelop-ment and implementation of appropriate policies and measures in supportoftheBulgarianfamilybusinesssector.Thisisbecausepoli-ciesandmeasuresthatdonotrelyoncomprehensivestatisticaldatacouldbehighlyinefficient.

• SupportingthecreationofrepresentativestructuresoftheBulgarianfamilybusinesses

Thereisonlyoneorganizationinthecountrylobbyingfortheinter-estsofBulgarianfamilybusinessesanditsmembersarerepresenta-tivesoflargefamilybusinesses.RepresentativestructuresdedicatedtosupportingfamilySMEsoperatingasindependentorganizationsorwithinexistingstructures(associations,chambersofcommerceetc.)arenecessarytothegrowthoffamilybusinesses.Familybusinessesand existing business associations, chambers of commerce and other representativeorganizationsshouldplayleadingrolesinestablishingsuch representative structures, while national and local authorities shouldfosterandsupporttheprocess.

• Supportnetworking Bulgarianfamilyfirmsdonotrecognizetheopportunitiesrelatedto

cooperation with other firms and most of them do not participate in anyformofcooperation(UniversityforNationalandWorldEconom-ics,2006).Thenationalgovernmentandfamilybusinessrepresen-tative organizations should foster and support the establishment of

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familybusinessnetworksaswellasthecooperationoffamilybusi-nesses with other companies, universities, research organizations, consultants, etc. As the participation of family businesses in localand regional clustersmay increase their competitiveness, govern-ment and local authorities should foster the development of local and regionalclusters.

• Revisingregulationsaccordingtofamilybusinesssector’scharacter-istics and needs

The government should include family business development intoSMEpolicydevelopment.Theimpactofexistinglegalregulationsonfamilybusinesssectorshouldbecarefullyassessedinrelationtospe-cificcharacteristics,problemsandchallengesofthefamilybusinesssectoraswellassignificantgroupswithinthefamilybusinesssectorsuchasfamilySMEs.LegalregulationsthathamperthedevelopmentofBulgarianfamilybusinessesshouldberevised.

• Supportingfamilybusinesstransfer Bulgarian business owners and managers are not aware of the im-

portance of succession planning for the survival and continuity oftheir family businesses. Furthermore, they do not possess enoughknowledgeandskillsformanagingthesuccessionprocesseffectively.Theyhavetobemadeawareoftheimportanceandchallengesofthesuccessionplanningprocessinordertosuccessfullytransferowner-ship andmanagement. Thegovernment should foster and supportthe provision of information, practical guidelines, specific training as wellasconsultationservicesto familybusinessowners,managers,andemployeesinthefieldofsuccessionplanning.

• Fostering education, training and consultation in family businessmanagement

Management and entrepreneurship education and training pro-grammesprovidedbyuniversities,consultingfirms,andotherorga-nizationsshould includeaspects relevant to familybusinesses.Thegovernment should foster and support the provision of free training coursesandconsultationservicesinbusinessplanning,accountancy,marketing, management and use of information and communication technologiestofamilybusinessowners,managersandemployees.

• Improving the image of and promoting the values of family busi-nesses

Media, public institutions, representative organizations and civil society

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shouldwork to improve the imageofandpromote thevaluesof familybusinesses.

CONCLUSIONSThefamilybusinesssectorrepresentsanimportantpartoftheBulgarianeconomy.MostBulgarianfamilybusinessesoperateintraditionalsectorssuchastradeandservices.Thegreatmajorityof familybusinessesareSMEs.TherearealsolargeBulgariancompaniesthatarefamilybusinesses.ThereisnocommonlyaccepteddefinitionoffamilybusinessinBulgaria.Thereisalackofreliablestatisticsonfamilybusiness.Thereisalsoalackof comprehensive research on the characteristics, specific challenges and needsoffamilybusinessesinBulgaria.Theavailableempiricalevidencereveals that the relationshipsbetween the familydimension,ownershipdimension and business dimension determine the specific characteristics anduniquequalitiesofthefamilybusinesses.Thefamily,itsownershipofbusinessand itsbusinessactivitiesaffect familybusinessmanagement,strategyandorganizationalbehaviour.Althoughfamilybusinesssucces-sionisachallengeforthesurvivalanddevelopmentoffamilybusinesses,Bulgarianfamilyfirmsdonotappeartohaveplannedforthesuccessionprocess.Duetolackofresources,theyareinsufficientlypreparedtomeetthechallengesofsuccession.

FAMILY BUSINESS PORTRAITSTANDEM-B LTDThemeatprocessingcompanyTandem-BLTDwasregisteredin1993,andownedbythebrothers,CyrilandTodorVatev.Thebusinessbegan inarented building and secondhand machines were bought via bank credit againstamortgage. In1994, thecompanystrengthened itsposition inthe Bulgarian market through products made according to traditional Bul-garianrecipesandwithoutcompromisestoquality.Theshortageofqual-itymeat forced thecompany tobuy livestock formeatproduction.TheslaughterhouseinthevillageofDrinovowaspurchasedin2001.Thefirstmeatprocessingplantwith itsown laboratory,builtaccordingEuropeanstandardswas then put into operation. In 2003, TANDEM received thenecessaryveterinaryandsanitaryauthorizationforfreetradefromtheEu-ropeanmarket.From1999to2004,theowner-managerofTandem,CyrilVatev,wasChairmanoftheAssociationofMeatManufacturersinBulgaria.In2004-2005, thecompany reorganized itself.Theslaughterhousewas

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separatedasanindependentcompanyknownasTandem-PopovoLTDwithTodorVatevandValentinRuschevasitsmanagers.Tandem-Bremainedinthehandsoffatherandson,CyrilandDamyanVatev.TheTandembrandwasgiventheawardforbestbrandintheBulgarianmarketin2007.Thecompanywaschosenbythe internationalorganization,Superbrands,toleadintheMeatProducerscategory.AfteraninspectionbyaDutchaudi-tor,Tandem-BLTDwasawardedwiththeIFSFoodSafetyCertificateforitshighstandardsoffoodsafetyinitsproductionline.(Source:WebsiteofTandem-BLTD,http://www.tandem.bg/)

PRISTA OIL HOLDING EADPristaOilHoldingEADwasfoundedin1993andmanagedbytwobrothers,AtanasandPlamenBobokovi.It isoneofBulgaria’s leadingcompanies,operating in more than 20 countries in Central and Eastern Europe, Near andMiddleEast,aswellasUkraine,Georgia,Kazakhstanandelsewhere.Themarketpresenceof thecompany inthesedifferentcountries isbe-tween5-55%.PristaOilplanstoexpanditsbusinessinEurope,CentralAsia,theNearEastandAfrica.PristaOil isaholdingcompanywithtwomain activities:• Productionandtradingofmotorandindustrialoils,greasesandspe-

cial fluids. These operations are completelymanaged by PristaOilHoldingEADand its internationalaffiliates.TheHolland-basedStarOil, one of the biggest companies trading in base oils and raw materi-als,ispartofitsholdingcompany.

• Batterybusiness–part of theMONBAT structure (oneof thebluechipsontheSofiaStockExchange).

PristaOils’ state-of-the-artproduction facilitiesaredevelopedaccordingtothelatestininnovativetechnologies.Thisisadirectresultofthecom-pany’sresearchanddevelopmentactivities,aswellasitscooperationwiththeworld’sleadinglubricantsandchemicalcompanies,suchasChevronGlobalLubricants,Ashland,ErgonEuropeMEA,GreenChemetc.PristaOilhasitsownproductionfacilities inBulgaria,TurkeyandHungary,wherelubricants,greases,differenttypesofVaseline,autocosmeticsandspecialautomotivefluidsaremanufactured.PristaOilisacompanystronglycom-mittedtothesocialandculturaldevelopmentoftheworldatlarge.(Source:WebsiteofPristaOilHoldingEAD,http://www.prista-oil.com/bg)

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INTERSERVICE UZUNOVI PLCInterService Uzunovi Plc was established in Varna in 1990 as Interservice UzunovSoleTraderandtransformedintoajoint-stockcompanyinOcto-ber2000withMr.KrasimirUzunovasthemainshareholderandExecutiveDirector.Soonafterthetransformation,themainactivitiesofthecompanywereseparated intoseveraldaughtercompaniesmanagedbyexecutivedirectors and the board of directors of Interservice Uzunovi Plc together with Mr. Uzunov. The otherminority shareholders aremembers of theUzunov family,whoparticipate in themanagementof theholdingcom-panyanditsdaughtercompanies.ThefixedcapitalofthecompanyisEUR9,000,000withassetsofEUR27,000,000.Theoverallareaofitsshops,servicesandstoresexceeds12,000squaremetres.Itsnationalnetworkofshowroomsanddealerscurrentlyrepresentsmorethan20internationaltrademarks.TheheadofficeofthecompanyissituatedinVarnaandtherearerepresentativeofficesinBulgaria’sbiggestcities.Themainactivitiesofthecompanyinclude:• importanddistributionofaudio/videoproducts;• import and distribution of electro-domestic and professional appli-

ances;• import,distributionandassemblyoffurnitureandaccessories;• import,turnkeyhotelandresidentialfurnishing;• distributionandassemblyofconstructionmaterialsandbuildingcom-

ponents;• projectmanagementofvariousdevelopments;• realestatebrokerage;• servicingandmaintenanceofelectronicandofficeequipment;pro-

duction, processing, distribution and export of vegetables and wild mushroomsandfruits.

(Source: Website of InterService Uzunovi Plc, http://www.isu.bg/main.aspx?lang=en)

REFERENCESBrush,C.G.,&Chaganti,R.(1999).BusinesswithoutGlamour:Ananaly-sisofresourcesonperformancebysizeandageinsmallserviceandretailfirms.JournalofBusinessVenturing,14(3),233-257.Davidkov,T.(1993).TheNewEntrepreneurs(resultsofempiricalsocio-logicalsurvey“PrivateBusinessinBulgaria”).Sofia:Sofi-R.Davidkov, T. (2003). The Entrepreneur (results of empirical sociological

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survey“PrivateBusinessinBulgaria-1991”and“PrivateBusinessinBul-garia-1997”).Sofia:St.KlimentOhridskiUniversityPress.Davidkov,T.(2005).Bulgaria&theEntrepreneur.Sofia:St.KlimentOhrid-skiUniversityPress.Davidkov,T.,&YordanovaD.(2013).Theeffectofentrepreneurialorien-tationonperformanceinBulgarianenterprises:Anempiricalinvestigation.Annuairedel’UniversitedeSofia“ST.KlimentOhridski,”FacultedesSci-encesEconomiquesetdeGestion,Tome11,113-124.DevelopmentplanofSofiaMunicipality2008-2013.Retrievedfromhttp://www.sofia.bg/strategii.asp?title=%D1%F2%F0%E0%F2%E5%E3%E8%E8%20%E8%20%EF%F0%EE%E3%F0%E0%EC%E8%A0&sub_open=14476Lansberg, I. (1983). Managing Human Resources in Family Firms: TheProblemofInstitutionalOverlap.OrganizationalDynamics,12(1),39-46.Mandl,I.(2008).OverviewofFamilyBusinessRelevantIssues.ContractNo. 30-CE-0164021/00-51. Final Report. Vienna: Austrian Institute forSME Research. Retrieved from http://ec.europa.eu/enterprise/policies/sme/files/craft/family_business/doc/familybusiness_study_en.pdfManolova,T.S.,Carter,N.M.,Manev,I.M.,&Gyoshev,B.S.(2007).TheDifferentialEffectofMenandWomenEntrepreneurs’HumanCapitalandNetworkingonGrowthExpectanciesinBulgaria.EntrepreneurshipTheoryandPractice,31(3),407-426.McMillan,J.,&Woodruff,C.(2002).TheCentralRoleofEntrepreneursinTransitionEconomies.JournalofEconomicPerspectives,16(3),153-170.Pelov,T. (2005).Developmentof FamilyBusiness throughCooperation.EconomicAlternatives,1.Pistrui,D.,Welsch,H.P.,&Roberts,J.P.(1997).The[re]-emergenceoffamily businesses in the transforming Soviet Bloc: Family contributionsto entrepreneurship development in Romania. Family Business Review,10(3),221-237.Poutziouris,P.,O’Sullivan,K.,&Nicolescu,L.(1997).The[re]-generationoffamily-businessentrepreneurshipintheBalkans.FamilyBusinessRe-view,10(3),239-261.PricewaterhouseCoopers (2010).Kin in thegame:PwCFamilyBusinessSurvey 2010/11. Retrieved from http://www.uvm.edu/business/vfbi/documents/2010-2011PWCKinintheGame.pdfPricewaterhouseCoopersLLP (2007).MakingaDifference:ThePricewa-terhouseCoopersFamilyBusinessSurvey2007/08.Retrievedfromhttp://www.pwc.com/en_TH/th/publications/assets/pwc_fbs_survey.pdf

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Smallbone,D.,&Welter,F.(2001).TheDistinctivenessofEntrepreneur-shipinTransitionEconomies.SmallBusinessEconomics,16(4),249-262.Smallbone,D.,Welter,F.,Isakova,N.,&Slonimski,A.(2001).Thecon-tribution of small and medium enterprises to economic development in UkraineandBelarus:Somepolicyperspectives.MOCT-MOST,11,253-273.Stoyanovska,A.,(2001).Jobs,GenderandSmallEnterprisesinBulgaria.SeriesonWomen’sEntrepreneurshipDevelopmentandGenderinEnter-prises–WEDGE.SeedworkingpaperNo.20.Geneva:InternationalLa-bour Organization. Retrieved from http://www.cartierwomensinitiative.com/docs/Wom_Entrep_BULGARIA.pdfStuart,R.W.&Abetti,P.A.(1990).Impactofentrepreneurialandman-agementexperienceonearlyperformance.JournalofBusinessVenturing,5(3),151-162.Tkachev,A.,&Kolvereid, L. (1999).Self-employment intentionsamongRussian students. Entrepreneurship and Regional Development, 11(3),269–280.Todorov,K.(2011).BusinessEntrepreneurship.PartI.Foundations.Start-ingUpaNewBusiness.Sofia:BAMDE.UNECE. (2002). Women’s entrepreneurship in Eastern Europe and CIScountries. Series: Entrepreneurship and SMEs. Geneva: UN. Retrievedfrom http://www.unece.org/fileadmin/DAM/ie/enterp/documents/wmp.pdfUniversity for National and World Economics. (2006). Development ofFamilyBusinessthroughCooperation.Yordanova,D.(2010).SuccessioninBulgarianfamilyfirms.Anexplana-tory investigation. In A. Surdej and K.Wach (Eds.), Managing Owner-shipandSuccessioninFamilyFirms,110-120.Warsaw:ScholarPublishingHouse.Yordanova,D.(2011).Entrepreneurialorientationinfamilyandnon-familyfirms:EvidencefromBulgaria.InternationalJournalofEconomicSciencesandAppliedResearch,4(1),185-203.Yordanova,D.(2012).Developmentandselectionofsuccessorsinfamilyfirms:EvidencefromBulgaria.Annuairedel’UniversitedeSofia“ST.Kli-mentOhridski”,FacultedesSciencesEconomiquesetdeGestion,Tome10,91-103.Yordanova,D.(2013).EntrepreneurialorientationinBulgarianfamilyandnon-familyenterprises:determinantsandlinkswithperformanceandin-ternationalization.Sofia:AvangardPrimaPress.YordanovaD.,&Davidkov,T.(2012).Determinantsofentrepreneurialori-

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entation:EvidencefromBulgaria.InG.Chobanov,J.PlöhnandH.Schell-haass(Eds.),Markets,SustainabilityandSocialWelfareEnhancementinthe European Union: Sofia Conferences on Social and Economic Develop-mentinEurope,Volume3,59–74.FrankfurtamMain:PeterLang.Yordanova,D.&Tarrazon,M.A.(2010).Genderdifferences inentrepre-neurialintentions:EvidencefromBulgaria.JournalofDevelopmentalEn-trepreneurship,15(3),245-261.http://ec.europa.eu/enterprise/policies/sme/promoting-entrepreneur-ship/family-business/#h2-2.(Accessed18September2012).http://www.fbn-bulgaria.org/bg/news/59/17/nad-42-ot-kompaniite-v-blgariya-sa-familni.(Accessed20January2012).

3.5. FAMILY BUSINESSES IN GEORGIA

byEteri MamukelashviliChiefSpecialist,DepartmentofEconomicAnalysisandPolicyMinistryofEconomyandSustainableDevelopmentTbilisi, Georgia

ABSTRACTGeorgiaisthegatewaytotheCaucasusandCentralAsiaaswellasastep-pingstonetotheregion.Solongasitusesitslocationasleverage,thetransporteconomyofGeorgiacanbenefitfromlargeaddressabletransitflows, neighbouring growing economies and landlocked resources.Wellsituated in theSouthernCaucasus,Georgiacanbereachedeasily frommostmajorEuropean,CentralAsianandMiddleEasterncities.1 Georgia stretches 69,700 square kilometres and boasts of a nearly 4.6 millionstrongpopulation.2

Georgia is located in the Caucasus region of Eurasia, at the crossroads of WesternAsiaandEasternEurope.ItisthegatewaybetweenEuropeandAsia.ItborderstheBlackSeatothewest,theRussianFederationtothenorth,Azerbaijantothesoutheast,andArmeniaandTurkeytothesouth.3 Situated at the strategically important crossroadswhere EuropemeetsAsia;Georgiahasauniqueandancientculturalheritage,andisfamousforitscuisineandtraditionsofhospitality.4

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Georgia is rated one of the best countries for doing business because of itsbusiness friendlyenvironment, low levelsof taxation,simpletaxad-ministration,simplifiedlicensingandpermittingrequirements,competitivecostoflabourandenergy,pro-businessandcorruption-freegovernment,stablebankingsectorandlowcrimerate.

Accordingto theWorldBank/IFCannual report, “DoingBusiness2014,”Georgia improved its standing in the ease of doing business performance indicatorbyclimbingoneplacefromitspositioninthepreviousyear.Pres-ently,Georgiaranks8thintheworld’s189economieswhenitcomestoeaseofdoingbusiness.Georgiaisalsoamongthetop10countrieswithabusinessfriendlyregulatoryenvironment.

Accordingtothereport’s5rankingcategories-StartingaBusiness,Deal-ing with Construction Permits, Registering Property, Getting Credit andDoingBusiness,Georgiaisincludedintheworld’stoptencountries.

Everyregionhasaleadingchampioninthefieldofimprovements.Georgemaybeasmallcountry,butitisaheadofbothEuropeandCentralAsiain improvements. Indeed, the Georgian economy is advancing furthesttowardtheregulatoryfrontiersince2005.Amongtheworld’s189econo-mies,Georgia is the top improver in EuropeandCentral Asia.With36institutional and regulatory reforms, Georgia has improved in all areasmeasuredbytheDoingBusinessrepprt.5

SettingupabusinessinGeorgiaisastraightforwardprocess.Proceduresaresimpleandefficientbecausetheyarebasedonatransparentsystemthatpromotestheestablishmentofnewenterprises.Thecountryhassim-plifiedcompanyregistrationproceduresandithassincebecomeeasierforcompanies to interact with public administrations through e-government services. In recent years, reforms to the company registration processhave led to the removalofoverlyburdensome regulations, saving timeand reducing costs forSMEsandentrepreneurs ingeneral. In fact, theregistrationprocesstakesonly1dayinGeorgia.6

Duetothediversifiedeconomicreformsinthecountry,theGeorgianecon-omyisrapidlygrowing.Easycreationoffavourablebusinessunderthelawand its stable macroeconomic environment has made Georgia attractive toforeigninvestors.

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MostbusinessesinGeorgiaarefamilybusinesses.Familybusinessescanbe found in almost every sphere of activity, but it ismost widespreadinagriculturewhere it takes the formofagribusiness.AsGeorgia isanagrariancountry,halfthepopulationliveinruralareasandareinvolvedinagriculturalactivities.

Georgia’smaineconomicactivities include thecultivationofagriculturalproducts such as grapes, citrus fruits, and hazelnuts; mining; and the out-put of a small industrial sector which produces alcoholic and non-alcoholic beverages,preparedfoodstuffsandchemicals.

Georgianfamilybusinessesarealsoinvolvedinthetourismindustry.40%ofhotelsoperatinginGeorgiaarefamilybusinesses.8

FamilybusinessesinGeorgiaaremostlyindividualenterprisesandlimitedliabilitiescompanies,thatistosay,microenterprisesandsmallbusinesses.

Small andmedium-sized enterprises (SMEs) play an important role asthedrivingforcebehindfurthereconomicgrowthandemploymentinthecountry.

Researchhasshownthatfamilybusinessescontributegreatlytothecoun-try’seconomicgrowth.

Inordertobetterunderstandthemaincharacteristicsoffamilybusiness,their unique qualities, major problems and challenges as well as theirneedsandadvantages,asurveywasconductedamongfamilybusinessesinGeorgia.Thissurveycollectedprimary information,reportedthecur-rentdemandsof familybusinesses,anddevelopedconclusionsandrec-ommendations.Italsoinvestigatedandanalyzedexistingdata,collectednew information and combined them with existing information on the de-velopmentoffamilybusinessesinthecountry.Thesurveyalsoidentifiedpriorities so as to elaborate conclusions and recommendations for further developmentoffamilybusinesses.

Theauthorofthisreportconductedthesurvey.Onlymajorsectorsrepre-sentedbyfamilybusinessesinGeorgiawereselectedforthestudy.Familybusinessesinthecountryaremainlyinvolvedinagriculture,tourismandhandicrafts.Thesewerethesectorsselectedforapilotsurvey:agriculture

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(including wineries), tourism (family-owned hotels, restaurants, cafes)andhandicrafts.Tostudythesefields,severalqualitativeandquantitativemethodswereused.Keyplayerswere identified ineachsector,suchaslargebusinesses,mainexporters,regulatorybodies,trainingcentresetc.The researcher held in-depth interviews with some stakeholders to better understandthedifferentsectors.Theinterviewswerecomplementedbyreports,studiesandresearchdonebyotherorganizations including theWorld Bank, USAID, the Georgian National Statistics Office, the Georgian NationalTourismAdministration,theGeorgianMinistryofFinance,GreenGeorgia,theGeorgianNationalInvestmentAgency,etc.

Thequantitativepartofthesurveyincluded20companies.Thecompanieschosen for the sample were listed in the Georgian National Statistics Of-fice and National Tourism Administration database of active and registered businesses.Insomesectorssuchasagriculture,thecompaniesselectedhadsomelimitations.Thisisbecausemanyfamilybusinessesinthatfieldarenotregistered.Almost50%oftheGeorgianpopulationlivesinruralareasandisinvolvedinagriculturalactivities.SimpleRandomSampling(SRS)ofcompanieswasusedforthesurvey.Forthetourismsector,se-lected companies included family-owned hotels, family restaurants andfamilycafes.Thesurveywascarriedoutthroughtelephonecalls.Ifafterthreeattempts,theselectedcompanydidnotanswerthephone,thentheselectedcompanywasreplacedwiththenextonefromthesampleuntil20companieswerereachedineachsector.Aquestionnairewithopen-endedquestionsandmultiple choicequestionswasusedasan instrument forphoneinterviews.

Surveyresultsidentifiedseveralimportantfindings,namely:55%ofreg-isteredandinterviewedfamilybusinessesconsideredthemselvessuccess-ful.Themajorityofthesefamilybusinesses(45%)startedtheirbusinesseslessthan5yearsago.Halfthebusinessessurveyed(50%)employed3-5persons.90%ofregisteredfamilybusinessesareindividualenterprises.70% of family businesses attended training programmes; and coursesin foreign languages are themost highly regarded training programmeamongfamilybusinesses.

Familybusinessesareveryimportantforeconomicgrowth,jobcreation,improving productivity and promoting growth. Small andmedium-sizedenterprises(SMEs)facilitatefurthereconomicgrowthandemploymentin

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thecountry.InGeorgia,theSMEsectorrepresentsanimportantpartoftheeconomy,withsignificantnumberofthemturningoveraself-sustain-ableincome.

FAMILY BUSINESSES IN GEORGIAFamilybusinessisoneofthemostancientandwidespreadorganizationalformsintheworld.Manyworldrenownedfirmsandcorporationsdevel-opedfromsuccessfulfamilybusinesses.

FamilybusinessesarecommoninGeorgia.Mostfamilybusinessesinthecountrytakethelegalformofindividualenterprises.Inrarecases,theyarelimitedliabilitiescompanies.

The Gallup World Poll Knowledge Center asked business owners their rea-sonsforstartingabusiness.ThetoptworeasonscitedbybusinessownersinGeorgiaweremakingthebestofanopportunitytomakemoremoneyandwantingtobeone’sownboss.Thebestwaytobeone’sownbossistobeginanewbusinesswithminimal exercises. Thedesire tobe self-employedisnotdrivenbynecessityalone,forsurvivalentrepreneurshipisnottheonlyreasonwhypeoplesetuptheirownbusinesses.8

•DefinitionofFamilyBusinessGenerallyspeaking,afamilybusinessisabusinessorganizationalform,where governance and decision-making rights are in the possession of the individualswhoestablishedthebusiness.Familymembersandrelativesareemployedasstaffofsuchbusinesses,andmanagementiscarriedoutbythesamefamilyunits.Thereisnolegaldefinitionoffamilybusinessinthecountryatthemoment.Revenuesfromfamilybusinessesmakeuparelativelysmallvolume.Suchbusinessesusuallyincludemicroenterprisesandsmallbusinesses.Inrarecases,somefamilybusinessesaremedium-sizedbusinesses.According to the laws laid down by theGeorgianNational InvestmentsAgency,anSMEisanenterprisethatannuallyemploysnomorethan20persons and has an annual turnover of not more than GEL 500,000 for smallbusinesses,andnomorethan100employeesandnothavinganan-nualturnoverofmorethanGEL1,500,000formedium-sizedbusinesses.9

•MainCharacteristicsofFamilyBusinessesFamilybusinessesarenotenterprisesthatare inmanysectorssimulta-

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neously.Sincefamilybusinessesaremostlysmallandmedium-sizeden-terprises,theyaremainlyfocusedonspecificmarketsegments.Inmostcases,thestartingcapital isthesavingsofthefamilymembers.Unsur-prisingly,thesesmallfamilybusinessesdonothavemuchinthewayofworkingcapital,andtheyattempttofillthisdeficitwithloansfrombanks,microfinanceinstitutionsorprivatesources.10

•ImportanceofFamilyBusinessesFamilybusinessescanbefoundinalmosteverysphereofactivityinGeor-gia, including agriculture (in the form of agribusiness), wine production, tourism(hotelsandrestaurants),handicraftsetc.

Most familybusinesses inGeorgiaare inagriculturebecauseGeorgia isprimarilyanagrariancountry.Asagriculturallandsaredistributedtofami-liesinruralareas,virtuallyeveryfamilyownsatleast0.5-1.25hectaresof land.However,onlyasmallbusinesscanbesetupwith landofthatsize.ThatiswhyagribusinessinGeorgiaismostlymadeupoffamilybusi-nesses.10

According to the official statistics, approximately 50% of the Georgianpopulationisinvolvedinagriculture.Amongthem,onlyabout3%areof-ficiallyemployedinagriculture,huntingandforestry.Thismeans47%ofthepopulationinvolvedinindividualagriculturalactivityarefamilybusi-nesses.

In2012,agriculturecontributed8.4%toGeorgia’sGDP.In2010,itmadeup 10.7% of GDP. By 2013, agribusinessmade up 16.1% of the totaleconomy,whileitconstitutednearly20%oftheeconomyin2006.11

Endowed with fertile soils, clean water and favourable climate, Georgia producesabroadrangeofagriculturalproducts.Theyincludewine,fruits,nuts,livecattle,tea,mineralwater,dairyproducts,juices,grains,fishandflour.Georgia’smainagriculturalexportmarketsareUkraine,theEUcoun-tries,Armenia,Kazakhstan,Azerbaijan,Belarus,theRussianFederation,Turkey,USA,andmorerecently,theMiddleEasterncountries.12

Although theagribusinesssector isundergoingmajor transformation, itstill offers a wide range of investable areas such as wine and spirits; min-eral and table water; nuts (Georgia is the 5th largest exporter of unshelled

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hazelnuts and the 3rdlargestforshelledhazelnuts);grains(wheat,barley,corn), flour products and animal feeds; organic farming, tea, aromatic and medicinal plants; greenhouse grown vegetables (tomatoes, onions, peppers,cucumbers); fresh,dryandcannedfruits(grapes,citrus,cle-mentine,apple,pear,blueberry),juices,jams,honey;fresh,frozenandcannedfish(anchovy,trout);seaproducts(mussels,oysters);pedigreepoultry,hatchingeggs,snailfarming,livecattle,meatandintegrateddairyproduction.12

Tourism isanothersector inGeorgia inwhich familybusinessesareac-tive.TheNewYorkTimesratedGeorgiaasthe6thbesttouristdestinationoutof41othercountriesin2011.ThatNewYorkTimesarticlefocusedonGeorgia’smountainresorts,writing,“TuckedbetweentheBlackandCas-pian seas and smattered with mountains, Georgia has the kind of terrain adventurousskiersyearn for:peaks reaching16,000 feet,deepvalleysand largelyuntouched slopes.Knownbest for spectacular off-piste andheli-skiing,BakurianiandGudauri—eachashortdrivefromTbilisi…”13

Georgiaisthethirdfriendliestcountryintheworldin2013,accordingtoHubPages,

“JammedbetweenEuropeandAsia,thiscontrastingSouthCaucasusna-tionishometopeoplewhohavebeenputthroughmanytoughtimesoverthedecades,somethingwhichhasresultedinawittysenseofhumourandpoliteness, combined with a keenness to spread the word about their little knowncountrythroughgooddeedsandremarkablehospitality.

As the backpacker word begins to spread, travel to Georgia and experi-enceitsfriendlypeoplefirsthandbeforetheresultinghoardes[sic]oftourbusesarrive,andexperienceeverythingfromtheCaucasusMountainsandthecosmopolitancapitalTbilisi,totheBlackSeabeachesandholidaycityofBatumi.”14

Thereare1,060hotelsoperatinginGeorgia,ofwhich40%arefamily-runhotels.

Family-runhotelscanbefoundalloverGeorgia.23%offamilyhotelsarelocatedinKakheti,20%inSamtskhe-Javakheti,17%inSamegrelo-ZemoSvaneti,10.1%inImereti,9.6%inMtskheta-Mtianeti,6.1%inthecapital,Tbilisi,5%inRacha-Lechkhumiandsoon.

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OutofallthehotelsinRacha-Lechkhumi,74%arefamily-runhotels.72%ofallhotelsinSamegrelo-ZemoSvaneti,68%inKakheti,64%inShidaKartli,63%inKvemoKartli,55%inMtskheta-Mtianeti,54%inSamtskhe-Javakheti,47%inImereti,27%inGuria,20%inTbilisiand4%inAjaraarefamily-owned.7

Tourism’sshareinthecountry’sGrossEconomicOutputwasalmost7%in2012,whereitgrewby2percentagepointsfromthepreviousyear.11

In2012,4,389,256non-residentvisitorsarrived inGeorgia,56%morethanthepreviousyear.

For the whole of 2012, European visitors (excluding those from CIS) num-bered1,738,766(39.6%ofvisitors),92%higherthanthepreviousyear.

Therewere2,451,971visitors(55.9%ofvisitors)fromCISin2012,37%higherthanthepreviousyear.

Therewere33,737visitors(0.7%ofvisitors)fromAmericain2012,16%higher than the previous year. Visitors from Asian countries numbered123,385(2.8%ofvisitors),44%morethanthepreviousyear.

Africanvisitorsnumbered6,974(0.2%ofvisitors),increasing84%fromthepreviousyear.MiddleEasterntouristsnumbered17,046(0.4%ofvis-itors), increasing threefold from the previous year. There were 17,377visitorsfromothercountries(0.4%ofvisitors),6.2timesmorethanthepreviousyear.

In first ten months of 2013, there were 4,556,110 non-resident visitors arrivinginGeorgia,24%higherthan2012.7

INSTITUTIONAL ACTORS, SUPPORT POLICIES AND INITIATIVES, GOVERNMENT SUPPORT FOR BUSINESSESGovernmentsplayanimportantroleinprovidinghighqualityframeworkconditionsforbusinessesbyremovingbottlenecksinthegeneralbusinessenvironment that impede able and innovative entrepreneurs from starting anewventureandcreatingjobs.Theseconditionsincludewellfunction-ing institutions, competitive markets for inputs and outputs, a predictable

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systemoftaxation,andbankruptcy legislationfacilitatingresourcereal-locationwhileprotectingcreditors.

The government thus promotes a conducive business environment that allows failure and company exit as a necessary part of entrepreneuriallearning,providescompanyincentivesfavouringentrepreneurswithgoodideas,introducespolicyinstrumentseasingentrepreneurs’accesstocapi-tal for start-ups, and ensures flexible labour market policies so as to en-able firms to expand and attract the best talents from outside the firm or thecountry.

The government has implemented reforms in a range of areas to support aliberalbusinessenvironment.Mostnoticeably,thegovernmenthasre-ducedbureaucracy,improvedtaxpolicies,battledcorruptionandliberal-izedlabourregulations.Reformsintaxlaws,customslaws,employmentlaws and legislation governing licensing have made it much easier to start andrunabusiness.8

In order to promote private sector development and enhance sustainable economic growth, the government of Georgia has liberalized the tax code bysignificantlyreducingthenumberoftaxesaswellastheirrates.Therewere 21 different taxes in Georgia; all of which have been cut down and theirtaxratesgraduallydecreased.Atpresent,thereareonly6taxesleft,namely:valueaddedtax(0%and18%),personalincometax(20%flat),corporateincometax(15%),importtaxonlyonagriculturalproductsandconstructionmaterials(0%,5%and12%),excise(dependsonthetypeofgood)andpropertytax(upto1%).

Of these six taxes in Georgia, five (personal income tax, corporate in-come tax, value added tax, excise tax, and import tax) are state-wide and one(propertytax)isalocaltax.Therearenocapitalgains,inheritance,wealth, property transfer, social, branch remittance or other taxes im-posedinGeorgia.

A unified revenue service was established in Georgia when the Georgian Revenue Service merged with the other tax, customs and financial police bodies intooneagency.Since then, taxpayershave todealwithonlyasinglegovernmentalagencyvis-à-vistaxissues.

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AnewtaxcodewasenforcedinGeorgiainJanuary2011soastofurtherprovidesimplifiedproceduresfordoingbusiness.Thisnewtaxcodealsoprovided incentives for microenterprises and small businesses in order to encouragebusinessdevelopmentandoveralleconomicgrowth.Thenewtax codeaimed to increase confidence in theGeorgian tax systemandenhancetrust intheGeorgiantaxauthoritiesby improvingcommunica-tionbetweentaxpayersandtaxauthorities,protectingtaxpayers’rights,making administration more efficient and harmonizing Georgian laws with thebestinternationaltaxpractices.ThenewtaxCodealsoofferedlowtaxratesonexistingtaxesandincreasedexemptions.Ifataxpayer’sbusinessisamicroenterpriseorsmallbusiness,he/shewillenjoyreducedoveralladministrativeand taxburdens.High-net-worth individualswilldiscoversimplifiedrulesforobtainingresidencystatusinGeorgia,therebyallowingthemtobeGeorgianresidentswithouttheiractualpresenceinGeorgia.

Extended filing periods, automatic refunds and simplified taxation on im-ports comprise the constantly expanding list of benefits offered to tax-payers.IncomeandgainreceivedfromlistedsecuritiesandGovernmentbonds have been exempted from taxation for both corporate and individ-ualtaxpayers.ItisparticularlynoteworthythatGeorgiahasalreadycon-vergedtoEuropeantaxstandardsbyrecognizingthetechnicalregulationsof the Organization for Economic Cooperation and Development (OECD) and introducing thegenerally accepted transfer pricing ruleswithin thecountry’snewtaxcode.Thisfactwillconsequentlypromoteboththede-velopmentofthebusinessenvironmentandcross-bordertrade.Georgiantaxlegislationoffersanotheruniqueopportunitytooffshorecompaniesbyservingtheminthemostefficientandleastcostlyway.TheInternationalFinancialCompany,afinancial institutionestablishedinaccordancewithGeorgian tax legislation, carries out most of its services with parties out-sideofGeorgia.15

Aswaspreviouslymentioned,thenewtaxcodesimplifiedproceduresformicroenterprises and small businesses.According to thenew tax code,microenterprisesandsmallbusinessesarecoveredbyspecialtaxregimes.Amicroenterpriseisonethatdoesnothireanypersonnel,andconductseconomicactivityindependentlyandhasanannualtotalincomenotex-ceedingGEL30,000.

TheMinistry of Finance ofGeorgia is responsible for grantingmicroen-terprisestatustobusinesses.Taxauthoritiesareresponsibleforgivinga

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certificateforthestatus.Sincethenewtaxcodecameintoforce,4,575newmicroenterprisesregisteredwiththeMinistryofFinanceofGeorgiainJanuary-June2011.

Aphysicalbusinesswithmicroenterprisestatus is free from incometaxandcurrenttaxes.Smallbusinessstatusisgrantedtoaphysicalperson/an individual/sole entrepreneur whose annual total income from economic activitydoesnotexceedGEL100,000.

Small businessesonly faceone single tax. The tax rate for small busi-nessesis3%or5%ofrevenue.Byremovingbookkeepingrequirementsinconformitywithinternationalstandardsandfixingtaxrateat5%oftotalrevenue,smallbusinessesareonlyobligedtomaintainsimplepurchases-and-salesjournalsandcashregisters.Inorderforsmallbusinessestobetaxedattherateof3%,theyhavetoprovethroughdocumentationandrecordsthat60%oftheirincomefallsonexpendituresandconsumption.16

The Georgian State Commission for Regional Development is responsible forconceptualizinginnovativepolicyschemesinsupportofnewtechnolo-giesandentrepreneurship.Thecommissionissupportedbyataskforceforregionaldevelopmentandsevenworkinggroups.Theworkinggroupon innovation, new technologies and entrepreneurship brings together ex-pertsandpolicymakersandmakesrecommendationsforinnovativepolicy.

TheGeorgianChamberofCommerceandIndustry,theBusinessAssocia-tionofGeorgia,theEmployers’AssociationofGeorgia,theInternationalChamberofCommerce,andtheTaxOmbudsman’sOfficeallprovideinfor-mationandbusinessservicestoGeorgianenterprises.

TheGeorgianNationalInvestmentAgencyhasalsohelpedSMEsaccessinternationaltradefairstoshowcasetheirproducts.

Trade expansion and diversification is one of the main priorities of the government of Georgia. The new government of Georgia is committedto expanding exports into new products and markets so as to ensure the economy’scontinuedgrowth.8

Georgian foreign trade turnover is growing apace because it is supported bythecountry’sliberaltradepolicies.CompetitivetraderegimesinGeor-

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giaincludeitsfreetradeagreementswithCIScountriesandTurkey(sinceNovember 1, 2008) and its most favoured nation (MFN) status with World Trade Organization(WTO)membercountries.Georgiaalsoenjoysgeneral-izedsystemofpreferences(GSP)withUSA,Canada,Japan,SwitzerlandandNorway.GeorgiahasGSP+orenhancedpreferenceswiththeEUin7200itemssince2005.

TheEuropeanUnionisoneofGeorgia’smaintargetsfortradediversifica-tionandexpansion.Between2005and2012,theshareofexportsgoingto the European Union dropped from 25% to 15%. At the same time,the share going to the Commonwealth of Independent State countries in-creasedfrom47%to52.4%.Withinthefirsttenmonthsof2013,exportstotheEUconstituted19.9%oftotalexports,whileexportstoCISwithinthesameperiodmadeup55.5%ofGeorgia’stotalexports.GeorgiaisalsoincreasinglyexportingtoTurkey.Inthefirsttenmonthsof2013,exportstoTurkeymadeup6.6%oftotalexports.

To further deepen trade relations with the EU, the government of Geor-gia and EU negotiated a Deep and Comprehensive Free Trade Agreement (DCFTA).ThisDCFTAispartoftheAssociationAgreement(AA)betweentheEUandGeorgia.Negotiationsweresuccessfully finalizedon22July2013.TheDCFTAwiththeEUdifferedfromotherfreetradeagreementsthatGeorgiahadpreviouslyconcludedbecause itcoveredbothtrade ingoodsandservices.ThroughDCFTA,Georgian legislationswillgraduallycomeclosetoexistingEuropeanlegislations.ThiswillbeastepforwardinGeorgia’sfurtherintegrationintoEurope.

DuetotheliberalreformsimplementedbythegovernmentofGeorgia,thecountryhasenhanced its relationswithpartnercountries.Throughnewbilateraltreaties,Georgianforeigntradehasdiversified.Georgiahascon-cluded double taxation treaties with 45 countries and has bilateral treaties oninvestmentpromotionandprotectionwith32countries.

Georgia remains strongly committed to the World Trade Organization(WTO).ItslinkstotheWTOformstheprimarybasisforitstradepolicy.Georgiafirmlybelievesthattradeliberalizationisthebestwaytomeetthechallengesofanincreasinglyglobalizedworldeconomy.ThebasicobjectivesofGeorgia’stradepolicyare:1. integrationintotheworldeconomybyjoiningWTOandenteringinto

other international agreements;

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2. tradepolicy liberalization, includingthesimplificationofexportandimport procedures and tariff and non-tariff regulations;

3. diversificationoftraderelationsthroughfreetradeagreementswithmain trading or regional partners.

Georgiahasaveryliberaltraderegimewithsimplifiedtradeprocedures.Therearenoquantitativerestrictionsonexportsandimports;andtherearenotariffquotas.Thereisalsoeffectivelynotariffescalationnortariffpeaks.

InaccordancewithGeorgianlegislation,notariffdutyisappliedtoexportsorre-exportsfromGeorgia.Exportsareexemptedfromvalueaddedtax(VAT)aswell.Georgiadoesnotuseminimumexportpricesandexportsubsidies. There are no non-tariff restrictions, prohibitions or licensinghurdles in international trade related Georgian legislation except in the areaswherehealth, security, safety and environmental issues are con-cerned.Theshareofgoodssubject tonon-tariff restrictionsconstitutesabout1%ofall tariffs.Dueto thereformscarriedoutby theGeorgiangovernment,thebarrierstoforeigntradehavedecreasedtremendously,resultinginincreasedvolumesofexportandimportflows.

To improve the skills base and facilitate better alignment of labour force skills in the enterprise sector, Georgia emphasizes increased training in naturalsciencedisciplines.AtechnologyuniversityinBatumi,withacur-riculumfocusedonengineering, informationtechnology,andagricultureandemphasizecommercializationofscientificfindings,iscurrentlybeingestablished.Thegovernmenthastoimplementmediumtolong-termpoli-cies reorienting thehighereducationsystemtoproducegraduateswithmoreindustry-relevantskills.8

Astateprogramme,Employmentforsmallandmediumbusinessdevel-opment,was instituted in2007.Itaimedat improvingtheemploymentprospectsof the local thepopulation. It also seeks to improve regionaleconomicinfrastructureandeconomicactivitydevelopmentinthetourismsectorbyimprovingsmallandmedium-sizedfamilybusinesses’accesstocreditresources.

A GEL 5 million loan from the state budget was allocated to the pro-gramme’spartnerbank,ProCreditBank,on17June2007soastoassistsmallandmedium-sizedenterprises.

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Theannual interestrateonthe loantoenterprises is12%,significantlylower thancurrentmarket rates.Businesseshave5years to repay theloan.

Anentrepreneurcouldusetheloanandrepayitinterest-freeintheoneyear grace period. Themaximum amount that an enterprisemay bor-rowunderthisschemeisGEL50,000.Althoughthebeneficiariesofthesebank loans are small and medium-sized enterprises, most of the loans aretakenoutbyfamilieswithenterprisesinhotels,agrotourismfacilities,restaurants,cateringfacilities,etc.Thesefamilybusinessesthenusetheloanstodeveloptheirbusiness’s tourism-relatedactivitiesby improvingthetourequipmenttheyhaveonrental,thequalityofthelocalhandicraftssoldandsoon.

The programme also provided training and consultation services to the beneficiaryforfree.Thisgreatlyhelpsenterprisemanagersontheirbusi-nessspecificity,thusenablingthemtomakeplansforimprovement.Thisalso provides them with training in marketing, management and financial management.

Businessesfinancedbytheprogrammearegivenfreesessionsinavarietyof areas such as general information, management, marketing, financial andhumanresourcesmanagement,taxliabilityissues,specificinforma-tiononbusiness,marketingetc.

Over 1,000 proposals were presented since the launch of the programme, ofwhichnearly200havebeenapprovedbythebank.20%ofthebusi-nesses financedwere start-ups and 80%were already functional busi-nesses.Duetothisprogramme,almost2,500personswereemployed.

TheagriculturalsectorisimportanttotheGeorgianeconomy.Agriculturehas gained greater prominence in the Georgian political agenda in recent years.Thestatebudgetlawfor2011earmarkeda78%increasefortheMinistryofAgriculture.Hugestepshavebeenmadeintermsofattract-ing foreigndirect investments (FDI) to this specific sector.Entitieswill-ingtoestablishagriculturalprocessingenterpriseswillbeabletoacquireagriculturallandforonly20%ofthemarketprice.Thereis0%propertytaxonplotsoflandthatarelessthan5ha,0%propertytaxonpropertytransactions,0%valueaddedtax(VAT)onprimarysupplyofagricultural

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products,no importdutiesonagriculturalandotherequipment,aswellas100%depreciationallowanceoninvestmentsandliberallabourregula-tions.17There isalso theopportunity for theagricultural smallbusinessownertoprivatizeland.17Seeinghow75%ofallagriculturallandisstate-owned,thisisadecidedincentive.

Sincethespringof2013,thePreferentialAgro-CreditsProjecthasbeencarriedoutasameansofsupportingworkersintheagriculturalsector.I tprovidesaccess to financial resources throughpreferentialagro-credits.12banksand2microfinanceorganizationsareinvolvedintheproject.

ThePreferentialAgro-CreditsProjectwaslaunchedbytheGeorgianMinis-tryofAgriculturewiththesupportofthePrimeMinister.Theprojectisfi-nancedbytheRuralandAgriculturalDevelopmentFundandimplementedbytheAgricultureProjectManagementAgency.

SinceitstartedinMarch2013,theprojecthasconsultedwithmanybank-ing and credit institutions as well as suppliers of agricultural production relatedgoodstodrawuptheproject’sthreemaincomponents:1. Commodityinterest-freecreditforsmallfarmersfixedat0%;2. Preferentialagro-creditsformediumandlargefarmershavethepo-

tentialtobemorethan8%toenablethemtobolstercurrentassetsandmeetshort-termfinancinginstockpurchases.

