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Obstacles to entrepreneurship in a transition business environment: the case of Albania
Aristidis Bitzenis
City Liberal Studies, Thessaloniki, Greece, and
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Ersanja Nito
Retail Banking, Raiffeisen Bank, Tirana, Albania
Abstract
Purpose – To critically evaluate the obstacles and problems encountered by entrepreneurs while doing business in Albania, which is an economy in a transition. Design/methodology/approach – The research methodology incorporates a survey that uses interview and questionnaire techniques. The sample was determined on a stratified basis (probability-random sampling) involving the random selection of respondents from various strata of the population. Findings – The most important obstacles faced by entrepreneurs in Albania include unfair competition, changes in taxation procedures, lack of financial resources and problems related to public order. Bureaucracy and corruption do not appear to represent significant barriers to entrepreneurship. Research limitations/implications – Responses from the selected strata were not distributed proportionally among the targeted sample. Practical implications – Legislative amendments and new legislation which focus specifically upon small business and enterprise development should be implemented by the Albanian government in order to achieve a transparent fiscal reform and create a more favorable business environment. Originality/value – This research provides a critical evaluation of entrepreneurial activities and the obstacles that entrepreneurs encounter while operating in the Albanian economy in transition. Keywords Entrepreneurialism, Small to medium-sized enterprises, Economic growth, Albania Paper type Research paper
The Term Paper on Are Small Business Owners Entrepreneurs
To answer this challenging question, one must compare both entrepreneurs to small business managers or owners and entrepreneurial ventures to small businesses. One must also ascertain the meanings of the terms, entrepreneur and small business owner. The definition of an entrepreneur is a commonly argued point, with several definitions having been given by many different people. The dictionary ...
Journal of Small Business and Enterprise Development Vol. 12 No. 4, 2005 pp. 564-578 q Emerald Group Publishing Limited 1462-6004 DOI 10.1108/14626000510628234
Introduction As a member of the Southeast European countries (SEECs) and with an economy in transition, Albania is attempting to recover from economic decline and find means to develop and promote its businesses, to establish new enterprises, especially small and medium enterprises (SMEs), and to improve its managerial and entrepreneurial skills. All these aspects are considered crucial for this country’s economic progress and recovery. Deliberately isolated from the rest of the world by its communist leadership, Albania became one of the poorest countries in Europe (Kaser, 2001; Gramoz, 1993).
According to Lawson and Saltmarshe (2000) the Albanian brand of communism was one of the most extreme forms of totalitarianism and its communist regime was the last to collapse in Europe. Lawson and Saltmarshe (2000, p. 135) argued that it was the failure of central planning to generate sustained economic growth which probably undermined the communist regime and led to its collapse.
During the transition years (1989-2004), little research was available to give a coherent picture of the Albanian business environment and to determine the obstacles that entrepreneurs and SMEs encounter in a country in transition. An entrepreneur can be an innovator, a risk taker, a person who operates resources, recognises opportunities and establishes one or more businesses (Howorth et al., 2005).
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Guatemala City As with all countries, certain and continuous political systems is unlikely. Instead a mixture of systems (capitalism, socialism, communism, and traditionalism) seem to be the overall control of a nation. Guatemala, a small country in South America, proves true to the before-mentioned statement. While it is not a mixture of all four systems, Guatemala does possess and adhere to ...
An entrepreneur also develops, builds and sustains a business based on new ideas, maximises benefits and profits, and meets personal objectives (Ritchie and Brindley, 2005).
This study attempts not only to present the actual economic situation in Albania, but also to identify the specific requirements of entrepreneurs and the barriers they faced, as well as the factors that will facilitate their future economic expansion. Our research of Albanian enterprises is an analysis of SMEs in an economy where only 1.8 per cent of all the companies are large enterprises (INSTAT, 2003).
Classification of enterprise development in Albania There is reliable evidence that the Albanian economy, in contrast with other transition economies, consists mainly of micro and small enterprises (MSEs) (Grashov, 2002; Mancellari, 2002; CRD and Klein-Josef, 2002; Tsakonas, 2002).
Numerically, medium and large private enterprises are negligible in Albania. The structure of companies in Albania is as follows: companies with up to ten employees account for 98 per cent of the total and companies with more than ten employees comprise less than 2 per cent. A comparative analysis of SMEs definitions across various countries proved inconclusive (UNECE, 2003).
Moreover, despite the fact that there exists a law in Albania (Law No. 8957 “For Small and Medium Sized Enterprises”, October 2002), various institutions have adopted and use different categories and sizes. The SME definition incorporated in Law No. 8957 in Albania uses as quantitative