3. Preferentialcreditsforruralagro-industrialenterprisesareatmorethan3%soas toprovide long-term financing for fixedassetsandtechnology.

Thisprojectofferedagriculturalcardstosmalllandownerfarmers.710,000farmersalloverthecountry,eachpossessing landnotmorethan5ha,receivedagriculturalcardsofGEL195.8million(USD119million).Intotal,GEL700millionweremobilizedintheagrariansectorthisyear,GEL200million of which was dedicated to the support of small landowning farm-ers.18

Different organizations, institutions, agencies, schools, companies, asso-ciationetc.providefreetrainingcoursesforfamilybusinessesinGeorgia.In2009-2012,trainingprogrammeswereprovidedbytheGeorgianNa-tionalTourismAgency,theAcademyoftheMinistryofFinanceofGeorgia,Marketing House, Center for Professional Development, Caucasus Travel (a

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touragency),theBiologicalFarmingAssociationELKANAandothertour-ismrelatedassociations.Thesecoursescentredon:a) Networks and associations to creation and developmentb) Practical accounting and taxation,c) Internet marketing, d) Practical accountinge)Successfulcooperationbetweenfamily-ownedhotelsandtouropera-tors,f) Financial planning and marketing, g) Business planning and management,h)Practicalskillsformanagersoffamily-ownedhotels,i) Computer courses, j)Englishlanguagelessons,andk)Businessbasics.

TheMinistryofEconomyandSustainableDevelopment(MoESD)launchedthe SME guide, How to start a Business, in 2011. The business guidecoversthetenstepsittakestosetupabusinessinGeorgia.Itpresentsusefulinformationontheformsofbusinessentities,requiredregistrationand permits/licenses, applicable taxes, trading and fees, access to finance andbusinessconsultingandsoon.Marketanalysisisincluded,asisanexcellentguideonthewayinwhichabusinessplanshouldbeprepared.Italsoprovidescontactinformationastothedifferentservicesprovidedbythe various public agencies and the procedure an applicant should take in approachintheseagencies.

A pilot survey was conducted on family businesses in Georgia in Sep-tember2013,wherebythe intentionwastocollectprimary information,reportcurrentdemands,anddevelopconclusionsandrecommendations.So doing would help with our understanding of the main characteristics anduniquequalitiesoffamilybusinesses.Itwouldalsoclearlyshowusthemajorproblemsandchallengesfacedbyfamilybusinesses.Afterinvesti-gatingandanalyzingexistingdata,collectingnewinformation,combiningexistingandnew information, identifyingkeypriorities,conclusionsandrecommendationsweremadeforthefurtherdevelopmentoffamilybusi-nesses.

Sectorsdominatedbyfamilybusinesseswereselectedforthesurvey.Fam-ilybusinesses inthecountryaremainly involved inagriculture,tourism

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andhandicrafts.Thus,familybusinessesinagriculture(includingwinery),tourism (including family-owned hotels, restaurants, cafes), and handi-craftswereselectedforthepilotsurvey.Severalqualitativeandquanti-tativemethodswereusedtostudythedatagathered.Keyplayerswereidentified in each sector, such as large businesses, main exporters, regula-torybodies,trainingcentresetc.

20companieswereusedinthesurvey.Theywererandomlyselectedfromthe Georgian National Statistics Office and National Tourism Administra-tiondatabaseofactiveand registeredbusinesses. In somesectors, forexample, in agriculture, the companies were selected with some limita-tions,asmanyoffamilybusinessestherearenotregistered.Almost50%ofGeorgia’spopulationlivesinruralareasandareinvolvedinagriculturalactivities.Simplerandomsampling(SRS)ofcompanieswasusedforthesurvey.Companiesselectedinthetourismsectorincludedfamily-ownedhotels, family restaurantsand familycafes.Thesurveywascarriedoutthrough telephone calls. If the selected company failed to answer thephoneafterthreeattemptsatcontact,theselectedcompanywasreplacedby thenextone from the sample listuntil 20 companieswere reachedineachsector.Aquestionnaire composedofopen-endedquestionsandmultiplechoicequestionswasusedasaninstrumentforphoneinterviews.

FINDINGS AND CONCLUSIONSThesurveyyieldedthefollowingresultsandconclusions:• 55%ofGeorgianfamilybusinessesconsideredthemselvessuccess-

ful;• 45%ofthemwereestablishedlessthan5yearsagoandhalfthese

companiesemployed3-5persons;• 90%ofregisteredfamilybusinessesareindividualenterprises;• 70%offamilybusinessesattendedtrainingprogrammes,particularly

foreign language courses;• Mainproblemsidentifiedbythefamilybusinessessurveyedarelack

of financial resources (55%), lack of education (25%) and lack oftechnology(10%);

• 45%ofbusinessessurveyedconsiderfinancialaidessential forthefurtherdevelopmentoftheirfamilybusiness,while25%deemedfreetraining programmes important;

• 75%of familyenterprisesuse the internet toadvertise theirbusi-nesses;

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• ManySMEs,especiallymicroandsmallenterprises,arefamilybusi-nesses;

• FamilybusinessesareveryimportanttoGeorgia,as94%ofitsregis-teredenterprisesareSMEsand83%aresmallbusinesses;

• FamilybusinessesinGeorgiamainlyoperateinthesectorsofagricul-ture, tourism and handicrafts;

• Freetrainingcoursesforbusinessescreatenewopportunities;• The government’s efforts at creating a favourable environment for

familybusinesses,throughthesimplificationofcompanylaw,reduc-tionofbureaucracy,easingoftaxationandprovisionoffinancialre-sourceshavehadapositiveeffectonbusinessdevelopment.

FAMILY BUSINESS PORTRAITS • Iago’sWineThe company’s primary business activities are ecological wine-growingandwinemaking.Thecompanywasfoundedin2003andfivefamilymem-bersarecurrentlyinvolvedinthebusiness.

Thecompanyreceivedabio-certificatefortheirvineyardandtheirecologi-callysoundenterprise.Thefamilyowns1haofvineyardandasmallwinecellar(marani)intheChardakhivillageinMtskheta.Thevineyardissitu-atedintheMukhranivalley,whichisoneofthebestknownandhistoricalsitesinGeorgia.

Atpresent,thecompanyproducesapproximately1,200–1,500bottlesofdrywhitewinecalledChardakhi.

The company performs allwinery andwinemaking operations by tradi-tionalmethodsthataresafefortheenvironment.ThewineismadefromoneofthebestGeorgianwinegrapevarieties,Chinuri.PressingatIago’sWineisdonetraditionally,forgrapeclustersarestompedonbyfeet.Theextractedjuiceisthenfermentedandstabilizedinclaypitchersthatare3centuriesold.

AnItaliancompany,Velier,activeinnaturalwineproductionbecamein-terestedintheproductionmethodsofIago’sWinein2006,afterthefirstexportofthewinearrivedinItaly.Subsequently,Chardakhiwinehasbeenexported to Italy through theassistanceof this company.Today, Iago’sWineexportstoUSAandEnglandaswell.Thecompanyalsohaspresentplanstoexpanditsbusiness.

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• Family-ownedHotel,SamtsikheSamtsikhe,afamily-ownedhotel,islocatedintheheartofDartlovillage,in theTusheti regionofGeorgia.Locatedon thenorthernslopesof theGreaterCaucasusMountains,Tushetiisaprotectedterritoryandhasmuchtooffervisitors,suchasachurchlistedasaUNESCOworldheritagesite.

The hotel, which has 5 guesthouses, was founded in 2008 with the as-sistance of theWorld Bank. Three familymembers are involved in thebusinessand40travellerscancheckintothehotel’sguesthousessimul-taneously.

• Family-ownedHotel,BakurianiThefamily-ownedhotel,Bakuriani,wasfoundedin2001.Itislocatedona ski resort on the northern slope of the Trialeti Range, which is 1,700 metres(5,576feet)abovesealevel.

Thebusinessbenefitted fromthegovernment’ssupport throughastateprogrammein2007.Four familymembersarecurrently involved in thebusiness.

REFERENCES[1]SeetheGeorgianNationalInvestmentAgencywebsite-http://www.investingeorgia.org/[2]CentralIntelligenceAgency(CIA).(2014).TheWorldFactbook:Geor-gia. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/gg.html[3]SeeWikipedia’sentryonGeorgia(country)-http://en.wikipedia.org/wiki/Georgia_%28country%29[4]BBC News. (2012). Georgia Country Profile. Retrieved from http://news.bbc.co.uk/2/hi/europe/country_profiles/1102477.stm[5]WorldBank.(2013).DoingBusiness2014:UnderstandingRegulationsforSmallandMedium-SizeEnterprises.Washington: InternationalBankforReconstructionandDevelopment.Retrieved fromhttp://www.doing-business.org/~/media/GIAWB/Doing%20Business/Documents/Annual-Reports/English/DB14-Full-Report.pdf[6]OECD,EC,ETF,&theEuropeanBank.(2011).SMEPolicyIndex.East-ernPartnerCountries2012.ProgressintheImplementationoftheSmallBusinessActforEurope.Retrievedfromhttp://www.oecd.org/investment/psd/SMEEasternPartnership.pdf

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[7] For more information, see the Georgian National Tourism Administra-tionwebsite-http://gnta.ge/[8] Kuriakose, S.(Ed.).(2013).FosteringEntrepreneurship inGeorgia.Washington:WorldBank.Retrievedfromhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/08/27/000356161_20130827152554/Rendered/PDF/806730PUB0Fost00Box379809B00PUBLIC0.pdf[9]SeethereportonGeorgianNationalInvestmentAgency:InvestmentClimate Overview. June 2009. Retrieved from http://www.oecd.org/in-vestment/psd/43361548.pdf[10]SeeFamilyBusinesses,NationalParliamentaryLibraryofGeorgia.[11]SeetheNationalStatisticsOfficeofGeorgia2006.[12] Georgian National Investment Agency. (no date). Agriculture. Re-trievedfromhttp://www.investingeorgia.org/index.php?m=168[13]TheNewYorkTimes.(2011,January7).The45PlacestoGoin2011.Retrieved fromhttp://www.nytimes.com/2011/01/09/travel/09where-to-go.html?pagewanted=all[14]Stesand.(2012).TheFriendliestCountriesintheWorld2013.Hub-Pages.Retrievedfromhttp://stesand.hubpages.com/hub/The-Friendliest-Countries-in-the-World.SeealsoGeorgianNewsTV(2013,September4).GeorgiaisthirdintheWorld’sFriendliestCountries.Retrievedfromhttp://www.georgianews.ge/discover-georgia/24566-georgia-is-third-in-worlds-friendliest-countries.html[15] PricewaterhouseCoopers. (2011). Georgia – Pocket Tax Book. Re-trieved from http://www.pwc.com/ge/en/assets/pdf/ge_pocket_tax_book_2011_.pdf[16]Georgia EnterpriseGrowth Initiative. (trans.) (2013). TaxCode ofGeorgia. Retrieved fromhttp://www.lexadin.nl/wlg/legis/nofr/oeur/arch/geo/TCE.pdf[17]SeetheGreenGeorgiawebsite-http://www.greengeorgia.ge/[18]SeetheMinistryofAgricultureofGeorgia’swebsite-http://moa.gov.ge/[19]ACTResearch.(2011).PMPBusinessPerceptionSurvey:FinalReport.USAIDGeorgia.Retrievedfromhttp://pdf.usaid.gov/pdf_docs/pnadz474.pdf[20]GIZ,MinistryofEconomyandSustainableDevelopment.(2012).PilotSurveyofLabourMarketNeeds inGeorgia.Retrievedfromhttp://www.mes.gov.ge/uploads/Pilot%20Survey%20on%20Labour%20Market%20Needs%20in%20Georgia_June%202012_MoESD_GIZ%20PSDP%20Geo.pdf

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ANNEX 1

Data of National Statistics Office of Georgia

ANNEX 2

Pilot Survey Results

Number of enterprises in your country number from the total that are family businesses number from the total that are SMEs number from the total that are individuals - solo proprietors acting as FB

54,324 na 50,983 24,593

Number of employees in your country number from the total that are in FB number from the total that are SMEs only number from the total that are individuals - solo proprietors acting as FB

1,724,000 na 229,057 48,353

Share of contribution of the FB to GDP in % na

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Survey Questionnaire

MinistryofEconomyandSustainableDevelopmentofGeorgia

FamilyBusinessesResearch

October 2013

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3.6. FAMILY BUSINESSES IN THE HELLENIC REPUBLIC

byDr.ChrysaAgapitouBusiness Administration DepartmentUniversityofPiraeusPiraeus, Greece

ABSTRACTTheGreekeconomyanditsentrepreneuriallandscapeareextremelyde-pendentuponfamily-ownedbusinesses,astheyconstitutetheveryvastmajorityofGreekfirms.Despitethecrucialrolefamilyfirmsplayinem-ploymentandeconomicactivityinGreece,therehasbeenverylittlere-searchonthem.ThepurposeofthispaperistoprovideacomprehensiveanalysisandgeneraldescriptionoffamilybusinessesinGreece.There-searchwaspredominantlylibrary-based,drawingonanalysesofselectedliteratureonprofessionalmanagementandinstitutions.Thepaperaccen-tuatesissuesrelatingtothecontributionoffamilyfirmstotheGreekecon-omy,characteristicsoffamilybusinesses,theinstitutionalactors,supportpoliciesandinitiativesaswellasthechallengesofsuccession.Thefindingscouldassistpolicymakers,advisers,familybusinessownersandmembersin designing policies and programmes, providing advice and managing familybusinesses.Keywords:Familybusiness,Greece

1. HISTORY OF FAMILY BUSINESSES (FB) IN THE COUNTRYThefamilybusinessisoneofthemostenduringinstitutionsinhumanhis-tory,asProfessorWilliamO’Harawroteinhisbook,CenturiesofSuccess:LessonsfromtheWorld’sMostEnduringFamilyBusinesses(2004).Beforethemultinationalcorporation,therewasfamilybusiness.BeforetheIn-dustrialRevolution,therewasfamilybusiness.BeforetheenlightenmentofGreeceandtheempireofRome,therewasfamilybusiness.

Thereisaclassicpieceofresearchfrom1970ssocialpsychology,wheresmallchildrenaroundtheworldweretoldastoryaboutbabybirdsbeingleftinthenestandtheirparentsflyingawayforever.USkidstoldresearch-erHarryTriandis that thebabieswould justdie.GreekCypriotchildrenaskedwhytherewouldbeaproblem:GrandmaandGrandpabirdwould

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justcomeroundandtakecareofthem.Thesameresponsewillmostprob-ablybegiventoday,asanillustrationofhowstrongfamilybondsremaininthispartoftheworld.AnotherpronouncedGreekcharacteristicistheverynarrowdividebetweenworkandthehome.Smallserviceandretailbusi-nessfamiliesliterallycontinuetoliveabovetheirshops.Thefamilyandthebusinessarefrequentlyseentobeoneandthesamething.Whenstu-dentsinGreecewerefacedwiththethreecircleexercise,wherebyfamilymemberswereaskedtodrawthreecirclesofanysizeandoverlapinanyrelationship, representing family, businessmanagementandownership,wewouldbepresentedwith threeconcentriccircles: the familyholdingthebusinessandownershipinsideitslargerbounds.Therewouldoftenbeconfusionbecausepeoplewouldtellus,“butthebusinessisthefamily”.

It should therefore come as no great surprise that Greek families have verystrongtraditionsofworkingtogether.Theyalsohaveastrongtradi-tionofthenextgenerationsucceedingthepreviousoneinawidevarietyofoccupationsandbusinesses.FamilybusinessisthebackbonenotjustoftheGreekprivatesectoreconomy,butofGreeksocietyinawidersense.Evenwhenfamilymembersarenotdirectlyinvolvedinthebusiness,closetiesensuretheyremainawareofthatwhichisgoingon,therebycreat-ingvirtualfamilyfirms.AthirdofallreportedpersonalnetworkcontactsforGreekentrepreneursare familymembers,aboutdoubletherate forother countries in which comparable data exists (Drakopoulou-Dodd and Komselis,2006).

DEFINITION OF FAMILY BUSINESSES IN GREECEResearchersnotethelackofconsensusastotheconstituentsofafamilyfirm(Dziechciarz&Birley,2001;Chuaetal.,1999).Somesuggesttheuseofmultipleconditionstoidentifyfamilyfromnon-familyfirms(Litz,1995).Frequently used conditions include family ownership and control (Litz,1995;Uptonetal.,2001), family influence indecisionmaking(Sharmaetal.,1997)familymembersasemployeesandtheintenttotransferthefamilyfirmtothenextgeneration(Stewart,2003).

Eventhoughthereisnospecificdefinitionofafamilybusiness,thedefi-nitionofthetotalcontrolofthecompanyonbehalfoftheowner’sfam-ilymembersisingrainedinmostfamilybusinesses.Itseemsthatfamilybusinesses owners often prefer less profit to having a new ‘non-familymember’asashareholder.

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Familybusinessesareconsideredenterprises thatareowned,managedand influencedbya family or families. In otherwords, bothownershipand policy-making in family businesses are dominated by familymem-bers.AccordingtoCompanyLaw(Law2941/2001),thereisnodefinitionoffamilybusiness.Sincemostofthemaresmallfamilybusinesses,theterms“SME”and“familybusiness”areoftenusedinterchangeably.ThisissomuchsothatSMEsandfamilybusinessesaredeemedtobethesamething.However,thisneglectsthefactthattherearealsolargefamilybusi-nesses.Sincethereisnoofficialdefinition,familybusinessestakemanylegal forms, ranging from sole traders to private companies, depending on thenumberofemployees(AgapitouandTheofanides,2008).

3. IMPORTANCE OF FAMILY BUSINESSES IN THE NATIONAL ECONOMY

TheGreekeconomyanditsentrepreneuriallandscapeareextremelyde-pendentuponfamily-ownedbusinesses,astheyconstitutetheveryvastmajority ofGreek firms. Theyare thebackboneof theGreekeconomy(KPMG,2013).TheycontributesignificantlytoGreece’sGNPandemploy-ment,andtendtobegreatinnovatorswithlonger-termvision.Theyalsotendtobefirmlyrootedintheirregionalandnationalculture.

GreecehasproportionallyoneofthelargestnumbersofsmallbusinessesintheEU(KyriazopoulosandSamanta-Rounti,2007).Mostofthemaresmall familybusinessesoperating in traditionalsectors like tourismandagriculture.

TheSMEsector inGreecediffers significantly in structure from theEU.Firstly,itisrelativelyhigherinGreeceandthenumberoflargebusinessaccountsforonlyhalfoftheEUaverageandprovidesonly15%ofem-ployment.Secondly,withintheSME sector, microenterprises correspond to96.6%ofbusinesses,56.6%ofemploymentand33.9%ofvalueaddedincontrasttotheEUaveragesof92.2%,29.7%and21.2%respectively(GSEVEE,2012).

AccordingtodataprovidedbytheHellenicStatisticalAuthority(ELSTAT),99.8%ofallGreekenterprisesemployedfewerthan100personsin2003,asharewhichremainedatthesameleveluntil2006.Thevastmajorityofthem(93.8%)aremicro-firmswithfewerthanfiveemployees,whileenterprisesemployingmorethan100personsrepresentonly0.19%ofthetotalnumber(Eurofound,2013).

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Greek SMEs contribute more than 80–85% of total local employment,in contrast to the10–15%of large-scale enterprises (LSEs) during the2005–2012period.SMEs in Greece contribute to gross value added (at factorcosts)atashareexceeding70%forthe2005–2012period,averag-ingmorethanEUR53billion.ThisismuchmorethantheEUR21billioncontributiontogrossvalueaddedbyLSEsinthesameperiod.Oncemore,itisindicativethatalmosthalfofSMEs’grossvalueaddedinvolvesfirmsemployingfewerthan10employees(Eurofound,2013).

While these data highlight the central role of SMEs in Greece, a compari-sonwithEU-27averagesshedsmorelightonthisissue.AsshowninTable1, theGreekeconomy ismoreheavily centredonmicro-firms in termsoftotalnumber,contributiontoemploymentandtotalvalueaddedthanotherEuropeancountries.AsMihail(2004)andDoxiadis(2011)alsoposit,Greece belongs to a group of countries (together with Spain, Portugal and Italy)whereemploymentinSMEsishigherthantherestofEurope,espe-ciallyinself-employmentandemploymentinmicro-firms.Greecerepre-sentsasharewhichreaches57.6%ofthetotal,comparedto29.8%forEuropeand20%fornorthernEurope.Hence,whenareferenceismadetotheGreekprivatesector,itindicatesmainlysmall-scalebusinessunits,whichquiteoftenincludefamily-ownedfirmsorself-employedenterprisesorbusinesseswithfewerthanfiveemployees(Eurofound,2013).

FamilybusinessesinGreecehavebeenwidelyequatedtoSmallandMe-dium-SizedEnterprises(SMEs)inpublicandpolicydiscussions.Basedonthefiguresabove,whereSMEsrepresent99.9%ofthetotalnumberofen-terprises,familybusinessaccountforapproximately90%ofallenterprisesinGreece.Itcanalsobeassessedthataround70%offamilybusinessaremanagedbyindividuals,namely,enterprisesownedbysoloproprietors.

Table 1: SMEs in Greece compared to EU-27 averagesThe number of employees in 2008 and 2009 amounted to 4.8million,

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while it was only 3.9million in 2013. After eight years continuous fallthrough 2001-2008, the unemployment rate increased dramatically in2009-2013 toanaverageof27.0%(basedonEurostat).According theEuropeanCommissionforecasts,theunemploymentratewillbereducedbyanaverageannuallevelof26.0%in2014.AccordingtoOECD’sJuly2013 forecast, the unemployment rate of 2014will increase to 28.2%(fourthquarter)from26.8%inMay2013.INE/GSEEestimatesaremorepessimistic,predictingunemploymentin2013to increasefromits2012rateof24.2%to29%-30%andfurtherincreasein2014to31.5%(INE/GSEE,2013).

Itcanbeestimatedthat60%ofemployeesinGreeceareworkinginfamilyfirmsandFBs’contributiontoGDPis50%.

CHARACTERISTICS AND UNIQUE QUALITIES OF FAMILY BUSI-NESSESThefamilyfirmisanimportantandcommonformofbusinessorganizationinGreece.Thecommonfeatureamongmostfamilyfirmsisthefactthattheownershipiscloselytiedtoagroupofpeople-thefamily.Thefamilyisusuallyinvolvedinthedirectmanagementofthefirm.Inotherwords,theprincipalcharacteristicamongthemajorityoffamilyfirmsisthatthemainowner(family)isusuallyinvolvedinthekeydecision-makingofthefirm.Averycommonargumentfavouringfamilyfirmsisthatagencycostsareminimized,sincetheowner(family)andthemanagementarethesamepersonordifferentpersonsfromthesamefamily.

Themaincharacteristicsdistinguishing family firms fromother typesofcorporationsarethepresenceofoneormorecontrollingfamilymembersandtheinvolvementoftheownersinthemanagement.Greekfamilybusi-nessesdifferfromnon-familybusinessesbecausetheystrivetowardsthepreservationofsatisfactoryrelationshipsamongmembersinordertosur-viveinthelongrun.Furthermore,themanagementofpeople,especiallyrecruitment,compensation,promotionandtrainingdecisions,isquitedif-ferentinfamilybusinessesthaninothercompanies.

Comparedtonon-familybusinesses,familybusinesseshavelowerrecruit-ment and human resource costs and are more effective than other compa-niesinlabourintensivebusinesses.Theyhavea“familylanguage”allow-ingthemtocommunicatemoreefficientlyandexchangemoreinformation

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withgreaterprivacy.Intermsofmotivation,loyaltyandtrust,familyrela-tionshipsgenerateunusualmotivation,cementloyaltiesandincreasetrust(AgapitouandTheofanides,2008).

FamilybusinessesinGreecearecharacterizedbyquickerandmoreflex-ible decision-making. Due to the typically flat hierarchy in family busi-nesses,managementcandecidequicklyandreactimmediatelytomarketchanges.Most familybusinesseshavea relativelysimplehierarchyandmanagementstructure,whichallowsthemtodealwithproblemsquicklyandreactmorerapidlytochangingmarketconditions.Astheycanhavetheadvantageofbeingbothformalandinformal,familybusinessesflex-iblyuseeachofthesetraitswhensuitable.

Passion, dedication and personal approaches to a business based on trust are common features ofGreek family firms. They are notable for theirculturalstrengthandsharedvalues,somuchsothat it isbelievedtheywinatbusinessbecause theyarecloser to their customersandhaveamorepersonalrelationshipwiththem.Familymembersarededicatedandcommittedtothecompany’ssuccess.Therearemanycasesinwhichtheyputasidepersonalgaininfavourofthecommongoal.Familybusinessesaremorelikelytoworkhardertomaintaintheirreputationandbuildgoodrelationswiththeircustomerssimplyasamatterofpride,asthefamilyname isoftenabove thedoor.Strongpersonalbondsmean that familymembersarelikelytosticktogetherinhardtimesandshowthedetermi-nationneededforbusinesssuccess(PwC,2012).

Furthermore, family enterprises in Greece are distinguished by a workenvironmentthatinspiresemployeecareandloyalty.Familyfirmsfeelastrongersenseofresponsibilityinthecreationofjobs,andwillthusmakemore strenuous efforts than other companies to keep their staff, even duringtoughtimes.Theseresultintheiremployees’greaterloyaltyandcommitment.Ownershipofthebusiness iscloselytiedtothefamily,asfamilyfirmshavesimpleandflatstructureswiththeowner-manageratthecentreofalldecisionsandauthority.Theyhavepaternalisticculturesand informal communication channels that lead to centralized manage-ment with one or few individuals dominating the decision-making process anddiscouragingdissentioninordertomaintaincontrol(PwC,2012).

Itisimportanttopresentsomeinterestingfindingsfromasurveyconduct-edbyPwCin2012.ThemostimportantinternalchallengesfacedbyGreek

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familycompanieswerecashflow/costcontrol(82%),profitability(48%)andfinancing(39%),whilethemostimportantexternalchallengesweremarketconditions(76%)andgovernmentpolicies/regulations(64%).

AccordingtoasurveyconductedbyGreekresearchers(Spanos,2005),familyfirmshavepoorgovernancecomparedtonon-familyfirmsandtheAthensStockExchange(ASE) Indexcompanies.Therearemanyweak-nesses that threaten family firms such as not having appropriate riskmanagementsystems,notfollowingappropriatenormsofcompanyboardstructureandmanagement(e.g.directors’independence,boardcommit-tees’establishmentandCEO),lackingCGcommitment,confusingfamilymattersandbusinessmattersandsoon.

Family-ownedfirmsarealsoweakinaccountingpracticesandriskman-agement.FamilyfirmshavetoprovidetheirbalancesheetstatementsinaccordancewithGreekaccountingprinciplesandrarelywiththeInterna-tionalAccountingStandards(IAS).However,thestatutoryprovisionsareintheprocessofbeingamended.Thelargemajorityoffamilyfirmsarenotequippedwiththeappropriatesystemsforhandlingissuesofriskexposureandriskmanagement.

Familyfirmsdonothavetheirownspecificcorporategovernanceguide-lines and do not have clear statements of their own commitment towards theenvironment.Furthermore,assessmentpracticesbasedonbusinesscompetencearedifficult toapply.Familymembersareoftenpromoted,whilenon-familymembersreceivefeweropportunities,resultinginsignifi-cantmonitoringcost.

Thebasicchallengestothegrowthofafamilybusinessareimplementa-tionofanexplicitbusinessstrategy,thedevelopmentofthepersonnelandthetransitiontothenextgenerationatamanagementlevel.Thelastoneisthemostdifficult issueofafamilybusiness.Theissuebecomesevenmorecomplicatedifsomefamilymembersareinvolvedinthecompany’sactivitiesandsomearenot.Otherdisadvantagesidentifiedincludenepo-tism,overlappingfamilyandbusiness interests,familyconflictsanddif-ficultiesinmanagingfamilymembers.

ThebasicobstaclesinthedevelopmentoftheGreekfamilybusinessarehuman resource issues, the bureaucracy, their unstable tax status and

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competitionfrominternationalcompanies.Theyrangefromcomplexlegal

andtaxestateplanningissues,tofamilyconflicts,trialsandtribulations

fromtheprogressionoffamiliesandbusinessesthroughevolutionarybut

incompatible stages of development, and last but not least, lack of suc-

cessionplanning.

Another business barrier to family businesses is the existence of com-

municationproblemsbetweenfamilymembersanddifferentbusinessex-

pectations between the two generations. The larger the gap, themore

impediments there will be to the development and continuation of the

familybusiness.Inaddition,thesecondgenerationappearstolackproper

trainingandhasinadequateexperienceinindustriesrelevanttothefamily

enterprise.Theyalsolackinterestinrunningthefamilybusiness.Further-

more,theworkingstyleofthefirstgenerationisdifferentfromthesecond.

It is apparent the first generation did not receive a great deal of attention,

a fact that affects the structure and review of such plans, which the second

generationshouldadoptwhentheysucceedtothefamilybusiness.

Atthispoint,itisimportanttopresenttheresultsofPwCsurvey(2012)

distinguishingfamilybusinessfromnon-familybusiness.

Figure 1: Factors that differentiate Family Business

Source: PwC, 2012

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5. INSTITUTIONAL ACTORS, SUPPORT POLICIES AND INITIA-TIVES: IS THE GOVERNMENT SUPPORTING FAMILY FIRMS?

Despite thecritical role familybusinessesplay inemploymentandeco-nomic activity in Greece, the government is doing little to support thesector.ThereisnoinstitutionalactorrelatingexclusivelytoGreekfamilybusinesses;andlittleresearch,policy,education,organization,andtrain-ingforfamilyfirmsinGreece.

Afewserviceproviders,suchasPwC,Ernst&Young,KPMG,GrantThorn-ton International and other individual professionals do deliver specialized offerings.Similarly,abarehandfulofuniversitiesandcollegesoffercours-esorexecutiveeducationonfamilybusinessmanagement.

The Organization for the Insurance of Liberal Professionals (OAEE) is a legalbodyofpubliclawsupervisedbytheMinistryofLabourandSocialInsurance.Itcovershealthcare,maternity,invalidity,old-age,survivorsandemploymentinjuriesfortheself-employed.

The Hellenic Organization of Small and Medium-sized Enterprises and HandicraftS.A.(EOMMEX)usedtoprovidepolicyadvicetotheMinistryofDevelopment in SME matters, but it was absorbed into the National Fund for Entrepreneurship and Development (ETEAN) in 2011 due to the public organizationsreductionandmergerspolicy.ETEANS.A.isavaluableele-ment in the integration of micro, small and medium enterprises (MSMEs) financingcyclebecauseitcollateralizesthefractionofbusinessrisknotac-ceptedbythebankingsystem.Insodoing,itamplifiesthescopeofviableentrepreneurialinitiativesundertakenbyMSMEs.

Moreover, chambers of SMEs can provide some help and guidance to familybusinesses,asmostsuchenterprises inGreeceareSMEs.Thesechambers deal with issues and problems affecting the SME manufactur-ing businesses (spatial planning, location of facilities, funding, protection of industrialprofessionalpremises lease,social securityetc.)andmakerecommendations to the government about laws and other issues that are ofconcerntoitsmembers.

TheMinistryofEconomicsandFinanceencouragesandsupportsthede-velopment of family-owned businesses through the relief from capitalgains tax and the reduction of tax rate in the case of business transition or

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sharesofittomembersofthefamily.Whentheownerofasolecorpora-

tion, general and limited partnership retires, or when the sole corporation

or shares of general and special partnership are transferred from parent to

child or from one spouse to another, no capital gains tax needs to be paid

the event where the owner of a sole corporation retires, capital gains tax

need not be paid when the corporation, its shares and/or ownership is

transferred from parent to child or from one spouse to another (Income

TaxationLaw-Law2238/94,Article13,Par.1).

Accordingtoa2012PwCsurvey,familybusinessesinGreecearegenerally

verynegativeaboutthegovernment’sattitudesandsupportoftheirsec-

tor.Asaresult,theyhavebeenactivelysuggestingnewstatemeasures.

Themajorityfeelthatthegovernmentdoesnotrecognizetheimportance

of family businesses and exhibit the greatest disappointment out of all

otherregionsinthePwCworldwidesurvey.Inthefollowingfigure,family

firms’perspectivesconcerningthegovernmentrecognitionoftheirimpor-

tanceisdepicted.ItisevidentthatGreecehasthehighestdissatisfaction

ofalltheothercountriessurveyed.

Figure 2: Attitude to government and how much they value family businesses

Source: PwC, 2012

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6. CHALLENGES OF SUCCESSIONSuccession,whichisakeyissueforfamilybusiness,isaparticularlydif-ficultprobleminGreece.Whenitcomestosuccession,thereisanissueofwhetherthefounderisreadytoretire.Ifthefounder’schildisnotwillingorabletotakeonthebusinessandthefamilydoesnotwantanoutsiderin it,will thebusinessbesold?Thatwhichdrives thebusiness foundermaynotbepresentinhis/herchild.Itisnotonlyabouteducation;it isalsoaboutthefounder’sleadership,charisma,beliefsandsoon.Therearemanyfactorsatplayhere,asnosinglereasonmaybepinpointed.

Most familybusinesses inGreece intendtopassthebusinessontothenextgeneration,whereasonlyasmallnumberofcompaniesplantosellthebusiness(PwC,2012).Thedifficultyinsucceedingthefounderofthefamilybusinessisahardproblemtosolveandonethatfamilybusinessesface.Whilemanyfamilybusinessfoundershavebeencharismaticintheirmanagerialdecisions,theydonothaveasuccessionplanandconfusionconsequently surrounds the business after their departure. Successionplanning in a family business is often painful and emotionally chargedinGreekfamilyfirms(KyriazopoulosandSamanta-Rounti,2007).Inthesamesurvey,familybusinessownersratedfamilybusinessdirection,tran-sition success and succession planning as the greatest challenges in run-ningthebusiness.

Despitetheimportanceofsuccessionplanning,Greekfirmsappeartopaylessattentiontoitthanotherfamilyfirmissues.AsthesizeoftheaverageGreekfirmisverysmall,itmightbethatthespecificstructuralandculturalidiosyncrasiesdonotsupportanextensivesuccessionplanningprocess.This isalsoamplifiedbytheabsenceof featurescommoninnon-familymanagedSMEslikethelackofanadvisoryboardaswellasthelackoffor-mallywrittenjobdescriptions,fixedcompensationplans,formalemployeeperformancereviewsandregularmeetings.Theserealitiesmakeitdifficultor undesirable for incumbents to initiate and engage in formal succession (PyromalisandVozikis,2009).

7. SUGGESTIONS AS TO THE THINGS THE GOVERNMENT AND CIVIL SOCIETY SHOULD DO IN ORDER TO RECOGNIZE AND SUPPORT FAMILY BUSINESSES

Given the importanceof familybusinesses inemployment creationandeconomic development in Greece, it is essential that government and civil

146

societyrecognizeandsupportthem.ItishighlyimportantfortheGreekgovernmenttocarefullyconceptualizeandenactanationalstrategysup-portinganddevelopingfamilybusinessessothattheywillgrowdomesti-callyandinternationally.Itisalsocrucialtoproducealegalframeworkinwhichfamilybusinesseswouldhavelegalguidelinestohelpthemhandlekey issuesandchallenges,suchas thesuccessionplan.Muchattentionandimportanceshouldbegiventoimprovetransparencyandreducebu-reaucracy soas toenhance the supportof family firmsand inspire thecreationofnewbusinessesinGreece.

Furthermore, thegovernmentand civil society shouldhelp family firmsobtain long-term finance for expansion as well as secure a fair and stable taxsystem.Somesuggestionstotheseends includetax incentivesandownership incentives and improved tax laws facilitating the ease of busi-nesstransfertothesuccessorwithoutcapitalgains.Financial incentivesand tax reliefs for start-ups, additional grants and incentives to support R&D,innovationandinvestmentsinnewtechnologyaresomeoftheac-tions thatmust be undertaken. Access to external assistance needs tobeimplementedforGreekfamilyfirms.Specializedconsultancyservicesshould be made available to help firms overcome the barriers related to lack of specific knowledge and know-how, centralized management struc-turesandthegeneralinabilitytoplanarestructuringevent.

Civilsocietyshouldtakeactionstoinvestineducationaswellastrainingprogrammes and seminars for new technologies, modern management methods, business plan and international business. These training pro-grammes and educational seminars should be generally tailored to thespecificneedsoffamilyfirms.Moreover,agenciesfacilitatingnetworking,mentoringandpartnershipsbetweenfamilyfirmsandmultinationalcom-paniesshouldbeestablished.Forexample,theFamilyBusinessNetwork(FBN)isnowrunningaverypromisingnewschemewhichallowsyoungerfamilymembersfromonebusinesstotakeshort-terminternshipsatan-other family firm, often in a different region or business sector. TherearealreadyexamplesofsuchNextGenerationInternships(NGI)spanningmarketsasdiverseasBrazil,theUS,FinlandandSwitzerland(PwC,2012).

CONCLUSIONThecurrentfinancialcrisishasnegativelyinfluencedmostbusinessactivi-ties.Familybusinesses,inparticular,foundthemselvesinanewenviron-

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mentwherethemarketcharacteristicshavereversed,radicallypressureshave intensified and uncertainty dominates. To pull the country out ofthiscrisis,Greecemustleverageitselfonitsstrongestassets,namelytherealeconomy.Thereisunquestionableevidencethattherealeconomyislargelybasedonthecontinuationoffamilybusinesses.

Greekfamilybusinessespresentlyfacemanychallenges.Themaininter-nalissueanticipatedwithsometrepidationbythemajorityoffamilybusi-nesses in Greece is the lack of cash flow and cost control within the next 12months.ThenumberofGreekfamilybusinessesreportingthisfearislarger thantheaverageglobal respondents.ThepredominantchallengeanticipatedbyGreekfamilybusinessforthenextfiveyearsconcernsthegeneraleconomicsituationaswellaspoliticalandmarketinstability.

However, there is some evidence indicating that family enterprises aremovingawayfromthestrictlyfamilymembers-onlymanagementthathashithertohinderedmanyGreekfamilyfirms.Thesefamilybusinessesarestartingtoidentifyadifferencebetweenbusinessownershipandmanage-ment,andare thinkingofallowingnon-familymembers tomanage thebusiness.WheretraditionalGreekfamilybusinessmanagementischarac-terizedbyinformalprocessesandprocedures,therehasbeenagradualshifttowardsmoreorganizedsystemsofsetcriteriaandtargetssincethefinancialcrisis(PwC,2012).

FamilybusinessesinGreecebelievetheycanplayanimportantroleintheeconomybystabilizingitandcreatingjobsforthepopulation.Theyfeelthattheyareredefinedandrestructuredfromonegenerationtothenextto amuch greater extent than the average family businessworldwide.However, Greek family businesses also face an uncertain future.WhilemostGreekfamilybusinessessaytheyhaveshrunkinthepast12months,threequartersarecautiouslyoptimisticabouttheirprospectsinthenextfiveyears(PwC,2012).

TheinternationalfinancialcrisishasopenedawindowofopportunityforfamilybusinessesinGreecetoengageindeepstructuralandmanagerialreforms.TheoverallstoryofGreekfamilyfirmsisacomplexanddynamicmixture of tradition and innovation, small and large; a tale of triumph over therepeatedadversitiesof thepastcentury,andapromiseofhopeforthe country’s continued economic development (Drakopoulou-Dodd andKomselis,2006).

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1. FRESH LINE COSMETICS Background informationThestoryofFreshLinegoesbackto1992whenthecompany’sfounder,MayraVagioni-Stasinopoulou,decidedtoturntheknowledgesheacquiredfrom her grandmother (whose family actually owned a traditional soapfactoryontheislandofZakynthos)intoacompetitivebusinessadvantage.ThefirstFreshLineshopwaslaunchedinChalandri,Athens.Consumersloved its original concept so much so that within a short period, the in-creaseddemandledthefoundertoorganizeanationwidesupportsystemandexpandviafranchising.

Sinceherchildhood,Mrs.MayraVagioni-Stasinopoulouhasfollowedtra-ditional familyrecipes inmakingherowncosmeticsathomewith freshingredientsfromherkitchenandgarden.Astimepassed,sheturnedtothestudyofbotanicaltherapyandaromatherapy,furtherexploringancientand contemporarywritings.The longhistoryof ancientGreekmedicineand its famous practitioners, philosophers and physicians such as Hip-pocrates,Dioscurides,TheophrastusandothersencouragedthefamilytoutilizebeautyrecipesbasedonfineherbsandrareplantswitharomaticandtherapeuticpropertiesfoundnaturallyinGreece.

Asaresult,thereisbothanancientstoryandintensivestudybehindeachandeveryproduct.Thestoriesandtheresultantstudiesofthemformedthephilosophyofthecompany.Mostofitsproductsarenamedaftermyth-ologicalcharacters,honouringthisinheritance.Theknowledge,experienceand passion of Vagioni-Stasinopoulou have been passed on to her daugh-ters,PaulaandNatalie.Thethreeofthem,unitedbytheircommonvisionforaglobaldevelopmentofthecompany,aimtoconstantlyexpandFreshLine so that more people will come to love their products and remember thembytheirGreeknames.

Current Corporate ActivityFreshLinecurrentlyproducesover450unique,handmadeandsafecos-meticsforthewholefamily.Thecompanyoperatesastate-of-the-artpro-duction unit in Attica and an extensive network with 40 points in various areasofGreece.Overseas,FreshLineproductsareavailablein14differ-entmarkets,inmorethan250pointsofsale.

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Fresh Line has been certified by the international qualitymanagementstandard ISO 9008:2001 aswell as by the Italian Institute for organiccertification,ICEA.While it is expanding through franchising and strate-gicpartnershipswithmajordepartmentstores,italsooperatescorporatestoresinbothAthensandBerlin.

The ProductsFresh Line products are divided in two main categories, each one with a separatephilosophy thatcouldbeastandaloneproposal forpurchasingcosmetics. FreshBeautyBar refers toproductsmade from fresh ingre-dients from the kitchen and garden, such as vegetables, fruits, milk and honey.Astheseproductsaresoldbyweight,consumersarechargedfortheactualproductratherthanthepackaging.InFreshLine’sBeautyFreshBar, one can find products such as organic facial masks that are kept in therefrigeratoraswellasshowergels,bodymilksandsoapssoldinthedesiredquantity.Thisoffersarevolutionaryproposalwhichiscompletelyalignedwithcurrentconsumerneeds.

Thesecondgroupofproductsreferstopackagedspecialityproductsandintensivetreatmentsfortheface,hairandbody.TheseproductsarebasedonremedyrecipescreatedbyfamousancientGreekphysiciansandup-datedwithmoderningredients.Theycoverawidevarietyofpersonalcareneedssuchashairloss,sensitivity,dryskin,acne,aging,etc.Duetotheirinfusion with therapeutic herbs and essential oils, these products provide intensetreatment.

DevelopmentsThisyear,FreshLineisduetocompletetherebrandingprocessofallitsproducts, a process that started in early 2011. Themain focus of thisrebranding has been the renewal of packaging, the enrichment of recipes andtheintroductionofbrandnewproducts.

The company is currently expanding in theAsian and theUKmarkets.FreshLineisalsoexploringthepossibilityofexpandingintheUSmarket,asitisthelargestexporttargetandultimateexpansiongoal.Thefounderhopestoestablishthecompanyasoneofthe largestnaturalcosmeticsbrandsworldwide.

Additionally,thereareplanstolaunchanewstate-of-the-artwebsitewithanonlineshop.Asthecompanyiscontinuouslyexpandingand75%ofits

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total production is channelled into international markets, Fresh Line is also lookingintomovingtoanew,largerfactoryinAttica.

2. LOULIS MILLS S.A. COMPANYA Historical Retrospection In1782,ZoisLoulisbuiltasmall,stonewatermillinAetorahiinIoannina.TheLoulisfamilyfortunewasdestroyedwhenthemillwasburntduringtheTurkishwithdrawal in1912.After themill’sdestruction, fouroutofThemistoclesLoulis’sninesons(Christos,Konstantinos,NikosandGior-gos)decidedtosettleinVolos.TheypurchasedashareintheJ.Xydis-N.HadginikouMillin1914.Afterthreeyears,fullownershipofthemillpassedto the Loulis brothers, who then developed it into the largest mill of its timeinThessaly.In1975,NikolaosLoulis,ownerofthemill,passedaway.Hiswife,EviLoulisbecamethecompany’sChairman,whilehissonKon-stantinostookoverasManagingDirector.WhenNikolaosLouliswasChair-manofthecompany,hewasthe7thgenerationownerofthebusiness.

Company PresentationLoulisMillsS.A.isstillcurrentlyactiveinGreecewithtwostate-of-the-artproductionplantsatSourpiandKeratsini.ItistheleaderintheGreekflourindustry in terms ofmilling, sales and technology. The state-of-the-arttechnologyemployedbyLoulisMillsprovidesitscustomerswithover120varieties of flour, thus producing a wide product range suited for meeting allthedemandsofaprofessionalbaker. Theexcellentandstablequalityofitsproductsisensuredthroughahightechnologychemicallaboratory.Detailedmonitoringoccursatallproduc-tionstagesinitspilotbakerytoensurestrictrulesofhygieneareupheld.Itshighly trainedstaff consistsofmillers,experiencedbakersand foodtechnologists,allofwhomensurethehighestpossiblequalityinallofitsproducts.Thisteamalsofocusesondevelopingnewinnovativeproductstomeettheever-increasingdemandsofthemodernbaker.

Loulis Mills features the best and largest nationwide distribution network witha large fleetofprivatelyowned trucksand silo carriersaswell asmanyassociatecarriers.Thus,itisabletoservecustomersfromEvrostoCrete.Thehighlyorganizednetworkandexpertsalesstaffarecapableofassistingcustomersimmediately.

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LoulisMillscurrentlyemploys250people.Toremainacompetitivefore-runnerintheGreekflourindustry,LoulisMillsconstantlyinvestsinnewtechnologicalresourcesandtheupgradingof itsplants.ThecompanyislistedintheAthensStockExchangeunderthename,Loulis.

ProductsThebusinessobjectiveofLoulisMills isexclusively focusedon thepro-ductionandtradinginflourgroundfromwheat,aswellasrye,cornandbarley.Byimplementingthelatesttechnologyandmonitoringtheneedsofthemarket,LoulisMillsproduces120typesofflourandsemolinaforits5,000customers,manyofwhomarebakersandpastrycooks.Toreachallitscustomers,ithasahighlyorganizedsalesnetworkacrossthecountryfromEvrostoCrete.

Loulis Mills has the best and largest nationwide distribution network with alargefleetofprivatelyownedtrucksandsilotrucks,aswellasamanyassociatetransporters.

Thecompany’ssalesnetworkinGreeceincludes3salesbranchesinAth-ens,ThessalonikiandKavala.ItsheadofficeinSourpiinMagnesiaservicesalltheotherregions.

REFERENCESAgapitouC.andTheofanidesF.(2008).OverviewofFamilyBusinessandRelevant Issues: Country FicheGreece. Project conducted on behalf ofEuropeanCommission Enterprise and IndustryDirectorate-General. Re-trieved from http://ec.europa.eu/enterprise/policies/sme/files/craft/fam-ily_business/doc/familybusines_country_fiche_greece_en.pdfBouchorisP.,AgapitouC.,&GeorgopoulosN.(2010).ChallengesandOp-portunitiesofDigitalStrategy:ThecaseofMarketingStrategy.Paperpre-sented at the 6th National & International HSSS Conference, SystemicApproachesinSocialStructures.Mytilene,June23-26.Chua,J.H.,Chrisman,J.J.,&Sharma,P.(1999).DefiningtheFamilyBusi-nessbyBehavior.Entrepreneurship:TheoryandPractice,23(4),19-39.Dziechciarz,J.Z.,&Birley,S.(2001).Owner-ManagerAttitudestoFamilyandBusinessIssues:A16CountryStudy.Entrepreneurship:TheoryandPractice,26(2),63-76.Doxiadis,A.(2011).Keynotespeech.Presentedattheconference,What

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shouldwedo?Greece2011:DilemmasandProspects.Athens,June7.Kyriazopoulos, P. & Samanta-Rounti, I. (2007). Problems andOpportu-nities of the Relationships between the First and Second Generation of Self-ManagingFamilyBusinesses.Paperpresentedatthe7thInternationalCongressMarketingTrends,Venice, Italy.http://www.escp-eap.net/con-ferences/marketing/2008_cp/Materiali/Paper/Fr/Kyriazopoulos_Saman-taRounti.pdfLitz,R.A.(1995).TheFamilyBusiness:TowardDefinitionalClarity.FamilyBusinessReview,8(2),71–81.Mihail,D.M.(2004).LabourflexibilityinGreekSMEs.PersonnelReview,33(5),549–560.O’Hara,W.T.(2004).CenturiesofSuccess:LessonsfromtheWorld’sMostEnduringFamilyBusinesses.Massachusetts:AdamsMediaCorporation.Pyromalis,V.D.,&Vozikis,G.S.(2009).MappingtheSuccessfulSucces-sionProcessinFamilyFirms:EvidencefromGreece.InternationalEntre-preneurshipandManagementJournal,5(4),439–460.Sharma,P.,Chrisman,J.J.,&Chua,J.H.(1997).StrategicManagementof the Family Business: Past Research and Future Challenges. FamilyBusiness Review, 10(1), 1-35. Retrieved from http://www.uk.sagepub.com/chaston/Chaston%20Web%20readings%20chapters%201-12/Chap-ter%2011%20-%2011%20Sharma%20et%20al..pdfSpanos,L.(2005).CorporateGovernanceinGreece:DevelopmentsandPolicy Implications. Corporate Governance: The International JournalofBusiness inSociety,5(1),15-30.Retrieved fromhttp://mpra.ub.uni-muenchen.de/42901/1/MPRA_paper_42901.pdfStewart,A.(2003).HelpOneAnother,UseOneAnother:TowardanAn-thropology of Family Business. Entrepreneurship: Theory and Practice,27(4),383-396.Upton,N.,Teal,E.J.,&Felan,J.T.(2001).StrategicandBusinessPlanningPracticesofFastGrowthFamilyFirms.JournalofSmallBusinessManage-ment,39(1),60-72.

WebsitesDrakopoulou-Dodd,S.&Komselis,A.(2006,September1).Greece:WhereBusiness is Family. CamdenFB. Families in Business, No. 28. Retrievedfromhttp://www.campdenfb.com/article/greece-where-business-familyEuropean Foundation for the Improvement of Living and Working Conditions (Eurofound).(2013).RestructuringinSMEs:Greece.Dublin:Eurofound.

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Retrieved from http://www.eurofound.europa.eu/pubdocs/2012/475/en/4/EF12475EN.pdfFreshLineCosmetics.Retrievedfromhttp://www.freshline.grSmallEnterprises Institute (GSEVEE). (2012).Economicclimate trends.Retrievedfromhttp://www.imegsevee.gr/images/en/survey_1_2012/sur-vey_%20presentation_january2012.pdfKPMGFamilyBusiness.Retrieved fromhttp://www.kpmgfamilybusiness.com/greece/LabourInstituteofGeneralConfederationofGreekWorkers(INE-GSEE).(2013).AnnualReport2013:TheGreekeconomyandemployment.Re-trievedfromhttp://www.inegsee.gr/sitefiles/files/ekthesh-15email.pdfLoulisMillsS.A.Retrievedfromhttp://www.loulisgroup.comPricewaterhouseCoopers(PwC).(2012).ResearchonFamilyFirms2012:Greece. Retrieved from http://www.pwc.com/gr/en/publications/family-business-survey-2012.jhtmlPricewaterhouseCoopers (PwC). (2012). Global Family Business Survey2012. Retrieved from http://www.pwc.com/gx/en/pwc-family-business-survey/download.jhtml?tab_id=6

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3.7. SMALL AND MEDIUM ENTERPRISES AND FAMILY BUSINESSES IN THE REPUBLIC OF MOLDOVA

byDr.ValentinaVeveritaDirector,DepartmentforSmallandMedium–sizedEnterprisesandLiberalProfessionsDepartmentofDevelopmentPolicies,MinistryofEconomyChişinău,Moldova

Dr.ElenaAculaiScientific Research CoordinatorNational Institute for Economic Research (INCE)Chişinău,Moldova

Emilia CebotariConsultant, Department for Enabling Business EnvironmentMinistryofEconomy,RepublicofMoldovaChişinău,Moldova

ABSTRACTThis article presents someaspects of thedevelopment of family enter-prisesintheRepublicofMoldova.Currently,thecountry’slegislationdoesnotprovidealegaldefinitionoftheterm,“FamilyCompany”.Specialstud-iesonfamilybusinessesinMoldovahavenotbeenconducteduntilnow.However,therearesomeattemptsmadetoday,especiallyonthepartofpublic authorities, to regulate the issues of formation and development of familybusinessesatthelegislativelevel.

Duetothelackofnecessarystatistical information,thequantitativeas-sessmentscaleonthecontributionoffamilybusinesseswereperformedindirectlybyauthors,followingthedataonSMEsofcertainsizesandlegalforms.Alongwiththestatistics,theinterviewsconductedbytheauthorswithentrepreneursinpreviousyearsshowthattherearecertainadvan-tagesandchallengestypicaloffamilybusinesses.Thispaperconcludesbyhighlightingtheimportanceofalegaldefinitionoffamilybusinessunderofficiallegislation.Itwillalsoendwithanumberofspecificrecommenda-tions.

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Keywords: small andmediumenterprises, familybusiness, governmentregulation and business support, transition countries

JELClassification:K22,H31,H32,D10.

In today’s economy, small andmedium-sized enterprises (SMEs) solvevariousproblemsbyensuringthedevelopmentofcompetitionandsocialstabilitythroughthecreationofnewjobs,saturatingthedomesticmarketwith consumer goods and services, and representing an important source ofinnovation.

IntheRepublicofMoldova,likemanyotheremergingmarketcountries,SMEs contribute to the improvement of the economic structure and sup-porttheincomerisebypromotingthedevelopmentofprivateproperty,providingemployment(includingself-employment),producinggoodsandservices,andcreatingbettervaluefortheircustomersandshareholders.SMEs, in accordance with a number of indicators, represent a significant proportionofthenationaleconomy.TheNationalBureauofStatisticsofthe Republic of Moldova revealed the presence of 50,700 enterprises in thecountryattheendof2012.Thevastmajorityofthem(49.4million)belongtotheSMEsector(97.4%).TheSMEsectoremploys57.7%ofthetotalworkforce. SMEsmadeup34.5%of the national economy’s salesrevenue,creating23.0%profit(beforetaxation)forallbusinesses.SMEshareinGDPwas29.5%in2011.

As there isno legislationproviding fora legaldefinitionof familybusi-ness inMoldova, familyenterprisesareexcluded fromofficial statistics.However,theauthorsofthispapermaintainthattheactivitiesoffamilybusinessescanbeindirectlyestimatedthroughananalysisofthediffer-ent groupsofSMEs. In accordancewithMoldova’s Lawon theSupportof Small And Medium-sized Enterprises Sector, the SME sector comprises three groups of companies with different business sizes - micro, small and medium.

Microenterprise corresponds to the following criteria: no more than nine employeeswithannualsalesrevenueofnomorethanMDL3millionandtotalyearlyassetsamountingtonomorethanMDL3million.

A business is deemed to be a small enterprise in Moldova when it has no

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morethan49employees,anannualsalesrevenueofnomorethanMDL25millionandatotalyearlyassetscostofnomorethanMDL25million.

Medium-sized enterprises in Moldova should have no more than 249 em-ployees,anannualsalesrevenueofnomorethanMDL50millionandatotalyearlyassetscostofnomorethanMDL50million.

IntheRepublicofMoldova,mostSMEsaremicroenterprises.Theresearchoftheauthorshasindicatedthatmostmicroenterprisesarefamilybusi-nesses.Eachmicroenterprisehasanaverageof2.4employees.

Outofall thebusinesses inMoldova,microenterprisesmakeup77.5%,smallenterprises19.4%andmediumenterprises3.0%.Inrecentyears,theproportionofmicroenterprisesvis-à-vis totalbusinesses inMoldovahasincreasedfrom76.7%in2006to77.6%in2012.ThemainindicatorsofmicroenterprisesarepresentedintheTablebelow.

Table: Key indicators of the SME sector, including microenterpris-es, 2011-2012

Source:Calculatedbytheauthorsaccordingtofiguresfromthestatisticsdatabase

AnalyzingtheorganizationalandlegalformsofenterprisesregisteredintheMoldovanStateChamberofRegistrationisanothermethodofquan-titativelyassessingtheactivitiesoffamilybusinessesinthecountry.Cur-rent legislation in Moldova allows SMEs to develop under different legal

Main indicators 2011 2012 Number of enterprises – total x 1,000

Family enterprises

SMEs

Microenterprises Individual entrepreneurs acting as family business (FB)

48.5

na

36.6

na

50.7

na

49.4

38.3

na

Number of employees – total x 1,000

Family enterprises

SMEs

Microenterprises Individual entrepreneurs acting as family business (FB)

510.2

na

294.2

86.9

na

520.3

na

300.2

90.4

na

FB’s contribution to GDP in%

SME’s contribution to GDP in%

na

29.5

na

na

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forms such as sole proprietorship, general partnership, limited partner-ship,limitedliabilitycompany,joint-stockcompany,productioncoopera-tiveandbusinesscooperative.

As of 1 March 2013, 164,569 legal entities and individual entrepreneurs arelistedintheStateChamberofRegistrationoftheRepublicofMoldova.These include:• 81,817limitedliabilitycompanies• 65,784individualentrepreneurs• 4,795joint-stockcompanies• 4,007cooperatives(productioncooperatives,consumercooperatives

and business cooperatives)• 1,508stateandmunicipalenterprises• 3,496non-commercialorganizations• 3,162 others (subsidiaries, branches, general partnerships, limited

partnerships, lease businesses, inter-household enterprises, collec-tives,associationsoffarmersandotherbusinesses).

In the course of their research, the authors of this article have discovered thatfamilybusinessesform40%ofsoleproprietorshipenterprises,49.7%oflimitedliabilitycompaniesand2.4%ofcooperatives.Themaincharac-teristicsoftheseformsofbusinessactivitiesarediscussedbelow.

Sole proprietorshipOneof theeasiestwaysof legallyconductingentrepreneurialactivity isthrough the individual enterprise. This is because individual enterprisescanbefoundedbyonepersonorbyfamilymembers.Thecostsincurredbytheentrepreneurtoregisterthecompanyarereducedandtheregistra-tionprocedureisquitesimple.

Individual business assets derive from the goods of the citizen (or their immediatefamily)andothersourcesnotprohibitedbylaw.Thereisonlyone type of individual enterprise in agriculture – the household of thepeasantfarmer.

Individual enterprises are not recognized as legal entities and have to be classifiedasindividualprivateentrepreneursundercurrentMoldovanlaw.Individual business assets are inseparable from the individual personal assets.

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Apersoncanpursueentrepreneurialactivityifhe/sheisoflegalageandisnotsubjecttostateregistrationasanindividualentrepreneur.Thus,indi-vidualscanpracticeindependententrepreneurshipactivityuponreachingtheageof18(Art.20CivilCode)solongastheyarenotlegallypreventedfromdoingsobymentaldisordersor limitedexercisecapacityresultingfromtheabuseofalcohol,drugsorotherpsychotropicsubstances.

Entrepreneurs in Moldova register with the State Chamber of Registration byfillingupanapplicationwhereintheyindicatethetypesofactivitiesinwhichtheywillbeengaged.Thisapplicationwillbeprocessedinthesamedayitwasfilled.Whenanapplicationforregistrationisrejected,itisbe-causethenecessarylicensesaremissing,theenterprise’sstatedactivitiesareprohibitedbylaworbecausethestatedeemedtheentrepreneurtobeincompetentforwhateverreason.Therefusalofregistrationcanbecon-testedincourt.Aftersuccessfulregistrationandtheconsequentpayingofthe registration fee, the applicant will be issued with a certificate confirm-inghis/herrighttoengageinentrepreneurialactivity.

Peasant householdA peasant farm or peasant household (PH) is an individual enterprise cen-tredonprivateownershipoffarmlandandotherpropertyaswellasthepersonal work of family members (peasant householdmembers). It ismainlyengagedinagriculturalproducts,primaryprocessingandthecom-mercializationoftheirownagriculturalproduction. Basic characteristics of the peasant household are:• Itsstatusasanindividualenterpriseunderthelaw.• Annually, the land area and size of other goods, including leased

ones,ofthehomesteadmustaccountformorethan50%oftheper-sonal labour of its members

• thefullnameofthehomesteadcontainsthewords,“peasanthouse-hold”.

• farmers’householdregistrationisdoneatthelocaltownhall,wherethelotoflandislocated.

• peasanthouseholdmembersareunlimitedly liable for theirobliga-tionswiththeirentireproperty.

Limited Liability CompanyLimitedLiabilityCompany(LLC)isacommercialcompanywithitsowndis-tinctlegalpersonality.Accordingtothearticlesofincorporation,anLLC’s

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socialcapitalisdividedintosharesanditsobligationsaresecuredbyas-setsofthecompany.

The company can be founded by one ormore persons. Themaximumnumberofshareholdersis50.

A limited liability companymusthaveaminimumshare capital ofMDL5,400beforeitcanberegistered.Inadditiontosocialcapital,a limitedliabilitycompanyisrequiredtosetasideacapitalreserveconsistingofatleast10%ofthesharecapital.Capitalreservesofthecompanycanonlybe used to cover losses or increase share capital. Capital reserves areformedbyannualpaymentsofatleast5%ofthecompany’sprofitandcanincreasetotheamountstipulatedinthearticlesofincorporation.

Themanagementofthecompanyisconductedbyitsadministrator,whoisappointedbythegeneralmeetingoftheshareholdersorthecompanyboard.Theadministratormaybeappointedfromamongthepartnersoreven be a third party. To handlematters related to companymanage-mentandtheadministrator’sactions,thegeneralmeetingofshareholdersmayappointoneormoreauditorsfromamongthepartnersorotherthirdparties.Iftherearemorethan15shareholders,itiscompulsoryforthecompanytoappointanauditor.Thenumberofauditorsinacompanyisfixedby thecompany’sarticlesof incorporation.Auditorsareappointedforaperiodofthreeyearsandtheirtenuremayberevokedatanytime. Themainadvantagesofthelimitedliabilitycompanyare:• Ithasarelativelysimplemethodofformation.Thefoundingformali-

tiesarereducedandcostsarerelativelylow.• Ithasawell-definedlegalstatus.In2007,thelawonlimitedliability

companieswasapproved.Thislawregulatestheestablishment,oper-ation,reorganizationandliquidationofthelimitedliabilitycompany.

• Itfaceslowerfinancialrisks,owingtoitsrelativelysimplemanage-ment.

• It isnotobligedtopublishfinancialreports.Instead,itonlyhastopresent its financial statements to the territorial State Tax Inspector-ate.

• Thereislimitedliabilityofthecompany’spartners.Associatesarenotliableforthelossesincurredbythecompany.

Disadvantagesofalimitedliabilitycompanyare:• obligationtoholdcapital,unlikeanindividualenterprise;

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• thepossibilityofmisunderstandingsbetweenpartners,whichcouldleadtoliquidationofthecompany.

Production CooperativeAproductioncooperativeisacompanyfoundedbyfiveormoreindividualswhohavereachedtheageof16.Themembersofaproductioncooperativehavevoluntarilycometogethertopursuejointproductionactivitiesandothereconomicactivities.Thesharecapitalofsuchacooperativeisbuiltonthepersonalworkandcooperationofitsmembers.

Aproductioncooperativeisalegalentity.Stateregistrationproceduresfora production cooperative are similar to those for commercial companies, thatis,theapplicanthastosubmitthenecessarydocumentstotheStateChamberofRegistration.Asinthecaseofalimitedliabilitycompanyandjoint-stockcompany,aproductioncooperativeisrequiredbylawtohaveacapitalreserveinadditiontosocialcapital.Althoughthelawdoesnotspecifytheminimumamountthataproductioncooperationshouldhaveassocialcapital,theminimumsizeofitscapitalreserveissetbystatutesandshouldamounttoatleast10%ofthecooperative’ssharecapital.

Despite the fact that the public authorities have been discussing issues re-latedtotheformationanddevelopmentoffamilybusinesses,specialstud-iesonfamilybusinessesinMoldovahavenotbeenconducteduntilnow.

Observations,surveysandinterviewsconductedbytheauthorsfrom2000tothepresent indicatethatMoldovahasagreatmanySMEsemployingseveralmembersofonefamily,oneofwhomisinvariablytheownerofthebusiness.Thesecompanieshavemanycharacteristicssettingthemapartfrom other SMEs. There ismore confidence amongst the workers of afamilybusinessbecausetheyareallfamilymembers.Thereisalsoahighleveloftrustamongthem.Balancingbusinessinterestsandtheinterestsofindividualfamilymembersisstraightforward,asflexibleworkingtimefortheemployeescanalwaysbearranged.

Forexample,inoneoftheinterviews,a35yearoldman,theownerandmanagerofa small company, reported thathewasnotable to findanaccountantwillingtoworkfora lowwage inhiscompany.Qualifiedac-countants demand higher wages, and those who are willing to accept low wageswouldbeslipshodwiththeirworkandhandintheirworklate.Asa

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result, the tax authorities slapped this director with fines for the late sub-missionofhisreports.Thischangedwhen“thefamilycouncil”decidedthathis wife (who had a higher level of education than him, but who was not a qualifiedaccountant)shouldtakesomeaccountingcourses.Hiswifedidsoandsoonbecamethecompany’schiefaccountant,andlater,theheadoftheservicepersonnel.Astheybothworkinacommonfield(thecompany)and for a common goal (the growth of the business), both spouses have improvedunderstandingofeachother’swork.Asaconsequence,thebusi-nessandthefamilybenefited.

Conversely,problemsinthefamilycouldnegativelyimpactthebusinesssituation.AcaseinpointisthehistoryoftheformationanddevelopmentofthefamilybusinessdescribedinInnovationandEntrepreneurship:Suc-cessfulStart-upsandBusinessesinEmergingEconomies.1Thecompanydescribedinthebookfacedproblemsbecausethespouses’disagreementsledtotheirdivorce.Theirpoorrelationshipwasexacerbatedbythedivorceandtheywereunabletoworktogether.Theyalsorefusedtogivewaytooneanotherinbusinessmatters.Asaresult,asuccessfulcompanycametobeonthebrinkofbankruptcy.Ifthelawregulatesthedivisionofbusi-ness assets during a divorce, then matters would be less complicated for thecompany.

In order to define family business, the authors examined the differenttypesoffamilybusinessesinexistence.Insodoing,theytookintoconsid-eration the emergence of new economic and legal relationships between thefamilymemberswhoareparticipantsintheenterprises.

We consider family business to be an enterprise. It is organized by anindividual entrepreneur and his family. As there is no official definitionoffamilybusinessinMoldovanlawinthepresenttime,weproposethata written agreement outlining the set up of the business be filed with a governmentagencybeforeitisestablished.Oncetheagreementhasbeenfiledandapproved,familymemberscandecidewhichpartoftheirheri-tagetheywanttoinjectintotheirenterprise.Theycanalsoworkouttheparticipationquotasofeachfamilymemberinthebusiness,asthehourstheyarewillingtoputinwillaffectthenetincomeandlossesoftheenter-prise.Wesuggestthatthegovernmentstepintoprovidethecontentsofthisagreementbylaw.

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Itwouldbebest if familybusiness interestswere tobemanagedbyarepresentative.Thisrepresentativeshouldbeappointedintheagreementestablishingtheenterprise.Thefamilybusiness’srepresentativemayun-dertake legal acts on behalf of the enterprise so long as he has power of attorneyenshrinedinalegaldocumentsignedbyallmembersofthecom-pany.Discussionsonfamilybusinessesamongstthestateauthoritiesandeconomic and legal circles focus on the following:-Howmanypersonsmakeupafamilybusiness?-Howmanypeopleoutofthefamilybusiness’sfoundersmustbeoflegalage,i.e.atleast18yearsold?-Atwhatagemayotherfamilymembersbecomeaffiliatesofthefamilyfirm?Is16or17yearsoldtootenderanageforyoungfamilymemberstojointhecompany?Ifthisyoungfamilymemberistobeafullmemberofthecompanyinfuture,whatproceduresmustthefirm,familyandthisyoungpersontake?-Canmembersoffamilybusinessesbeholdersofindividualcompanies?-Canmembersofthefamilybusinesscombinefamilybusinessfunctionswithemployeesofanothercompanyinthesamefield?Canmembersofthefamilybusinesscombinefamilybusinessfunctionswithemployeesofanothercompanyinadifferentfield?-Thepossibilityof familybusinesseshiringthirdpartiesthrough labourcontracts.-Howwilldebtsaccruedbymembersofthefamilybusinessonbehalfoftheenterprisebesettled?-Whataretherulesfortheclosureofthefamilybusinessanditsdeletionfromthestateregister?

Legalregistrationforfamilyfirmsaswellastheestablishmentanddevel-opmentoffamilybusinessesareveryimportanttoMoldovabecausetheyprovidemoreopportunitiesforsmallentrepreneurswithlimitedresources.The introduction of such legislation will facilitate the accumulation of as-sets, expedite the transfer of business by inheritance, and legalize thelabouroffamilymemberswhoworkinformallyforthebusiness.

CONCLUSIONCurrently,thereisnoofficialdefinitionoffamilybusinessintheRepublicofMoldovaatthelegislativelevel.

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Observations,surveysandinterviewswithentrepreneurshaveshownthatmanycompaniestodayarefamily-owned.Family-ownedenterprisesen-countertheirownsetofbenefitsandchallenges.

In the near future, it will be possible to conduct detailed research on the advantagesanddisadvantagesofrealfamilybusinessesaswellastheirimpactonfamiliesandthecountry.WhenadefinitionoffamilybusinessisfinallyenshrinedinthelegislationofMoldova,itishopedthestatewilldesignmeansofofficialsupportfortheseenterprises.

REFERENCES1.Aculai,E.,Vinogradova,N.,&Welter,F.(2008).HowtobeSuccessfulinanAdverseBusinessEnvironment:KnitwearFactoryinMoldova.InR.AidisandF.Welter (Eds.), InnovationandEntrepreneurship:SuccessfulStart-upsandBusinessesinEmergingEconomies(pp.89-104).Chelten-hamandMassachusetts:EdwardElgarPublishing.2. Law On the Support of Small And Medium-sized Enterprises Sector(2006).N206-XVIfrom07.07.2006//OfficialMonitorofRM.-2006-N126-130.3.NationalBureauofStatisticsoftheRepublicofMoldova.(2011).Sta-tisticsDatabankofMoldova.Retrievedfromhttp://statbank.statistica.md/pxweb/Database/RO/databasetree.asp(accessed30December2013)

3.8. FAMILY BUSINESSES IN ROMANIA

byAssoc.Prof.ZsuzsannaKatalinSzabóVice-Dean,FacultyofEconomics,LawandAdministrativeSciencesPetruMaiorUniversityTârguMureş,Romania

Katalin Dalma SzabóJuniorProjectManager,eMAGBucharest, Romania

ABSTRACTThis studypresentsageneraloverviewofRomanian familybusinesses.Althoughanexhaustive,officiallyaccepteddefinitionoffamilybusinesses

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ismissinginRomania,theycanbeidentifiedinlargenumbers,engagedin various activities and possess different resources, strategies and turn-overs.WhilefamilybusinessescanbefoundamongbothSMEsandlargeenterprises, theyarenot treatedas separateentities.Theyareneithertracked,analyzednorincludedinofficialstatisticsprovidedbytheNationalInstituteofStatistics(NIS)ofRomania.Familyenterprisesareonlyrefer-encedinlegislationasaformoforganization,withoutlegalentity,createdbyanentrepreneur, a natural personandhis family.Nevertheless, thisyear, Romania becamemember of the FamilyBusinessNetwork (FBN),which is an important step towards the clarification of the situation of fam-ilybusinessesinthecountry.Keywords: familybusiness,Romania,SMEs,employment,economicde-velopment,governmentregulationandpolicyJELClassification:O52,E24,F63,G28

1. HISTORY OF FAMILY BUSINESSES IN THE COUNTRYFamilybusinesseshavehadhundredsofyearsofinternationalhistoryandmanyofthemlongoutlivetheirfounders. Family before businesses 1990DuringintheinterwarperiodinRomania,familybusinessesfacedastrik-ing development. This phenomenon was magnified by the communistperiod after the war in which centralized economic planning put a stop toentrepreneurialactivities.Afineexampleofthis isfamousRomanianleathershoemanufacturer,Guban.Itwasstartedbyanentrepreneurin1935andgrewintoanenterprisewith475employees,butitwasnational-izedin1952.Today,itisonceagainfunctionalandhasapproximately100employees.

However,thereareregionswheresmall-scalefamilybusinesses(inmanu-facturing and pottery for example) survived the communist period andachieved remarkable performances after 1990. These small-scale busi-nesses present a best practice model for the problem of succession, whereby the next generation takes over from the previous one. Thus,regionswithastrongtraditionoffamilybusinessesdoexistinRomania.

“InRomania, familybusinesseshavegainedmomentuminthe interwarperiod,butdiscontinuedtheirentrepreneurialmissiontooearlytodevelop

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a tradition in this respect. Today, family businesses represents a largeportionofprivatecompanies inRomania,”BogdanIon,countrymanag-ingPartnerofErnst&YoungRomania,aptlyremarked(RomaniaInsider,2013; Ernst&YoungS.R.L.,2013).

Family businesses after 1990Whilethereisnoofficialdataonfamilybusinesses,manybusinessesweresetupinthe1990sandtheydoactasfamilybusinesses(FBs).Therootsoffamilybusinessescanonlybetracedsporadicallyinsomecases,butwecangenerallysaythatbusinessesinRomania(includingfamilybusiness-es)havenomorethan20yearsofactivity.Therevivalofbusinessesinpost-communist Romania shows that the entrepreneurial spirit had never diedout.AccordingtoFamilyBusinessNetworkRomania,over50%oftheprivatesectorismadeupoffamilybusinesses(Cambieri,2013).However,it should be noted that most of them are still in their first generation of owners.Thesecondgenerationofentrepreneurswillhavetotakeoverthefamilybusinessesbuiltupbytheirpredecessorswithinthelast20years.The transfer of businesses will be from the generation of entrepreneurs born and educated before the 1990s to a generation that has evolved in a fundamentallydifferentsocio-politicalenvironment.

It is necessary and important to know the role of SMEs in the nation-aleconomybeforedeterminingtheroleofFBsinthenationaleconomy.ThisisbecausefamilybusinessesformasignificantpercentageofSMEs.Generally,microenterprises(over90%ofSMEs)canbeconsideredfamilybusinesseswith0 to9employees.Aconsiderablenumberofsmallandmedium-sizedenterprisesarealsofamilybusinesses. General overview of the SME sector and its role in national econ-omyAfter40yearsof centralizedplanning inRomania, the transition to themarketeconomybeganin1990.ThistransitionwasmoredifficultforRo-maniathanotherCentralandEasternEuropeancountries.Romaniacouldnot take advantage of an initial, natural and challenging model because thenationalizedandcentralizedsystemofthecommunisteconomiesoblit-eratedtheentrepreneurialcapacitiesofpresent-dayadults.Theyoughttobesuccessfulmodelsoftheyoungstersnowadays.

The transition toamarketeconomyallowed for the creationofa large numberofSMEs.OntopofboostingthenumberofSMEs,thisphenomenon

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alsoledtothediversificationoftheiractivities.FBscanbedistinguishedfromthetotalestablishedbusinessesonlyattheNationalTradeRegisterOffice(ONRC)wherethedocumentstostartabusinessaresubmitted.

Inthelast20years,alegislationframeworkwascreatedinRomaniaandalignedwiththeEU’s.Thisframeworkaimstoformulateofpoliciesaswellas create government and non-governmental interest groups to encourage thedevelopmentoftheSMEsector.(Table1)Table 1: Evolution of the SMEs’ number

Accordingtotheestimates,over90%ofSMEsfelttheimpactofthereces-sionin2008.Officialdatashowsthatthebusinessenvironmenthasdete-riorated.AsseeninTable2,thenumberofSMEsdecreaseddramaticallyin 2009, for 10 times more enterprises suspended their activities than in 2008.

Table 2: The impact of the economic crisis on SMEs after 2008

InRomania,morethan99%ofallenterprisesaremicro,smallandme-diumbusinesses.AccordingtoofficialdatafromtheRomanianStatisticalYearbook-EnterpriseActivity15,NIS2010andNationalCouncilofSmalland Medium-sized Enterprises in Romania (CNIPMMR) 2010, the percent-ageshareofactiveenterprisesin2008areasfollows:90.7%micro,7.4%small,1.6%mediumand0.3%large.

Ofallactivebusinessesintradeandotherservicesin2008,92.3%weremicroenterprises,6.6%weresmallenterprises,1%weremediumenter-prises and 0.1%were large enterprises. Of the total number of activebusinessesinindustryandconstructionin2008,78.6%weremicroenter-prises,15.7%weresmallenterprises,4.7%weremediumenterprisesand1%werelargeenterprises.

Even if the current Romanian economic situation were to be similar to that ofUSA, Japan andWestern Europe, key differenceswill still be notice-

Size 2002 2003 2004 2005 2006 2007 2008 Micro 377,499 417,366 358,787 386,561 410,763 431,029 602,711 Small 30,231 33,856 36,392 39,128 43,419 47,022 49,560

Medium 7,761 8,147 9,121 9,158 9,322 9,577 9,753 TOTAL 415,491 459,369 404,300 434,847 463,504 487,628 662,024

2009 2010 2011 2012 (sem 1) SMEs 517 870 468 561 429 035 441 712 SMEs + large enterprises 519 441 470 080 430 608 443 517

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able.ThisstemsfromthefactthatSMEshaveexistedformanyyearsinadvancedeconomies,whereastheyarenewcomersintransitioncountriesandtryingtofindtheirwayinthenewworldeconomicorder.

SMEsplayasignificantroleinthenationaleconomy,asevincedbythehighturnoversachievedbyactiveSMEs.SMEs’turnoverscontributed58.8%totheeconomyin2006andover60%in2007.TheprivatesectorhadhigherturnoverratesthantheSMEsector,foritcontributed83.9%tothenation-aleconomyin2004and89%in2008.Despitetheunfavourableeconomicsituationandtheunpredictabilityoftheglobalfinancialcrisisof2009,theprivatesectorcontributed to70.5%of thecountry’sGDP.However, theprivatesectorcontributed78.8%toRomania’sGDPin2010.TheannualreportofSMEsanalyzesthisdevelopmentbriefly(RaportulannualprivindsectorulIMMdinRomania,2010,31-37).TheeconomicsituationofSMEswill continue to deteriorate because restructuring plans and further market contractionseventuallyleadtothebankruptcyofmanyenterprises.Asaresult, companies in Romania concentrate their strategies on reducing the costsofresourcesinsteadofimprovingproductivity.TheDoingBusiness2012 report shows the dire effects of this, for Romania fell from 65th place to72ndintheeaseofdoingbusinessperformanceindicator.

Family businesses todayFamily businesses are private companies. They can be found amongstSMEsandlargeenterprises.Manychallengesconfrontfamilybusinesses.Alargemajorityoffamilybusinessownersdonothavepriorexperienceinbusiness,astheywerepreviouslyemployeesinstateenterprises.themainobjectiveofRomanianfamilybusinessownersisekingoutenoughtosustainthemselvesindailylife.Sincetheyhavelimitedfinancialresourc-es,ithasnotcrossedthesebusinessowners’mindstofurtherexpandanddevelopthebusiness.This isbecausethey lackextensivetechnicalandmaterialendowments.

Ahighpercentageofprivateentrepreneursarepreoccupiedbytheirshort-term needs. Since they aremostly concernedwith fulfilling their basicneeds,theydonothavethelong-termvisionneededtodeveloptheirbusi-nesses, or adapt their strategies, products and services to meet market changes. Themajority of these private entrepreneurs established theirownbusinessesoutofnecessity.

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Thefutureevolutionoffamilybusinesses isdependentontheextenttowhichtheymanagetoovercomecompetitionintheEuropeanmarketandimprove their innovative capacities, skills, performance and education (Szaboetal.,2013;Hartescu,2008).InRomania,familybusinesses(FBs)encounterthesamedifficultiesasSMEsandlargeenterprises.Addition-ally,specialpoliciestosustainFBsdonotexist.

The ease of doing business performance indicator (World Bank, 2013) and the indexofeconomic freedom(Milleretal.,2013)coverallaspectsoftheeconomicenvironment.Theylistthefourpillarsofeconomicfreedomrequiringtheinvolvementofcivilsocietyandgovernments,namelyruleoflaw,limitedgovernment,regulatoryefficiencyandopenmarkets.AsTable3clearlyshows,thebusinessenvironmentinRomaniaisdeteriorating.

Table 3

Source: Ease of doing business performance indicator (Doing Business 2013) and Index of Economic Freedom

We studied the relationship between institutional environment and the competitivenessofcompanies.WecalculatedthePearsoncorrelationco-efficient,ρ,usingdatafromEUcountries.Theresultsshowapositiveandstrong relationship between ease of doing business and competitiveness (ρ=+0.742).Likewise,thereisapositiveandstrongrelationshipbetweeneconomicfreedomandcompetitiveness(ρ=+0.727).

Thus, Romania needs to improve its business environment and the perfor-mance of its entrepreneurial activities if it is to meet the challenges of the EUSingleMarket.

Countries Rank & number of analyzed countries

RO HU CZ SK PL

Ease of doing business /183 72 51 63 48 62

Economic Freedom Index /179 70 37 28 67 107

Global competitiveness index/ 142 77 48 36 69 41

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2. DEFINITION OF FAMILY BUSINESSES IN ROMANIAInRomanian legislation, family businessesare establishedbyanaturalpersonwhotheninvolveseitherhis/herspouse,childrenover16yearsoldorrelativesfourtimesremovedintheenterprise.UnderLaw300/2004,entrepreneurs can operate as:- The individual who initiated the business, or - Partofafamily-ownedbusiness.

Under Romanian law, the natural person initiating the business must either be a citizen of Romania or a citizen of one of the other European member states. Before these persons can start independent business activities,theymustregisterwiththeNationalTradeRegisterOffice(ONRC).FamilybusinessesdonothaveanylegalpersonalityinRomania.

Family-ownedbusinesses(FA)areestablishedbyanaturalperson(i.e.arealhumanbeingandnotacorporationorassociationtreatedbythelawasafictitiousperson).Afamily-ownedbusinesswillcomprisesaidnaturalperson,thisperson’sspouseand/orchildrenabovetheageof16.Rela-tivesmayalsobeincludedinfamily-ownedbusinessessolongastheyarenot more than four times removed from the natural person who estab-lishedthefirm.Family-ownedbusinessesdonothaveanylegalpersonalityinRomania.

AccordingtoGovernmentEmergencyOrdinance(GEO)44/2008,indepen-dentbusinessactivitiesmayonlybeundertakenbythefollowing:- authorized Natural Persons (PFA); - individual enterprises / sole proprietorship (II);- familyenterprises/family-ownedbusinesses(IF).

Family-ownedbusinessesinRomaniamustbeestablishedattheinitiativeofalivinghumanbeingwiththecapacityforrightsandduties.Businesseswith legal personalities such as SMEs and large enterprises are treated the sameregardlessastowhethertheyareownedbynaturalpersons,alargeagencyorthegovernment.

The final reportof theexpertgroupontheoverviewof familybusinessrelevant issues (2009)posited that a firmof any size is a family busi-ness if: “themajority of decision-making rights is in the possession ofthe natural person(s) who established the firm or in possession of the

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naturalperson(s)whohas/haveacquiredthesharecapitalofthefirm,orinthepossessionoftheirspouses,parents,childorchildren’sdirectheirs.Themajorityofdecision-makingrightsareindirectordirect.Atleastonerepresentativeofthefamilyorkinisformallyinvolvedinthegovernanceofthefirm[…]orthepersonwhoestablishedoracquiredthefirm(sharecapital)ortheirfamilyordescendentspossess25percentofthedecision-makingrightsmandatedbytheirsharecapital.”

This definition reveals that current regulation in Romania is not exhaus-tive.FBsinRomaniashouldnotandcannotbereducedtoentitieswithoutlegalpersonality.

InordertoclarifywhichbusinessesinRomaniaareFBs,wewillnextiden-tifythevarioustypesofeconomicentitiesinthecountry.

Familybusinessescanbefoundinenterprisesofallsizesandtypes.Be-foreFBinRomaniacanbeidentifiedinaccordancewiththeEC’sdefinitionandRomaniannationallaw,Romaniancompanieshavetobeanalyzed.Todo so, we will examine the ownership of these companies as well as their entrepreneurialactivities.

UnderRomanianlaw,thereare2typesofbusinessowners:privateen-trepreneurs(naturalpersons,i.e.arealhumanbeing)andlegalpersons(e.g.largeconglomerates,associations,foundationsandgovernmentbod-iesthataretreatedaspersonsbythelaw).UnderRomanianlaw,these2typesofbusinessownersmaybeinvolvedinentrepreneurialactivitiesin4ways,namely,asauthorizednaturalpersons,individualenterprises(orfamilyenterprises),SMEsandlargeenterprises.ThisisbetterillustratedinFigure1.

Figure 1. Entrepreneurial entities that can considered FBs

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Officialdataonenterprisesdonotreflectthepresenceofthefamilybusi-nesses,theircurrentsituationinthecountryortheircontributiontothenationaleconomy.


FamilybusinessescannotbelimitedtoSMEs.Privateentrepreneurs,suchassoleproprietors,canalsoactlikeFBs.Becauseofficialdataismissing,theimportanceofFBswillbeevaluatedontheauthors’interpretationandjudgement.

AsdefinedinRomanianlaw,familybusinessesarenamedfamily-ownedbusiness(IF).Accordingtothelaw,thenaturalpersonwhoregisteredthefamily-owned business is self-employed. This self-employed person canhave familymembersasemployeesorhe/shecanworksolelybyhim-self/herself.Theself-employedhumanbeingisdeemedtobeinafamily-owned business because the “decision-making rights are in the possession of the natural person(s) who established the firm or in possession of their familymembers”(EC,2009).

Self-employment and Private entrepreneursTheNationalInstituteofStatistics(NIS)differentiatesself-employedindi-vidualsinto2categories:workersinthefamily(i.e.agriculturalists)whorepresent12.6%ofthepopulation,andauthorizednaturalpersonswhopresent18.9%ofthepopulation.Allauthorizednaturalpersonswhoareself-employedareautomaticallydeemedtobeprivateentrepreneurs,ac-cordingtoGEO44/2008.67.3%ofthepopulationareemployeesorremu-nerated/salariedpersons,while1.2%areemployers(NIS,2012).Accord-ingtoNIS(2012),31.5%oftheRomanianpopulation isself-employed.According to Eurostat (2010) however, only private entrepreneurs areself-employed.Owingto theirdifferentdefinitionsofself-employedper-sons,Romaniannationaldataonself-employmentisverydifferentfromtheEuropeanone.

Self-employmentiswidespreadinRomania.In2012,Romaniawasranked4thinEU-27afterGreece(31.9%),Italy(23.4%)andPortugal(21.1%)with a percentage of 20.1% (Teichgraber, 2013). Analysis of Romanianself-employment longitudinal data shows that it has approximately re-mainedatthesamelevel.Whencomparedtotheothertransitionecono-

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mies,self-employedpersonsinRomaniamakeupalargepercentageofitspopulation.

Private entrepreneurs with their own businesses create subsistence both forthemselvesandtheirfamilies.Theincreasingnumberofself-employedpeopleinRomaniameansadecreaseinunemploymentlevelsandanin-creasednumberofgainfullyemployedpeople.

Table 4: Self-employed / private entrepreneurs in Romania (thou-sand of persons)

Source: Eurostat

As seen in Figure 2, there are two developments in Romanian entrepre-neurialactivity.WhileareaswithlowlevelsofurbanizationhaveveryfewSMEs,thesesameareashaveagreatnumberofprivateentrepreneurs.

Figure 2

Authors’calculationbasedonONRCdata

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Figure 3

•TherelationshipbetweenlevelofurbanizationandnumberofSMEs• The relationship between level of urbanization andGDPper capita indevelopment regions

Next, we will use GEO 44/2008 to delve into the evolution of private entre-preneurs’independentactivities.Table5comparestheactivitiesoffamilyenterprises with the activities of authorized natural persons and individual enterprisesinindustry,trade,hotelsandrestaurants,tourism,transporta-tionandotherservices.

Table 5

Source:EnterpriseActivity15,NISThelownumberoffamilyenterprises(FE)vis-à-visindividualenterprisescanbeexplainedbythedisadvantagesofFEactivitiesinRomania,whichwewilldiscussinsection4.ThenumberoffamilyenterpriseswithoutlegalpersonalityinRomaniaispresentedinTable6.

Industry Trade Hotels & Rest.

Tourism Transport Other services

Total

Family Enterprises

2008 11,485 18,620 2,733 205 1,750 12,062 46,855 2009 7,908 12,820 1,882 141 1,205 8,306 32,262 2010 4,443 7,204 748 155 677 4,902 18,129

Individual Enterprises

2008 57,236 22,098 2,094 526 58,576 119,494 2009 60,646 23,414 2,219 557 62,066 126,613 2010 60,055 23,186 5,229 1,185 61,461 121,715

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Table 6

The total number of registered economic entities in Romania with and

withoutlegalpersonalityisrepresentedinTable7.

Table 7

Source:ONRC,30June2013,nr.259

Table 8 shows the role and importance of the different economic entities

inRomania’snationaleconomy.Theauthors’calculationsarebasedonof-

ficialdatapublishedbyNISaswellasunofficialdatagivenbyFamilyBusi-

nessNetwork(FBN)whichstatesthat50%oftheprivatesectorismade

upoffamilybusinesses(FBs)and65%ofSMEsareFBs.

Table 8

Authors’calculationsbasedonNISandONRCData

2007 2008 2009 2010 Family enterprises 39,433 46,855 32,262 18,129

Authorized Natural Person + Individual Enterprises

145,609 260,024 275,515 272,831

Total Private entrepreneurs 185,042 306,879 307,777 290,960

Individuals and Private entrepreneurs

Legal person

Total registered 1990-2013 (June) 783,294 1,633,699 Active in 2013 August 341,072 711,601

Number of active enterprises in Romania 443,517

Number from the total that are family businesses

na / own estimation 221 758

Number from the total that are SMEs 441,712

Number from the total that are individuals or solo proprietors acting as FB

341,072

Number of physical able people in Romania Number of people who are gainfully employed in Romania Total number of employees Number from the total that are in FB Number from the total that are in enterprises Number from the total that are SMEs only Number of non-salaried person individuals - solo proprietors acting as FB employers

9,964,000 9,262,807 (and 701,000 unemployed) 6,229,375 na / authors’ estimation, 2,400,000 4,681,104 2,900,000 / authors’ estimation 3,033,432 1,754,507 (18.9% private entrepreneurs, own workers) 1,167202 (12.6% are agriculturalists working with their families) 111,723

Share of contribution of FB to GDP in % na / authors’ estimation, 39%

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Aspreviouslymentioned,familybusinessesinRomaniaarewithoutlegalpersonalities.FamilybusinessisunderstoodinRomanianlawtoonlyap-ply to the independent activities of family enterprises or family-ownedbusinesses(IF).Enterprises(SMEsandlargeenterprises)whicharefam-ilybusinessesarenot treatedas separateentities. FBsare includedas“enterprises” inofficialstatisticsandlargeFBsareofficiallySMEsunderRomaniannationallaw.

Thus, a discussion of the characteristics and unique qualities of FBs inRomaniawillhavetobeconfinedtoitsdefinitionunderRomanianlaw.Weare,therefore,onlyabletotalkaboutfamilyenterprises(IF).

Advantagesoffamilyenterprises(IF)are:• Differenttaxrates.TaxationforIFislowerthanthatofcommercial

companies like SMEs and large enterprises;• Licensefeesarelowerandfewer;• Asimplifiedaccountingsystem.

Inthematteroftaxes,familyenterprisesarerequiredtodothefollowing:- asingle-entrybookkeepingsystem;- maintenance of a record of transactions based on invoices, cash re-

ceiptsandaccountspayableandreceivable;- keeprecordsof their inventoryaswellas registersofmonthlyex-

pensesandrevenues.

Familyenterprises,therefore,presentausefulandhelpfulopportunityforself-support.Theyareimportanttothefamily.Thefamilyalsodoesnotseek to addvalue to their business. Family enterprisesdonot produceventureleveloutputmeasuredbyGDPpercapita.

Thedisadvantagesforfamilyfirmsisthatthebusinesscannotdevelopforthedurationofitsexistence.OtherdisadvantagesforIFinclude:- Less possibilities of the development of the business;- Less possible access to financial assistance and loans;- Restrictionsvis-à-visthesiteofbusiness;- Expenditure is limited to the amount needed to generate incomes, in

accordancewiththetaxcode.

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According to GEO 44/2008, independent business activities can be con-ductedby3formsofenterprises,namelysolepartnerships(II),family-ownedbusinesses (IF)andanenterprisesestablishedbyanauthorizednaturalperson(PFA).Theyeachhavetheirownadvantagesanddisad-vantages.

The law states that sole partnerships (II) are allowed to be involved in awiderrangeofbusinesses,whereasfamily-ownedbusinesses(IF)andenterprisesestablishedbyauthorizednaturalpersons(PFA)canonlycarryoutoneauthorizedbusinessactivity.

A sole partnership (II) has the advantage over an enterprise established byanauthorizednaturalperson(PFA)andafamily-ownedbusiness(IF)becauseitislegallyallowedtohirestaffwhentheirbusinessgrows.IFandenterprisessetupbyPFAarenotallowedtohireemployeesundercurrentRomanianlaw.

5. INSTITUTIONAL ACTORS, SUPPORT POLICIES AND INITIA-TIVES: ARE GOVERNMENTS SUPPORTING FAMILY FIRMS?

WhiletherearenoinstitutionalactorsinRomaniasustainingfamilybusi-nesses, entrepreneurial activities are supportedandencouragedby thelaw, government bodies, public and private institutions, non-governmental organizationsandthroughbusinessandconsultingcentres.Thesestruc-turescreateasteadyandcoherentbusinessenvironmentforthedevelop-ment of the private sector, which in turn helps Romania to create a real marketeconomyopentoforeignmarketsandcompanies.

OnegovernmentstructuresupportingbusinessendeavoursistheMinistryofEconomy.ThroughSMEs,tourismanddevelopingasafebusinessenvi-ronment,theMinistryofEconomyinRomaniaencouragesandsustainstheentrepreneurialactivitiesofvariousenterprises.

Non-governmental structures encouraging the growth of entrepreneurial activitiesincludeconsultancycentresandsupportstructuresforbusinessdevelopment.Someexamplesofthesenon-governmentalstructuresarethe 8 Regional Development Agencies, the Post-Privatization Foundation (FPP), the Romanian Centre for SMEs (CRIMM), the Centre for the Imple-mentation of Performance Management, the Group of Applied Economics

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(GEA), the Romanian Center for Economic Policies and the network of SME DevelopmentCentres.

Organizations, business confederations and representative professional associationsforvariousindustriesexistinthecountry.SomeofthemaretheNationalUnionofRomanianEmployers(UNPR);theGeneralUnionofRomanianIndustrialists(UGIR);theEmployerConfederationofRomanianIndustry (CONPIROM); the Employers’ Confederation for Industry, Ser-vices and Commerce of Romania (CPISC); the Alliance of the Romanian Employers’ Confederation (ACPR); and the Foreign InvestorsCouncil ofRomania(FIC).Therearealsovariousregionalemployers’confederationssuch as the Union of Free Professions in Romania and its 18 member or-ganizations.OfthememberorganizationsintheUnionofFreeProfessionsinRomania,theNationalAgencyforSmallandMedium-sizedEnterprisesandCooperatives(ANIMMC)isofparticularnote.Itissubordinatedtothegovernmentandofficiallytaskedwiththeimplementationofinformation,consultancyandfinancialprogrammesforthedevelopmentofSMEs.Na-tionalconfederationsforemployeesandemployers’associationssuchasthe National Council of Private SMEs in Romania (CNIPMMR), the Roma-nianAssociationofBusinessmen,AllianceofRomanianEmployers’Con-federation (ACPR), institutions for financial support and other business andconsultancycentresgatherentrepreneursfromdifferentprofessionalcategoriessoastoprotecttheirmembers’ interests.TheNationalInsti-tute for Small and Medium Enterprises (INIMM) was founded in 1998 and promotesSMEsinterestsatthenationallevel.ItalsosupportstechnologytransferactivitiesforSMEs,providesconsultancyservicestoSMEsatalowrateandpresentsstudiesontheSMEsectorinRomania.MoreinformationonINIMMmaybefoundonitswebsite,http://www.inimm.ro.

TheChamberofCommerceandIndustryofRomania(CCIR)wasfoundedin1990.Itiscurrentlythecoordinatorandnationalrepresentativeofallbusinesses inRomania. It isalsoamemberof theAssociationofEuro-peanChambersofCommerceandIndustry(Eurochambres).Itisthemostpowerfulbusinessassociation in thecountry,as it representsRomanianbusinesses environment and holds together the chambers of commerce, businessassociationsandtheentirenetworkofcommerceand industryassociations. It is a non-governmental and self–sustaining organizationsupportingthebusinesscommunity’sinterests.Mostofitsmembersareindialogueswiththenationalauthoritiesandinternationalorganizations.

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It supports thebusinesscommunitybyprovidingbusinessservices,or-ganizing economic missions, training programmes and detecting business opportunities.CollaborationwithCCIRenablesbothRomanianandforeigncompaniestodeveloptheirbusinessesfordomesticandforeignmarkets.CCIRprovidestrainingprogrammestothestaffofmanybusinessenter-prises.Italsodisseminateseconomicinformationonvariouscommercialsectors.Detailsofitsservicesandachievementsmaybefoundonitsweb-site,http://www.ccir.ro.

The National Council of Small and Medium-sized Private Enterprises in Romania(CNIPMMR)wassetupin1992.Asstatedonitswebsite,http://www.cnipmmr.ro, itaimstopromoteandprotecttheeconomic,produc-tion,commercial, financial, juridicalandother interestsofSMEs.It isamember of most of the important international organizations and cooper-ateswithsimilarassociationsfromabroad.CNIPMMRhas41branchesalloverthecountry.

CraftsFoundationRomania(http://www.crafts.ro)wasestablishedin1997andrepresentscraftsenterprises.ItpromotespublicrecognitionofRoma-niancraftsatthenationalandinternationallevels.Italsocooperateswithotherpublicandprivatecraftsorganizations.

An example of a business organization for social enterprises is the Na-tionalUnionofConsumptionCooperatives(http://www.centrocoop.com)whichincorporatesbusinessorganizations,enterprisesandentrepreneurs.The Uniunea Nationala a cooperatiei mestesugaresti or National Union of Handicraft and Production Cooperatives of Romania (UCECOM) represents all the handicraft cooperatives in Romania to the government as well as regionalandinternationalbodies.MoreinformationonUCECOMmaybefoundonitswebsite,http://www.ucecom.ro/engleza/engleza.htm.Ithan-dles business matters related to the production and export of textile prod-ucts, clothes and knitwear, handmade knotted and woven carpets, leather footwear and other leather goods, furniture and other wooden products, metalproductsandhandicraftarticles.Theservicesprovidedtothepopu-lationandcompaniesregisteredwithitinclude,bodycare,motorvehiclerepairs, training, advertising, the organization of trade fairs and exhibi-tions,tourismandmedicaltreatments.Itscommercialactivitiesofsales,importsandexportsaredonethroughvariousspecializedcompanies.

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Among the national associations of Romanian credit unions, Alianta Con-federatiilor Patronale din Romania or Alliance of Romanian Employers’Confederation (ACPR) is themostnotable. Itwas founded in2004andrepresentsthecollectiveinterestsofthebusinesscommunity.Seehttp://www.confederatii.ro/forinformationonACPR.

Organizationswhichrepresententerprisesrunbywomenentrepreneursalsoexist inRomania.Themostnotableofwhich is theAssociation forWomenEntrepreneurshipDevelopment(ADAF).Itwasfoundedin2001.Seehttp://turing.cs.pub.ro/cec-wys/organizatiien.htmlformoreinforma-tion.AnotherorganizationforRomanianbusinesswomenistheCoalitionofWomenBusinessAssociations(CAFA),foundedin2004.Detailsonitsactivitiesmaybefoundonitswebsite,http://www.cafa.ro.

Oftheorganizationsrepresentingenterprisesrunbyyoungentrepreneurs,theJuniorChamberInternationalRomania,foundedin2002,isthemostprominent. Ithasbranches inTimisoara,Bucharest,Constanta,Brasov,Buzau,Cluj-Napoca,Lasi,CraiovaandLugoj.Anotheraffiliatebranchwillbeopeningsoon inTârguMureş.Seehttp://jciromania.ro/ formore in-formation.

TheYoungEntrepreneursAssociations fromRomania (PTIR) is theonlyemployerorganizationpresentingtheinterestsofyoungRomanianentre-preneursaged18-40atthenationallevel.ItisamemberofCNIPMMRandholds membership to the European Organization of Young Entrepreneurs (JEUNE). For more information, see http://ptir.ro. PTIR has 6 regionalstructures, namely, the Young Entrepreneurs Associations in the SouthWest Oltenia region, west region, southeast region, South Muntenia, the centralregionandthenorthwestregion.Itscoreactivitiesaretorepre-senttheyoungentrepreneurs’interestsvis-à-visthenationalauthorities,provideconsultancyandassistancetoyoungentrepreneurs inRomania,elaborate and implement specific programmes, develop working reports andsetupnetworksbetweenyoungRomanianentrepreneurs,andorga-nizeentrepreneurialtrainingprogrammes.

After6yearsofexpansionineasternEurope,theFamilyBusinessNetwork(FBN)establishedabranchinRomania.ItsfirstbranchinthispartofEu-ropewasopenedinBulgariain2007.Sincethen,ithassetupbranchesinUkraine,HungaryandPoland.TheRomanianFBNChapterwasfoundedin

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2013bywell-knownentrepreneurs,MirceaTudor(headofMBTelecom),Sorin Preda (managing director and founder of engineering firm, Global Vision), Florin Madar(ownerofthedistributioncompany,Temad)andGa-brielMarin(chiefexecutiveofficerofITcompany,Omnilogic).

6. CHALLENGES OF SUCCESSIONRomanianfamilybusinessesarevulnerabletothechallengesofsucces-sion.Generally,twogenerationsparticipateinfamilybusinesses.“Anef-fective communication among the two generations plays a critical roleinfosteringamutualengagement inthefamilybusiness,”(Foteaetal.,2012).AsthereisnotraditioninRomaniainthisrespect,theinvolvementoftheyoungergenerationconsequentlyresultsinthefailureofthebusi-ness.

InRomania today,a familybusiness isoftenestablishedandcontrolledbyasingleindividualentrepreneur.Insomecases,itismanagedbytwoorthreemembersofafamily,withoneofthembeingthedominantbusi-nesspersonality.Sincefamilybusinessesarecontrolledbyonemainen-trepreneur, their business relations, reputations, capacities to react and entrepreneurialstylesarecloselylinkedtothatsameperson.Thisisun-surprising because business partners, banks, lenders and providers some-timesrelymoreonthepersonalcapabilitiesofsuchanentrepreneurthananyoneelsetoresolveissues.

On the other hand, if this same individual should become incapable of run-ningthebusiness,trustinthebusinessmaydisappeartothepointwheretheenterpriseisnolongersolvent.

“Obviously,suchsituationscanbesolvedifsuccessionisprepared,ifthebusinessisrunbyamanagementteamcapabletoefficientlyreplacethemainentrepreneur.However,inthecaseof“firstgeneration”familybusi-nesses(asarethemajorityofthoseinRomania),theseaspectsarenotoftenwellsettledandthereforebecomeavulnerabilityorriskfactor,”asAlexanderMilcevofErnst&Youngrightlypointsout(DanPopa,2012).There are several Romanian businesses that reported considerable drops inrevenueorfacedinsolvencysincetheirfounderspassedaway.ExamplesoftheseareEdySpeditionTransport,andfoodprocessingcompany,Aldis.

Ontheonehand,abusiness’shighdependencyontheindividualentrepre-neurcanbeanextremelyvaluableassetandensurethesmoothrunningof

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theenterprise.Ontheother,itisaburdenwhenbusinessissuesbecometoo much to handle and that individual is no longer available to solve these problems.

Earlyparticipationintheday-to-daypracticeofthebusinessenableschil-drenofenterpriseownerstoidentifywiththebusiness.Itwillimbuethemwithasenseofownershipandresponsibilityforthebusiness.Insodoing,the owner of the enterprise is providing them with hands-on entrepreneur-iallearning,equippingthemtorunthebusinessaswellasteachingthemtoidentifyandcapitalizeonopportunities.

7. SUGGESTIONS AS TO THAT WHICH THE GOVERNMENT AND CIVIL SOCIETY SHOULD DO IN ORDER TO RECOGNIZE AND SUPPORT FAMILY BUSINESSES

AnanalysisofRomania’sprivatesector,inconcordancewiththeEuropeandefinitionof familybusinesses,has revealed thesignificantpresenceoffamily businesses (FBs).GabrielMarin, President of the FBNRomanianChapter and founder and CEO of Omnilogic, declared that unofficial data indicatesover65%ofbusinessesinRomaniaarefamilybusinesses.

Because of the dearth of official data, there are no statistics on the contri-butionoffamilybusinessestoemployment,totalturnoverandGDP.TheroleofFBsinnationaleconomycannotbeaccuratelysurmisedaswell.

Toremedythis,thegovernmentmusttreattheproblemsoffamilybusi-nessesasapriority.Itcandosobyfirstdefiningfamilybusinessesatthenationallevel.Secondly,itshouldalsoensurethatanexhaustivedefinitionoffamilybusinessesshouldbeenshrinedinthelaw.

Upondetermininganationalandlawfuldefinitionoffamilybusinesses,na-tionalsurveysshouldbecarriedoutsothatRomaniahasofficialstatisticsonFBs.Theresultantdatawillbeveryusefultogovernmentpoliciesontheeconomy.FBsmustbeacknowledgedasseparateentitiesfromSMEsintheirnationalandlegaldefinitionsaswellas inofficialstatistics.Thelegislative framework must be further developed through business succes-sion educational programmes, taxation measures and so on to encourage thegrowthoffamilybusinesses.

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CONCLUSIONRomania’sobjectiveistoconformtotheClassificationofActivitiesintheNationalEconomic(CAEN)approvedGovernmentDecisionNo.656/1997as well as to keep in line with NIS order no.337,issuedon20April2007,which states, “an entrepreneur can develop, in the same legal form ac-knowledgedby law, specific activities in various economicdomains.” In2007,62economicactivitiesweredefinedbyNIS.In2008,Romaniaad-opted the Statistical Classification of Economic Activities in the European Union (NACE) and all its revision codes alongside CAEN in a bid to bring its economyinlinewithEuropeanstandards.

Romanian lawregards familybusinessesas family-ownedbusinessesorfamilyenterprisesengagedin independenteconomicactivity.UnderRo-manianlaw,familybusinessesarewithoutlegalpersonality.Familybusi-nesses that are SMEs and large enterprises are not treated as separate entities fromSMEsand largercompanies.Since familybusinesseshavenolegalpersonalityregardlessofsize,theycanonlylegallyexistasSMEsorlargeenterprises.ThisisreflectedintheofficialstatisticswherefiguresandanalysesareconductedforSMEsand largeenterprisesasawhole.Despite the lackofofficialand legal recognition, therearemany familybusinessesinRomania.

ThePwCFamilyBusinessSurvey2012/2013 forRomania revealed thatseverallargeenterpriseslikeTransavia,BettyIce,Electrogroup,ModaTimandKasaromwereinfactfamilybusinesses.Thus,carefulanalysisofthevariousenterprisesinRomaniawillshowthatmanyotherSMEsandlargeenterprisesareactuallyfamilybusinessesaswell. Morethan18,000familyenterprisesandotherreducedsizebusinessenti-tieslikesoloproprietorshavenolegalpersonalityinRomania.Theprivateentrepreneurs, self-employed and solo business proprietors also act asfamilybusinesses.Itwouldbeexpedienttoacknowledgethepresenceofsuchenterprises inthecountrybydefiningfamilybusinessesunderthelawandofficiallyrecognizingtheircontributiontothenationaleconomy.To that end, the Romanian government is advised to formulate and imple-mentpoliciestoencourageandsustainthedevelopmentoffamilybusi-nesses.

FamilybusinessesinRomaniaandothercountriesfacethesameproblems.Firstly,familybusinessesinallcountriestendtohavenocleardistinction

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between the familial and professional. Thismeans the familymemberswhoworkforthefirmandthefamilymemberwhoownsthefirmdonotkeepfamilymatters(ortheirissueswitheachother)separatefrombusi-nessmatters.Secondly,theownerofthefamilybusinessisafraidoflosinghis/her business. This fear often affects business growth. Thirdly, fam-ilybusinessesdonothaveadevelopedmanagementandorganizationalstructure.Fourthly,thereisinsufficientsuccessionplanninginfamilybusi-nesses to allow for the smooth transition of ownership from one generation tothenext.Therearealsoobstaclesinknowledgetransmissionasfamilybusinessownersandtheirfamilymembersdonothaveaccesstobusinesstrainingandeducationprogrammes.

Thefactthatmostfamilybusinessesarecontrolledbyasingleindividualentrepreneurpresentsavulnerabilityorriskfactor.

Mostbusinessesandstart-upsbeginasfamilybusinesses.Tofostertheen-trepreneurialspiritinthesuccessivegenerationsoffamilyentrepreneurs,entrepreneurship education must form part of the curriculum in all busi-nessrelatedstudyprogrammes.Entrepreneurshipeducation isdifferentfrom general businessandeconomicstudies.Thegoalofentrepreneurshipeducationistopromoteself-employmentaswellascreativityandinno-vation. Communism destroyed the entrepreneurial system in Romania.Thenationalizedandcentralizedsystemofthecommunisteconomieshasreduced theentrepreneurial capacitiesofpresent-dayRomanianadults.Thebusinessesof thecommunisterawerecrypto-communist innaturebecause entrepreneurs took advantage of their positions and relationships tohighrankingcommunistofficialstostarttheirenterprises.Owingtoadearthofqualifiedteachingstaffinentrepreneurshipeducation,entrepre-neurshipeducationalprogrammesinRomaniaarewanting.


Businesses without legal personality1. Romanianfamilybusinesseshavenolegalpersonality.Undercurrent

Romanian law, a natural person engaged in independent business activitiesisdeemedtoberunningafamilybusiness.Romanianlawalsostatesthatafamily-ownedbusinessiswheretwoorthreepeoplefrom the same family work together in one independent businessactivity.

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MostsmallfamilyenterprisesinRomaniaareinthetourismandhospitalityindustries.Thesebusinessesoffereitheraccommodationortours.ThesetourismandhospitalityorientedfamilybusinesseshaveformedanetworkinRomaniaandnowhavetheirownhomepagehttp://www.romanianac-commodation.ro/index.html.

VizimalomPanzioisanexampleofaRomanianfamilybusinessinthetour-ismandhospitalityindustry.Itissituatedinthemiddleofthecountryandmanagedbyamarriedcouple.Uponstarting thebusiness in1990, thecoupleslowlydevelopedit.Ithasbeenrefurbishedandoffersacomfort-ableandpleasantstayfortouriststotheHarghitamountains.Seehttp://www.szekelyfoldiinfo.ro/Menu/Szallashelyek/korond-szallas-vizimalom_panzio-korond-hotelek-villak-panziok.htmlformoreinformation.

2. Authorizednaturalpersons(PFA)allowedbythelawtosetupabusi-nessandprivateentrepreneursthatactasfamilybusinesses.

There aremany Romanian family businesses falling into this category.These family businesses are engaged in awide variety of activities. Tohighlighthowanauthorizednaturalpersonallowedbylawtosetupabusi-nessoperates,wepresentacasestudyofgypsybasketmakers.Gypsybasket makers can be found in different parts of Romania, such as Glode-niinMurescounty.Theiractivitiesareveryimportant,astheygenerateenoughincometosupporttheirfamilies.However,thesebusinessesarenotsustainableinthelongrunbecausetheyhavenotcometogethertoformanetworktosellproducts.Thesebusinesseslacktheknowledgeandeducationtheyneedtobettertheirenterprisesandproductivity.

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3. Individualenterpriseactingasfamilybusinesses.

Anexampleofan individualenterpriseactingasa familybusinessmaybefoundinCorund,inHarghitacountry,Romania.ItisapotterybusinessspecializinginthetraditionalpotteryofTransylvaniaandiscurrentlyman-agedbythethirdgenerationofowners.Thisbusinesswasregisteredasafamilyassociationin1990.Duetolegislativechanges,itbecameafamilyenterprise in 2008.However, the growth of the business and its hiringofemployeesmeansthat it isclassifiedunderthe lawasan“individualenterprise”ratherthana“familybusiness”.AlthoughitsofficialnameisLorinczMargitIndividualEnterprise,itisessentiallyafamilybusinesswith14employees.Thechildrenofthepresentownerareinvolvedinthebusi-nessbecausetheyhaveexpressedtheirinterestininheritingthebusiness.Theyarestillschoolingatthemomentandreceivingeducationtopreparethemforthesuccessionofthebusiness.

Business with legal personality1.Amediumsizedenterpriseactingasafamilybusiness,Larix.Larix, an herbal and fruit tea company,was set up in 1992 in Sovata,asmall town inRomania.In2001,Larixemployed30people.In2002,a Dutch investor took an interest in their products and helped them to export their products. Consequently, they started selling their productswholesalein2008.Someperformanceindicatorsofthebusinessarepre-sentedinthenexttable.

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DanPopa,adapt.V.O.(2012,August30).Romanianbusiness:Whydeathof business founders often lead to company collapse. HotNews.ro. Re-trieved from http://english.hotnews.ro/stiri-business-13125518-roma-nian-business-why-death-business-founders-often-lead-company-col-lapse.htm

European Commission (EC). (2009). Final Report of the Expert Group.OverviewofFamilyBusinessRelevantIssues:Research,Networks,Policy,MeasuresandExistingStudies.Brussels:EuropeanCommissionDirector-ate-GeneralforEnterpriseandIndustry.Retrievedfromhttp://ec.europa.eu/enterprise/policies/sme/promoting-entrepreneurship/family-business/family_business_expert_group_report_en.pdf

Eurostat / Eurofound. (2010). Self-employed person. Retrieved fromhttp://www.eurofound.europa.eu/areas/industrialrelations/dictionary/definitions/self-employedperson.htm

Ernst&YoungS.R.L.(2013,July4).EYlaunchesGlobalFamilyBusinessCenterofExcellence.DoingBusiness.ro.Retrievedfromhttp://mcr.doing-business.ro/news/ey-launches-global-family-business-center-of-excel-lence/2290

EY:Despitelackoffamilybusinesstradition,Romaniagetsreadyforsec-ondgenerationofentrepreneurstotakeoverfamilycompanies(2013,July

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4).RomaniaInsider.Retrievedfromhttp://www.romania-insider.com/ey-despite-lack-of-family-business-tradition-romania-gets-ready-for-second-generation-of-entrepreneurs-to-take-over-family-companies/103254/

Fotea,I.,Fotea,S.,Vavuda,S.,&Pop,I.(2012).FosteringEntrepreneurialLearninginFamilyBusinessthroughaCommunityofPracticeApproach–CaseStudyofRomanianFamilyBusiness.EconomiaMarche: JournalofAppliedEconomics,31(2),25-38.

Hartescu,M.(2008).OverviewofFamilyBusinessRelevantIssues:Coun-try Fiche Romania. Retrieved from http://ec.europa.eu/enterprise/poli-cies/sme/files/craft/family_business/doc/familybusines_country_fiche_romania_en.pdf

Miller,T.,Holmes,K.R.,Feulner,E.J.etal.(2013).2013IndexofEco-nomicFreedom.WashingtonandNewYork:TheHeritageFoundationandDowJones&Company,Inc.Retrievedfromhttp://www.heritage.org/in-dex/pdf/2013/book/index_2013.pdf

NationalInstituteofStatistics(INS/NIS).(2010).Anuarulstatistic2010.Retrieved from http://www.scribd.com/doc/53019578/Anuarul-Statis-tic-2010

National Institute of Statistics (INS / NIS). (2011). Anuarul statistic2011.Retrievedfromhttp://www.insse.ro/cms/ro/content/anuarul-statis-tic-2011

NationalInstituteofStatistics(INS/NIS).(2009).RomaniainCifre.Bu-charest: INS. Retrieved from http://www.scribd.com/doc/47023355/Ro-mania-in-Cifre-2009

NationalInstituteofStatistics(INS/NIS).(2010).RomaniainCifre.Bu-charest:INS.Retrievedfromhttp://www.insse.ro/cms/files/publicatii/Ro-mania%20in%20cifre%202010.pdf

NationalInstituteofStatistics(INS/NIS).(2011).RomaniainCifre.Bu-charest:INS.Retrievedfromhttp://www.insse.ro/cms/files/publicatii/Ro-mania_in%20cifre%202011.pdf

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NationalInstituteofStatistics(INS/NIS).(2013).RomaniainCifre.Bu-charest:INS.Retrievedfromhttp://www.insse.ro/cms/files/publicatii/Ro-mania%20in%20cifre%202013_ro.pdf

National Institute of Statistics (INS / NIS). (various years). StatisticalYearbookofRomania–EnterpriseActivity15.Bucharest:INS.

NationalTradeRegisterOffice(ONRC).(2009,June30).OperationsintheCentralTradeRegister,issueno.211.Bucharest:MinistryofJusticeandONRC.Retrievedfromhttp://www.onrc.ro/statistici/sr_2009_06_eng.pdf

Nicolescu,O.,Haiduc,I.C.,&Nancu,D.(2006).CartaAlbăaIMM-lordinRomânia.Bucharest:NationalCouncilofSmallandMedium-sizedPrivateEnterprises(CNIPMMR).





PricewaterhouseCoopers. (2013). Family Business Survey 2012/2013.Main Results for Romania. Family Firm: A Resilientmodel for the 21stCentury. Retrieved from http://www.pwc.ro/en_RO/ro/publications/as-sets/2013/fbs_en_2013.pdf

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Raportul annual privind sectorul IMM din Romania: Evolutii intre dificultati siprovocari.(2010).Bucharest:Post-PrivatizationFoundation/FundatiaPost-Privatizare (FPP). Retrieved from http://www.postprivatizare.ro/ro-mana/wp-content/uploads/2011/02/Raport_FPP_RO-13022011_web.pdf

Szabo,Z.K.,Soltes,M.,&Herman,E.(2013,January1).InnovativeCa-pacity&PerformanceofTransitionEconomies:ComparativeStudyattheLevelofEnterprises.E+MEkonomieaManagement,52-67.

Teichgraber,M.(2013).Labourmarketandlabourforcestatistics.InM.Teichgraber,StatisticsinFocus14/2013,Eurostat.Retrievedfromhttp://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Labour_mar-ket_and_labour_force_statistics

World Bank. (2011). Doing Business 2012: Doing Business in a MoreTransparentWorld.Washington:WorldBank.Retrievedfromhttp://www.doingbusiness.org/~/media/FPDKM/Doing%20Business/Documents/An-nual-Reports/English/DB12-FullReport.pdf

WorldBank.(2012).DoingBusiness2013:SmarterRegulationsforSmallandMedium-sizedEnterprises.Washington:WorldBank.Retrievedfromhttp://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Doc-uments/Annual-Reports/English/DB13-full-report.pdf

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3.9. FAMILY BUSINESSES IN THE RUSSIAN FEDERATION

byMaria Babko AndreevnaSpecialist, Department for SME Development and CompetitionMinistryforEconomicDevelopmentoftheRussianFederationMoscow, Russian Federation

ABSTRACTThis paper is based on the PricewaterhouseCoopers (PwC) research pa-pers.Keywords:Russia,familybusiness,RussianFederation,advantages,chal-lenges,internationalexperience,economy,grants

1. HISTORY OF FAMILY BUSINESSES (FB) Russia isa countryof firstgeneration family firms.This isbecause thevastmajorityofprivatecompanieswereestablished less than20yearsago,followingthebreakupoftheSovietUnion.AccordingtoPricewater-houseCoopers(PwC),77%ofprivatecompaniesoperatinginRussianoware20yearsoldorless.ThatsamePwCstudyshowsthat92%ofRussiancompaniesareownedbytheirfirstgenerationowners.Theremaining8%ofcompaniesinRussiaaresecondgenerationfamily-ownedcompanies.Someanalystshavealsopointedoutthatincertainsectorsoftheecono-my,particularlyinagricultureandtrade,upto80%ofallsmallandmedi-um-sizedbusinessesarefamily-ownedcompaniesinthefirstgeneration.

2. DEFINITION OF FAMILY BUSINESSESAs the Russian Federation has no legislation on a common definition of familybusinessesyet,thewaythatRussiaaddressestheissuesoffamilybusinessesisinextricablylinkedtoitsoverallsupportofsmallandmedi-um-sizedbusinesses.

Afamilybusinessisbasicallyunderstoodasanycompanybelongingtothemembersofone family,someofwhomworkdirectlyat thisenterprise.Despite thiscommonlyheldunderstandingof familybusiness, the termdoesnotappearinRussianlegislationnorisitofficiallyelucidatedintheRussianfederallegislation.

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Attheregionallevelhowever,familybusinessisusedinlegalactsinsomeoftheregionsoftheRussianFederation.Forexample,theregionalsup-portprogrammeofSMEsintheChelyabinskregioncontainsthefollowingdefinition:

“Theownerofthefamilybusinessisitshead.Itsfounderisthepersonwhofirstowneditand/ortheowner’scloserelatives.Thecircleofcloserela-tivesisdeterminedbytheFamilyCodeoftheRussianFederation.”


FamilybusinessesinRussiaplayavitalroleinthecountry’seconomybysupportingsocial initiatives, creating jobsandaddingstability toabal-ancedeconomy.

Russiastrivestodevelopfamilybusinessesbecausetheexperienceofoth-ercountrieshasyieldedpalpablepositiveaspectsandadvantages,suchas:- high rate of decision-making;-steadycorporatevalues;-highpersonalmotivationofemployees;-highlevelofindependence.

However,familybusinessesalsofaceanumberofchallenges,suchas:- lack of professional training;-financialdifficulties(speciallywithgettingloans);-propertyproblems.

Russia has initiated some programmes in an attempt to solve these prob-lems.Forexample,theRussianMinistryofEconomicDevelopmentofferstraining and access to financing through the State Programme for the Sup-portofSmallandMediumEnterprises(SMEs).


FamilybusinessesinRussiacanbedividedintotwocategories,urbanandrural.

Familybusinessesintheruralareasareofparticularimportance.Itisim-possibletodevelopRussia’sagriculturalsectoranditscontributiontotheeconomywithoutdevelopingfamilyfarms.

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Urban family companies, on the other hand, predominantly thrive inspheres that are atypical for large andmedium-sized businesses. Thatistosay,urbanfamilyenterprisescanmainlybefoundengagedinsmallwholesale and retail trade, consumer services, small catering businesses, rentingofhouseholdequipment,minorrepairsandconstructionaswellasaccountingandauditingwork.Whetherafamilybusinessisruralorurban,thebasicdefinitionremainsthesame.Itisacompanybelongingtothemembersofonefamily,someofwhomworkdirectlyforthisenterprise.

5. INSTITUTIONAL ACTORS, SUPPORT POLICIES AND INITIA-TIVES

Currently,Russiahasnospecialsupportmeasuresforfamilybusinessesatthefederallevel.Thereareonlyregionalsupportmeasures.For example, the State programme for the Support of SMEs in the Republic ofKhakassiaaswellas in theBelgorodandChelyabinskregions,assistfamilybusinessesinthefollowingways:- grants compensating the family enterprise for the costs of imple-

mentingbusinessprojects;- assistanceinpromotingfamilybusinessproductstoawidermarket;- organizationoffamilybusinesscontests,forums,assembliesandoth-

ereventsattheregionallevel.

6. CHALLENGES OF SUCCESSIONThe State Programme for the Support of SMEs also ensures that small businessesareprovidedwithaccesstocredit.Inthe80regionsoftheRus-sian Federation, regional microfinance organizations and state guarantee funds providing micro loans and guarantees for the obligations of small businessesweresetup.

The State Programme for the Support of SMEs has likewise come up with appropriate support measures for insufficient professional business train-ingby:- providing certificates to the entrepreneur so that he/she can choose his/her educational institutions and training areas;-directlyprovidingeducationalservices;-issuinggrantsthatpartiallypayfortheseeducationalservices.

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7. SUGGESTIONS AS TO THAT WHICH THE GOVERNMENT AND CIVIL SOCIETY CAN DO TO RECOGNIZE AND SUPPORT FAM-ILY BUSINESSES

InRussia,familybusinessisstillanewconstruct.Thisformofentrepre-neurshiponly came tobeing20yearsago.TheRussiangovernment isdedicatedtothedevelopmentoffamilybusinesses,asitknowstheseen-terpriseshavemuchtocontributetotheeconomy.Tothisend,Russiahasbeenstudyingtheinternationalexperiencesoffamilybusinessesaswellasthevariousfamilybusinesssupportprogrammesaroundtheworld.Sincefamilybusinessestheworldover facemoreor lessthesameproblems,Russiaisveryinterestedintheproblemsfacedbysuchenterprisesabroadandthewaysinwhichtheseissuesmightbesolved.

The following are suggestions for the further growth and development of familybusinessesinRussia:- the government should learn from international experience;-thegovernmentshouldcarryoutactivitiestopromotefamilybusinessesinthecountry;-thegovernmentshouldorganizefamilybusinesscontests,forums,as-sembliesandotherevents.

CONCLUSIONThedynamicdevelopmentoffamilybusinessesintheRussianFederationdepends on the implementation of supportmeasures. Thesemeasuresshouldultimatelycreateasupportiveinstitutionalenvironmentforallbusi-nessesinRussia.DoingsowillallowRussiatobeonparwithdevelopedeconomieswhere familybusinessesarenotonly themosteconomicallyactivesmallenterprises,butalsoasignificantcontributortoGDP.

FAMILY BUSINESS PORTRAITSMOSCOW WORKSHOP OF CLASSIC COSTUMES AnexampleofanurbanRussianfamilybusinessisTheWorkshopofClas-sicCostumes inMoscow. It isamicroenterprise thatexclusivelymakesmen’ssuits.

Allmembersofthefamilyareinvolvedintheworkprocess.Theheadofthefamilyisthemanagerofthebusinessaswellastheaccountantanddriver.Hiswifeisinchargeofpurchasingmaterialsandtailoring.Hischil-drenareresponsiblefortakingordersfromcustomersandtailoring.

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Thefamilyisplanningtoexpandthebusinessbyopeninganotherstudioforwomen’sclothes.

Theeldestsonisthesuccessorofthefamilybusinessandhehasrecentlycompletedhisdegreeinmanagement.Theothermembersofthefamilyareunaffectedbythefounder’ssuccessionplansandintendtocontinueworkinginthestudio.

AMIR KHISAMOV’S RURAL FAMILY COMPANY IN TATARSTANAmirKhisamovoftheRepublicofTatarstanfoundedhisownruralfamilybusiness.Hestartedhisbusinessbysellingproducegrownonthelandhereceivedafterleavingthecollectivefarm.Whenherealizedthathecouldexpandhisbusinesstomeethiscustomers’demands,heenlistedthehelpof his relatives from the same village and rented land from the other vil-lagers.He repayshis rent to thevillagers inkind through thegrainheproducesorinforagegrasses.

Owing tohis success,his familynowownsover sixhundredacresandemploystwelveworkers.

DuetotheregionalsupportprogrammeofSMEs,hisfamilywasabletopurchaseanewtractorandamini-bakeryafewyearsago.Oneofhissonsalsoreceivedagrantforbuildingamill.

Thisfamilybusinessisaclosedcyclegoingfromthefieldtothecounter.Thatistosay,thebusinessexpandedfromonethatgrewwheattoonethatusedthatwheattobakebread.

Amirhasthreesons.Thereisgeneralagreementthatthemiddlesonwillcontinuethefamilybusiness.Theothersareamenabletohelpinghiminthebusinesswhenhesucceedstoit.

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REFERENCES

PricewaterhouseCoopers.(2010).Kininthegame:PwCFamilyBusinessSurvey 2010/11. Retrieved from http://www.uvm.edu/business/vfbi/documents/2010-2011PWCKinintheGame.pdf

PricewaterhouseCoopers. (2012). Family Firm:A resilientmodel for the21stCentury.Retrievedfromhttp://www.pwc.com/en_GX/gx/pwc-family-business-survey/assets/pwc-family-business-survey-2012.pdf

PricewaterhouseCoopers. (2012). Private business in Russia: Successesandconcerns,trendsandexpectations.Retrievedfromhttp://www.pwc.ru/en_RU/ru/private-companies/family-business/assets/russian-report-eng.pdf

PricewaterhouseCoopersLLP.(2007).MakingaDifference:ThePricewa-terhouseCoopersFamilyBusinessSurvey2007/08.Retrievedfromhttp://www.pwc.com/en_TH/th/publications/assets/pwc_fbs_survey.pdf

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3.10. FAMILY BUSINESS IN THE REPUBLIC OF SERBIA

byProf.Dr.RadmilaGrozdanicVice-Dean,FacultyforBusinessEconomyandEntrepreneurshipHigh School for Economic StudiesBelgrade, Serbia

Prof.Dr.MirjanaRadovic-MarkovicFullUniversityProfessor,AcademicianFacultyforBusinessAdministration&EntrepreneurshipBelgrade, Serbia

ABSTRACTThepapercontributestotheunderstandingof familyfirms inSerbiabyexaminingtheirimportancetothenationaleconomy,theirtraditionofen-trepreneurial family spirit aswell as theirmacroeconomicandbusinessworkenvironment.Tobetterunderstandthewaysinwhichtheysustaintheir businesses, we will examine the institutional infrastructure support, educational, innovationandfinancialsupportofferedtothem.Literaturereviews,analysesofavailableresearchdataonthesubjectinSerbiaandtheoreticalviewsonfamilyfirmsformthebackboneofthispaper.Intheturbulentandcomplexmar¬ketplacetoday,itisdifficulttoachievestra-tegiccompetitiveness.Thesedifficultiesarecompoundedwhenleadersdonothaveaclearunderstandingofthatwhichaffectsafirm’sperformance.Thefindingsofthispaperaddresstheseissuesbyidentifyingfactorsaf-fectingfamilybusinessperformanceanddelvingintotheuniqueproblemsoffamilybu¬sinesses.Recommendationswillalsobemadetothepolicymakers in Serbia so as to encourage the creation of a supportive entre-preneurialinfrastructureforfamilybusinesses.Althoughrecentelectoralcampaigns of Serbian politicians emphasized the importance and promo-tionoffamilybusinessdevelopment,thisisnotsomuchduetothepoliti-cians’awareness.Theclaimthatfamilybusinessesshouldbedevelopedissooverusedbypoliticiansthatitisdoubtfulthepoliticiansareknowledge-ableaboutthewaysinwhichfamilyentrepreneurshipmaybeencouraged,strengthenedanddeveloped.

Keywords: family firms, SMEs, perspectives, entrepreneurial, business,theoretical, behaviour

EL Classification: G32, G34, M13, M14, L20, O53

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1. INTRODUCTIONFamilybusinessesmakeup65-80%ofallEuropeancompaniesandac-count for 40-50%of all jobs in Europe. Family businesses constitute asubstantial part of existing European companies and play a significantroleinstrengtheningthedynamismoftherealeconomy.Familyfirmsareimportant,notonlybecause theymakeanessentialcontribution to theeconomy,butalsobecauseofthelong-termstabilitytheybring,thespe-cificcommitmenttheyshowtolocalcommunities,theresponsibilitytheyfeelasownersandthevaluestheyrepresent.

Familybusinessesareanimportantpartofthenationaleconomiesofmanycountries (Mandl, 2008), including Serbia (Grozdanic, 2006; Grozdanic et al.,2008and2009).ThoughthevicissitudesoftheeconomyisnotanewphenomenoninSerbia,familybusinesseshaveenduredandoftenpros-peredthroughdifficulttimes.

As families in business have an enlightened self-interest in the enterprise theyown,theyinfuseitwithacontrollingsetofvalues.Familiesinbusi-nesstendtoplanlong-termandinvestaccordingly.

The contribution and stability that family businesses bring to society isnowadequatelyrecognizedandthereisapositivecuriosityastothefea-turesthatmakeitasuccessfulorganization.ItistheSerbianFamilyBusi-ness’smissiontoconvincethegovernmentandpolicymakerstomaintainahealthyenvironmentinwhichfamilybusinessescanthrivebyremovingdiscriminatorymeasuresagainstthemandpromotingbusinessbestprac-ticesamongthem(Radovic-Markovicetal.,2013).

There is growing recognition, however, that families often have portfolios ofinterconnectedbusinessesrangingfromformalfamilybusinessgroups(Gedajlovic et al., 2004) to familymembers helping each other to setupindividualbusinesses.Manyfamiliescreateteamsoffamilymembers,whichfoundanddevelopseveralbusinessesovertime.Wedonotknowthefullextentoffamilyentrepreneurialteam(FET)start-ups,butstudiesinrelatedfieldssuggesttheycouldrepresentasignificantproportionofentrepreneurialactivity.Family firmsarewidelyrecognizedtorepresentthemajority of businesses worldwide. Inmost countries, over 60% offirmsarebelieved tobe family firms. In someother countries,95%ofenterprises could be family businesses. Alongside increasing worldwide

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evidence that teams of familymembers have been coming together todevelop portfolios of businesses, there is growing recognition of the im-portanceofportfolioentrepreneurship.Whilemanynewfirmshavebeenstartedbyfamilyteams(Francis&Sandberg,2000;Ucbasaran,Lockett,Wright,&Westhead,2003),family influenceontheseenterprisesisnotunderstood.Given theextentof familybusinessactivitiesandevidencethat entrepreneurial team start-ups perform better than ventures founded byindividuals,theformationofFETsmaybeamoredynamicprocessthanthatofnon-FETs.Thismightbebecausefamilymembersareoftensocial-izedintothebusinessfromaveryearlyageandindividualfamilymembersmay join the businesses at varying points in time. FET formationmaybemotivatedbyverydifferentdrivers toother typesofentrepreneurialteams.Forexample,itmaybedrivenbyaltruismtoprovideopportunitiesforfamilymembers,oritmaybeacollectiveresponsetostewardshipofthefamily’sassets.Inthispaper,wehighlightacommitmenttosteward-shipgeared towards thegrowthof the family’s assets,whichwe term,“entrepreneurialstewardship.”Theoriespreviouslyusedtoexplainthefor-mationofentrepreneurialteamsmaybelessrelevantwithinthecontextofthefamily.Similarly,thereisabodyofevidenceabouttheemploymentandsuccessionoffamilymemberswithinafamilybusiness,butverylittleisknownaboutthemembershipdynamicsofFETs.Familiesareauniquebounded network, and FETs restrictingmembership to familymembersdrawfromalimitedpooloftalent.Studiesindicatethatmembershipofen-trepreneurial teams is associated with the resources and human capital of individualsandtheiraffinitywithothers(Forbes,Borchert,Zellmer-Bruhn,&Sapienza, 2006). Familymembers bring trust, altruism, stewardship,common values and shared understanding with them to the business, all ofwhichultimatelyprovideacompetitiveadvantagefortheteam(Barney,1991;Barney&Hansen,1994;Davisetal.,1997).

Familycompanieshavemanyfeaturesandmaybebusinessesofanysize.Mostfamilybusinessesaresmallandmedium-sizedcompanies,butthepublicusuallydoesnotknowthattherearemanylargefamily-ownedcom-paniestoo.

Indevelopingeconomies,itiscommonforfamilytiesandrelationshipstobemoreovertinbusinessactivities.Developingeconomiesarecharacter-ized by institutional voids,market imperfections, unreliable informationflows,andfragilelegalandfinancialframeworks.

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2. LITERATURE OVERVIEWThefamilybusinessisoftensaidtobeaspecialkindoffirm.Itisspecialinthatfamilymembersinvolvedinthebusinesscombinefamilylifeandwork.Therefore,itisdifficulttoviewthebusiness,itsmanagementanditsownershipseparately.

Asthestudyoffamilybusinessesevolved,sodiddifferentwaysofviewingtheseenterprises.Thecommontheoriesusedtoanalyzefamilybusinessmanagement are listed below: • Theagencytheory(Schulzeetal.,2010)isemployedtoexplorethe

relationshipbetweenafirm’sownership,managementstructureandfinancialperformance.Whereaseparati¬onofownershipandcontrolexist,agencycontrolmechani¬smsareputinplacetoalignthegoalsofthemanagers(agents)withthoseoftheowners(principals).

• Inthefieldofstrategicmanagement,theresource-basedviewofthefirm(Habbershon&Williams,1999;Habbershon,Williams&MacMil-lan, 2003) has been successfully used to explain long-termdiffer-ences in firmperformance thatcannotbeattributed to industryoreconomicconditions.Asfamilyfirmsareunusuallycomplex,dynam-ic, and rich in in¬tangible resources (e.g., Habbershon&Williams1999),theresearch-basedviewgivesfamilybusinessresearchersanappropriatemeansofanalyzingfamilyandnon-familybusinessper-formancedifferences.

• Thestewardship theory(Miller&LeBreton-Miller,2006a&2006b)provides greater insights into ownership and ma¬nagement than the agencytheory.Thisisbecauseitacknowledgesthatcloselyheldandmanagedfamilyfirmsmayexhibitanorganizati¬on-servingcultureandfocusonnon-financialobjectives.Suchbehaviourmayretardthefirm’sfinancialperformance.

Thefurtherevolutionofthefieldattheendofthe1990sledfamilybusi-nessstudiestobecomemoretheoreticallysound.Asaresult,awealthofarticlesstartedappearingintoptierjournalsandspecialissuesofotherpublications.

Manyauthors(Habbershonetal.,2003)suggestthat,infamily-influencedfirms,theinteractionofthefamilyunit,thebusinessentity,andindividualfamilymemberscreateuniquesystemicconditionsandconstituenciesim-pactingtheperformanceoutcomesofthefamilybusiness.Intheircom-

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parativestudy,DailyandDollinger(1992) foundthat family-ownedand-managedfirmsdoappeartoachievebetterresultsthanprofessionally-runfirmsintermsoffinanciallyorientedgrowthratesandperceivedmea-suresofperformance.Incontrasttothesefindings,Chrisman,ChuaandLitz(2004)foundthatfamilyandnon-familyfirmshadsimilareconomicperforman¬ce in short-term sales growth. Similarly, Grozdanic (2005)foundnosignificantdifferencesinperformance(measuredbyeconomicef-ficiencyandvalueaddedperemployee)betweenSerbianfamilyandnon-familyenterprises.Analysisoffamilyandnon-familyfirmsthroughvariousother performance measures indicates the existence of mixed results and conflictingopinionsregardingtheimpactoffamilycontrolonperformance,empiricalfamilybusinessstudies(e.g.,Chrismanetal.,2004;Dyer,2006;Habbershonetal.,1999;Schulzeetal.,2010;).Familybusinessleadersareoftencharacterizedasentrepreneurs(ShepherdandHaynie,2009).Inattempting tounderstand theentrepreneurial thinkingof family firmleaders, scholars have typically borrowed from the extant literature onentrepreneurship,whichtraditionallyemphasizesthecharacteristicsofin-dividualentrepreneurssuchas theirpersonalities,propensity for takingrisksandotherpersonalvalues.HoweverasAldrichandMartinez(2003)pointout,therearechangesafootinthewaysinwhichentrepreneurshipis studied, including:

a. ashift intheoreticalemphasisfromthecharacteristicsofentrepre-neursasindividualstotheconsequencesoftheiractions,

b. a deeper understanding of how entrepreneurs use knowledge, re-sources and networks to construct and reconstruct firms, and

c. theuseofamoresophisticatedtaxonomyofenvironmentalforcesatdifferent levelsofanalysis (population,community,andsociety) tounderstandhowtheseexternalstimuliaffectentrepreneurship.

2.1. Problems in defining a family business Family businesses and non-family ones differ along important strategicandorganizationaldimensions.Asthetermfamilybusinessimplies,themostimportantdiffe¬renceshavetodowiththewaysinwhichafamilyinfluencesthebehaviourofafirm(Steier&Ward,2006).Afamilybusi-ness has no commonly accepted definition (e.g., Mandl 2008; Sharma2004).Numerousattemptshavebeenmadetoarticulateconceptualandoperationaldefinitionsofafamilyenterprise.Sucheffortshavealsoledto

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questionsaboutthehomogeneityoftheseenterprises.Empiricalresearchhasrevealedthatthedegreeoffamilyinvolvementinfamilyenterprisesvary(Westhead&Cowling,1998;Astrachanetal.,2002;Sharma,2004).Attemptstocapturethevaryingextentsandmodesoffamilyinvolvementin enterprises have been directed in three general directi¬ons (Sharma, 2004): articulation ofmultiple operational de¬finitions of family enter-prises(e.g.,Westhead&Cowling,1998),developmentofscalestocapturevarioustypesoffamilyinvolvement(e.g.,Astrachanetal.,2002)andthede¬velopmentoffamilyfirmtypologies(e.g.,Sharma,2004).Familybusi-nessesinEuropehavebeenwidelyequatedtoSMEsinpublicandpolicydiscussions.However,thisneglectsthefactthattherearealsolargefamilybusinesses.AccordingtothedefinitionadoptedbytheEUExpertGrouponFamilyBusiness,afirm,ofanysize,isafamilybusiness,if:• Themajorityofdecision-makingrightsareinthepossessionofthe


• Themajorityofdecision-makingrightsareindirectordirect.• Atleastonerepresentativeofthefamilyorkinisformallyinvolvedin

thegovernanceofthefirm.• Companiesmeetthedefinitionoffamilyenterpriseifthepersonwho

establishedoracquired the firm(sharecapital)or their familiesordescendantspossess25%ofthedecision-makingrightsmandatedbytheirsharecapital.

Basedonrecentcallstoapplyconceptsestablishedinentrepreneur-shiptheorybroadlytothefamily,abusinessisafamilybusiness,if:

• Morethan50%ofthevotingsharesareownedbyonesinglefamily,andmorethan50%ofthemanagement(team)aredrawnfromthefamilyowningthebusiness.

Inthenarrowdefinitionthatisonlyapplicabletosecondorlatergen-erationbusinesses,abusinessisafamilybusiness,if:

• Morethan50%ofthevotingsharesareownedbyonesinglefamily,andmorethan50%ofthemanagement(team) isdrawnfromthefamilyowningthebusiness,andtheenterpriseisownedbysecondorlatergenerationfamilymembers.

In themajority of definitions proposed, different com¬binations of thecomponentsofthefamily’sinvolvementinthebusinessareused-name-

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ly, ownership, governan¬ce,management and generational succession.According to Chrisman, Chua and Litz (2004), these definiti¬ons do not explaining why family in¬volvement in a business leads to behavioursand outcomes differing from non-family busines¬ses. The authors de-scribe such an approach to defining a family firm as the components-of-involvementapproach. Insteadofusing thismethod, theyproposeamoreadequate essenceapproach (Chrismanet al., 2003) “…basedon[the]beliefthatfamilyinvol¬vementisonlyanecessarycondition;familyinvolvement must be directed toward behaviors that produce certain di-stinctivenessbeforeitcanbeconsideredafamilyfirm.”Inotherwords,twofirmswiththesameextentoffamilyin¬volvementmaynotbefamilybusinesses if either lacks the intention, vision, femaleness, and/or behav-iourthatconstitutetheessenceofafamilybusiness.FollowingChrisman,ChuaandLitz,theconditionslistedbelowalsoindicatefamilybusinesses:• Thefamilyholdsthemainmanagementfunctions(Handler,1989);• Thefamilyhasmajorityownershiporwhenafirmhasover51%fam-

ilyshares;• Aminimumof2generationsareincludedintherunningofthebusi-

ness; • Everyfirmwherebusinessinfluencesfamily;• Firmemploysfamilymembersfirstandprovidethemlong-termsala-

ries; • Familymanagementof the firmentails thatcapital is in thehands

ofoneormore families, the family influences the firm’ssystemofvalues and ensures the transition of power to the new generation so muchsothatitisveryhardfornon-familymemberstoenterthefirm(Neubauer&Lank,1998)

The conditions are based on the ideas of ownership as management, in-clusionoffamilymembers,creatingtransitionopportunitiesforthenextgenerationandintertwiningfamilymatterswiththatofthebusinessanditsownership.

Thisshortoverviewofthevariousdefinitionsoffamilybusinessesindicatesthatmanyquestionsremainwhendefiningafamilybusiness.AsSerbiastilldoesnothavethelegalframeworkoralegaldefinitionoffamilybusi-ness, this paper can contribute to further national discussions on a clear definitionoffamilyenterprises(Handler,1989).Thus, inthistheoreticalpartofthepaper,afamilybusinessisunderstoodinthecontextofthees-

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senceapproach,viz.familybusinessischaracterizedbyfamilyownershiporactiveinvolvementoftwoormorefamilymembersinbusinessopera-tions,regardlessastowhetherthefamilybusinesswasestablishedbythecurrentgenerationorinheritedfrompreviousgenerations.

Theextenttowhichfamilymembersareinvolvedinthebusinessandthetypesofjobstheydoinsaidbusinesscanvarysignificantly.Itcanbeafull-time or part-time engagement. These familymembers canwork invariousmanagerialornon-managerialjobsinthebusinesstoo.Regardlessofsize,allfamilybusinesseshavethefollowingincommon:familyowner-ship,familycontrolormanagementofthecompany,activeinvolvementoffamilymembersinbusinessoperationsandthetendencytotransfertheleadingrolefromonememberofthefamilytoanother.

3. FAMILY BUSINESS IN SERBIAFamilybusinessesareveryimportantinthecontemporarymarketSerbianeconomyandlooksettobeevenmoreimportantwithtime.

Ofall thebusinessactivities inSerbia, runninga familybusiness is theoldest.Infact,familybusinessesincertainpartsofthecountrywithlongtraditionsandhighentrepreneurialspiritsarehistoricallyrelatedtofarm-ers, guilds, craftsmen, local traders, textile and shoes production, legal, medical, pharmaceutical, professional repair services etc. The level ofconnectionbetweenfamiliesandworkmaybeseeninthepre-industrialagewhere families lived in thesamespace(buildings, farms,etc.)andperformedeconomicactivitytogether.Onlywithindustrializationandtheincreasednumberofpaidworkerswhowerenotfamilymembersdidtherealmsofthefamilyandworkseparate.

TheSMEsector inSerbiahad317,162enterprises in2012.Sincetherewere 317,668 enterprises in total at the time, this means SMEs made up 99.8% of all enterprises in the country. 95.0% of these SMEs aremicroenterprisesandsolotraders,while62%areprivatelyowned.EventhoughthereisnoofficialdataonfamilybusinessesandfirmsinSerbia,sporadicanalysisestimatesfamilybusinessesform60-70%percentoftheSMEsector,mostly inprofessionalbusinessesandservices,solotradersorproperties.Traditional familybusinessesaremoreoften found in theprocessing industry than in textileand furnitureproductionor chemicalandpharmaceuticalenterprises.Thecommonprocessingbasedindustries

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inwhichmosttraditionalSerbianfamilybusinessesmaybefoundaremilkproduction, breadmaking, producingdrinks, fruits and vegetables. TheSME sector is very important to theSerbian economyas it contributesto60%ofGDP,70%ofemployment,65%ofGVAand52%ofSerbianexport.Table 1: Number of enterprises in 2012

Source:SerbianBusinessRegistersAgency,authors’calculationFamilybusinesses most often start their business in these sectors: Trade (27.0%), Processing (13.7%) and Accommodation and food services(12.1%).AscanbeseeninTable2,familyenterprisesdominatethelowtechnologycompaniesintheprocessingindustrywithslightlyover50%oftradeandlowprofitmargins.Alsonoticeableisthelownumberoffamilybusinessesinvolvedinhightechnologyprocessingsector.

Table2:IndicatorsofSMEsintheprocessingindustry(u%)

Source:SerbianBusinessRegistersAgency,authors’calculation

Industry No. of SMEs

FB out of total

SMEs (%)

No. of employees Trade GVA Export Import

SMEs in Processing industry 100.0 20.0 100.0 100.0 100.0 100.0 100.0

Low technology Production of food, drinks, tobacco, textile, furniture and paper

62.8

80.0 58.5 54.4 51.4 49.6 37.2

Medium technology sectors 27.8 10.0 25.2 25.4 26.8 28.7 29.6

Medium-high technology sectors Production of chemicals, electric gadgets, motor, travel equipment and products

6.5

6.0 12.7 14.3 16.,7 18.6 21.8

High technology sectors Production of pharmaceutical goods, optics, computers and electronic products

2.9

4.0

3.5 5.9 5.1 3.2 11.5

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In2012,10,672SMEsintheprocessingindustryand10,096intradehaverealizedRSD788.1billioninexport,makingup45.9%oftotalexportinthenon-financialsectorand89.8%ofthetotalSMEexport.• 29.5%ofallstart-upsareinitiatedbyexistingfamilyfirms.• 16.9%ofnewfirmsarerelatedtoexistingfamilyfirms.• 17.8% of established entrepreneurial firms are related to another

familyfirm.• 29.5%ofstart-upsexpectfamilyownership.

3.2. Advantages of Family Firms in SerbiaAlthoughthereisnoformalstatisticaldataonfamilybusinessesinSerbia,theseuniquecompaniescontributemuchtotheeconomy.• Familybusinessesaccountforanimportantpart(onaverage40-60%

ofalljobs)intheSerbianprivatesector.• Family businesses reinvest profits responsibly, preferring equity as

opposedtodebtfinancing.• Familybusinessesactasresponsibleownersbecauseoftheir long-

termstrategytowardsstakeholderinterests,employees,customers,shareholdersandlocalcommunities.

• Familybusinessesensurethatahighsenseofsocialresponsibilityistransmittedinitsfamilyvalues.

• Familybusinessesareespeciallyconcernedwithbuildinga localorregionalbase,therebyhelpinglocalcommunitiesandeconomies.

• Family businesses are thenatural incubators of an entrepreneurialculturebecausetheyfosterthenextgenerationofSerbianentrepre-neurs.

• Family businesses are the stewards of social and economic capitalfromonegenerationtothenext,eventhoughtheyarenotsupportedbyanyspecificlegalframeworkinsuchareinvestment.

The family firms have flexible time,work andmoney at their disposal.Theyworkhardtoinnovatetheirproductsandservices.Duetotheirwork-aholic natures, family firms accumulate a great knowledge and experi-encethroughthegenerations.Theyarethinkinglong-termandareabletomakedecisionsforthecompanyveryquicklyinastable,credibleandethicalmanner.Advantagestotheindividualsinvolvedinthefamilybusi-ness are: • Nofearthatsomeonehasbeenputinchargeoftheirdestiny.They

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knowthattheirdestinyisalignedwiththefamilyandthebusinessitmanages.

• Anacutesenseofachievementasafamily.• Anincentivetokeepgoing,despiteadversities.• Workingforthefamilyfirmprovidesacertainleveloffreedomthat

onewouldnotgetinapublicsectorjob.• Workingforthefamilyfirmisanopportunityforemployment.• Workingtogetherwithcloserelativeshelpskeepthefamilytogether.• Workingtogetherhelpscreatewealthforthefamily,andoneknows

onehasashareinthatwealth.• Working ina family firmoffersone jobsecurityand reducesone’s

socialanxieties.• Workinginafirmownedbyone’sfamilyimbuesonewithasenseof

prideandbelonging.

Thesearenottheonlyadvantagesofworkinginthefamilyfirm.FurtherbenefitsthatfamiliesderivefrombeingpartofafamilybusinessinSerbiaare:

• Loyalty.Familymembersinafamilybusinesstendtodemonstrateagreatersenseofloyaltytoeachotherandtothebusiness.Theyalsotend to be more committed to the success of the business and are more passionate about the history, values, products and services,representedbythebusiness.

• Labour pool. Multigenerational family businesses have access to alabourpooloffamilymemberswhotendtobemoreloyalandcom-mittedtothebusiness.Familymembersalsotendtobemoreflexibleintakingondifferentjobfunctionsandfillinginforothers.

• Key employees. Non-family employees appreciate and enjoy theuniqueworkenvironmentcreatedbyafamilyinbusiness.Thework-placetendstobelessformal,morehands-onandpersonable.Manykeyemployeesaretreatedlikeextendedfamilyandareconsequentlyabletodevelopstrongbondswithboththefamilyandthebusiness.

• Patience.Familybusinessestendtobelessdrivenbyshort-termfi-nancialresults,astheyarepreparedtosacrificeshort-termgainsforthe achievement of longer-termgoals. This allows the business todeployresourcesinlinewithitsstrategicobjectives.Thislong-termapproachtoinvestingisoftenreferredtoas“patientcapital”.

• Values. Familybusinessownershave theopportunity to teachand

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transmittheirbusinessandpersonalvaluestothenextgeneration.Familymemberstakeprideinupholdingthesefamilyvaluesbyincor-poratingthemintotheirday-to-dayworkandpersonalactivities.Theworkcultureinafamilybusinessisoftenareflectionofthesefamilyvalues.

• Career opportunities. Family business owners pride themselves onbeingable toprovide familymemberswith career opportunities inthebusiness.Thefamilybusinesscanbeanexcellenttraininggroundforfamilymembersaspiringtopursuebusinesscareerselsewhereorwithinthefamilybusiness.Familymembersarealsoaffordedtheop-portunityofbecomingmanagersandownersofthebusiness.

• Relationships.Theopportunitytoworkwithfamilymemberstopur-sue common business goals can be a very rewarding experience.Yearsofbondingamongfamilymemberscancreateastrongsenseofbelongingandinterdependency.Effectivelymanagingtheserelation-shipswillgoa longwayinensuringlong-termfamilyandbusinessharmony.

• Financialrewards.Successful familybusinessesareabletoprovidefinancialrewardstobothactiveandnon-activefamilymembers.Itisnotuncommonforfamilybusinessestorewardfamilymembersmorethantheycouldobtainelsewhere.Thisisoftenviewedasoneoftheprivilegesofbeingfamily.

• Succession. Aswell as providing career opportunities, family busi-nesses also favour passing the business along to the next generation offamilymembers.Theopportunitytobeanownerofthebusinesscanbebothmotivatingandrewarding.

• Community and philanthropy.Most family businesses are active intheir local communities. These communities benefit from the fam-ilymembersactingasvolunteers/supporters,andfromthebusinessprovidingfinancialsupportandemploymentopportunities.Thiscom-mitment to thecommunity tends topermeate thegenerationsandprovides familymemberswithopportunitiesand rewards thatonlystemfromthisongoingcommunitysupport.

3.3. Disadvantages of family firms in SerbiaHowever,thereisnoagreementinSerbiaastoadefinitionoffamilybusi-ness.ThereisalsonolegaldefinitionoffamilyfirmsunderSerbianlaw.Despitethemanybenefitstothefamilyengagedin itsactivities,family

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firmscandemonstrateacertainrigidnessandbescepticalvis-à-visbusi-

nesschallenges.Theymayalsobemyopicwhenitcomestonewcapital

involvement.Olderfamilyfirmsgenerallyhaveproblemswithmodernizing

managementandcopingwithnewmanagementstyles.Thiscouldresultin

a lack of open communication between the different generations involved

inthebusiness,andeventuallyculminateinleadershipandtransitionis-

sues.Toresolvetheseleadershipandtransitionissues,familyfirmssome-

times resort to the following:

• Agreeingtoacceptthedecisionofopeninganotherbusinessforthe

dissentingfamilymember,orseekingrecourseinthelawandagree-

ingtothecourt’sdecisiontoclosethefirm;

• Buyingthedissentingfamilymember’ssharesinthefamilyfirm,or

sellingthecompanysoastopreventfurtherquarrellinganddisagree-

mentsrelatedtothefamilyfirm’sfunctions,expenditureandprofits.

Owingtotheinterlockingnatureofthefamilyanditsimpactontheman-

agementandtheownershipofthebusiness,thewaysinwhichthefamily

members interact with one another in the firm creates challenges and

uniqueopportunitiesforthebusiness.Sincefamilyfirms(FF)aredomi-

natedbyoneperson,thepatriarchormatriarchwhofoundedthebusiness,

this founder will believe that his/her successor will dominate the business

inthesameway.ThecriteriathattheFFfounderwilladoptinchoosinga

successor are as follows:

Although the potential for relationship conflicts among entrepreneurial

teamsofunrelated(non-family)individualsishigh,ateamcomposedof

Criteria % % Age Oldest 13 20 Second 2 Youngest 6 Capability 22 Son 22 Daughter 2 Decision making

95 FF level 53

Studying for the FF 24 Dismissed / uninterested 10 Experience 33 Experience in the FF 26 Business experience

gained elsewhere 7

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familymembers does not necessarily ensure tranquillity. Thus, being amemberofa familybusinesscanbeadouble-edgedsword.This, then,isoneofthedisadvantagesofbeinginafamilybusinessinSerbia.Othernegativeeffectsofbeinginafamilybusinessinclude:

a. Disadvantagestotheindividualandtothebusiness• The individualcould feel trapped,ashe/shemay feel the family is

preventinghim/herfromdoingthatwhichhe/shereallywants.Thereisalsothepressuretoperformbetterthannon-familypeersinthebusinessaswellasthecumulativestressfromfamily,peerandem-ployeeresponsibility.Itisalsoverydifficultfortheindividualtoraisetheliquidityofthefamilyfirmaccordingtothefamily’sexpectations.If thesepressures,personalwantsandfamilyexpectationsarenotproperlymanaged,theycantearboththefamilyandthefamilybusi-nessapart.

b. Disadvantagestothebusiness.• Family businesses can be regarded as amateurishwhen compared

toprofessionallysetupandmanagedbusinesses.Itwillbedifficultforthesenon-familymemberstoraisethenecessarycapitaltojointhefamilyfirminthefirstplace.Non-familymembersmaynotjoinbecausetheycannotreachthetop.Thereasonforthisliesinthefactthatseniorfamilymembersoftenseethemselvesashavingajobforlife.Anydecisionsmadebythefamilymembersinthefirmmaybetooemotional.Theseniorfamilymembersinthefirmmayalsohaveadeep-rootedaversiontochange.Asaresult,itcanbeastruggletocontinuethespiritofinnovativeentrepreneurship.

Whiletheconceptofstewardshipforfuturegenerationscomesnaturallytomanyfamily-ownedbusinesses,thesecompaniesalsofacetheirshareofsustainabilitychallenges.

4. THE POLICIES AND ACTORS OF INSTITUTIONAL SUPPORT Institutional actors involved in the development of private sector policies oftenfocusonthemobilizationofprivatesectorresourcesinthecountry,withaparticularemphasisonsmall&mediumsizedenterprises(SMEs).MostprivatecompaniesinSerbiaareSMEs.Theseprivatecompaniescon-tributemuchtoSerbia’seconomicintegrationintheEU.Throughtheirlo-cal,regionalandglobalcommercialflows,theycreatejobs,introducenew

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technologiesandhelpbroadenthetaxbase.Governmentpoliciesforthegrowth and development of the private sector centre on three complemen-taryraisond’êtres,namely:1. Strengtheningthebusinessenvironmentfortheprivatesector,2. Strengtheningthefinancialsectorsoastofacilitatefamilyfirms’ac-

cess to financial assistance,3. SupportingSMEsandfinancialintermediariesthroughcapacitybuild-

ingandadvisoryservices.

4.1. The business environment for the private sectorBefore the business environment in Serbia can be explored, it would be-hoveustounderstandthemaincharacteristicsofthecountry.Asof2013,Serbia isanuppermiddle incomecountrywithapopulationof7.2m.ItisapartofEuropeandCentralAsia.Serbia’sGNIpercapitain2013wasUSD5,280.Serbiahasahighemploymentrateof24.1%,accordingtotheSerbianStatisticsOfficeinApril2013.Duringthissameperiod,theSer-bianStatisticsOfficealsoreportedthattheunemploymentrateforpeopleaged15-64was25%.Thecountry’shighunemployment levelsmaybeattributedtotheprivatizationprocesswherebytheyoungarenotofferedjobsandmanyordinaryworkersweremaderedundant.Privatizationhitthe industrial sector the hardest andmademany companies insolvent.Asaresult,over300,000workers in the industrialsectorwere laidoff.ThemacroeconomicenvironmentforfamilybusinessesinSerbiaisfurthercharacterizedbysetofperformanceindicatorsthatmeasureeaseofdoingbusinessandcompetitiveness,asillustratedinTables3and4.

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a. Serbiaranked93rdoutof189economieswhen itcametoeaseof

doingbusiness.

Table 3: SMEs’ and family firms’ ease of doing business in Serbia, 2013

Source: Doing Business 2013, World Bank

b. AccordingtoGlobalCompetitivenessIndex(GCI)2013-2014,Serbia

ranked101stoutof145countries.

Starting a business

(rank) 45 Dealing with construction permits

(rank) 182 Protecting investors

(rank)80

Procedures (number) 6 Procedures (number) 18 Extent of disclosure index

(0–10) 7

Time (days) 11.5 Time (days) 269 Extent of director liability index

(0–10) 6

Cost (% of income per capita) 7.2

Cost (% of income per capita) 1,433.5

Ease of shareholder suits index

(0–10) 3

Minimum capital

(% of income per capita) 0.0

Getting electricity

(rank) 85 Strength of investor protection index

(0–10) 5.3

Getting credit (rank) 42 Procedures (number) 4 Registering property

(rank) 44

Strength of legal rights index

(0–10) 7 Time (days) 131 Procedures (number) 6

Depth of credit information index

(0–6) 6 Cost (% of income per capita) 505.6

Time (days) 11

Public registry coverage

(% of adults) 100

Enforcing contracts

(rank) 116 Trading across borders

(rank) 98

Paying taxes (rank) 161 Procedures (number) 36 Documents to export

(number) 6

Payments (number per year) 66

Time (days) 635 Time to export (days) 12

Time (hours per year) 279

Cost (% of claim) 34.0

Cost to export (US per container)

1,455 Total tax rate (% of profit)

36.8 Resolving insolvency

(rank) 103 Time to import (days) 15

Documents to import

(number) 7 Time (years) 2.0 Cost to import (US per container)

1,760 Cost

(% of estate) 20

Recovery rate

(cents on the dollar) 29.0

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Table 4: Global Competitiveness Index for Serbia, 2013-2014

Source: The Global Competitiveness Report 2013-2014, World Economic Forum

FieldresearchundertakenbytheSerbianEmployers’Associationin2013pinpointed the foremost concerns of family firms. They are the coun-try’s high corruption rate (13.8%), inefficient government bureaucracy(13.1%),lackofaccesstofinancing(11.1%),coupsandgovernmentin-stability(10.9%),inadequatesocio-economicinfrastructure(7.3%),poornationalworkethic(3.3%),inadequatelyeducatedworkforce(3.1%)andsoon.

4.2. The family business support infrastructure Though business support infrastructure is often mentioned in specialized literature as well as official government documents and reports, there is nouniquedefinitionastoitsconstituents.Businesssupportinfrastructurecovers a network of institutions and organizations providing either services to potential entrepreneurs, entrepreneurs or SMEs for the development of theirbusinesscapacity(human,organizational,marketing,etc.)orphysi-calfacilitiesforbusinessoperations.Inordertohelpdevelopthecapac-ity,structureandpurposeofenterprises,businesssupportinfrastructureshould keep abreast of local and regional development potential as well as marketdemands.Theprimarygoalsofthebusinesssupportinfrastructureare raising thepotentials forpolycentricdevelopmentand fostering theoveralleconomicdevelopmentat the local, regionalandnational levels.Business support infrastructure often operates within geographical limita-tions.Whilethismeansthebusinesssupportofferedismostlyrestrictedtoenterprises in the municipalities and cities, it is sometimes available to the smallerdistrictsinotherpartsofthecountry.Businesssupportinfrastruc-turerarelyprovidesservicesacrossthewholecountry.IntheRepublicofSerbia, business support infrastructure is limited to the larger cities and somemunicipalities.

GCI 2013-2014 Rank Score GCI 2013-2014 Rank Score Basic requirements (40.0%) 106 4.0 Efficiency enhancers (50.0%) 92 3.8 Institutions 126 3.2 Higher education and training 83 4.0 Infrastructure 90 3.5 Goods market efficiency 132 3.6 Macroeconomic environment 136 3.4 Labour market efficiency 119 3.9 Health and primary education 69 5.7 Financial market development 115 3.5 Innovation and sophistication factors (10.0%)

125 3.0 Technology readiness 60 3.9

Business sophistication 137 3.2 Market size 69 3.7 Innovation 112 2.9

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Business incubators, business clusters, industrial zones and technologyparksthroughoutthecountryformpartoftheSerbianbusinesssupportin-frastructure.TheinfrastructuralsupportofferedtobusinessesinSerbiaisconstantlyevolving,asSerbiamovestowardsamarketorientedeconomy.Manyinternationalorganizationsassistedinlayingdownthefoundationsofthecountry’sbusinesssupportinfrastructure.TheSerbiangovernment,through development agencies and associations active at the local, pro-vincial and regional level suchas theNationalAgency forRegionalDe-velopment,hascontinuedtobolsterthebusinesssupportinfrastructure.MostbusinessesinSerbia,however,developedwithoutreceivinganysup-port frompublic institutions. Thesebusinesses consolidated themselvesthrough the initiatives of private agencies, non-governmental organiza-tions and through the personal initiatives of those anxious to promote economicdevelopmentintheircommunities.

Local regional governments as well as the governments of the Repub-licofSerbiaandtheAutonomousProvinceofVojvodinaarededicatedtostrengtheningtheirbusinessinfrastructures.Theimportanceofdevelopingbusiness infrastructurehasbeenwidelyacknowledgedbecause theser-vices and facilities provided have augmented entrepreneurial spirit and im-provedthecompetitivenessofSMEsandfamilybusinesses.Consequently,official government reports often refer to business support infrastructure inthislight.Despitereferencestobusinesssupportinfrastructureinthismanner, there are no government reports or documents focusing exclu-sivelyonthedevelopmentofbusinessinfrastructure.Officialreportsonlyreference the development of business support infrastructure in strategic economic programmes.One of the rare official documents touching onthe development of business support infrastructure is the Serbian govern-ment’s National Economic Development Strategy Report of 2006-2012.Thiswasthefirstreporttoconsistentlyandcomprehensivelydefinethebasicdevelopmentprioritiesof thecountryand theways inwhich theymaybeachieved.

TheSerbianMinistryofEconomyandSerbianAgencyfortheDevelopmentof Small and Medium-sized Enterprises and Entrepreneurship collaborat-ed with the Norwegian Foundation for Scientific and Industrial Research (SINTEF) to prepare the Programme for Business Incubators and Clusters DevelopmentintheRepublicofSerbia2007–2010,whichincludedrecom-mendations for the establishment of at least 15 business incubators, a na-

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tionalumbrellaassociationofbusinessincubators,atleastonetechnologyparkand10operativeclusters(RepublicofSerbiaMinistryofEconomy,2006a).ThisdocumentbuildsuponthepreviouslypublishedStrategyforthe Development of Small and Medium-sized Enterprises and Entrepre-neurshipintheRepublicofSerbia2003-2008(RepublicofSerbiaMinistryofEconomy,2003),theNationalEconomicDevelopmentStrategyoftheRepublic of Serbia 2006-2012 (Republic of SerbiaMinistry of Economy,2006b) as well as the Plan of the Government of the Republic of Serbia for stimulating Small and Medium-sized Enterprises and Entrepreneurship Development2005-2007(RepublicofSerbiaMinistryofEconomy,2005).In2009,theNationalAgencyforRegionalDevelopment(NARD)wases-tablishedasalegalsuccessortotheSerbianAgencyfortheDevelopmentofSmallandMedium-sizedEnterprisesandEntrepreneurship.

TheSerbiangovernment’sStrategyforDevelopmentofCompetitiveandInnovativeSmallandMedium-sizedEnterprisesfortheperiod2008–2013implemented programmes developing business incubators and clusters.This strategy, introduced in late2008,alsoemphasized improved insti-tutionalsupportforthedevelopmentofentrepreneurshipandSMEs.TheRegional Development Strategy of the Republic of Serbia 2007–2012(Republic Development Bureau, 2007) is the first strategic development document focusing on regional development in Serbia, specifically, theimprovementofpolycentricregionaldevelopmentofSerbiathroughen-trepreneurshipandSMEdevelopmentpolicies.Suchpolycentricregionaldevelopment will boost the economic links between the various Serbian regionsandreducedifferences inregionaleconomicdevelopment.Also,the cluster associations, connections between various local enterprises, establishmentofbusinessandtechnologyincubatorsinlocalmunicipalitiesaswellastheestablishmentoftechnologyparksinuniversitycentreswillresult in improvedeconomic linksamong thedifferentSerbian regions.TherecentlyadoptedStrategyofIndustrialDevelopmentoftheRepublicofSerbia2011–2020alsoconsiders thenecessityofdevelopingregion-albusinesssupport infrastructures.According to thisStrategy,businesssupportinfrastructureencompassesmapping,constructingandequippingindustrial zones, industrial parks, business incubators and clusters, logis-ticandbusinesscentresandtouristinfrastructure.Moreimportantly,thisStrategy is the first roadmap of business support infrastructure in theRepublicofSerbia.

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The development ofbusinesssupportinfrastructureisalsorecognizedbytheEUinstitutionsthathave,indifferentways,supportednumerousproj-ectinitiativesthroughouttheRepublicofSerbia.Businesssupportinfra-structure is also recognized in the Operational Programme for Economic Development 2012-2013 under IPA component III as a means of devel-oping economic competitiveness (Government of the Republic of Serbia, 2011).ExpertiseprovidedbybilateralorganizationsaswellasfundsfromthegovernmentoftheKingdomofNorwayenabledtheSerbiangovern-menttodevelopbusinessincubatorsandclustersthroughoutthecountry.TheUnitedStates’AgencyforInternationalDevelopment’s(USAID)Com-petitiveness Project also provided invaluable assistance to the develop-ment of Serbian business support infrastructure. The Nišava district inSerbia was able to boost its business support infrastructure due to help from the government of the Kingdom of Denmark via the Local Economic Development in the Balkans (LEDIB) programme. Business incubatorswerelikewisedevelopedintheAutonomousProvinceofVojvodinathroughtheassistanceof theAustrianDevelopmentAgency. Insum,thedevel-opment of Serbian business support infrastructurewas due to joint ef-forts of the Serbian government, several European and international donor programmes such as Support to Enterprise Competitiveness and Export Promotion (SECEP), Regional Socio-Economic Development Programme 2 (RSEDP2), Municipal Infrastructural Support Programme (MISP) and US-AID’sCompetitivenessProject.Otherinternationalbodiescontributingtothe development of business support infrastructure in Serbia include the LEDIBprogramme, theBBIproject fundedby theAustriangovernmentand theprivate sector projects ofDeutscheGesellschaft für Internatio-nale Zusammenarbeit (GIZ) like WBF, which later became Assistance to competitivenessandcompatibilitywiththeEUofSerbianSMEs(ACCESS)(Mijacic,2011).

Before SMEs and family businesses can improve their competitiveness,it is necessary to target specific regions through the development andtransformation of business infrastructure as well as the establishment of industrialandtechnologyparksandindustrialzones.Independentprivatecompanies specializing in various different fields should be identified and networks formed so that these multifarious enterprises can be linked to oneanotherthroughjointtechnologyandknowledge.Throughstrategicapproaches,thesynergisticeffectsofanareawithaconcentrationofsimi-larand/orcomplementarybusinessactivitiescanbefosteredtoencouragetheproductionofmorecompetitivegoodsandservices.Businessactivi-ties for which resources, market conditions and technical advances would

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yieldfastergrowthwouldbedevelopedfirst.Todate,thereare23busi-ness incubators, 85 cluster initiatives, 92 industrial zones, 2 existing and 4plannedindustrialandtechnologyparks,4existingand4plannedfreezonesand66brownfieldsitesinSerbia.

4.3. Financial supportEntrepreneursmostlydrawontheirownsourcesoffinance.Around70%ofSMEsareself-financed,whenitcomestotheirworkingcapital(73%)and investments (69%). It could be indicative of a trendwhereby en-trepreneursarelesslikelytotakeloanstoimplementinvestmentplans.Externalsourcesoffinanceareusedby26%ofSMEs,whichis18%lessthanin2013,or10%lessthanin2010.

Medium-sizedenterprises(39%)andsmallenterprises(33%)mainlyuseexternalsourcestofinanceinvestmentsandworkingcapital.Onthere-gional level, entrepreneurs from South and East Serbia take least loans bothforworkingcapitalandforinvestments.

Of external sources of revenues, commercial bank loans are used the most(48%),followedbyloansfromstatefunds(14%)andforeignloans(10%).Loansfrombanksarefollowedbyloansfromrelativesandfriends(8%).Loansfromcommercialbanksaremostlyusedbymedium-sizeden-terprises(64%)andsmallenterprises(58%),whereassoletradersmostlyrelyon relativesand family.Foreign loansare largelyusedbybusiness entitiesinBelgrade(17%)andSumadijaandWestSerbia(19%).Figure 1: Loans Growth (in billions of RSD)

Source: National Bank of Serbia (NBS)

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MorethanhalfofSMEsdonothaveloans.Microenterprisesandsoletrad-ersowetheleastdebt(58%).CompanieswiththeleastdebtarefoundinBelgrade (56%).MostSMEsareable to successfully repay the loanstheytookout.Medium-sizedenterpriseshavemoredelaysinannuitypay-ments.Entrepreneurs inVojvodina,WestSerbiaandSumadijahavethemostdifficulties inpayingoffdebts.Morethan80%ofenterprisessur-veyeddonotplantotakeloansinthefollowingyear.Themainreasonsare high interest rates and bank costs, as well as long procedures for loan approval.OfalltheregionsinSerbia,businessesinVojvodinashowade-cidedlackofinterestintakingloansinthefollowingyear.

Loanrepaymentperiodsandshortdeadlinesto fulfilobligationsarethemostfrequentfinancialproblemsforbusinessoperations,especiallysmall-er business entities.While 53%of entrepreneurs fulfil their obligationstowardssupplierswithinlessthan30days,only32%managetocollecttheirpaymentsinthesameperiodoftime.

SMEsareinterestedinstatesupportprogrammes(58.6%),primarilyfi-nancial ones (54.5%).Medium-sizedenterprises aremost interested instate support programmes, whereas microenterprises and sole traders havetheleastinterest.Smallenterprisesshowmoreinterestinconsult-ingandtrainingthantheotherbusinessessurveyed.Two-thirdsofentre-preneurs,mainlyfromWestSerbiaandSumadija(72%),greatlyfavourstate support programmes providing them with subsidies to improve their businessoperations.Smallenterprises(42%)aremostinterestedinsub-sidiesforjobcreation.LoanswithfavourableinterestratesareverymuchneededinVojvodina(36%)andSumadijaandWestSerbia(33%).Busi-nesslinksinthecountryandabroadaremostattractivetomedium-sizedenterprises(22%).

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Table 5: Financial incentives in Serbia according to company type and purpose, in RSD, 2013

Source:SerbianBusinessRegistersAgency,2013

4.4. Advisory servicesAdvisory services have so far been used by 39%of respondents. Freeservicesweremostlyused in the fieldofbusinessstart-upconsultation(33.5%),marketing/promotion and sales trainings, then business plan-ning, legalservicesandtrainingforcomputerskills.Ontheotherhand,entrepreneursmostoftenpaidforservicesinaccounting(64%),legalser-vices(59.5%)marketing/promotionandsales(35.6%),worksafetyandprotection(31.1%)andinformationtechnologies(23.5%).InthelastfieldresearchconductedbytheSerbianEmployers’Association,SMEs(ofwhichfamilyfirmsareapart)rankedthedifferentaspectsoftheirbusiness.Thisself-rankingisreproducedinFigure2below.

Figure 2: Serbian businesses rank the different aspects of their enterprises

Source:SerbianEmployers’Association,ResearchonadvisorysupportofSMEs, 2013

Type of financial incentive

2013 Type of beneficiary

2013 Purpose

Total regional development incentives

173,661,103 Large companies 52,609,547 Employment 4,101,315

Loan 136,717,134 SMEs 22,696,597 Export 5,361,510 Non-returnable subsidy

12,789,463 Entrepreneur (solo trader)

361,501 Manufacture 11,273,268

For attracting investments

1,052,198 Agricultural holdings

3,682,339 Agriculture 4,697,158

Non-returnable resources

263,059 Business incubator/cluster

9,888 R&D 7,833,035

Education, science, sport

3,454,514

Infrastructure

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In ranking the different aspects of their business, SMEs have demonstrat-edthewaysinwhichtheyviewthemselves.ToSMEs,successisequatedtothequalityoftheirproducts/services,thequalificationsoftheiremploy-eesand their relationshipswithbusinesspartners.Theyhave themostproblemswith the collection of loan repayment. They also tend to fretovertheirfinancialstabilityandcompetitivenessinthemarket.Accordingtotheopinionofhalftherespondents,theybelievetheirbusinesswouldbemore successful if the systemof loan repayment collectionwas im-proved(48%)andthefinancialaspectoftheircompanies’businessopera-tionsweremorestable(47%).Accordingtorespondents,marketdemand(40%)andmarketcompetitiveness(33%)arethethirdandfourthmostimportantprioritiesforimprovement.

4.4.1. Innovation and educational supportAn innovation is the implementationof anewor significantly improvedproduct, service or process, a new marketing method, or a new organi-zational method in business practices, workplace organization or external relations(OECD,2005).Abusinessentitycanundergoseveral typesofinnovativeactivitiesinthedefinedperiod.Table6showsthetypesofin-novationsundertakenbySMEsin2012.

Table 6: Share of types of innovation

Source:NationalAgencyforRegionalDevelopment(NARD)

Thistableontheimplementationofinnovationbybusinesssizeshowsthatthebiggestshareofinnovationinbusinessesisasfollows:total31.27%,smallenterprises29.10%andmedium-sizedbusinesses40.32%. Advice services through which SME owners and managers discuss sources of information and cooperation for innovative activities reveal that internal sources most important to the development of new innovations and the implementationofexistingprojects.Thisisduetoundevelopedcoopera-tionnetworksandinstitutionalsupportservices.

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Table 7: Business entities (technological innovators) placing high importance on the source of innovation information

Source: NARD

Thereare65stateandprivateaccreditedtertiaryeducationinstitutionsinSerbia,offeringatotalof378studyprogrammes.Morethan50%ofthesestudyprogrammesareinthefieldoftechnicalandtechnologicalsciences(TTS).TTSprogrammesdominatethestate-runtertiaryinstitutions,mak-ingup61%oftheircurriculum.66%ofthecurriculuminprivatetertiaryinstitutionsfocusesonthehumanitiesandsocialsciences(HSS).In2008-2012, there were 21,384 students in HSS, 26,343 in TTS and 2,262 stu-dentsinthemedicalsciences(MS).Bylaw,alleducationproviders,includ-ing those offering technical vocational education and training (TVET), are requiredtoestablishaninternalQualityAssuranceandEvaluationCom-missionforthepurposeofconductingmandatoryannualself-assessment.The rationale for this is that the existing educational infrastructure and its attendant programmes provide inadequate educational and institutionalsupporttofamilyfirms’developmentneeds.Therefore,oneofthechal-lengesfortheSerbiantertiaryeducationalsystemisthemodernizationofthe TVET system. Through specially tailored business programmes, theperformance,qualityandattractivenessofTVETsyllabi for family firms’developmentneedswillbeimproved.WhenTVETisthusmodernized,itsprogrammeswillmeet the immediate and future skills needs of familyfirms.Thiswill,inturn,reducethesocio-economicimpactofthevariousglobalfinancialcrisesandfacilitatetheSerbianeconomy’srecovery.

5. DISCUSSION AND CONCLUSIONSFamilybusinessesformthebackboneoftheSerbianrealeconomyandareincubators for entrepreneurship. Productivity, competitiveness, job cre-ationandsustainabilityarepartoftheirsuccessanddevelopmentstruc-

Sources Total Small Medium-sized

Internal With the business entity or the group to which it belongs

32.25 31.06 35.88

Market Suppliers 16.86 15.53 20.89 Clients or customers 24.60 22.99 29.50 Competitors or other business entities in the

industry 10.07 8.58 14.60

Consultants, business research agencies/IR 6.28 5.84 7.64 Institutional Universities/higher education institutions 4.58 3.60 7.54 State or Public Scientific Institutes 2.59 2.17 6.58 Other Conferences, trade fairs, exhibitions 14.75 14.64 15.09 Scientific magazines and technical publications 9.86 9.76 10.15 Professional and industry associations 5.49 4.86 7.93

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tures.They often achieve these successes because of institutional support andtailoredqualitativeservices.Thereisanunbalancedgeographicaldis-tribution of business, innovation, financial and educational support infra-structure elements inSerbia. Asmost (if not all) institutional, financialand educational support cater to the SME sector, there is no specific busi-nessinfrastructuresupportingthedevelopmentoffamilybusinesses.Mostbusiness, innovation, financial and educational support infrastructures are found inthefive largestSerbiancitiesofBelgrade,NoviSad,Niš,Sub-oticaandKragujevac,wheredonorprogrammes, regional agenciesandSME development agencies have the strongest presence. These donorprogrammes, regional agencies and SME development agencies jointlycontribute to raising the awareness of the need for business support in-frastructuredevelopment.Ananalysisofbusinesssupport infrastructurereveals a weak link between business clusters, business incubators, uni-versitiesanddevelopmentagencies.

Serbiaowesitspasteconomicandsocialprosperitytofamilyfirms.Now,intimesoftrouble,Serbiashouldlookbacktoitsrootsbyvaluingfamilybusinessesasareliableandcommitteddrivingforceforrecovery.Familybusinessescanalsogeneratenewemploymentopportunitiesforthepopu-lation.Thus,thecreationofapositiveenvironmentforfamilybusinessesin Serbia involves: • Promotingafullerunderstandingofthekeylong-termroleplayedby

family-ownedenterprisesintheSerbianeconomy.• Pressingforpoliciesthatsupportthecreationofalevelplayingfield

betweenfamilybusinessesandotherbusinessenterprises.Thiswillensurethatfamilybusinesseshaveequalaccesstofinancing,entre-preneurshipeducationand legalaid.Asimpler taxation frameworkand ease of business transfers to their successors will also benefit familybusinesses.

• Ensuringrecognitionoftheircontributiontotheentrepreneurialcul-tureandsocialcohesionofSerbiainEurope.

• Fostering thenext generation throughentrepreneurship education.Familybusinessesareincubatorsofentrepreneursinthattheyfostercreativityand innovation.Thus,entrepreneurshipeducation isveryimportant for the development of family businesses. Furthermore,familybusinessspecificissuessuchassuccessionandfamilygover-nance should be included in the entrepreneurship curricula to better preparefuturebusinessownerstosuccessfullymanagetheircompa-niesinthelongrun.

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In addition, the relationship between universities and businesses must be improved.Businessownersneed tobedirectlyengaged in the learningprocess, as they bring practical expertise andhands-on know-how intotheclassroom.Familybusinessownerscanalsotransmittheircorporatevalues,tenacity,trust,responsibilityandintegritytostudentsintheclass-room.Traditionally,familybusinessesareacknowledgedtobeattheheartofmanylocalcommunitiesinSerbiasuchasCacak,Indjia,NoviPazarandArilje.Theirfutureentrepreneurialcommitmentandprudentapproachtocompanyfinancingenablesthemtocontributeto long-termgrowthandjobpreservationinSerbia.

In order to raise competitiveness and economic development at the local and regional levels, close cooperation must be established between the elements of business support infrastructure, the public and private sec-tors, development agencies, chambers of commerce and other relevant institutions.Sodoingwouldenablethebusinessesandthesevariousin-stitutionstoharmonizetheiractivitiesandexchangenecessaryinforma-tion. It is also expedient to align the activities of the business supportinfrastructurewiththefamilybusinesses’strategicplans.Tofostertheirowngrowth,familybusinessesshouldcontinuouslyworkonbuildingtheirmanagementcapacitiesandhumanresources.Thestateandinstitutionalactorscanaddtothefamilybusinesses’effortsatgrowthanddevelop-ment through business support infrastructure elements such as business incubators,clusters, zonesandparks.Nationaland regional institutionssupporting economic development should design programmes that sup-port an integrated approach in the local and regional development of fam-ilybusinessesinSerbia.Itisalsorecommendedthatnationalandregionalinstitutionscooperatewiththemediasoastoraisethepublic’sawarenessofthebenefitsoffamilybusinessdevelopmentandtheemploymentop-portunitiestheyengender.

FAMILY BUSINESS PORTRAITS1. CINI Cacak, SerbiaCINICacak isaprivatelyownedfamilybusiness,established in1977inCacak,Serbia.Cacakhasagreattraditioninfamilybusinessesandusedtobeoneoftheleadingcitieswiththehighestentrepreneurialindex.Attheverybeginning,CINI’sbusinessorientationcentredonitswiderangeofproductsandappropriateproductiongrowth.Ithascontinuedthistradi-

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tionforthepast30years.Today,CINIisanexampleofasuccessfulSer-bianmetalmanufacturingcompanywithitsownrangeofproducts,mainlyinthefieldofthermaltechnology. CINIemploys90workers,outofwhich40%havehighereducation(dif-ferentkindsofengineers,economistsandlawyers).Thankstothemandmanyotherqualifiedworkers,CINIisabletooverseethedifferentphas-es of its production process in development, purchasing, manufacturing, marketing,salesandpost-purchaseservices.CINIstrivestowards:• Applicationofpatents;• Innovations;• Newtechnologiesimplementation.

Thecompanyhasalwaysbeensupportiveofyoung,creativeandsuccess-fulpeople.TheSpasovics,whoaredescendentsoftheoriginalfounder,areinthetopmanagementpositionsofthecompany.Toensurethesmoothandefficientrunningofthebusiness,theyhavemeldedmodernmanage-mentstyleswiththeirrespectofthefirm’slongtraditionsandskills.Insodoing,theybolsterCINI’sreputationandrenderitasuitablepartnerforbusinesscollaborationsinmanydifferentareas.AllaspectsofbusinessaremeasuredagainstthehighqualitystandardsetbyISO9000-2000.Thestrict application of ISO 9000-2000 throughout all documented procedures andworkprocesseshelpsensurethequalityofCINIproducts.Specialat-tentionispaidnotonlytoprofessionalbusinesscommunication,advertis-ing and active participation in domestic and foreign trade fairs, but also to directpresentationstopotentialcustomergroups.MostofCINIproductshaveexportpotential.Someofthemhavealreadysecuredgoodmarketpositions in Russia, Ukraine, Poland, Bulgaria, Bosnia and Herzegovina, Croatia,Macedonia, Sweden,Denmark,Germany andSpain. CINI’s re-sources and capabilities enable it to collaborate with business partners in thefollowingways:• Placementoffinishedproductsinlocalandregionalmarkets;• Jointdevelopmentofnewproducts;• Manufacturingvariouspartsandcomponentsofthefinalproducts;• CompletemountingandfinalanalysesofCINIproducts;• Guaranteeofpost-purchaseserviceswiththeinclusionofawarranty

period; • ExportingcommonlymanufacturedproductstomarketswhereCINI

alreadyhasapresence,suchascountriesoftheformerEasternBloc;

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• SettingupandcoordinatingcooperativenetworkswithotherSerbianenterprisesaccordingtotheirrequests.

2. Extreme Intimo, textile and clothing companyExtremeIntimoisafamilybusinessfoundedin1992inArilje,Serbia.Ar-iljeisasmallcityfamousforhavingthelargestnumberoffamily-runtex-tilefirms.Itisamedium-sizedcompanyspecializingintheproductionoftextileproducts.ExtremeIntimo’smodernlineofinnerwearincludesun-derwear,nightwearandswimmingcostumes.AsExtremeIntimo’sdesignsareverybeautiful,itscreationsareverypopular.Itsretailnetworkcoversseveral countries including Montenegro, Bosnia-Herzegovina, Croatia, Slo-venia,Macedonia,Russia,theCzechRepublicandSouthAfrica.FormoreinformationaboutExtremeIntimo,consultitsofficialwebsite,http://www.extremeintimo.com/en/home.php

3. Ivancic & Sons, pharmaceutical companyIvancic&Sonsmanufacturesandmarketspharmaceuticalproducts.Itwasfoundedin1991inBelgrade,Serbia.ThefirstIvancic&Sonspharmacyopened in 1991; the second opened in 2000; the third in 2004; and the fourthin2007.Thecompanyhas128employeesonlong-termcontracts.Inall,ithas65employeesinproduction,34inmanagement,15pharma-cistsand14pharmaceuticaltechnicians.Thecompany’spharmaciesarereputablehealthinstitutionswithastrongtraditionofqualitycontrolandhigh quality products. Pharmaceutical products by Ivancic & Sons alsoundergothestringenthazardanalysisandcriticalcontrolpoints(HACCP)systemtoensuretheirsafetyforpublicconsumption.Thecompany’sman-ufacturing facilities are located in Stari Banovci, while the management, marketing,salesandpurchasingdepartmentsareinBelgrade.

Ivancic&Sonsproduce22productsincludingmedicineanddietarysup-plements(both incapsuleandpowderforms).Dueto itsuseofcuttingedgemedicaltechnologyandcontemporarypackagingdesigns,thefirm’sproductsareveryrecognizable.

The company’s modern technology based management style promotesteamwork,strongworkdynamics,modernorganizationand,aboveall,ex-pertise.Morethanathirdofitsemployeesarehighlyqualifiedinthefieldsofmedicine,pharmacyandpharmaceuticaltechnologies.All itsemploy-eesaretaskedwithcontinuousprofessionaleducation.Asthefirmfollows

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globaltrendsinmedicine,pharmacyandpharmaceuticaltechnologies,theimplementationofnewideasisapriorityinIvancic&Sons’developmentplans.Throughclevermarketingtechniques,recognizableadvertisementsandinnovativepackagingdesignsofnewproducts,Ivancic&Sonsconveyaclearmessagetoitsconsumers.Wheneverthecompanyplacesanewproductonthemarket,itisbasedonoriginalideas,yearsofexperienceandthelatestexpertfindings.Itsmarketingactivitiestargetsknowledge-ablemembersofthepublicandthegeneralpopulationalike.Formorein-formationonthisfirm,consultitswebsite,http://www.ivancic.com/show.php?id=4&lang=en

4. Nektar, fruit and vegetable processing companyEstablishedin1997asasmallfamilyventureinlocalnon-alcoholicbev-eragesandapplevinegarproducts,NektareventuallygrewtobeoneoftheBalkans’biggestandhighlyrespectedfruitandvegetableprocessingcompanies(SIEPA,n.d.).In2013,thecompanybecamethebiggestfruitjuicemakerintheregion.ItalsobecamethebiggestfruitandvegetableprocessorinSoutheastEuropewithaproductioncapacityof120,000tonsperseason.Nektarhas themost important internationalqualitycontrolcertificates,mostup-to-datetechnologyandacompletecontrolovertheentire production process from growing of fruit, to fruit processing and tothemanufacturingofthefinalproduct.Itisanorganicproducerwithorganic control systems. Its products are also in linewith theGermanBCS Eco-Guarantee, thus assuring the public that its organic products are ofthehighestquality.Apartfromkeepingupwithcurrentglobaltrends,Nektaremphasizesinnovationandatechnologybasedstyleofmanage-ment.Thisnotonlyallowsthefamilymanagingthebusinesstocreatenewmarkettrends;italsomeansthatNektarisabletoattractateamofhighlyqualifiedmanagers,expertsandspecialists.Formoreinformation,consultNektar’sofficialwebsite,http://www.nectar.rs/

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Forbes, D. P., Borchert, P. S., Zellmer-Bruhn, M. E., & Sapienza, H. J.(2006).EntrepreneurialTeamFormation:AnExplorationofNewMemberAddition.Entrepreneurship:TheoryandPractice,30(2),225–248.

Francis,D.H.,&Sandberg,W.R.(2000).FriendshipwithinEntrepreneur-ialTeamsanditsAssociationwithTeamandVenturePerformance.Entre-preneurship:TheoryandPractice,25(2),5–26.

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Grozdanić,R.(2005).Preduzetništvo.Čačak:Tehničkifakultet.

Grozdanić, R. (2005). Preduzetništvo i zapošljavanje. Ekonomski vidici,10(2),119-136.

Grozdanic,R.(2006).Preduzetništvo.Čačak:Tehničkifakultet,VI.ISBN86-7776-016-4.

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Grozdanić,R.,Radović-Markovic,M.,&Vucic,M.(2009).FemaleEntre-preneurshipinSerbia.ERENETProfile,4(2),8-19.Retrievedfromhttp://www.erenet.org/publications/profile14.pdf.

Habbershon,T.G.,&Williams,M.L.(1999).AResource-BasedFrameworkforAssessingtheStrategicAdvantagesofFamilyFirms.FamilyBusinessReview, 12(1), 1-21. Retrieved from http://c.ymcdn.com/sites/www.ffi.org/resource/resmgr/best_of_fbr_english/bestoffbrii_habbershon_resou.pdf

Habbershon,T.G.,WilliamsM.,&MacMillan,I.C.(2003).AUnifiedSys-temsPerspectiveofFamilyFirmPerformance.JournalofBusinessVentur-ing, 18(4), 451-465

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Handler,W.C.(1989).MethodologicalIssuesandConsiderationsinStudy-ingFamilyBusinesses.FamilyBusinessReview,2(3),257-276.

Mandl,I.(2008).OverviewofFamilyBusinessRelevantIssues.Contractno.30-CE-01664021/00-51.FinalReport.Vienna:Austrian Institute forSME Research. Retrieved from http://ec.europa.eu/enterprise/policies/sme/files/craft/family_business/doc/familybusiness_study_en.pdf

Mijacic,D.(2011).AnalysisofBusinessSupportInfrastructureintheRe-public of Serbia. Belgrade: National Agency for Regional Development(NARD).Belgrade:NARD,RepublicofSerbia.Retrievedfromhttp://narr.gov.rs/index.php/narr_en/content/download/1315/7235/file/Analysis%20of%20Business%20Support%20Infrastructure%20in%20the%20Repub-lic%20of%20Serbia.pdf

Miller,D.,&LeBreton-Miller,I.(2006a)FamilyGovernanceandFirmPer-formance:Agency,Stewardship,andCapabilities.FamilyBusinessReview,21(1),73-87.

Miller,D.,&LeBreton-Miller,I.(2006b)Priorities,Practices,andStrategiesinSuccessfulandFailingFamilyBusinesses:AnElaborationandTestoftheConfigurationPerspective.StrategicOrganization,4(4),379-407.

Ministry of Economy and Regional Development, Republic DevelopmentBureau,RepublicAgencyforDevelopmentofSMEandEntrepreneurship.(2009).ReportonSmallandMedium-sizedEnterprisesandEntrepreneur-ship2008.Belgrade:NationalAgencyforRegionalDevelopment(NARD).Retrieved from http://narr.gov.rs/index.php/narr_en/content/down-load/1079/5305/file/Report%20on%20SME%202008.pdf

Ministry of Economy and Regional Development, Republic DevelopmentBureau, National Agency for Regional Development. (2010). Report onSmall and Medium-sized Enterprises and Entrepreneurship 2009. Bel-grade:NationalAgencyforRegionalDevelopment(NARD).Retrievedfromhttp://narr.gov.rs/index.php/narr_en/content/download/1080/5308/file/Report%20on%20SME%202009.pdf

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3.11. FAMILY BUSINESSES IN TURKEY

HISTORY, DEVELOPMENT AND CHARACTERISTICS OF FAMILY-OWNED BUSINESSES IN TURKEY

byAsst.Prof.MeltemInceYenilmezDepartment of EconomicsYaşarUniversityIzmir,Turkey

ABSTRACTFamilybusinessesareofgreatimportancetoTurkey.ThisarticleconsiderstheresultsofresearchcarriedoutonfamilybusinessesinTurkey.Whileanalysesofthewaysinwhichthecharacteristicsoffamilybusinessesaf-fecttheirentrepreneurialactivitieshavetraditionallybeenstudied,thereis insufficient researchon theways inwhich thedevelopmentof familybusinessescanaffecttheirsuccessionprocesses.Thisstudyanalyzesboththemain characteristics and issues of family businesses in Turkey. Thestudyalsodelvesintopoliciessupportiveoffamilybusinessesaswellassuccessionchallenges.Toillustratethedevelopmentoffamilyenterprises,thisstudyconsidersTurkey’stopfamily-ownedbusinesses.Thispaperwillbeginwith a discussion of the definition of family business, theirmaintraitsandtheirimportancetothenationaleconomy.Uponunderstandingthecharacteristicsoffamilybusinessesandthewaysinwhichtheseenter-prises contribute to economic growth, their challenges and opportunities willbeanalyzed.Therearetwokeychallengesthatfamilybusinesseswillfaceinthecomingyears.Firstly,wouldtheybeabletoseizetheopportuni-tiesawaitingthem?Secondly,howwillthesefirmsholdoutoncetheyhavechangedhandsandpassedontothenextgenerationofentrepreneurs?Uponanalyzingtheuniquequalitiesof familybusinessesanddiscussingthedifferentmeasures they couldadopt inmeetingpresent and futurechallenges,thispaperwillconcludewithabriefsummaryastotheoppor-tunitiesthatfamilybusinessesstillcantapinto.

Keywords: family-ownedbusiness,businesssuccess, familycontrol,en-trepreneurship

JELClassification:F23,J21,L21,L22,L26

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THE PHENOMENON OF FAMILY BUSINESSESAfamilybusinessisauniqueformofbusinessorganization.Familybusi-nesses come inmany different forms.Within a family firm, family andthestructureofthebusinessarethemostimportantfactors.Sincefamilyvaluesmaydifferfrombusinessvalues,familybusinessesshouldemploytheirfamilymemberssoastoimbuetheenterprisewithfamilytraditions.Althoughfamilybusinesseshavebeendefinedinmanydifferentwaysbyvariousresearchers,theyallagreethatthebusinessisalwaysfamilyori-ented.Itisgenerallyagreedthattheroleofthefamilyisofutmostimpor-tancetothefamilybusiness.Ontheotherhand,thereisnouniversallyaccepteddefinitionoffamilybusinesses.Mostdefinitionsoffamilybusi-nesscentreonthecontentsandpurposesoftheenterprise.Ownership,familyinvolvement,familypowerandcontrolwhentransferringthefamilybusinesstothenextgenerationarethecommonanalyticalpointsofre-searchesonfamilybusinesses.Inbrief,familiesarethebusinessowners(DonckelsandFröhlich,1991)businessmanagers (Dunn,1996)and/orworkers(AstrachanandShanker,2003) infamilyenterprises.AccordingtoBowman-Upton(1991),thecontrolofafamilyfirmlieswithitsfamilymembers.Chrisman,ChuaandSharma(2005),ontheotherhand,statethatfamilyinvolvementinthefirm’sbehaviours,resourcesandallocationof power will affect the ownership, management and succession of the familybusiness.ToChurchillandHatten(1987),afamily-ownedbusinessisonewheretheyoungergenerationinheritscontrolofthebusinessfromthepreviousgeneration.

Familybusinessesgenerallyexhibitbettereconomicperformancesandfi-nancial stability than non-family businesses. In short, the stability andprofitability of a family firmare influencedby the familymembers andtheway inwhich theywield their authority (Allouche et al., 2008). Asfamilycontroldirectlyaffectsthefirm’sfinancialstabilityandprofitability,family-ownedfirmsshoulddevelopamanagementsystemwherethesuc-cessorisabletocontinuethefirm’ssustainability.Ifthefamilybusinessiscontrolledbythefounders,thebusinessismoreefficient(McConaughy,MatthewsandFialko,2001).Whenfamilymembersarethemainstock-holdersofthebusinessandwhenfamilymembersparticipateinthefirm’smanagement,thefamilyenterpriseperformsbetterthannon-familybusi-nesses.Sincefamilybusinessesrejuvenatethemarketinmanyways,theyareoftenregardedaskeycontributorstotheeconomyofmanycountries.Familybusinesses’contributionstotheeconomyareattributabletotheir

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strongentrepreneurialactivities(Lazear,2002:1).ResearcherslikeHayek(1948) and Bianchi and Henrekson (2005) have pointed out the impor-tanceoffamily-ownedbusinesses.

InTurkey,thedefinitionoffamilybusinessisnotdependentonitssize.Companies in Turkeywith 1-50 employees are small enterprises,whilefirms with 50-150 employees are medium enterprises. According toKarpuzoğlu (2004), familybusinessesare companieswhere families al-locatekeymanagementpositionstofamilymemberssoastoensuretheyretain control of the business. On the other hand, Koçel (2006) statesthatafamilybusinessisanenterprisefoundedandmanagedbyoneormoremembersofafamilybeforeitistransferredtothenextgenerationofthesamefamily.UnderlyingboththesedefinitionsoffamilybusinessesinTurkeyisthefactthatthefamilyisthebuildingblockofTurkishsociety.In light of this, it is unsurprising to discover that the relationship within thefamilyaffectsthefamilybusinessstructure.Therearemanysmallandmedium-sizedenterprises(SMEs)inTurkey,ofwhichfamily-ownedmicro-enterprisesmakeup99.5%(Erdoğmuş,2007).

Therearecommonpoints inall thedefinitionsof familybusinessesdis-cussedsofar.Themostcommonlyuseddefinitionsoffamilybusinessestouch on the following: (a) The business is started by an entrepreneur from a family; family

membersareincludedinthefirmlater.(b) Businessmanagement in a family enterprise has its own cultural,

economical, social and ethical forms which affect business activities aswellasthefamily.Thefamily’smainaiminthebusinessistocon-trolthemanagementofthefirm.

(c) In sum ownership, management and business activities are the cen-tralconcernsoffamily-ownedbusinesses.

CHARACTERISTICS OF FAMILY BUSINESSES IN TURKEYAtdifferentstagesof itsoperation,afamilybusinesswillhavedifferentcharacteristics(Gersicketal.,1997).Inthefirststage,themanagerorthe founder of the business has a strong effect on decision-making and controlofthecompany.Theydosobyexercisingtheirprerogativeastheperson(s)whobuiltupthebusiness.AccordingtoKarpuzoğlu(2004),afamilybusinesshastoundergofourstagesofdevelopment:(a)itbeginslifeasafirstgenerationfamilybusiness;

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(b) it then grows into a business that involves the other members of the familyinitsmanagement;(c)afterwhich,itbecomesacomplexfamilybusinesswithitsownvaluesand business goals; and(d)itfinallyevolvesintoabusinessthatcanstandthetestoftimeandcontinuetoexistandthriveforgenerationstocome.Thesefourstagesofafamily-ownedbusiness’developmentareillustrated.

Table 1: Development stages of family businesses in Turkey

Source:Karpuzoğlu,2004(p124).

Ifthebusinessisfoundedbyanentrepreneurwhointendshis/herfamilytoworkforandwithhim/her,thenthisentrepreneurhassetupafamilybusiness.Bygivingfamilymembersmanagementcontrolofthecompanyand roping them in to work for the enterprise, the entrepreneur-founder is integratinghis/herfamily intothefirm.Althoughthefounder’sfamilyworksforandwithhim/her,he/sheremainstheownerofthefirms.Thismeanscontrolofthefirmandcrucialdecisionsvis-à-visthebusinessareinhis/herhands.Atthisstage,thefounderseekstoconsolidatemanagerialandfinancialcontrolofthenewlyestablishedfirminthehandsofhis/herfamily.Whenthisisachieved,thebusinesswillseektogeneratewealththroughgrowthanddevelopment.Inthissecondstageofdevelopment,business expansion is a decision undertaken by both the founder andhis/herimmediatefamilysuchassiblingsorspouse.Thisisbecausethefounder’sspouseand/orsiblingswouldhavebeen incorporated into thebusinessatthispoint.Thefirm’smanagementstylewillbeshapedduring

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this period, as input will come from the founder and other members of thefamily,eachaccordingtotheirabilities.Theentryoffamilymembers(whether spouses, siblings or children) into a business is fraught with fi-nancial,psychologicalandemotionalchallenges.Additionally,thefutureofthebusinessatthisstageisdependentonthecareerpathschosenbythefounderandtheotherfamilymembers.Inorderforthefirmtosucceed,thefounderandallfamilymembersinvolvedinthebusinessmustweathertheproblemstheyfaceduringthisdevelopmentprocesssoastocreatenew opportunities for the firm’s future generation of owners. Should afamilybusinessbeabletoovercomemostofthechallengesinthisstageofdevelopment,itwillbecomeamulti-generationalandcomplexcompany.Itismoredifficulttomanageamulti-generationalandcomplexcompanythanan initiallyestablished familybusiness.However, theopportunitiesencounteredbythefirmatthisstagearemanyandwillhelpeasethesuc-cessionprocess.Whenthesuccessionprocessismadeeasier,thefamilymembers’loyaltyandfaithinthefirmwillincrease.Asaresult,thefirmwill look to innovative policies and new disciplines to create a more suc-cessfulbusiness.Thelastdevelopmentalstageforthefamilybusinessisthechallengeofachievingbusinesscontinuity.Bythistime,thefirmhascompleteditsmaturationandisolderthanmanyofthefamilymembers.The careful consideration of the succession process adds to the institu-tionalization to the business because business values will supersede fam-ilyvaluesatthispointinthefamilyfirm’sdevelopment.Thussuccessionstrategiesandplansmustbegivencarefulthought.

Unfortunately,therearenotmanystudiesonfamilybusinessesinTurkey.One of the reasons for this is becausemany family companies cannotmakeitpastthefirstthreestagesandcollapseinthefaceofchallenges.Asanupshot,mostfamilybusinessesinTurkeyaresmallenterprisesorregionalenterprises.TherearefourtypesoffamilybusinessesinTurkey:

1.Familylimitedpartnership.Insuchacompany,alldecisionsaremadebythebossorowner.2.Siblingsarethemainshareholdersof thebusiness.Thesiblingsalsosharethemanagementofthecompany.3.Complexfamilybusinesseswheredifferentfamilymemberswithdiffer-entdegreesofrelatednessareshareholdersofthebusiness.4. Settled family companieswhere business is directed by professionalmanagers.Thistypeoffamily-ownedbusinessgenerallywantstoinstitu-tionalize.

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THE ECONOMIC IMPACT OF FAMILY BUSINESSES IN TURKEYOnly18 familyenterprises inTurkeyhavea longhistory.Mostof themhave an average of 100-200 years history.Out of the 18 longstandingfamilybusinessesinTurkey,onlyahandfulwerefoundedbeforethe1900sandstillgoingstrongtoday.ThelifespanoffamilybusinessesinTurkeyisunfortunatelyshort.Theoldestknownfamilyfirmsarenowinthehandsoftheirfourthgenerationowners.Astudyon50ofTurkey’soldestfamilyfirmsrevealed that21of themarecurrentlymanagedthesecondgen-eration,26areownedbythegenerationandonly3-CağaloğluHamamı(foundedin1471),AliMuhittinHacıBekir(foundedin1777)andÇukurovaGıdaSanayi(foundedin1783)-havebeentransmittedintacttothefourthgeneration.

The companies that began life as small enterprises now lead the Turkish economy.3Turkishfamily-ownedbusinessesarenowpartoftheworld’sbiggestenterprises.TheyareSabancıHolding,DoğuşHoldingandtheKoçGroup.MostsmallandmediumfamilycompaniesareinTurkeyarestillinthe hands of the first generation and will hand over management to the nextgenerationinthecomingyears.SincetherearemoreTurkishfamilybusinessesthanintheworldaverage,itisunsurprisingtofindthattheycontributeagreatdealtothenationalincomeandeconomy.• In2011,therewerealmost3.5millionfamilybusinessesinTurkey.In

otherwords,fouroutoffiveofprivatesectorenterprisesinTurkeyin2011werefamilybusinesses.

• ThevastmajorityofthesefamilybusinesseswereSMEs.Therewerealsoapproximately3,000largefamilyfirms.

• 23.4%offamilybusinessesareinIstanbul.• Withinthelastdecade,familyfirmsincreasedtheirexportsbyalmost

60%,therebycontributingEUR75million(55.5%)valueaddedtotheTurkisheconomy.

• Familybusinessesmakeupof65%of totalproduction.52%ofallworkersinthecountryarepaidbyfamilybusinesses.

• Familybusinessesemployednearly7.7millionpeople.Inshort,threeoutofeveryfiveprivatesectorworkersareemployeesoffamilybusi-nesses.

43%ofTurkishfamily-ownedbusinessesareintheautomobileandtradesectors,16.5%areinthetransportationsector,14%areinconstructionand13%areinmanufacturing.VeryfewSMEs(only2%)areinthehealth

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andmedia sectors. There are no family enterprises directly conductingbusinesswiththeTurkishpublicsector.49%offamily-ownedfirmsavailthemselves to consulting services before making strategic business deci-sions,while51%offirmsfindconsultingservicestobeuseless.Although44%ofseniormanagersinfamily-ownedbusinessesplaceimportanceonpersonaldevelopmenttraining,only36%ofmiddlemanagementbenefitsfrom these opportunities. 64% of these enterprises’ board of directorsmeetregularlytodiscussbusinessmanagementissuessoastomakethebestdecisionsforthefirms,whiletheremaining34%donot.Menmakeup45%ofthesebusinesses,whilewomenmakeup23%.InmostTurkishfamily-ownedbusinesses,onememberofthefamilycontrolsthedecision-makingandleadstheothers/workers(Ince,2012).

Figure 1: Number of family businesses by size of family firm in 2011

Source: OECD and the Turkish National Statistical Office, compiled byCambridge Econometrics

THE CHALLENGES FACED BY FAMILY BUSINESSES IN TURKEYTurkishfamilybusinesseshaveincreasedtheirsalesgrowthby81%lastyear, incontrasttotheglobalsalesgrowthof65%.Only9%ofTurkishfamilybusinessesfacedadeclineinsales,whereas19%offirmsworld-wide reported a drop in their sales growth. Due to current conditions,allbusinessesaroundtheworldarefacingvariouschallenges.However,family-ownedbusinesses inTurkeywere less concernedabout theeco-nomicsituationin2012thantheywerein2010.Otherinternationalfamilyfirms outside Turkey cited three external elements affecting their busi-nesses:marketconditions(37%),governmentpoliciesand/orregulations

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(34%)andcompetition(16%).ThesethreeexternalreasonshaveboostedTurkishfamilybusinesses’confidenceinconductingbusinessabroad(PwC,2012).

Figure 2: Challenges family businesses face at the national and international levels

Source:PwCGlobalFamilyBusinessSurvey–ResultsofTurkey,2012.

41%ofTurkishfamilybusinessfoundersthinkthathandingoverthefirmtothenextgenerationwillcauseproblems.Internationally,only32%offamilyfirmfoundersexpressthesamedoubt.30%ofTurkishfamilybusi-nessesacceptthatconflictbetweenfamilymembersisnaturalwhentheenterpriseishandedovertothenextgeneration.Internationallyhowever,only 9%have the same reservations. 63%of family businesses in theglobalmarketcall themselvesentrepreneurs,while69%of familybusi-nesses inTurkeyhavedubbedthemselvesentrepreneurs.While54%ofTurkishfamilybusinessesbelievetheyarereadytotakeonmorerisks,only39%offamilybusinessesatthegloballevelsharethisbelief.FamilybusinessesinTurkeyemphasizethecreationofemploymentevenduringtimesofcrisis.ThisdesiretoeasethesocialchaosinthelabourmarketdemonstratesTurkishfamilyfirms’decisiveness.Throughtheirsupportofemployment during tough economic times, family businesses in Turkey

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havehastenedthecountry’srecoveryfromthesecrises.81%ofTurkishfamily-ownedbusinessesagreethatsocialresponsibilityisimportantandthattheyshouldincreasetheirparticipationinthesesocialinitiatives.In-novationisalsoheldtobethekeyissueinthedevelopmentofmanage-mentinTurkishfamilyfirms,for77%ofTurkishfamilyenterpriseshavedeemedittobeapriority.Turkishfamilybusinessespaysimilarattentiontotheacquisitionofnewtechnologyandtechnicalskills.Theyareawarethatlackoftechnicalskills,inadequatefundingforprojectsandinsufficientresources weaken their technological development and business advan-tages.Inordertobecompetitiveintheglobalmarket,Turkishfamilyfirmsneed tohavesignificantsustainablegrowth.To thatend, theyareverykeenonacquiringinnovationandtechnology.

Figure 3: Main challenges to Turkish family firms in the next five years

Source:DirectorateGeneralforProductivity,MinistryofScience,IndustryandTechnology,RepublicofTurkey,2013

Though family businesseswish to enhance their technological capacity,theirlackofaccesstocreditandequitymaypreventthemfromdoingso.AsmostfamilyenterprisesinTurkeyareveryyoung,theyaredeemedtobeveryriskyandthereforewillnotlikelyobtainfinancialcreditorventurecapitaliftheyweretoseekthem.Inadequatetechnologicalcapacitywillimpinge upon the family firm’s technological production and case it tostagnate.Moreover,anindividualhastogothroughcomplexadministra-tive procedures before he/she can conduct business activities or set up abusiness inTurkey.Anenvironmentfriendlyto familybusinesseswithsimpler legal procedures and reduced registration costs will be conducive

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to family-ownedcompanies in thecountry. Inbrief, lackof information,insufficient specialization inproduction, scarcityof resourcesandmoralhazardsmakeitdifficultforfamilybusinessestocontinuedoingbusiness.

THE MOST FAMOUS TURKISH FAMILY BUSINESS IN THE INTER-NATIONAL ARENAThree Turkish companies are amongst theworld’s top 100 family busi-nesses.TheyaretheKoçGroup,SabancıHoldingandDoğuşHolding.

TheKoçGroupwasestablishedin1926byVehbiKoçandpresentlycon-tributes9% to Turkey’s national revenue, 11% toTurkey’s total exportandpays15%oftaxesinTurkey(DünyaGazetesi,22April2008,quotedinInce,2012).KoçHoldingisunderthemanagementofthethirdgenera-tion.VehbiKoçleftthecompanytohisson,RahmiKoçin1984.RahmiKoç,inturn,leftittohissonin2003.Whenthesuccessorhastakenoverthecompany,thepredecessorsremainKoçHolding’shonorarypresident.(Seewww.koc.com.tr/kurumsal/tarihce).

AsVehbiKoçsawhimselfasanentrepreneur,hedecidedtoestablishaholding groupnot long after startinghis business.Hedid so out of anambitiousdesireforhisholdingcompanytothrivewellintothesuccessivegenerations.HeprofessionalizedthemanagementofthecompaniesunderKoçHoldingandremainedpresidentoftheboardofdirectors.Underthethirdgeneration,Koçfamilymembersareontheboardofdirectorsofthecompaniesandtheholding.KoçHoldingowesitssuccesstoVehbiKoçpri-oritizingdevelopmentandraisinghissontobehissuccessor.

Turkishfamilybusinessesareabletodevelopsuccessfullybecauseoftheimprovededucationofthesuccessiveeducations.Thisisespeciallytrueaf-terthe1960s.Turkishfamilybusinessesarealsoabletoadapttochangingmarketconditionsbecauseforeignshareholdersweregraduallyincludedinthecompanies.ThiswasthecaseforKoçHolding.

Instead of remaining in the industrial sector, it institutionalized and ex-panded its operational base.Aspart of this institutionalizationprocess,KoçHoldingestablishedtheTurkishEducationFoundation(TEF)toprovidedonations for educational purposes and to support activities in health and culture.Tohelppeoplewithfamilyhealthproblems,thecompanyestab-

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lishedtheTurkishFamilyHealthandPlanningFoundation(TAPV)sothatthepublic’shealthcareneedscanbemet.Tothatend,TAPVhasinvestedin various health related institutions such as the American Hospital, Italian Hospital,MedAmerikanPolyclinic,NursingFund,theSemahatArselNurs-ingTrainingandResearchCenter(SANERC),andKoçUniversity’sSchoolofNursingtonameafew.TAPVhasalsosupportedmanystudentsthroughscholarshipsanddonations.Todate,TAPVhasbuilt13primaryschoolsaroundthecountryandtransferredtheseschoolstotheMinistryofNa-tionalEducation.ItisalsothefounderofKoçPrivatePrimarySchool,HighSchoolandUniversity.NotonlydoesTAPVprovidefundsforpeoplewhoneedassistance,italsocreatesjobopportunitiesthroughmorethan113companies,14,000dealersandagenciesinthecountry.AsKoçHoldingisactiveintheautomotive,food,financial,energy,tourism,construction,in-ternationaltradeanddurablegoodssectors,ithas45,626employeesandmakesacorporateincomeof$4.9billion.Itemploysthemostpeopleintheautomotivesector.ThroughTofaşandFord,KoçHoldingemploysmorethan9,000peopleintheautomotivesector.KoçHoldingisalsoforemostamongstitscompetitorsindurableconsumergoods,asitemploysmorethan7,000peopleinArçelikandBeko.Asmaybesurmisedfromallthefactsdiscussedthusfar,KoçHolding’scontributiontotheTurkisheconomyisveryimportant.FormoreinformationonKoçHolding,pleaseconsultitswebsite,http://www.koc.com.tr.

SabancıHolding isanotherTurkish familycompanywitha longstandinghistory.Itwasestablishedin1966byHacıÖmerSabancıandisnowman-aged by its third generation. Sabancı Holding’s history began in 1932,whenHacıÖmerSabancı investedthemoneyhehadsaved inacottongin.With theprofit hegained through the cottongin,heestablishedavegetable oil factory in 1946 that he namedToroslar trading company.Thatwas the cornerstone of the Sabancı business empire. It graduallyadded textiles, financial services, chemicals, retailing, insurance compa-nies, tourism, construction, cement,manufacturing, tyremanufacturingandmoretoitsproductionportfolio.NowitssalesamounttoalmostUSD6billionperyear.SabancıHoldingshas75companies,including13publiclylistedcompaniesinawiderangeofindustries.Throughitsnumerouscom-panies, it operates in 18 countries across Europe, the Middle East, Asia, NorthAfrica,NorthAmericaandSouthAmerica.Manyof its companiesareinjointventureswithlargeforeignfirmslikeAviva,Bridgestone,Car-refour, Citigroup, Dia, Heidelberg Cement, International Paper and Philip

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Morris.CompaniesheldbySabancıHoldingswillcontain“sa”intheirof-ficialnames,for“sa”aretheinitiallettersofSabancı’sname.TheSabancıFoundation was established in 1974 as a partner organization to the Third Sector Foundation of Turkey (TÜSEV) and the European Consortium ofFoundationsonHumanRightsandDisability.TheSabancıFoundation isalso a governing council member of the European Foundation Center (EFC) andamemberof theCouncilonFoundations (COF).More than36,000students have obtained scholarships through the Sabancı Foundation’sprogrammes.ItalsosupportstheAnkaraInternationalMusicFestival,theMetropolisAntiqueCityexcavationinIzmirandtheTurkishNationalYouthPhilharmonic Orchestra. Sabancı University was established in 1994 asaworlduniversitywithauniqueeducationalsystem.Formoreinforma-tionSabancıHoldingsandtheSabancıFoundation,pleaseseeitswebsitehttp://www.sabanci.com.tr/en.

DoğuşHoldingisoneofthreelargestfamily-ownedbusinessesinTurkey.Itholds32companies, includingoneofTurkey’s largestbanks,GarantiBank.ItalsohasPorsche,AudiandVolkswagendealerships.Itisengagedintheretailing,food,media,energy,constructionandtourismsectors.Itwas founded in1951byAyhanŞahenkwith investments fromthecon-structionsector.AfterestablishingitselfastheleadingbuilderofTurkishroads, ports and hospitals, it added tourism, banking and media to its business structure. It is very customer focused in all its companies. Ithasaproductivitycentredmanagementstyleandprovides jobstoover30,000people.Italsoplacesgreatimportanceonsocialresponsibilityandsponsorship projects. Its social responsibility programmesmostly focuson child development, education, environment, culture and sports. FormoreinformationonDoğuşHolding,pleaseseeitswebsite,http://www.dogusgrubu.com.tr/en.

CONCLUSIONTheissueofsuccessionisinevitableforthecontinuityofthefamily-ownedbusinesses.Goodsuccessionplanningandasmoothtransitionofpowerfrom one generation to the next will help prevent the collapse of the busi-ness.Aspreviouslydiscussedinthispaper,moreattentionhastobepaidtotheconceptofentrepreneurshipinTurkey.LiteratureonthesubjectisverylimitedandsocialnormsofTurkishsocietymakeitdifficulttoconductfieldresearchandcollectdata.AlthoughmanyTurkishfamilybusinesses

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knowtheyhavetohandovertheircompaniestothenextgenerationinthenear future, the succession process often fails to effect a smooth transi-tion of power and the companies fail in the second or third generation as aresult.SupportfrombusinessdevelopmentinstitutionswouldenhancetheinfrastructureofTurkishfamilybusinessesbyhelpingthemtoshapeandgraspappropriatemarketandsocio-economicopportunities.Perfectinformation of the market with low costs and support from governments will have positive consequences for the economy. Family businesses inTurkeyfacethechallengesof intensifiedcompetition,expandingmarketopportunities,widerdistributionchannelsandincreasingproducts.Family-owned businesses need managers who are capable of making strategic decisions and overcoming these challenges. This is a very timely issuebecausemostfamily-ownedbusinessesinTurkeyareexperiencingperfor-mancedifficulties. Entrepreneurial programmes for family businesses should, therefore,monitortheindustrial,commercialandsocialpolicies.Theseprogrammesshould also alleviate the plight of the downtrodden and oppressed, such aswomenand theyoung,byproviding themwith thepush tostartupsmallbusinessesoftheirown.Furthermore,creditsubsidiesforstart-upsand ongoing businesses should be enhanced with other inclusive plans in ordertoachievebusiness longevity.Familybusinessesdiffer fromotherbusinessesintermsofvalues,emotions,beliefsandculture.Familyfirmshavesucceededbecausetheyareadaptable,progressiveinthoughtandloyal.TheseprinciplesareattheheartofthebiggestfamilybusinessesinTurkey.Theseprinciplesare the reasons for successful thirdgenerationmanagementandownershipofcompaniessuchastheKoçGroup,SabancıHoldingandDoğuşHolding.All inall, family-ownedbusinesseshave todecidewhethertheywishtoincorporatetheirbusinessesintomorecom-petitivemarketsortochangehands.Sincebusinesssuccessandthecon-tinuityofthefirmarethecoredesireofallcompanies,Turkishfamilyen-terprisesshouldadoptcorporatemanagementprinciplesinordertogrow.

REFERENCESAllouche,J.,Amann,B.,Jaussaud,J.,&Kurashina,T.(2008).TheImpactofFamilyControlonthePerformanceandFinancialCharacteristicsofFam-ilyVersusNonfamilyBusinesses inJapan:AMatched-PairInvestigation.FamilyBusinessReview,21(4),315-329.Retrievedfromhttp://c.ymcdn.

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com/sites/www.ffi.org/resource/resmgr/fbr_most_popular/fbr_allouche_theimpactoffami.pdfAstrachan,J.H.,&Shanker,M.C.(2003).FamilyBusinesses’Contribu-tiontotheU.S.Economy:ACloserLook.FamilyBusinessReview,16(3),211-219.Bianchi,M.,&Henrekson,M.(2005).IsNeoclassicalEconomicsstillEntre-preneurless?Kyklos,58(3),353-377.Retrievedfromhttp://swopec.hhs.se/hastef/papers/hastef0584.pdfBowman-Upton,N.(1991).TransferringManagementintheFamily-OwnedBusiness.U.S.SmallBusinessAdministration:EmergingBusinessSeries,EB-1. Retrieved from http://fgnw.natbic.org/docs/ManagementTransfer.pdfChrisman,J.J.,Chua,J.H.,&Sharma,P.(2005).TrendsandDirectionsintheDevelopmentofaStrategicManagementTheoryoftheFamilyFirm.Entrepreneurship:TheoryandPractice,29(5),555-576.Churchill,N.C.,&Hatten,K. J. (1987).Non-marketbased transfersofwealthandpower:Aresearchframeworkforfamilybusinesses.AmericanJournalofSmallBusiness,11(3),51-64.Donckels,R.,&Fröhlich,E.(1991).AreFamilyBusinessesReallyDiffer-ent?EuropeanExperiencesfromSTRATOS.FamilyBusinessReview,4(2),149-160.Dunn,B. (1996).FamilyEnterprises in theUK:ASpecialSector?Fam-ilyBusinessReview,9(2),139-155.Retrievedfromhttps://www.lgassoc.com/Articles/customer-files/142-Family-Enterprises-in-the-UK-Barbara-Dunn.pdfErdoğmuş, N. (2007). Aile İşletmeleri Yönetim Devri ve İkinci KuşağınYetiştirilmesi.İstanbul:İGİADYayınları.Retrievedfromhttp://www.igiad.com/assets/content/files/aileisletmel_file_2613_20121595938.pdfEuropeanCommission. (2013).SBAFactSheet2013:Turkey.Brussels:European Commission Enterprise and Industry. Retrieved from http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/perfor-mance-review/files/countries-sheets/2013/turkey_en.pdfGersick,K.E.,Davis,J.A.,Hampton,M.M.,&Lansberg,I.(1997).Gen-erationtoGeneration:LifeCyclesoftheFamilyBusiness.Boston,Massa-chusetts:HarvardBusinessSchoolPress.Hayek,F.A.(1948).IndividualismandEconomicOrder.Chicago:Univer-sityofChicagoPress.Retrievedfromhttp://mises.org/books/individualis-mandeconomicorder.pdfInce,M.(2012).OverviewofFamilyBusinesses:AResearchfromTurkey.

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ERENETProfile,7(3),14-23.Retrievedfromhttp://www.erenet.org/pub-lications/profile27.pdfKarpuzoğlu,E.(2004).Ailesirketlerininsurekliliğindekurumsallasma[In-stitutionalizationandthecontinuityoffamilybusinesses].PaperpresentedattheIstanbulKulturUniversity1stCongressofFamilyBusinesses,17-18April,Istanbul,Turkey.Koçel,T.(Ed.).(2006).2.AileİşletmesiKongresi-KongreKitabı,14-15Nisan.İstanbul:İstanbulKültürÜniversitesi.Lazear.E.M.(2002).Entrepreneurship.NBERWorkingPaperSeries,No.9109.Cambridge,Massachusetts:NationalBureauofEconomicResearch.Retrievedfromhttp://www.nber.org/papers/w9109.pdfMcConaughy,D.L.,Matthews,C.H.&Fialko,A.S.(2001).FoundingFam-ilyControlledFirms:Efficiency,RiskandValue.JournalofSmallBusinessManagement,39(1),pp:31-49.Retrievedfromhttp://sbaer.uca.edu/re-search/icsb/1997/15.pdfPricewaterhouseCoopers. (2012). Family Firm:A resilientmodel for the21stCentury.Retrievedfromhttp://www.pwc.com/en_GX/gx/pwc-family-business-survey/assets/pwc-family-business-survey-2012.pdf

WEBSITESKoçHolding, the largest investmentholdingCompany inTurkey.Officialwebsite.Retrievedfromhttp://www.koc.com.tr/en-usSabancıHoldingofficialwebsite.Retrievedfromhttp://www.sabanci.com.tr/en DoğuşGrubu(DoğuşHolding)officialwebsite.Retrievedfromhttp://www.dogusgrubu.com.tr/en

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3.12. FAMILY BUSINESS IN UKRAINE FAMILY BUSINESS DEVELOPMENT AND THE SOCIAL

REINTEGRATION OF CRIMEAN TATARS IN UKRAINE

byEskender BariievChairmanCenterofpoliticalanalysisandforecasting“Crimea”Simferopol, Ukraine

ABSTRACTThis article reviews the problems in family business development inUkraine.Thesocio-economic integrationof theCrimeanTatarpeople inUkrainiansocietythroughthedevelopmentoffamilyandsmallbusinesseswillbeanalyzedaswell.ThisarticlewillalsoexaminecurrentUkrainianrealities,particularlytheproblemssurroundingtheformationandfunctionoffamilybusiness.Insodoing,Iacknowledgethatsuchresearchhasnotyetbeencoveredinthenationalscientificliterature.

The reintegrationof formerlydeportedpeoples intoUkrainiansociety isstillongoing.Itspaceandprospectsaredependentonstatepolicytowardsthesocio-economicdevelopmentoftheCrimeanTatars,Ukrainiansocietyatlargeandtheeffectivenessofthepracticalmeasuresimplementedbytheauthoritiesvis-à-visthereturnandresettlementofpeoplespreviouslydeportedfromthecountry.

Owingtothe lackofdomesticresearchonthe issue, it isnecessaryforUkrainewatchersandscholarstomethodologicallyanalyzethetheoryandpracticeofstatepolicyonthesocio-economicreintegrationoftheCrime-anTatars intoUkrainiansocietyandEurope.Familybusinessmatters inUkrainecanonlybetrulyunderstoodwhenthesocio-economicreintegra-tionoftheCrimeanTatarsisanalyzed.

Ukraineisanindependentcountrystrategicallybuildingademocraticcivilsociety.Thus,anyeconomicstudyorresearchonthebusinessinthecoun-tryshouldconsiderthepublicpolicytrendsandpeculiaritiesvis-à-visfam-ilydevelopmentandtheimpactofthosefamilyorientedpoliciesonsmallandmedium-sized enterprises.Onlywhen the reintegration ofCrimeanTatars intoUkrainiansocietyhasbeennormalizedand inter-ethnichar-

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monyestablishedcansocio-economicstabilityoccur.Thus,beforediscuss-ingfamilybusinessesinUkraine,wemustunderstandthegovernment’sethnicpolicies.

This paper will review the current scientific literature and legal framework of Ukraine’s public policy on family business development and analyzethegovernment’sinteractionwithfamilybusinesses,beforerecommend-ingpossiblewaysthroughwhichinteractionsbetweenfamilybusinessesandtheUkrainianauthoritiesmaybeimproved.Thetheoretical-method-ologicalapproachofthispaperwillanalyzethemajorproblemsoffamilybusinesses,theissuesconcerningfamilybusinessdevelopmentaswellasthehistoryandtheoryofinternationalstudiesonfamilybusinesses.Stateregulationsandlegalsupportforfamilybusinesseswillalsobestudiedindetail so as to provide us with a better picture on the functions, contribu-tionsandfutureoffamilyenterprisesinUkraine.

Researchobjective–Ukrainianstatepolicyonthedevelopmentoffamilybusinesses.

Research subject – analyzing family business development through theformationandimplementationofstatepolicyonthesocio-economicrein-tegrationofCrimeanTatarsintoUkrainiansociety.

In the literature review section of this paper, the author used sociological methodsandstructural functionalismtocomparativelyanalyzethecon-cepts and definitions published by other scholars. To analyze the datacollected from the State Statistics Service of Ukraine, assorted research documentsandformalin-depthinterviewswithfamilybusinesses,theau-thorconductedempiricalmodellingandparticipantobservation.

FamilybusinessesinUkrainelacksupportfromstatepoliciesandfinancialinstitutions. This is unsurprisingbecause family business is not definedin Ukrainian legislation. There is presently no consensus on the futuredevelopmentofUkrainianfamilybusinesses.Implementation of laws that fight corruption and make it easier to conduct businesses in Ukraine are vitaltothecountry’seconomy.Theimplementationoftheselawswillnotonlybodewell for thedevelopmentof familybusinessesandsmallandmedium-sizedenterprises(SMEs);theywillalsorenderUkrainemoreat-tractivetoinvestors.=

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Thispaper,presentedataconferencediscussingthedynamicsoffamilybusinesses in the countries of Black Sea region and the conditions under whichtheymayflourish,addstotheprevailingliteratureonfamilybusi-ness studies. It does so in twoways. Firstly, it examines national andinternationalprogrammesrelatedtofamilybusinesses.Secondly, itrec-ommendstheimplementationofplans,projectsandlegislationforfamilybusinesses.

Keywords:CrimeanTatars,socio-economicandlegalproblems,resettle-ment,legislation,familybusinesses,socio-economicintegration,Ukrainiansociety,smallbusiness,strategicdevelopment,statepolicy,entrepreneur-ship, Unified State Register of Enterprises and Organizations of Ukraine, financialactivity,consumercredit,registrationofanenterprise,bankloan,familytraditions,operationalplans,BlackSeacountries.

1. HISTORY OF FAMILY BUSINESSES IN UKRAINEThe process of resettling the Crimean Tatars coincided with the collapse of theSovietUnion.ItmarksthebeginningofbasicpoliticalandeconomicreformsinUkraine.Repatriatesfacedsocio-economicandlegalproblemslikethelackofhousingandjobs.CrimeanTatarswerenotallocatedlandfortheconstructionofprivatehousing.Theyweredeprivedoftherighttoparticipate in theallocationofagricultural lands.Theywerenotem-ployed in state institutions. In order to survive and build their houses,Crimean Tatars had to organize businesses involving the whole family.RepatriatedCrimean Tatars aremostly active in food productionwheretheysellcookedanduncookedfoodstufftomarketplaces,cafes,restau-rantsandsmalltradefoodestablishments.Theyalsoworkpart-timeonfarms,greenhousesandsmallhotelbusiness.Theyarealsoresponsiblefortherevivalofsalesinnationalhandicrafts.Howeverthelackofinterac-tion between public administrations, non-governmental organizations and business enterprises in the decision-making process at the local adminis-tration levelwithrepresentativesof formerlydeportedcommunitiesandother citizens has added to the legislative problems of the repatriation programme.Asaresult,manyCrimeanresidentsarelivingbelowthepov-ertylineandmostoftheireconomicactivitiesareverybasic.Thesocio-economicgrowthoftheAutonomousRepublicoftheCrimeaisseriouslylimited by its poverty. Poverty in the Crimea leads to slower economicgrowth, negative demographic balance and reduces the competitive ad-

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vantagesofthepeninsula.Povertydecreasesthepopulation’sdemandforgoodsandservices.Thedemandforgoodsinthepopulationisrestrictedtoitemsthatarestrictlynecessary.Asaresult,thedevelopmentoflocalmanufacturersbecomeslimited.This,inturn,leadstothestagnationoftheeconomyanddeterioratingtaxrevenues.Theencouragementofbusi-nesses in the Crimeawill enhance its economic growth. This economicgrowthwould lead to improvedqualityof life for its residentsandgoalong way in reducing inequality and poverty. Continued poverty in theCrimeawillexacerbatesocialtensionsandnegativelyimpactinter-ethnicand inter-religiousstability.Therefore,alleviatingpoverty in theCrimeawillincreasethestabilityandsecurityoftheBlackSearegion.

2. DEFINITION OF FAMILY BUSINESSES IN UKRAINEAlthough Ukrainian small businesses have become more active in recent years,familybusinessesarenotdefinedintheUkrainianlegislation.Do-mesticresearchhasyettocatalogueorstudythepeculiaritiesandprob-lems touching on the formation and functions of family businesses inUkraine.Incontrast,researchonthedevelopmentandgrowthoffamilybusinesseshasbeenpublishedabroad.

3. IMPORTANCE OF FAMILY BUSINESSES IN THE NATIONAL ECONOMYAsayoungindependentstate,Ukraine,aspirestohavethesamestandardoflivingastherestofEurope.Ukraineisalsograduallybringingitslegisla-tionuptoscratchwithEuropeanlegislation.

Smallfamilybusinessesfacethesameproblemsassmallnon-familybusi-nesses. Themany changes and additions to Ukrainian legislation sinceindependenceareofteninconflictwithoneanother.Insomecases,theydirectlycontradictcurrentregulations.Thismakesitdifficultforallenter-prises,regardlessofsize,todobusinessinthecountry.Smallentrepre-neursoften find it verydifficult tonavigate through the legalminefieldthatisUkrainianlegislation.InUkraine,therearenomechanismsforthesupport,promotionandprotectionof smallbusinesses.To remedy this,thestatehastodevelopanationalsystemofsupportforbusinesses,en-courage the initiative of small businesses and provide public financial as-sistancetoenterprisesinneed.Giventhelackofgrowthinemploymentrates,itislikelythatsmallbusinessesinUkrainearemostlyfamilybusi-nessesemployingmembersoftheirimmediatefamilies.

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According to the State Statistics Service of Ukraine, 1,335,834 businesses were registered in Unified State Register of Enterprises and Organizations ofUkraineon1August2013.TheUniqueStateRegisterofEnterprisesandOrganizationsofUkraine (USREOU) clarifies this furtherby stating that494,692businessesare limited liability companies,279,827areprivateenterprisesand114,306arebusinessorganizations.Asthereisnodefini-tionoffamilybusinessinUkrainianlegislation,theStateStatisticsServiceofUkrainedoesnotanyinformationonfamilybusinesses.Approximately20,084,500peoplewereemployedinUkrainein2012.Itisunknownhowmanyoftheseworkersareinfamilybusinessesasfamilyenterprisesorsolotraders.This isbecausefamilybusinessesandsolotradersarenotrecognizedbylaw.Astheyarenotrecognizedbylaw,theircontributionstotheeconomyarenotfactoredintonationalstatistics.ExistingdataonlyliststhenumberofpeopleworkinginSMEsandlargeenterprises.How-ever,itisknownthat1.45millionprivateentrepreneurspaidtaxattheendof2012.TheextenttowhichfamilybusinessescontributetoGDPisalsounknown.SincefamilybusinessesarenotdefinedinUkrainianlegislation,theydonothaveanylegalforminthecountry.Thus,theauthorhastocomparetheGDPcontributionsofSMEsandlargeenterprises.Accordingtovariousestimates,SMEscontributebetween5-12%ofGDP.Giventhepreponderanceofsolotradersandfamilymicroenterprisesinthecountry,the author estimates that 30%of the population are engaged in smallbusinesses. Thesebusinessactivities of these small enterprises revolvearoundtradeandservices.Thesesmallbusinessescanbefoundsellinghandicraftsorofferingrepairservices.Othersoperatesmallhairdressingshops,cafesandroadsidestalls.


ThereisnodataonfamilybusinessesinUkrainebecausetheyareneitherdefinednorrecognizedbylaw.Thus,theauthorcanonlyanalyzethechar-acteristicsanduniquequalitiesofsmallbusinessesinUkraineandassumethattheyholdtrueforfamilybusinessestoo.

SmallfamilybusinessesfacethefollowingspecificproblemsinUkraine:1) Entrepreneurs are unable to develop their businesses a.Smallbusinessesareverysensitivetoeconomicfluctuationsand

would be unable to grow in times of recession and economic depres-sion.

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b.Whilehighratesofinflationaredeleterioustoallbusinesses,theyareespeciallyharmfultosmallbusinesses.Inflationwilladdtosmallbusinesses’financialdifficulties.

c.Smallbusinessesdonothavemuchinthewayoffinancialreserves.Rising interest rates on loans prevent them from seeking financial as-sistance,astheywouldbeunabletorepaytheseloans.Deprivedoffinancialassistance,smallbusinessesfinditverydifficulttodevelopandgrow.

d. Numerous studies have emphasized that state support of smallbusinessesindevelopedcountriesisoneofthekeydriversofpros-perity. Yet, there is neither state regulation nor support for smallbusinessesinthecountry.

Small businesses are unable to grow because they face thesemacroeconomicproblems.TheaforementionedfactorsarenotconducivetobusinessdevelopmentinUkraine.

2) Small businesses, including family businesses, often failThere are a number reasons account for the failure of small enterprises andfamilybusinesses.Theseare: a) businessownersareincompetentatrunningtheirownbusinesses.b) business owners do not have experience in their chosen business

activity.c) Businessownershavepoorcontrolovertheirfirms’financialactivity.d) Smallbusinesseslackcapital.e) Small businesses are negligent in providing consumer credit to their

clients.f) Shortcomingsinthebusinessowners’andmanagers’strategicplan-

ning.g) Thecompanyissituatedinthewronglocation. Before the condition, prospects and opportunities of small Ukrainian fam-ilybusinessescanbeanalyzed,theirraisond’êtremustbeconsidered.InUkraine,mostbusinessesvaluecollegiality,collectiveformsofactivityandbeingmorallyupright.Thesevalues, in turn,shapethedevelopmentofsmallfamilybusinessesinthecountry.Smallfamilybusinessesareoftendrivenbythesevaluesratherthanprofit.

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3) Very little assistance is given to small businesses and family businessesa.Imperfectbusinesslegislationleadingtopoorstatesupportofentrepre-neurship results in:- the lack of business development in general- thelegislationfailingtodefinefamilybusiness- thelackofstrategicstatepolicyencouragingbigbusinessestocoop-

erate with small ones - failure to educate small businesses on the importance of innovation- strongfiscalpressure,whichforcesmanybusinessestogointothe

shadoweconomy- insufficientstatefinancialandcreditsupporttosmallbusinesses.

b. Business registration and closure regulations have to be improved.WhileitiseasytostartasmallbusinessinUkraine,officialchannelsmustbebadgeredforyearsbeforeitcanbeclosedordeclaredbankrupt.

c.Theabsenceoflawsgoverningmicrocredit.

d.AlthoughsomebankloansareavailabletoSMEs,asmallfamilybusi-nesswithnofinancialreservescannotrepaytheloanorthe22%interestaccrued.

e.Smallbusinessesfacemanyproblemswhentheywanttoexpandintoamedium-sizedenterprise.This isdue to thenegativeattitudesof thelocalauthorities,whouseredtapetomakeitdifficultforanybusinesstoexpand.Thus,transparentallocationoflandandpremisesisneeded.Theofficial decision-making process with regard to land leases and building permitsshouldalsobetransparent.

f.Lackofskilledspecialistsinthefieldoftechnicaleducation.

g.Limitedinformationandconsultationservicesareofferedtosmallfamilybusinesses.

h.Ukrainianfamilybusinessesdonothaveatransparentbusinessstruc-ture.Theypracticeclosedbookkeepingandhaveverycomplicatedrela-tionshipswiththeauthorities.Astheydonothavemanylegaldocumentsof theirbusiness, theycannotaccuratelyaccess theirprofits.Theyalso

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donothaveanystrategicdevelopmentplans.Theyarealsomistrustfulofinformationthatwouldhelpthemtobuildtheirbusiness.Themembersofthefamilybusinessonlytrusteachother.

These economic, cultural, social and administrative problems plague small businesses inUkraine. The statemusthelp thesebusinessesovercometheseproblemsbecausesmallbusinesseshavegreatpotential.

5. INSTITUTIONAL ACTORS, SUPPORT POLICIES AND INITIA-TIVES: ARE GOVERNMENTS SUPPORTING FAMILY FIRMS?

Out of all the small businesses in Ukraine, family businesses are themosteconomicallyactive.Familybusinessesareoftenstartedbywomen,youths, the disabled and the elderly as ameans of earning their ownbread.

Currently, there ismuchdiscussionon thepossibilityof awhole familyunit starting a business of its own in catering, sales or the provisions of services.Tothatend,abillwasdevelopedbytheMinistryofFinanceandpromulgatedbytheStateCommitteeofBusiness.Althoughthisbillwasrejected, itmademanyexcellentsuggestions.Itproposedthatafamilybusinesscanhavetouptofivefamilymembersparticipatinginitsactivi-tiessolongasthesefamilymembers’namesaredocumented.

Theproposedbill forbadefamilyenterprisesfromhiringemployeeswhoarenot familymembers. If a familyenterprisehasmorework than itsfamilymemberscancope,itsinabilitytohireotherworkerscanresultintheliquidationofthefirm.

Thebillalsoproposedthatafamilybusiness’annualincomeshouldnotex-ceedUAH2.5million.ThefamilybusinessmustpayanannualtaxofUAH50,000.IfafamilyfirmmakesmorethanUAH2.5million,itwillhavetopay10%ofthatincomeastax.Regardlessoftheamountitpaysintaxes,thebillalsoproposedthatfamilybusinessespay2%asataxbase,20%toVATandsocialinsurance.Solongasafamilybusinesspaystheserequisitetaxes,itwillbeexemptfromincometax,marketduesandthenecessityofpayingforatradepatent.

This bill deserves support because it seeks to regulate the relationship of familymembersengagedinjointbusiness.Thedraftofthepreparedbill

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definesfamilybusinessandproposedtoregulatethecreation,property,economicactivitiesandterminationof familybusinesses.Ofnote is thebill’sproposedtaxationoffamilybusinesses.Itsuggestedthattheincomeandtaxratemakeup2%ofthetaxbase.Itwasalsoproposedthatbusi-nessesshouldbefreedfrompayingincometaxes,feesfortradepatentsandmarketdues.

To facilitate the taxation process, these small enterprises would be pro-videdwithasimplifiedreportingform.Inadditiontothisform,theymustkeep books detailing their income and expenditure according to the rules laiddownbythestatetaxauthorities.

6. CHALLENGES OF SUCCESSIONFamilybusinesssuccessionisasocio-psychologicalproblemofthefamily.Itcannotberegulatedbythestatebecauseitdependsonthefollowingfactors:- Socialpsychologyandfamilytraditions;- Theroleoffamilymembersinthefamilybusiness,regardlessofgen-

der;- Physicalandmentalabilitiesofthefamilymembersinthebusiness;- Whetherfamilyvaluescanbereconciledwiththevaluesofthefamily

business;- Improvingthepublicperceptionofentrepreneursfromsmallfamily

businesses; - Problemsoffamilymanagement.

7. SUGGESTIONS FOR THE GOVERNMENT AND CIVIL SOCIETY IN RECOGNIZING AND SUPPORTING FAMILY BUSINESSES

InordertoenhancetheeconomicpotentialofsmallfamilybusinessesanddevelopitsroleintheUkrainianeconomy,severalorganizational,legal,fi-nancial,economic,socialandpsychologicalproblemsmustfirstbesolved. Organizational and legal problems:1) Organizational tasks: - The state must develop consistent policies and programmes support-

iveofsmallfamilybusinesses.Thesepoliciesandprogrammesmustbecarriedoutatboththestateandregionallevels.Thestatemustestablishaunifiedsystemofregistrationforbusinesses.Thiswillhelplegalizefamilybusinesses.Thestatemustalsosimplifytheprocedure

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of registering and closing a business. The state should reduce thecostsofstartingabusinessaswell.

- The state must expand and improve the information, consultation, researchandtechnologicalnetworksforbusinesses.Thestateshouldalsopromoteinnovation.

- The state must provide financial guarantees to existing small busi-nesses.Municipalitiesshoulddisseminateinformationaboutthis.Mu-nicipalitiesshouldalsobringthestate’sattentiontosmallbusinessesthatneedhelp.

2) Legal tasks:- Thestateshouldstreamlineand improve legislationvis-à-vissmall

business. The state should also acknowledge family business as aseparatebusinessentity.

- The state should improve its regulation of family businesses bychangingthelegalandtaxationstructures.

Financialandeconomicobjectives:1) Financial tasks:- Thesystemoffinancing,lendingandinsuranceshouldbeimproved.

Thesesystemsshouldberedesignedtoappealtofamilybusinesses.- Thetaxsystemandcustomsdutiessystemshouldbereformed.- Variousformsoffinancialassistanceshouldbeofferedtofamilybusi-

nesses.Amicrocredit systemshouldbeorganizedand implement-edthroughmunicipal financial institutions,charity fundsandcreditunions.

2) Economic tasks:- Thestateshouldfacilitatetheimprovementoftheeconomy.- The state should encourage the growth of total domestic production;- Thestateshouldstrengthenthenationalcurrencysoastoincrease

itsreliability.

3) Resource tasks:- Thepossibilityofastart-upfundforfirsttimeentrepreneursshould

beconsidered.- Informationontheimportanceofinnovationshouldbedisseminated.

Scientific and technical education should be made available to entre-preneursaswell.

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- Therealestatemarketshouldbedeveloped. 4) Social and psychologicaltasks:- Educateowners,managersandemployeesontheimportanceofdis-

tinguishingbetweenfamilyvaluesandthevaluesofthefamilybusi-ness.

- Improvingthepublicperceptionofentrepreneursfromsmallfamilybusinesses.

- Thedevelopmentofyouthandwomen’sentrepreneurship.

8. CONCLUSIONInconclusion, it shouldbenoted thatsmallbusinesses inalmosteverycivilizedcountrystart-upontheirownfamilycapital.Ukraineisnoexcep-tion.Incontrasttoothercountries,familybusinessesinUkraineareexclu-sivelydefinedassmallbusinesses.Thisisaninadequateunderstandingoffamilybusiness,asitdisregardsthefactthatfamilybusinessescomeinallsizes.SmallfamilybusinessesinUkrainefacemanyobstaclesintheformofstateregulationandlackofaccesstofinancialinstitutions.ChangesinUkrainianlegislationwillgoalongwayinremovingtheseobstacles.ThereispresentlynoconsensusonthefuturedevelopmentofUkrainianfamilybusinesses.

WhereasfamilybusinessespayminimaltaxinEurope,familybusinesseshavetopaymoretaxesinUkraine.Asimplifiedtaxationregimenwaspro-posedinabill,butthatbillwassadlyrejected.Thestateshouldperhapsconsidertaxholidays.Thisisbecauseitisdifficulttolegallydeterminewhoshouldpaytaxesandwhodonothavetodoso.

UkrainehasoneofthehighestlevelsofcorruptioninEurope.Accordingto the Corruption Perception Index published annually by TransparencyInternational, Ukraine ranked 144th, along with Bangladesh, Cameroon, theCentralAfricanRepublic,theRepublicofCongoandSyriain2012.Inaddition,Ukrainehasanotableshadoweconomy.FriedrichSchneider,aJohannesKeplerUniversityofLinzprofessorhighlyregardedbytheWorldBankandInternationalMonetaryFund,estimatesthattheUkrainianshad-oweconomymakes44.1%ofthecountry’sofficialGDP.

Ukraine must redouble its fight against corruption, ease the business regu-latorysystemandoverhaulthebusinesstaxationsystemifitisdrawout

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legitimateenterprisesfromtheshadoweconomy.SodoingwillencouragethegrowthoffamilybusinessesandSMEs.Itwillalsorenderthecountrymoreattractivetoinvestors.

FAMILY BUSINESS PORTRAITS1. Seitkhalilov’s farm, the story of an individual entrepreneurIn1944,theSeitkhalilovfamilywasevictedfromtheCrimeatoUzbekistanaspartof theSovietUnion’sstate-organized forcibledeportationof theCrimeanTatars.TheSeitkhalilovfamilyreturnedtotheCrimeain1977.Thefatherofthefamily,ServerSeitkhalilov,wasonlyabletobuyahousein the village of Ivanovka in the Saki region, as houses were not sold to CrimeanTatarsinthecities.However,noneoftheotherfamilymemberswereofficiallyregisteredasownersofthathouse.ThisisbecauseCrime-an Tatars could not be registered as homeowners or residents of rented housesintheCrimeauntil1989.Sincenoneofthefamilymemberslivinginthatcouldbeofficiallyregisteredashavingaresidence,theycouldnotbeemployed.ThisaffectedServerSeitkhalilovtoo.Eventhoughheboughtthehouse,hecouldnotberegisteredasitsowner.Asaresult,hewasnotdeemedtohaveanofficialaddress.Withoutanofficialaddress,hecouldnotbeofficiallyemployed.Between1977and1987,sevenpeoplelivedinthathouse,ServerSeitkhalilov,hiswife,twodaughtersandthreesons.Oneof his sonshasbeendisabled since childhood. The family tookupfarming in order to survive, as there were 6 acres of land along with the housetheyhadbought.

ServerSeitkhalilovandhissonsgrewvegetables,herbsandfruits.Theyalsolookedaftercows,bullsandsheep.Hiswifeanddaughterssoldtheirproduceatthemarket.Someoftheproducetheysoldincludedvegeta-bles,sprouts,butter,milk,sourcreamandmeat.In1982,thefamilycouldberegisteredresidentsofthehouseServerSeitkhalilovhadbought.ThismeanServerSeitkhalilovcouldnowgetajobatacollectivefarm.Beingofficialownersoftheirhousealsomeanttheycouldaddtoit.Theydidthisbybuilding agreenhouse. The family also continued their own farmingactivities.

In1989,anopportunityaroseforthemtorentagricultural land.ServerSeitkhalilov rented 1 hectare of land, on which he grew onions, melons and watermelonsfor5years.Again,ServerSeitkhalilov’swifeanddaughters

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soldtheirproduceatthemarket.OneofServerSeitkhalilov’ssons,Dily-aver Seitkhalilov, went tocollegetostudyagronomy.Hegraduatedfromcollegein1990andgotajobgrowingvegetablesatthecollectivefarm.Heeventuallybecameaforemanatthecollectivefarm.Inhissparetime,hehelpedhisfamilyatthefamilyfarm.

In1993-1994,theSeitkhalilovfamilyrented5hectaresofagriculturallandandsomeagriculturalmachinery.Asagriculturallandwasgraduallypriva-tizedduringthat time, theSeitkhalilov familyrented landfromworkersoftheformercollectivefarms.Throughoutthistime,thefamilycultivatedcrops. Currently, Seitkhalilov’s farm is one of the leading farms in theSakiregion.Thisfamily’sfarmhas80hectaresofitsownlandanduses70hectaresofitsshareholders’land.TheSeitkhalilovfamilycontinuestogrowallsortsofcrops,mostlyvegetables.TheSeitkhalilovfamily’sgreen-houseproducesherbsandvegetablesaswell.TheSeitkhalilovfamilyalsorestoredtheoldcollectivebarns,engagedinanimalhusbandryandcre-atedadryingcentresothattheycouldmakedriedfruits.

Recently,theSeitkhalilovfamilyhasventuredintothehotelandtourismbusiness.Thefamilyhasbuiltahotelwith40roomsattheseafront.Inthemeantime,thefamilyplanstoworktheirfarmsforproduce,developstor-agefacilitiesandimprovetheirfoodproductionmethodssothattheycanservetopqualityfoodintheirhotel.Thefamilybusinessiscurrentlyman-agedbyAlimSeitkhalilov,whoisthesonofServerSeitkhalilov’syoungestson.ThebusinessproperiscontrolledandownedbyServerSeitkhalilov’soldestson,Dilyaver.AccordingtoDilyaverSeitkhalilov,thechildrenandgrandchildren of Server Seitkhalilov are actively involved in the familybusiness.

2. Umyut, an agricultural service cooperativeIn1944,theKhalilovfamilywasevictedfromtheCrimeaaspartoftheSo-vietUnion’sstate-organizedforcibledeportationoftheCrimeanTatarstoUzbekistan.TheKhalilovfamilyreturnedtotheCrimeain1989.TheywereofferedsomelandinthevillageofPetrovoinBelogorsky,wheretheycouldbuildahouse.However,theycouldnotfindemploymentinthevillageasitwasslowlyemptying.Astherewasnowayback,thefamilysettledinthearea,relyingonthemselvesandtheirownefforts.

Oneday,EsmaKhalilovanoticedacarwaspassingthroughthevillageandsuggestedthatthevillagerssellthesevisitorsthyme.Thevillagerswere

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notimpressedwithherproposalanddidnotpayheranyheed.Herfam-ilywasveryhardupandwillingtotryherproposal.Thus,theycollectedthyme for sale.Although theywere initially successful, theirharvestingsystembrokedownirreparablyin1995.Uncertainastothatwhichtheyshoulddo,theylookedaboutthemforamarketandaccidentallyfoundakioskspecializinginmedicinalplantsandherbsinSimferopol.ThiskiosktooktheirthymeandcooperatedwiththeKhalilovs.TheKhalilovssubse-quently found other customers. However, their success was short-livedastheprocurementsystemcollapsedduetochaosintheherbtrade.Thefamilyhadtostart fromscratchbysearchingforanewmarket.Duringthistime,collectivizedfarmingcollapsedcompletelyandmanypeoplelosttheirjobs.TheseunemployedpeoplefollowedtheexampleoftheKhalilovfamilyandstartedcollectingherbs.Someofthesepeopleworkedtogetherwith the Khalilov family, while others sought out their own customers.When this herb collecting cooperative began, it had 10 people – all ofwhomwereKhalilovfamilymembersandfriends.Thenthevillagersjoinedinandthecooperativegrew.Thefamilydidnothaveanyequipmentandhad touse theirhands,hoesand sickles.By this time, thevillagersofPetrovo,whowereleftjoblessfromthecollapseofcollectivefarming,or-ganizedacultivationcooperative.ThemainaimofthiscooperativewastheharvestingofmedicinalherbsundertheguidanceofKhalilovfamily.The cooperative called itself, “Umyut”,whichmeans “Hope” inCrimeanTatar.ItishardtobelievethatUmyutbeganlifeastheideaofanordinarypeasantwoman,EsmaKhalilova.

Tangible assistance was received in 2007, when the president of the coop-erative learned of the existence of the United Nations Development Pro-gramme Crimea Integration and Development Programme (UNDP CIDP) fundandthewayinwhichitcontributedtothedevelopmentofruralareas.EsmaKhalilovawrotetoUNDPCIDPanddefendedherproject.Throughsupport from the fund, she purchased a packaging machine to pack the herbsintoherbalsachets.Anothermachinewaspurchasedtocutherbs.However, a lot of work was still done by hand, of which, almost 80%wasperformedbywomen.Indeed,womencomposea largepartof theagriculturalenterprise.Withtheaimoffurtherdevelopment,thecoopera-tive began to work in close cooperation with the Ukrainian Horticulture DevelopmentProject,theAssociationofFarmersandLandownersoftheCrimea, the Association of Green Tourism and various agricultural service cooperatives. This work enabled the enterprise to purchase equipment

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thatensuredthefinalproductwasofthehighestquality.Theteaproducedbythiscooperativewassosuperbthatitobtainedstatecertificates.

Experts at Poltava herb stations helped ensure that their tea blends met allthenecessarystandards.ThiswasveryimportantbecausetheKhalilovfamilyusedtheirancestors’recipesinmakingtheseteablends.Inaddi-tion,theyalsoproducedothergoodssuchasfitobalsams,forestfruitjamand fruit, rosepetalsanddried fruits.Theyalsomadesouvenirs in theformofscentedsachets,magnetsandscentedpillows.Thepeasantsalsohadtheopportunitytovisittheircolleaguesabroad,wheretheyacquiredinterestingknowledge.Thevillagelivesbecause“Umyut”or“Hope”works.Today,thefamilyprovidesworktoallunemployedpeasantsinPetrovoandothernearbyvillages.AsidefromthecooperativeinPetrovoandnearbyvillages, the cooperative has 30 cells in the most remote corners of the Crimeanpeninsula.Umyuthires1,000peoplefromallovertheCrimeaandcontinuestodevelopitself.

Forseveralyearsnow,UmyutconductstheFestivalofHerbsinMay.ItisattendedbyherbalistsfromalloverUkraine.TheeventropesineveryonefromUmyut.Thechildrenparticipatetoobyplayacting.Itshouldbenotedthatthechildrenhelpoutduringotherruralholidaysaswell.Thisprompt-edthecooperativetobepartofasocietythatsoughttoreviveinterestinthecountry.Eventually,Umyutgatheredenoughequipmentandmaterialstorepairtheentirevillage.Today,themembersoftheUmyutcooperativeandlocalchildrenmaintainthevillage.Thecooperativehasmanyideasforthedevelopmentofthevillageandtheimprovementofthevillagers’lives.Theyareespeciallyinterestedinattractingtouriststohistoricalsitesthatareoverthreeorfivethousandyearsold.Theyalsohopetogainvisitorsseekingbeautifulflora.

AlthoughUmyutisasuccessfulcooperative,ithastobecomeapowerfulenterprisetogivepeopleanopportunitytoearnmoremoney.Herbalistsunderstandthat it isnot intheir interesttotakeruthlessly fromnaturebecausetheymighthavenothinglefttotakesomeday.Thereweremanyindividuals interested in growing medicinal plants in their gardens, but hadproblemswithgettingthemtosprout.Therefore,thecooperativewasfacedwiththechallengeofcreatingofitsownseedplot.ThisalsobroughtUmyut’slackofqualifiedspecialiststolight.However,Umyutwasabletoovercome this when colleagues from other parts of Ukraine came to gain

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andexchangeexperiences.Now,thecompanywouldliketoreceivestatesupportto furtherdevelop itself.Umyut isnowinsearchofpreferentialloansandpreferentialpaymentoftaxes,aswellasfinancialsupportforitsdevelopment.Thecompanyworkswithprimitiveequipment,whichdoesnotallowitsworkerstopackageteasproperly.AsUmyutcannotpackageitsteasproperly, itsproductscannotbepresented inCrimeanhotelsorsoldinsupermarkets.Fortunately,therearepeopleandorganizationsthatarenotindifferenttoUmyut’sproblems.TherearefundsandprojectsthatcanprovideUmyutwithanopportunitytostayafloatandgetbackonitsfeet.Outofthe400speciesofmedicinalplantsgrowingintheCrimea,50speciescanbecultivated.Themarkettodayneedsherbs,butnobodyiswilling to trek 20-30 miles from home to collect them and haul these herbs backwith large sackson theirbacks.Therefore,Umyuthas chosensixplant species that are most in demand so as to plant and process them in thecooperative’sbackyard.Thesesixherbsaremint,lemonbalm,Echina-cea,sage,marshmallowandvalerian.

Therearecurrently40peoplewhoaremembersoftheUmyutcooperative.Thereare1,000employeesinthecooperative.95%ofrawmaterialsaregrownand5%areprocessedintojams,teas,giftsandaromatherapy.Astorageshedof400squaremetresandadryerwerealsobuilt.

4. BEST PRACTICES OF FAMILY BUSINESSES IN TURKEY

KURTSAN HOLDINGbyMeltem KurtsanPharmacist, Shareholder of Kurtsan Holding Vice President of Kurtsan Science, Art and Education FoundationIstanbul,Turkey

ABSTRACT ThispaperanalyzesthestoryofasuccessfulfamilybusinessoperatinginTurkey’shealthandcosmeticssectors.Itshowcasesthekeyelementsandimportant factors resulting in thegrowthof thebusiness fromtheverybeginning.Italsoexaminesthemannerinwhichitgrewfromapharmacytoagroupofcompaniesinthehealthandcosmeticssectors.Thisstudyemphasizes not only the importance of institutionalization in a family-

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ownedcompany,butalsothebenefitsofabusinessactingasaneffectiveshareholder. Keywords:familybusiness,foundation,effectiveshareholder,womanen-trepreneur, institutionalization, governance

JELClassification:L10

OTACI, STORY OF A FAMILY SUCCESSNiyaziKurtsan,pharmacist,wasasuccessfulentrepreneurwhodedicatedhimself to developing medicines and healthcare products from herbs in the 1950swhentheconceptsof“naturallife”and“alternativemedicine”werenot prevalent.Hewas also a creative and productive scientist.HewasborninGumulcine,Greece,in1925.WhenSecondWorldWarstarted,heconvincedhisfamilytomovetoTurkey.HecompletedhisstudiesattheFacultyofPharmacyinIstanbulUniversity.HethenmarriedMeralKurtsan,withwhomhehad twodaughters,MeltemandDeniz.Eventually,MeralKurtsancompletedhereducationandbecameapharmacist.MeltemandDenizfollowedintheirparents’footstepsbybecomingpharmaciststoo. In 1955,Niyazi Kurtsan set uphis first pharmacy inKocamustafapasa,whichhenamedGunes.Inthelaboratoryofhispharmacy,helaunchedhisfirstproductssuchastinctureofiodine,cologneandgarglingsolutions.Hemoved Gunes Pharmacy to Sirkeci in 1965 and renamed it, BuyukPharmacy. In1969,heestablishedhis first factory,KurtsanLaboratory.At that time,MeralKurtsan tookovermanagementofBuyukPharmacyandNiyaziKurtsandevotedhistimetoKurtsanLaboratory.Throughthelaboratory,NiyaziKurtsanwasabletomanufacturepharmaceuticalssuchasantiemetics,coughsyrups,garglingsolutions,dermatologicalcreamsandcornplasters.Hewasalsoabletocontinueresearchinganddevelop-ingnewproducts.

Niyazi Kurtsan’s interest in herbalmedicines can be traced back to hischildhood.Hehadalwaysrememberedthewayinwhichhisgrandfatherhad treated his wounds with natural herbs. In the course of the busi-nessand its resultant researchanddevelopmentefforts, thepharmacyandlaboratoryintroducedtheCapila,Burnil,TubaandOtacıbrandsofitsproducts.

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By1980,theKurtsanshadcomeupwithherbalthroatpastillesfortheirOtacıbrand.ProductionofthesethroatpastilleswasfollowedbyshampoosandotherherbalproductsreleasedundertheOtacıbrand.Otacı,whichmeans“pharmacist”or“doctor”inancientTurkish,isoneoftheKurtsangroupofcompanies’favouritebrands.Inthepast,Otacıwasthetermusedtorefertopeoplewhosimultaneouslyperformedtherolesofpharmacists,doctorsandscientists.OldTurkishisnolongerusedinthecountryandthiswordonlysurvivesthroughthebrandingofoneofourproducts. ThecompanyoutgrewthelaboratoryinSirkeciandmovedtoitsnewplantin Merter, in Istanbul, in 1985, where it became known as Kurtsan Phar-maceuticals.In1988,KurtsanMedicalwasestablishedasajointventurewithPaulHartmannAG,aGermancompanyspecializinginhospitalsup-plies.Anew5,000m2productionfacilitywasbuiltonan80,000m2plotinBandirma,Balikesir. Today,KurtsanHoldingmanagesthefollowingcompanies:• KURTSANPHARMACEUTICALS,specializingindermatologicalandre-

spiratorytractmedicinesaswellasherbalthroatpastilles,• KURTSANMEDICAL,whichproducesanddistributesmedicalandhos-

pital supplements, antiseptic plasters, bandages and adhesive ban-dages,

• OTACIHERBALPRODUCTS,theleadingTurkishbrandofnaturalandherbalproducts for thehairandbody.Otacialsomakesbabycareproducts.

• AllKurtsanproductsarederivedfromplantslocatedinIstanbulandBandirma,Balikesir.Plantsarecollectedandusedinaccordancewithgoodmanufacturing practice (GMP) guidelines and ISO standards.There are320employees in total. KurtsanHoldingproducesmorethan150productsandexportstomorethan25countries.

The Kurtsan Science, Art and Education Foundation was founded in 1993 byNiyaziKurtsan.Hebelievedthataninstitutionshouldinvestinthepeo-ple;andthebestwayofinvestinginpeoplewasthrougheducation.Thus,he set up the foundation for the twofold purpose of supporting education andthesciences,andpromotingsocialandculturaldevelopment.Sinceits establishment, the Kurtsan Science, Art and Education Foundation has provided scholarships to more than 400 students, most of whom were fe-malesfromthemedicalscience,pharmacy,chemistryanddentistryfacul-tiesofvariousTurkishuniversities.

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AfterNiyaziKurtsanpassedawayin2004,MeltemKurtsan,whohadbeenactiveintheKurtsanfamilybusinesssince1984,waselectedPresidentoftheBoardoftheKurtsangroupofcompaniesfor2004-2013.Duringhertenure as President of the Board, she worked to further the professional-ismandinstitutionalizationofthecompaniesunderKurtsanHolding.

A successful entrepreneur like her father, she was nominated a Global LeaderforTomorrowbytheWorldEconomicForuminDavosin1999andelectedWomanEntrepreneuroftheYearbyUNECEin2002.Shewasthefounding President of theWomen Entrepreneurs’ Association of Turkey(KAGIDER)in2002andwasre-electedforthepositioninthesubsequent4years.

Byworkingcloselywithaprofessionalteam,sheenabledthecompaniesin Kurtsan Holding to achieve higher growth than the health and cosmetics sectors’nationalaverage.In2013,familymemberswhoareshareholdersand part of the professional board at Kurtsan group of companies agreed toguaranteeandmaintainthecontinuousimprovementofthefamilybusi-ness.Thethirdgenerationoffamilymembersinthebusinessconsistsoffour members who obtained their Bachelor Degrees from reputable uni-versities and are now working as professionals in other companies so as to improvetheirmanagementskills.

Ms. Kurtsan is now an effective shareholder and Vice President of theKurtsanFamilyFoundation.Sheisfirmlycommittedtothebeliefthatin-stitutionalizationofthefamilybusinessandapproachingcompanymattersfromthemacro-levelcreatesaddedvalue.Shebelievesthemostimpor-tantchallengefamilybusinesseshavetoovercomenowistransferringthebusinessfromonegenerationtothenext.Thiscanbedonesmoothlyonlywhenthereisinstitutionalizationinthecompany.HermainaiminKurtsanHoldingistocreateahealthyenvironmentforsustainablecontinuousim-provementthroughoutthegenerations.

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THE KOÇ GROUP

by

KoçHoldingCorporate Communications and External Relations DirectorateIstanbul,Turkey

ABSTRACTKoç Holding is Turkey’s leading investment holding company. The KoçGroupisTurkey’slargestindustrialandservicesgroupintermsofmarketcapitalization, employment, revenues and exports; its shares are evenlistedandtradedontheIstanbulStockExchange.

TheKoçGroupfocusesonsustainableandprofitablegrowththroughcon-sistentleadershippositionsinTurkey,theregionandtheworld.

Steadily growing from strength to strength for the past 87 years, KoçHolding’sforemostobjectiveistocontinuecreatinghighvaluedividendsfor all its stakeholders and managing all its activities according to inter-national standards of corporate governance, customer satisfaction, social responsibilityandenvironmentalprotection.

TheGrouphasbeen internationally recognized for itsaccomplishments.KoçHoldingistheonlyTurkishcompanyinthe“FortuneGlobal500”list;anditisthe217thlargest,accordingtothe2012financialresults.ItistheonlyTurkishcompanytomakeittothe“World’sMostAdmiredCompanies”listintheenergysectorinFortune500’s2013rankings.

Inaddition,KoçHoldingisoneofonlythreeTurkishcompaniesintheBos-tonConsultingGroup’s(BCG)“2013BCG100:RisingStars”list.

MISSION & CORPORATE VALUESTheKoçGroupaspirestocustomersatisfactionandsoundgrowthbypro-vidinghighqualityproductsandservicesofimpeccablestandards.Wearecommittedtobeingasymboloftrust,continuityandesteemforallourstakeholders,our country, customers,employees, shareholders,dealersandsuppliers.

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Thecorporatevaluessetbyourfounder,VehbiKoç,willcontinuetoinspireourGroupinthefuture,justastheyhaveinthepast.• Thecustomeristhefocusofeverythingwedo.• Ourultimategoalistobethebestinallwedo.• Peopleareourmostimportantasset.• Ourkeyobjective isthecreationofwealthforcontinuousdevelop-

ment.• Weareguidedbyhonesty,integrityandsuperiorbusinessethics.• Weaspire tostrengthentheTurkisheconomybecauseweoweour

successtoit.

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BUSINESS DETAILS AND CONSOLIDATED FINANCES

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MILESTONES

1926: Establishment16-year-oldVehbiKoçstartedhiscareerathis father’sgrocerystore inAnkara.ThestorewasregisteredwiththeAnkaraChamberofCommerceunderthename,KoçzadeAhmetVehbi,on31May1926.Thatdatesym-bolizestheofficialfoundationoftheKoçGroup.

1930s:Thefirstjointstockcompany,KoçTicaretA.Ş.KoçTicaretA.Ş.wasestablishedin1938.Thiscompany,theinitialcorner-stone and development centre for all the initiatives that later consolidated intotheKoçGroup,wasthefirstinTurkeytoallowmanagerstobecomeshareholders.ForeignrepresentationwasacquiredduringthisperiodandRamCommercialCorporationbecamethefirstTurkishcompanytobees-tablishedintheUS.

1940s: First industrial venturesIn the late1940s, theGroupentered themanufacturing sector.A jointventureagreementwithGeneralElectricin1948resultedinKoçGroup’sfirstindustrialventure,alightbulbfactory.

1950s: International partnershipsIn 1951, the first Turkish light bulb was introduced to the market, following thefirstTurkish-AmericanjointinvestmentventurewithGeneralElectric.A similar agreement was made with Ford, later evolving into the Ford Oto-sanpartnership.

1960s: Institutionalization To facilitate rapid growth and development and build an institutional struc-ture,KoçHoldingA.Ş.wasofficially institutionalized in1963withVehbiKoçasChairmanoftheBoard.

In1969,theVehbiKoçFoundation,thefirstandlargestfoundationinTur-key,wasestablishedtoenrichlifeandaccelerateTurkey’sdevelopment.

1970s: First public offeringIn order to secure capital for large investments that would contribute to Turkey’seconomicdevelopment,theGrouphadtofindameansthroughwhich savings could be directed to investment. To that end, shares in

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AygazandKoçHoldingweresoldtoemployeesintheKoçGroup.Sharesof theKavmatch factory,whichwasestablished in1970,were likewiseofferedtothepublic.

Growth and exportsIn the1970s, theKoçGroupcontinued itsuninterruptedgrowthbyac-quiringnewcompanies,concentratingonexportsandestablishingforeigntradecompanies.

1980s: Second generation takes overAsVehbiKoçwasagreatbelieverininstitutionalization,henamedhisson,RahmiM.Koç,ChairmanoftheBoardofDirectorsin1984andstayedonasHonoraryChairmanofKoçHolding.

1987: Vehbi Koç is “Businessman of the Year”Vehbi Koç was named “Businessman of the Year” by the InternationalChamberofCommerce.

First private museumSadberkHanımMuseum,whichcurrentlyhasacollectionofover18thou-sandartefacts,wasestablishedasTurkey’sfirstprivatemuseumin1980.

1990s: The end of an extraordinary lifeVehbiKoçpassedawayon25February1996,attheageof95.Hisextraor-dinarylifewasmarkedbyconstantactivityandachievements.

Koç Group grows in bankingIn1992,KoçHoldingfullyacquiredKoç-AmericanBank,whichwasestab-lishedasajointventurewithAmericanExpress in1986.TheBankwasrenamedKoçbank.

2000s: A new vision for the new millenniumKoçGroupentersthenewmillenniumwithanewglobalvision,“Tobeoneoftheworld’sleadingcompanies”.

Third generation assumes commandRahmiM.KoçhandedoverChairmanshipoftheBoardofDirectorstohiseldestson,MustafaV.Koç,on4April2003.RahmiM.KoçthenbecameHonoraryChairmanofKoçHolding,aposthestillcontinuestohold.

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2005: Large investments in energy and financeAspartofitsplantopursuesustainablegrowth,theKoçGroupacquiredamajoritystakeinTüpraş,Turkey’slargestindustrialenterprise,andYapıKrediBank,agiantintheTurkishbankingsector.

2006: Koç Holding signs the UN Global CompactAstrongsenseofcorporatecitizenshiphasbeenanintrinsicpartofKoçHolding since its establishment.With the signing of theUnitedNationsGlobalCompactin2006,thisbecameanofficialinternationalpolicy.

2007: Profitability focused growth strategyWithgrowthstrategyaimingtoincreaseefficiency,profitabilityandshare-holder value, KoçHolding has opted to focus on organic and inorganicgrowthopportunities.

2008: Koç Group - A powerful player in the crisisTheKoçGroupweatheredthestormofthefinancialcrisisbysuccessfullypicking up early warning signs in forecasts, implementing timelymea-sures,ensuringproactiveriskmanagement,andfocusingstrictlyoncostcuttingandefficiencygains.

2009: Koç Family is awarded the Carnegie MedalTheKoçFamilywashonouredwithoneofthemostprestigious interna-tionalawardsofitskind,theAndrewCarnegieMedalofPhilanthropyfortheirphilanthropiccontributionstothesociety.

2010: Increasing R&D investmentsKoçHoldingwaslistedamongtheworld’stop1000researchanddevelop-ment(R&D) investmentcompaniesaccordingto the“EUIndustrialR&DInvestmentScoreboard”forfiveconsecutiveyears,risingto506thplacein2010.OfthethreeTurkishcompaniesonthe list,twoarecompaniesfromtheKoçGroup.

2011: 85th yearItcomesasnosurprisethatKoçHoldingshouldhavesuccessfullycom-pletedits85thyearinbusinessin2011.KoçHoldingisfamousformakingadifferenceateverystageofitsbusinessprogrammesbecauseitvaluesinnovation,consistentlyaimstoofferthebestproductsandservices,andtakesrisksandmanagesthemwell.

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2012: Turkey’s largest As attested by national and international accolades, KoçHolding is theTurkisheconomy’sdrivingforceandiscontinuallyconsolidatingitsglobalposition.

STRATEGIC DIRECTION & MANAGEMENT PHILOSOPHYCompetitionandadvancementsintechnologynecessitatethedynamicop-erationofcompanies.Theymustbeproactiveonvariousfronts,particu-larly in innovation,productivity,riskmanagement, flexibilityandecono-miesofscale.

Weareconstantlythinkingoutsidetheboxbecauseweknownewdevelop-mentseludethosewhoremainwithinexistingmouldsandlimits.Thus,wearealwaysonthelookoutforinorganicgrowthopportunities.Throughoutthepast10years,colossalcompaniessuchasTüpraº,OpetandYapıKrediBankhavebecomepartoftheKoçGroupthroughacquisition.Sincethen,they have grown and developed furtherwith us.We are tremendouslysatisfied towitness their sizeable contributions to the Turkish economybecausethisconfirmsthatwehavetakentherightsteps.OurGroup’smaincompetitiveadvantagescanbesummarizedthus:• We lead in sectorswithhighgrowthpotential and lowpenetration

levels.• Wecontrolthe largestdistributionnetworkandthemostextensive

customerdatabaseinTurkey.• Ourpowerfulbrandscommandstrongrecognition.• Weprovidethehighestqualityservicebefore,duringandaftersales.• Weareasymboloftrustandachievement.• Wehavestrongfootholdsinglobalmarketsandareengagedinstrong

internationalpartnerships.

We adhere to the following strategic principles when making new invest-ment decisions:

• Furthergrowthinsectorswherewecancreateadifferentialcompeti-tiveadvantage.

• Makethemostoutofourbrandstrengthsandtechnologicalcompe-tence.

• Derivemaximumbenefits fromgrowthpotential andeconomiesofscalebybeingthemarketleaderoraclosesecondineverybusinessweoperate.

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• Minimize sector and geographic risks though a diversified portfoliostructure.

TheKoçGroupwillmakeeveryefforttomaximizeproductivityandprofit-abilityinthecomingyears,whileremainingactivelycommittedtoapolicyofseizingnewinvestmentopportunitiesastheyarise. TheGroupisapowerfulorganizationcapableofconvertinguncertaintyintoopportunity.ThecornerstoneofKoçHolding’svisionis itsabilitytoplayakeyroleinenablingourcompaniesandourcountrytomakeprogress.Sinceitsfounding,KoçHoldinghashadtherequisitequalitiesandneces-saryorganizational skills topioneer change.Establishingeffectiveearlywarningsystems,focusingonthelong-term,quicklyadaptingstrategiesto new opportunities, maintaining a threat-resistant financial structure, in-stalling the appropriate risk management mechanisms, and rewarding the creation of sustainable value rather than short term gains in performance managementaretraitswillmakeKoçHoldingapacesetterinthefuture.

A strong balance sheet structure and effective risk management are vital components inourability to turnnewdevelopments intoopportunities.TheGroup is resilient to risk,bothat theHoldingand subsidiary level,because we do not maintain speculative foreign exchange positions and strive to keep a tight check ondebt and liquidity levels.Whenmakinginvestmentdecisions,weusesophisticatedmethodssuchasrisk-adjustedcostofequitycapitaltoraisevalueforourshareholders.

We are endeavouring to diversify our internationalmarkets in a bid tominimize the effects of regional economic fluctuations.We are steadilyincreasingourinternationalrevenuesanddiversitythroughmarketsharegainsinourexistingmarketsandforaysintonewmarketsviaexportsordirectoperations.

Thebestwayofachievingsustainabilityagainstrapidlyadvancingtech-nology is to invest in R&D, innovation and technology. Our companies’investments in these areas and the rewards reaped have strengthened our competitivenessandsustainabilityforthefuture.

TheKoçGroupisdeterminedtoenhanceitsbusinesses’competitiveedgebyleadingthewayininnovationandtechnology.Itcontinuestofocuson

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deliveringinnovative,environmentallyfriendlyandenergyefficientprod-uctsandservices.

Inthelast10years,theKoçGrouphasspentatotalof3,557billionTurk-ishlirasonR&D.WithanR&Dinvestmentlevelofalmost506millionTurk-ishlirasin2012,theKoçGroupwasTurkey’sbiggestspenderonR&D.TheR&DspendingoftheKoçGroupconstitutesaround10%ofprivatesectorR&DspendingacrossTurkey. KoçHoldinghasaugmented itsstrengthswith itsR&DcultureandR&Dcentres.All14R&DcentresarecertifiedbytheMinistryofScience,Indus-tryandTechnology.TheKoçTechnologyBoardwasestablished in2005toshareandtransfertechnologymanagementknow-how,spreadtheuseofbestpracticeswithintheGroupandsupportthedevelopmentofjointR&DprojectsamongGroupcompaniestohelpcompanies improvetheirR&Dand technologymanagementcapacities.KoçHoldingbelievesR&Dinvestments will translate into a competitive edge for all its companies in thelong-term.Itwillcontinuetocarryoutitsactivitiesincooperationwithuniversities,itssuppliers,after-marketpartnersandSMEs. KoçHoldinghasastrategicholdingstructurethatconcentratesonlong-term investments and sustainable growth so as to add value to the com-panies in its portfolio.Ouropportunities for growthandabilities in riskmanagementaregreatlyaidedbyourpossessionofabalancedyetdiverseportfoliostructurethatencompassesvarioussectors.Ourportfolioisalsobalancedbetween rapidlygrowingbusinessesandmoremature,higherdividend-payingcompanies,andourstrategyistomaintainthisstructure. Inorderto“makethewholebiggerthanthesumofitsparts”,KoçHoldingadds value to its Group companies through: • Reliability,strongreputationandpowerfulbrandmanagementbased

on87yearsofexperience.• Guidanceindefininglong-termstrategiesandexchangeofbestprac-

ticesthroughouttheGroup.• Financingopportunitiestoencouragecompaniestostrengthentheir

internationalcompetitivenessthroughinvestments.• Strongbalancesheetmanagementandaccessadvantageousterms

offinancing.• Embracing universal standards of corporate governance, business

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practices, ethical principles, environmental policies and working con-ditionsthroughtheapplicationofGroupvisionandobjectives.

• Broad distribution channels, comprehensive customer informationand database facilitating effective customer relationship manage-ment(CRM)capabilities.

• Benefitsofeconomiesofscaleandeffectiveresourcemanagement.• Performancemanagement system focused on creating shareholder

value.• Effectiveuseofearlywarningsystemsandstrongriskmanagement,

backedbyleadingpositionsindiversifiedbusinesssegments.• Stronghumanresourcesinfrastructure.

STRICT ADHERENCE TO GOOD CORPORATE GOVERNANCEInanerawhentherewerenoofficiallydrawnupcorporategovernanceprinciplesinTurkey,KoçHoldingactedonthebeliefthatgoodcorporategovernance is fundamental to thesustainabilityofcompaniesbyensur-ing that it and its companies achieved the highest standards of corporate governance. Koç Holding has always subscribed to the principles of (i)transparency,(ii)fairness,(iii)responsibility,and(iv)accountability. KoçHolding’smanagementstructure,processesandpolicieswereestab-lishedincompliancewiththeprevailingregulations,ensuringclarityandtransparencyintheareasofdecision-makingandresponsibility.KoçHold-ing is one of the first Turkish companies to appoint independent members toitsBoardofDirectors(BoD).KoçHoldingisalsooneofthefewcom-panies in Turkey to link the remuneration of its seniormanagement tosustainablefinancialandoperationalperformance.

TheGroup’svoluntarycommitmentandproactiveapproachtogoodcorpo-rate governance includes the following:1. SeparaterolesfortheChiefExecutiveOfficer(CEO)andChairman3. Noboardmembersaretobeintheexecutivemanagementteam4. Separate Corporate Governance, Management, Risk Management,

Nomination&RemunerationandAuditCommittees.5. TheCorporateGovernanceCommitteeactivelymonitorschangesin

regulations so as to ensure the Group and its companies adhere to thehighestlevelofstandards.

6. It isoneofthefirstTurkishconglomeratestoparticipateintheUNGlobalCompact.

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7. 90%ofitsnetassetvalue(NAV)islisted,ensuringhightransparencyinitsoperations.

CREATING VALUE FOR SHAREHOLDERS ThroughKoçHolding’srelativelystrongperformance, institutional inves-tors’steadilygrowinglong-terminvestmentsandourlowdiscountrates,we are able to demonstrate the value that we have created for our share-holders.

In2012,KoçHolding’smarketvaluejumped81.9%,surpassingtheIstan-bulStockExchange(ISE)100indexby19.8pointsinUSdollars.KoçHold-ingraisedtheaveragevolumeoffreefloatsharesheldbyforeigninvestorsto79.4%.WhileTurkishholdingcompaniesweretradedatamean45%discountcomparedtothevalueofnetassets,KoçHoldingwastradedatonly6%discount.Thesearethemostimportantindicatorsofthevaluewecreatethroughourlong-termstrategiesandmanagementquality,andthetrustthatourshareholdershaveinus.

KoçHoldingandtheGroup’s13publiclytradedcompaniesrepresent16%oftotalmarketcapitalizationontheISEattheendof2012. KoçHoldingstrivestocontinuouslyincreaseshareholdervaluebyimple-menting international standards in corporate governance and investor re-lations. KoçHolding’svalueaddedtoitsinvestorsindicatesthefollowing:• It isthebestproxythroughwhichtheycaninvest inTurkey’shigh

growthpotentialontheISE.• ItisTurkey’slargestinvestmentholdingcompany.• Itsstrategiesarefocusedonsustainableprofitabilityandincreasing

shareholdervalue.• Ithasastrongnetcashpositionandsolidbalancesheetstructure.• Ithasahighgrowthpotentialas it isa leader insectorswith low

penetrationsandhastheadvantagesofeconomiesofscale.• Ithasmadesuperiorandsustainableimprovementsinitsoperating

performance.• Itsportfoliostructureisresilienttoeconomicvolatilityandrisks.• Ithasanefficientriskandopportunitymanagement,supportedbyan

extensivecustomerdatabaseandeffectiveearlywarningsystems.• Ithasan87yearoldproventrackrecord;andwasbuiltbyproactive

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restructuring,mergersandacquisitions,privatizationsanddomesticandinternationalpartnerships.

RISK MANAGEMENTKoçHoldingachieved long-termsuccessthrough itscautiousyetrobustapproachtowardsriskmanagement.Aspartofitsriskmanagementstrat-egy,itusessophisticatedriskassessment,modelling,reportingandcapitalallocationtechniques.TheseprocessesboosttransparencyandencouragetheCompanytoconsiderrisksasintegralpartsofinvestmentandbusi-nessdecisions. WithintheKoçGroup,riskmanagementisoverseenbytheBoardofDi-rectors and all theGroup’s presidents. KoçHolding’s RiskManagementFunctionwasestablishedtofurtherdeveloptheGroup’sriskpolicies,ana-lyzeitslimitsandreviewitsmechanisms.ThisriskfunctionleveragestheriskinfrastructuresineachoftheCompany’sbusinessesandensurestheadoptionofanapproachthatisalignedwiththeGroup’soverallriskpoli-ciesandlimits.

Risks identified through risk management processes are prioritized ac-cordingtotheirprobabilityandseverity.BusinessleadersattheCompanyor Group level will deal with themost important risks. The Company’sgeneralresponsestrategyformanagingrisksinvolvesidentifyingwhetherit should avoid, transfer, reduce or accept the risk. Each risk responsestrategyisdesignedtobeacceptabletotheBoardofDirectors.

The Company’s risk infrastructure is designed to identify, evaluate andmitigate risks within each of four main categories:Financial Risks

FinancialrisksrelatetotheCompany’sabilitytomeetfinancialobligationsandmitigatetheeffectsofmarketvolatility.Tokeepfinancialrisksundercontrol,avarietyoffinancialratios,chieflyNetFinancialDebt/EDITDA,NetExchangePosition/EquityandcurrentratioaremonitoredattheCompanyandconsolidatedlevel,andkeptwithinparticularlimits.Financialrisksarebroken down into five categories:

Exchange:TheKoçGroupprotectsitselffromexchangeratevolatilitybymakingsureriskexposureiswithinthelimitsapprovedbytheBoardof

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Directors.Thestrategysanctionstheuseofderivativetransactionswhenrequired.

Liquidity: The Company’s policy is to continue to diversify its fundingsourcessolongastheyarecompatiblewiththematurationofliabilities,andasufficientlevelofcashandcashequivalentassetsaremaintained.TheCompanyalsobalancesitscashandcashequivalentassetswiththeshort-termliabilitiestomeetanysuddencashneed.

Credit:TheCompanymitigatesthisriskthroughcreditassessments,cred-itlimitsandobtainingthehighestpossibleguarantee.ItalsoleveragestheGroup’screditintelligenceacrossdifferentmarketsthroughaninternallydeveloped programme called E-risk, which tracks trade receivables risk on adailybasis.

Interestrate:Inordertomanageinterestraterisk,theKoçGroupimple-ments certain precautions such as balancing the re-pricing dates of inter-est-ratesensitiveassetsandliabilities.Italsoemployscertainderivativefinancialinstrumentswhennecessary.

Commodityprice:TheCompanyacceptscommodityexposuresaspartofits core business and will avoid or reduce exposure where possible through avarietyofhedgingmechanisms.

Strategic RisksStrategic risks are related to market regulations as well as the demand for theCompany’sproductsandservices.Theyalsoencompassfactorsdriv-ing market share such as competition, technological changes, consumer trendsandproductinnovation.

Sectoral and geographical diversification of markets is the most effec-tivewayofreducingsalesrisks.Accordingly,KoçHoldinghas increasedbothsectoralandgeographicaldiversitysoastocontrollong-termrisks.To control short term risks, macroeconomic and sector specific develop-mentsaremonitoredbythepresidentofeachcompanyintheGroup.KoçHolding’s strong presence and diversified business lines in the nationaleconomy enables it to recognizemarket changes early and coordinateresponsesrapidly.

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Operational RisksOperationalrisksaffectingtheCompany’soperationsandtheintegrityofitsinternalsystemsandprocessesincludeearthquakes,firesandenviron-mental accidents. Insurable risks are frequently re-assessedand trans-ferredoutoftheGroupthroughcost-benefitanalyses.

Legal RisksKoçHoldinghasdevelopedvarioussystemsagainstpotentiallegalrisks.Theseincludeearlywarningsystems,anonlinedatabase,anonlineintel-lectualpropertyrightsmanagementprogramme(mari@asistem),alegalcompliancetest(HUY)andacontractauditsystem(LERİMAN).

HUMAN RESOURCE POLICIESTheKoçGroup’shumanresourcepoliciesarebasedonthefollowingwordsofitsfounder,VehbiKoç:“Ourmostimportantassetisourpeople.”

Our human resource policies are committed to:• Attractingthemostcompetentyoungandexperiencedprofessionals

capableofcarryingourGroupintothefuture;• Rewardingachievementthroughfairandcompetitivecompensation

policies and high performance standards; • Makinginvestmentsforcontinualemployeedevelopment;• Improvingemployees’loyaltytotheCompanythroughequaloppor-

tunities in promotions and rewards; • Creatingapeacefulworkingenvironment.• Implementinganobjectiveandtransparenthumanresourcesman-

agementsystem.

Allemployeesareabletoaccessthehumanresourcesmanagementsys-tem through the electronic platform koc@insan. This human resourcesmanagementsystemhasbeenpreparedforthepurposeofimplementingthesepolicies.Astheinformationofallouremployeesaremanagedunderthe human resourcesmanagement system, this platform provides em-ployeeswithanopencommunicationenvironment.Italsoensuresthatallpoliciesandpracticesarefairandtransparent.Thismeansemployeeswillbeawareoftheirdevelopmentandassessmentcriteriafromtheverybe-ginning.Inadditiontothisplatform,employeeshaveaccesstohandbooksandannouncementsontheGroup’shumanresourcepolicies,procedure,directivesandsystems.

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ThePerformanceManagementSystem isalsoelectronicallyavailable toalltheGroup’semployeesatkoc@insan.ThissystemnotonlyguaranteestheeffectiveandtransparentdisseminationoftheCompany’sobjectivestoemployees;italsomeasuresitsemployees’performancevis-à-vistheachievementofobjectives.

From time to time, a special Talent Management Programme is conducted toidentifytalentedleaderswhomwebelievewillplayanimportantrolein the futuresuccessofKoçHolding.Once these individualshavebeenidentified,KoçHoldingwillfostertheirdevelopmentthroughourCorporateCoachingProgramme. KoçAcademyplaysanimportantpartintheDevelopmentPlanningpro-cessaswell,foritenablesemployeestoassesstheirowntalents,planadevelopment programme best suited to their talents, and monitor their ownprogress. Forthepasttenyears,5,124managersfromKoçHolding’ssubsidiarieshave attended its Leadership Development Programme as part of a wider scheme to improve theirmanagerial competency.This enables them tocarrytheKoçGroupintothefuture.

WhentherearevacantpositionsinanyofKoçHolding’scompanies,KoçGroup’employeeshavepriority.KoçKariyerimisaportalwhereallvacantjobswithintheGroupareannounced.Itprovidesouremployeeswiththemeanstoactivelyshapetheirowncareerpaths.InadditiontoKoçKari-yerim,companiesinKoçHoldingalsocollaboratewiththeTurkishEmploy-mentAgencytoraiseemployment.

CORPORATE SOCIAL RESPONSIBILITYKoç Holding’s approach to social responsibility is best surmised by itsfounder,VehbiKoç,whooncesaid,“Iliveandprosperwithmycountry.”TheKoçGroupandthecompaniesunder itseektocreatevalueforthesocietyinwhichithasgrownanddeveloped.Inordertorepaysociety,itwill implementprojectsthat ithopeswillcontributetothedevelopmentofsociety.

Inapioneeringmove,theKoçGroupactedthroughtheVehbiKoçFoun-dationtoestablishTurkey’sfirstprivatelyownedmuseum,industrialmu-

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seumandprivatestudentdormitory.Thismadeitaleaderintheareaofcorporatecitizenship.KoçHoldingandthecompaniesintheKoçGroupusetheirprojectstocontributetosocietyandpromotecommonunderstandingandsharedprinciples.

KoçHolding’s businessmodels are basedon theprinciples of responsi-bility and sustainability. Performance is constantlymonitored to ensurecontinuousprogress.Operationalandperformanceresultsarereportedtoallstakeholdersinanaccountableandtransparentmanner.Corporatere-sponsibilityactivitiesofallcompaniesinKoçHoldingareundertakenwithinaframeworkofsustainabilityandcorporatecitizenship.

MANAGEMENT OF SUSTAINABILITY PERFORMANCEWorkenvironment,environmentallyfriendlypracticesandsocialdevelop-mentarethethreemainfocalareasofKoçHolding’ssustainabilityman-agement programme. Corporate commitments, performance as well aspoliciesandtargetsaremanagedandmonitoredbythespecializedorga-nizationalunitsinaccordancewithinternationalnorms.

TheKoçGroup’sSustainabilityPerformanceEvaluationandReportingSys-temisusedtoevaluateKoçHolding’ssustainabilityperformance.Imple-mentedin2010,thissystemperiodicallyassessestheperformanceofKoçHoldinganditsaffiliatedcompaniesthroughhundredsofkeyperformanceindicatorsinmanyprimaryfields.TheresultsobtainedwouldbereportedtoKoçHoldingstakeholders fortheirevaluation, incompliancewiththeGlobalReporting InitiativeStandardB-level reporting requirementsandUnitedNationsGlobalCompactPrinciples.

GLOBAL COMPACTTheUnitedNationsGlobalCompact(UNGC),signedbyourChairmanoftheBoard,MustafaV.Koç, in2006, isaninternationalframeworkdem-onstratingthewaysinwhichsocialresponsibilitycanbeimplementedincorporateoperationsandimproved.

ENVIRONMENTAL PRACTICES AT KOÇKoçHoldingiscommittedtopreservingtheenvironmentforfuturegenera-tions.AlIitsactivitiescomplywithnationalandinternationallegalregu-lationsaswellasenvironmentalstandards.Itaimstobeamodelcom-panyandplacesgreatimportanceonraisingitsemployees’environmental

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awarenessandimprovingitscommitmenttotheenvironment.Bysharingits experiences, it endeavours to find common solutions to local and global environmentalproblems.Itisalsosensitivetoexpectationsinhealthandsafety,andtotheneedsofsociety.TheseprinciplesarealignedwiththeenvironmentalprinciplesoftheUNGlobalCompact. KoçHolding’sEnvironmentalPolicyanditsEnvironmentalVisionandMis-sion are fundamental to theway inwhich theGroup’s companies con-duct their business activities. The Policy, Vision and Mission are man-aged through strong organization and sound processes extending from theHoldingleveltothefield.TheHolding’sEnvironmentCommitteewasformed in order to share best practices, create common long-term plans anddevelopcommonprojects.

An Auditing Group and the Environment Committee jointly conduct anenvironmentalauditeverytwoyearstodeterminepossiblerisksandraiseenvironmentalawarenesswithinKoçHolding’scompanies.Theindicatorsusedfortheseevaluativeauditsarederivedfromsustainabilitycriteria.

KoçHolding’scompaniescombatclimatechangewithintheframeworkofKoçHolding’sClimateChangeStrategy.Accordingly,theHolding’scompa-niesstrivetoeffectivelymeasureandreducegreenhouseemissions.AllofKoçHolding’scompaniesarecommittedtominimizingtheenvironmentalimpactofproduction.AlltheHolding’scompaniesrespecttheenvironmentintheirproductionprocesses.

In addition toKoçHolding’s dedication to the reductionof harm to theenvironment, all its companies are engaged in improving nature and bio-diversityaswellasraisingsociety’senvironmentalconsciousness.

SOCIAL DEVELOPMENTKoçHolding’s goal is to contribute to the prosperity of the locations inwhich it operates; and in so doing, promote the expansion of social cre-ativityandencouragesocialdevelopmentaccordingtostakeholderneedsandexpectations. An advanced level of social development institutionalization is important to KoçHolding.Accordingly,itconcentratesitseffortsoneducation,health,theenvironmentaswell as cultureandart. The institutionsoverseeing

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KoçHolding’sworkintheseareasconductregularprogrammes,supportprojectsandengageinperiodicactivities.

Vocational Education: A Crucial Matter for the NationIn2006,KoçHolding, theMinistryofEducationandVehbiKoçFounda-tion launched the “Vocational Education: A Crucial Matter for the Nation (MLMM)”project.TheMLMMprojecthasthesupportof20companiesfromKoçHoldingandmorethan550KoçHoldingemployees.Sinceitsincep-tion,thisprojectforthepromotionofvocationaleducationhasbeensup-portedbynationalandinternationalactors.Itisalsolaudedasasuccess-fulmodelinthefieldofvocationaleducation.TheMLMMProjectstartedout by providing internships cum scholarships to 8,000 vocational highschoolstudents.Overtime,theprojectdevelopedintoaworkingmodelforforgingcooperativelinksbetweenschoolsandbusinesses.Itdidsobycombiningthevocationalhighschoolcoachingsystemwithdevelopmentmodulesandeducationallaboratories.

TheCooperationforQualityinVocationalEducationproject,whichbeganon 20 December 2010 with the Education Reform Initiative so as to raise thequalityofvocationaleducation,wascompletedin2012.

In 2012, the Vocational High School Coaching Programme, which had been developed under the auspices of the MLMM project, transferred to themanagementofthePrivateSectorVolunteersAssociation.TheVocationalHigh School Coaching Programme nurtures the personal development of vocational high school students and fosters the spirit of volunteerism in theemployeeswhoparticipateinit.SincethePrivateSectorVolunteersAssociation took over the implementation of the programme, it has al-readyreached29companiesandhasanexcessof300volunteers.

For My Country:“ForMyCountry”isaKoçHoldingsocialresponsibilityinitiativelaunchedin 2006 to promote individual entrepreneurship as part of responsible citi-zenship. This initiative encourages Koç Holding companies, employees,dealers and suppliers to involve themselves in the resolution of social problems.“ForMyCountry”focusesonaparticularsocialneedeverytwoyears.When“ForMyCountry”wasimplementedin2006-2007,387proj-ectssupportinglocaldevelopmentwererealized.In2008-2009,“ForMyCountry”fosteredenvironmentaleducationbyproviding18,000children

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with1,084,000saplingsthattheyweretoplant in7forests.Increasingthenumberofregularblooddonorswasthethemeof“ForMyCountry”in2010-2011anditseffortsledtoanadditional103,000donors.Bytheendof2010-2011,KoçHolding’s“ForMyCountry”initiativehadcollected83,579unitsofblood,thehighestamountgarneredbyanysinglecorpora-tion. “ForMyCountry” collaboratedwith theAlternative Life Association andtheUnitedNationsDevelopmentProgramme’s(UNDP)NoBarriersprojectin2012-2013.Theprojectsought tocreateawareness inpractices thatwouldsupportandimprovethequalityoflifeforthedisabledintheirso-cialinteractionsandjobs.Socialawarenessandsensitivitytothedisabledwere indeed raised, forbyMay2012,volunteers fromKoçHoldinghadreachedoutto37,980personsin44ofKoçHolding’scompaniesandtomanyothersin20provinces.375volunteersunderwent730trainingses-sionsintheRightApproachtoDisabilitytrainingprogrammesothattheycouldbeeffectiveinstructors.Additionally,55projectstorenderKoçHold-ing’scompanies,distributorshipsandstoresfriendlytothedisabledwereinitiated.Thisprojectalsoledtothedevelopmentofproductsandservicesfordisabledconsumers.

International Istanbul Biennial KoçHoldinghasalwayssupportedprojectswiththepotentialto leavealastinglegacytosociety.TheInternationalIstanbulBiennialisoneofthoseprojects.OrganizedbytheIstanbulFoundationforCultureandArts,theInternational Istanbul Biennial is a modern art event that explores social issuesthroughthemediumsofartandculture.KoçHoldinghasassumedsponsorshipoftheInternationalIstanbulBiennialfor2007-2016.ThisisoneofthemostfamousarteventsinTurkey,asithastraditionallygar-neredmuchattentionabroad.InsupportingtheInternationalIstanbulBi-ennial,KoçHoldingiscelebratingart,cultureandIstanbul.KoçHoldingwillcontinue to do all it can to enrich the International Istanbul Biennial and therebyensureitscontinuity.

Koç FestKoçHoldinganditsaffiliatesstartedKoçFestin2006tocreateaspecialfestivalforuniversitystudentsthroughmusicandentertainment.KoçFestisquiteatraditionnowandhashad65festivalsin28citiesin7years.KoçHoldingisafirmbelieverinawellbalancedacademiclifeandstrongly

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adheres to the idea that sports raises thequalityofpeople’s lives.KoçHoldingnotonlysponsorsKoçFest;ithadsponsoredtheTurkishUniver-sityGamesorganizedbytheTurkishUniversitySportsFederationin2009aswell.Fromthenon,themostprestigiousandhighlyattendedsportingeventamongstTurkishuniversitiescametobeknownastheTurkishKoçFestUniversityGames.KoçHoldinghassincebecomeanessentialpartofthefestival.Throughthisinitiative,KoçFestbecamethelargestyouthfes-tivalinTurkey,bringingtogethersports,musicandfunthroughoneevent.Since2009,KoçFesthashosted20,000athletesin42disciplinesfrom185universitiesannually.SomeofthesuccessfulathletesandteamsattheseannualsportingeventshavegoneontorepresentTurkeyatinternationaleventssponsoredbyKoçHolding. In2012,KoçFestonceagainvisitedsevenuniversitiesandheldthebigfinaleatEskişehirAnadoluUniversitywhereapproximately5,000studentsattended.

VEHBİKOÇFOUNDATIONSinceitsestablishment,theVehbiKoçFoundation’scentresofexcellenceand numerous programmes have set examples in the areas of education, healthcareandculture.

EDUCATIONThroughitsheadquartersandaffiliat-edinstitutions,theVehbiKoçFounda-tion (VKF) has provided scholarships to 4,048 students in the 2012/2013 academicyear,specifically,3,251ju-nior and senior high school students and797universitystudents.VKFhasincreased the number of students eli-gible for scholarships in order to offer financial support to a greater number of successful students. The numberof universities receiving scholarships fromVKVhasincreasedto17.

Inthememoryofthe75thyearthatthe Turkish Republic was founded, VKF established 13 Koç elementaryschools in different parts of Turkey.

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Through the establishment of Istanbul Bayazıt FordOtosan ElementarySchoolin2006,KocaeliFordOtosanElementarySchoolin2007,DiyarbakırKayapınarıElementarySchool in2008and the restorationofDiyarbakırBağlar Elementary School in 2008, there are now 17 Koç elementaryschools.AccordingtoVKF’sprincipleof“Build,Transfer,Own”,theseel-ementaryschoolsweretransferredtotheMinistryofNationalEducationaftertheirestablishment.

All these schools have the same architectural design characteristics and arefullyequippedwithcomputers.ThroughthecontinuoussupportofVKF,theseschoolsareabletoprovidechildrenwithacontemporaryeducationthatwillaidthemintheirfutures.

TheVKVKoçSchoolisoneofthemostpreferrededucationalinstitutionsinthecountryandpresentsarolemodelforotherschoolsbecauseithasbothaHighSchool(foundedin1988)andanElementarySchool(foundedin1998).Theschoolprovidesastimulatinglearningenvironmentthroughastudent-centrededucationalprogrammeandinterdisciplinaryactivities.Inthe2011/2012academicyear,therewere152graduatesfromtheEl-ementarySchooland209graduatesfromitsHighSchool.

Ofallthenon-profitprivateuniversities,KoçUniversityhasattractedthelargestnumberoftop-scoringstudentsinTurkey.TimesHigherEducationrankedKoçUniversityalongwithtwootherTurkishuniversitiesinthetop250universitiesoftheworld.KoçUniversity,whichwouldhavecelebratedits20thanniversaryin2013,aimstobecomethefirstTurkishuniversitytorankinthetop100universitiesworldwide.

After a model school...VKFandCannonDesignjointlyhostedthefirstofthe“EducationArchitec-tureinthe21stCentury”and“TheImpactoftheEnvironmentonEduca-tion”conferencesinFebruary2011.Thesecondoftheseconferenceswasheldon4December2012attheKoçUniversityAnatolianCivilizationsRe-searchCenterinIstanbul.CannonDesignissupportingtheModelSchoolProject inthehopesthatitwillproduceanidealschoolofferinginnova-tiveeducationalenvironmentsandpedagogicalapproaches.Asthismodelschool will be based on an organic relationship between the shareholders andthecommunity, itwillbestudent-centred,sustainable,reproducibleandadaptable.Themodel schoolprocessand thearchitectural conceptwere presented to the participants, who were then asked to discuss the

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subjectsofeducation,architectureandlearninginthenewcentury.Thebasis of the idea of a reproducible model or ideal school was nurtured at theseconferences,andthefindingsmadepublicin2014.

HEALTH AttheHealthSciencesCampus,educationandhealthintersect.Thecon-struction of the Health Sciences Campus, one of the largest of its kind in Turkey,hasbeguninTopkapı,Istanbul.AffiliatedwithVKFandtheFacultyofMedicine atKoçUniversity, the campus is set to open inSeptember2014.Thefirstphaseoftheprojectinvolvessettingupafacultyofmedi-cineandestablishingaresearchandtraininghospital.Thesecondphasewillseetheestablishmentofanursingschoolaswellashousingforfacultymembersandnurses.Whencomplete,thisprojectwillcontributegreatlytothecountry. Revenues from the VKF American Hospital are used as investments in the constructionoftheKoçUniversityFacultyofMedicineteachinghospital.TheVKFAmericanHospitalwas takenoverbyVKF in1995and isnowoneofTurkey’slargestprivatehospitalswith60intensivecareunits,300patientbeds,13operatingroomsand38clinics.

In providing this crucial social contribution to the construction of the Health SciencesCampus,theVKFAmericanHospitalhasbrokennewground.

Everyyear,theVehbiKoçFoundationNursingFundprovidesscholarshipstonursing students. It also supportsprofessional developmentprojectsconductedbynurses. TheKoçUniversitySchoolofNursingwasfoundedin1999toprovidepro-fessionalappliednursingeducation.Tothisday,itiswellknownforpro-ducingmodern,exemplaryandself-confidentnurses. In the2011/2012academicyear,theNursingUndergraduateProgrammeadmitted28stu-dentswho had passed the university entrance exam. Students are ex-pectedtocompletethefouryearprogramme,attendtwosummertermsof English, undergo clinical practice, receive their nursing degrees and becomeprofessionalnurses.

The Semahat Arsel Nursing Education and Research Center (SANERC) was foundedasanaffiliateoftheVehbiKoçFoundationon21December1992.In2004, itwasattached to theSchoolofNursingatKoçUniversity.To

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achieveitsmission,SANERCeducatesandgivesadvisoryservices;con-ducts and supports research contributing to professional development; andpreparesguidelinesfortextbooksandtraining.Italsopublishesanddistributes the “Training and Research Journal” free of charge. Since itstartedpublicationin2004,thisjournal ispublishedthreetimesayear.SANERCisaccreditedbytheAmericanNursesCredentialingCenter.SinceSANERC’sfounding,over8,679healthcareprofessionals(mostlynurses)haveparticipatedinitstrainingprogrammes.

CULTURESadberkHanımMuseumwasestablishedbytheVehbiKoçFoundation.ItisalsoTurkey’sfirstprivatemuseum.Undercontemporarymuseumman-agementapproach,SadberkHanımMuseum is designed tobea living,productivecentreforcultureandeducation.Themuseumopenedin1980.ItoccupiestheAzaryanResidenceatBüyükdere,intheSarıyerdistrictofIstanbul.Atitsopening,itwasdedicatedtothememoryofSadberkKoç,thelatewifeofVehbiKoç,becausethismuseumhousesherpersonalcol-lection.Thecollection,formingthecoreofthemuseum,hasbeenenrichedtimeandtimeagainthroughdonationsandpurchases.Asof2012,itcon-tains over 18,000 pieces. Themuseum is composed of twowings: theTurkish-IslamicartworkcollectionisexhibitedintheAzaryanResidence,whilethearchaeologicalartscollectionresidesintheSevgiGönülBuildingthatwasopenedin1988.

TheVehbi Koç andAnkaraResearchCenter (VEKAM) is situated in thevineyardhousebelongingtoVehbiKoçinKeçiören,oneofthelastremain-ingvineyardhousesinthecity.VEKAMfunctionsasAnkara’slibraryandarchives,foritholdsresourcesrichininformation.Byconstantlyimprov-ingitscollectionthroughacquisitionofallpublishedmaterialonAnkara,includingrarebooks,VEKAMhasmanagedtobecometheprimaryrefer-encecentreforurbanstudiesonAnkara.In2012,VEKAMhonouredthe90thanniversaryoftheTurkishRepublicandAnkarabecomingthecapitalcitybypublishinganinterdisciplinarybiannualrefereedjournal,theJour-nalofAnkaraStudies.

TheSunaandInanKıraçResearchInstituteonMediterraneanCivilizations(AKMED)andSunaInanKıraçKaleiçiMuseumopenedtheirdoorstothescientific, cultural and artistic communities in 1996, after Suna and Inan boughtandrestoredtwooldfacilitiesonabuildingplotinKaleiçi,Antalya.

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ThisisanaptlocationforAKMEDandtheSunaInanKıraçKaleiçiMuseumbecauseitstandsonaprotectedurbanarchaeologicalsite. AKMEDwasestablishedasthefirstandonlyTurkishprivateresearchin-stitutespecializingintheMediterranean.Itaimstosupporttheresearch,documentation, protection and maintenance of the historical, archaeologi-cal,ethnographicalandculturalvaluesofAntalyaanditsregions.Italsopublishes scientific studies on the state of affairs between nations and communitiesalongtheMediterraneancoast.

The Research Center for Anatolian Civilizations (RCAC), established in 2004asamanagedsubsidiaryofKoçUniversity,isthefirstandonlyTurk-ishinstitutioninthisfield.Itoffersresearchscholarshipsto20PhDstu-dents and academicians from Turkish and foreign universities and hosts thematitshistoricalbuildinginBeyoğlu,Istanbul.Italsosupportsaca-demic work on Anatolian civilizations and is dedicated to the development oftheknowledgebaseinthisfieldbothinTurkeyandtheworld.Withthelibraries,conferencehallandgalleryspaceopened in June2012,RCACservesasanintegratedhubforstudiesonAnatoliancivilizations.

ARTER,aninitiativeoftheVehbiKoçFoundation,openedin2010toofferasustainableinfrastructureforproducingandexhibitingcontemporaryart.

Through its programmes, ARTER encourages the production of contempo-raryartworks.ARTERprovidesartistswithaplatformthroughwhichtheymayshowcasetheirworkandartisticpractices.ExhibitionsofartworkarefrequentlyheldandtheycomefromvarioussourcesliketheVKFContem-poraryArtCollection,privatecollectionsandarchives. Jointproductionswith international institutionsare includedaswell.TheVehbiKoçFoun-dation intends toexpandARTER furtherbyproviding itwithamuseumcomplexaswellasaresearchlaboratoryandaspaceforartpreparation.

In2012,anewexhibitionopenedatARTER.Thisexhibit,Voices,aimstointroducetheworksoftheworld’sleadingcontemporaryartiststotheIs-tanbulartworldandsupporttheproductiononauralartprojects.

TheVehbiKoçFoundationFordOtosanCultureandCommunityCenterinGölcükwasestablishedundertheauspicesofFordOtosan.Sinceitsincep-tion in 2010, it has contributed to the social and cultural development of

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theregionandthelocals.Withitsnaturalsetting,garden,awardwinningarchitecture, personal development classes, art courses, exhibitions, the-atre performances and musical activities, it provides a rich cultural envi-ronmentfortheregion.Althoughithasonlybeenopenedfornearlythreeyears,itoffersanextensivearrayofactivitiessuchasclassicalmusicandjazzconcerts,theatre,children’sshowsandartworkshops.Localartlov-ersmakeuseofitsfacilitiesbyassemblingthere.Itsmanyfreeandunre-strictedactivitiesenableittodrawanaverageof9,000visitorsamonth.Duetoitsemphasisonsocialresponsibility,itisabletoattractpeopleofallagesfromallwalksoflife.

THEVEHBİKOÇAWARDEveryyear,theVehbiKoçFoundationacknowledgesachievementsinthefieldsof culture, educationandhealthcarebypresenting theVehbiKoçAward to individuals or institutions who have contributed to the elevation ofTurkishpeople’squalityoflife.

In2012,Prof.Dr.NerminAbadanUnatwaspresentedwiththeVehbiKoçAwardinrecognitionofheroutstandingcontributiontoeducation.

Prof. Dr. Unat is considered a teacher of teachers because of her pio-neering and exemplarywork onwomen’s studies and immigration, herinvaluable efforts in cultivating hundreds of students and her mentoring of academiciansinpoliticalscienceandsociology.

PreviousrecipientsoftheVehbiKoçAwardwere:2011-Culture:2011–Prof.Dr.FilizAliandtheAyvalıkInternationalMusicAcademy2010-Health:Prof.Dr.TuncayDalkara2009-Education:Prof.Dr.TürkanSaylan2008-Culture:Prof.Dr.MehmetÖzdoğan2007-Health:Prof.Dr.AzizSancar2006 - Education: Nuri Okutan2005-Culture:FazılHüsnüDağlarca2004-Health:BilkentUniversity,FacultyofSciences,DepartmentofMo-lecularBiologyandGenetics2003-Education:MotherChildEducationFoundation(AÇEV)2002-Culture:TopkapıPalaceMuseum

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AWARDSGIVENTOTHEVEHBİKOÇFOUNDATION2012: Iris Foundation Award for Outstanding Contributions to the Decora-tiveArts.2011:BNPParibasGrandPrixforIndividualPhilanthropy2009:CarnegieFoundationMedalofPhilanthropy2007: World Monuments Fund, Hadrian Award1988: Sadberk Hanım Museum was presented with the Europa NostraAward1987:SadberkHanımMuseumwaspresentedwiththeAgaKhanAwardfor Architecture

5. CONCLUSIONS AND RECOMMENDATIONS OF THE BSEC WORKSHOP ON FAMILY BUSINESSES

5.1. CONCLUSIONS

The following points were made in conclusion:1. FamilyBusinesses(FBs)arethebackboneof theeconomiesof the

BSECmemberstatesandtheirsocieties.2. FBsmakeupabout70-80%ofallEuropeanenterprisesandaccount

forabout40-50%ofemployees.3. MostSMEs,especiallymicroandsmallenterprises,areFBsandsome

ofthelargestEuropeancompaniesarealsoFBs.4. MostofFBsareSMEsoperatingintraditionalsectorssuchastourism,

agricultureandtheserviceindustry.5. ThereisnocommonlyaccepteddefinitionofFBintheEU.However,

theParticipantsoftheWorkshopagreedthatafirm,ofanysize,isaFB if:

i. theownershipofthecompanybelongstoanaturalperson(s)orhis relatives;

ii. themajorityofdecision-makingrightsisinthepossessionofthisnatural person(s); and

iii. at leastonerepresentativeofthefamily isformally involvedinthemanagementofthisfirm.

6. Thedefinitionshouldbeintroducedatthenationallevel.7. ThecommonfeatureofFBsisthatthefamilyunit,thebusinessand

itsownershipareintertwined.8. FBsenablefamiliestobeflexiblewiththeirtime,workandmoney.

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Theyareinnovativeentitieswithlong-termplanning,possessstablecultures,andarecredibleandmoral. Families inbusinessarealsovery proud of their traditions, achieves and enterprises. However,FBs are sceptical about change and external market stimuli, and are thereforereluctanttomodernizetheirmanagementstyles.

9. FBs inmanyBSECcountries, including theadvancedones,believetheirgovernmentsoughttobemoresupportiveofthem.Themajorityof FBs feel that their governments neither recognized their contribu-tionsnoracknowledgedtheirsignificance.

10. FBsdifferfromlargebusinessesinentrepreneurialthoughtsandac-tions.

11. InadvancedmarketeconomieslikeGermany,theinfluenceofFBsisdecreasing.Theoldfamilymodeliserodingbecauseincreasedglobal-izationhaschangedthesocio-economicenvironment.

12. ThereisalackofresearchandcommonunderstandingastotheFBs’valuefortheeconomyandsociety.

13. Theissuesofbusinesssuccessionandbusinesstransfersareparticu-larlysalientforFBs,astheydirectlychallengethelong-termsurvivalofexistingFBs.Mostbusiness transfers to thenextgeneration failduetolackofcarefulplanningandrigidtaxationpolicies.

14. ThereisalackofreliablestatisticsontheFBsintheBSECmemberstates.

5.2. RECOMMENDATIONSThe following recommendations were made: 1. Governments should provide a legal definition of FB in the BSEC

memberstatesandharmonizeitwiththeirexistingcompanyandSMElaws.WhendefiningFBs,thethreemajorpillarsofthefamilyunit,thebusinessanditsownershipshouldbetakenintoconsideration.

2. Governmentsshouldfostertheentrepreneurialspiritthrougheduca-tion in order to encourage the creation of sustainable FBs in the BSEC countries.Specialattention isrequiredtomodernizethevocationaleducationtrainingsystemintheBSECmemberstates.

3. GovernmentsshouldimproveFBrelatednationalstatistics.4. Freetrainingcoursesinbusinessplanning,accountancy,marketing,

managementandinformationtechnologyarenecessary,ifFBsaretofurtherdevelop.

5. Governmentsshouldconsideradoptingmeasures tocreateamore

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favourableeconomicenvironmentforFBs.Someofthesemeasuresincludethesimplificationofcompanylaw,reducingbureaucracy,eas-ingtaxationandprovidingfinancialresourcesforFBstart-ups.

6. Governmentsandnationalauthoritiesshouldfosterthedevelopmentoflocalandregionalclustersespeciallybycross-fertilizingtraditionalsectorclusterswithtechnologyandservicesclusters.

7. GovernmentsshouldfostertransferandinnovationprojectsbetweenacademiciansandFBs.

8. GovernmentsshouldincludeFBdevelopmentintheirSMEdevelop-mentpolicies.

9. CivilsocietyshouldbeencouragedtorepresenttheinterestsofFBsespeciallyatthenationallevel.

10. Wherenecessary, themediaandpublic institutionsshould improvethepublicimageofFBsandpromotetheirvalues.

11. On15October2013,theparticipantsoftheWorkshopagreedtopro-duceabookonfamilybusinessesintheBSECmemberstates,basedontheguidelinesoutlinedbyERENET’sScientificDirectorandKAS.

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INDEX OF AUTHORS

ERENET Dr. Antal SzabóUNret.RegionalAdviserScientificDirectorofERENETBudapest,Hungary

ALBANIAErjona RebiPhD Candidate FacultyofEconomics,UniversityofTiranaTirana, Albania

Arber DemetiPhD Candidate FacultyofBusiness,AleksanderMoisiuUniversityDurres, Albania

ARMENIARshtun MartirosyanHead of Economic Development ProgramsChildren of Armenia Fund (COAF)Yerevan, Armenia

AZERBAIJANProf. Ragib GuliyevDepartment of EconomicsAzerbaijanTechnicalUniversityBaku,Azerbaijan

Tural GuliyevPh.D.StudentAzerbaijanStateEconomicUniversityBaku,Azerbaijan

BULGARIAProf. Tzvetan DavidkovFacultyofEconomicsandBusinessAdministrationSofiaUniversity“St.KlimentOhridski”Sofia,Bulgaria

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Assoc. Prof. Desislava YordanovaFacultyofEconomicsandBusinessAdministrationSofiaUniversity“St.KlimentOhridski”Sofia,Bulgaria

GEORGIAEteri MamukelashviliChiefSpecialist,DepartmentofEconomicAnalysisandPolicyMinistryofEconomyandSustainableDevelopmentTbilisi, Georgia

HELLENIC REPUBLICDr. Chrysa AgapitouBusiness Administration DepartmentUniversityofPiraeusPiraeus, Greece

REPUBLIC OF MOLDOVADr. Valentina VeveritaDirector,DepartmentforSmallandMedium–sizedEnterprisesandLiberalProfessionsDepartmentofDevelopmentPolicies,MinistryofEconomyChişinău,Moldova

Dr. Elena AculaiScientificResearchCoordinatorNational Institute for Economic Research (INCE)Chişinău,Moldova

Emilia CebotariConsultant, Department for Enabling Business EnvironmentMinistryofEconomy,RepublicofMoldovaChişinău,Moldova

ROMANIAAssoc. Prof. Zsuzsanna Katalin SzabóVice-Dean,FacultyofEconomics,LawandAdministrativeSciencesPetruMaiorUniversityTârguMureş,Romania

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Katalin Dalma SzabóJuniorProjectManager,eMAGBucharest, Romania

RUSSIAN FEDERATIONMaria Babko AndreevnaSpecialist, Department for SME Development and CompetitionMinistryforEconomicDevelopmentoftheRussianFederationMoscow, Russian Federation

REPUBLIC OF SERBIAProf. Dr. Radmila GrozdanicVice-Dean,FacultyforBusinessEconomyandEntrepreneurshipHigh School for Economic StudiesBelgrade, Serbia

Prof. Dr. Mirjana Radovic-MarkovicFullUniversityProfessor,AcademicianFacultyforBusinessAdministration&EntrepreneurshipBelgrade, Serbia

TURKEYAsst. Prof. Meltem Ince YenilmezDepartment of EconomicsYaşarUniversityIzmir,Turkey

Meltem KurtsanPharmacist, Shareholder of Kurtsan Holding Vice President of Kurtsan Science, Art and Education FoundationIstanbul,Turkey

Koç HoldingCorporate Communications and External Relations DirectorateIstanbul,Turkey

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UKRAINEEskender BariievChairmanCenterofpoliticalanalysisandforecasting“Crimea”Simferopol, Ukraine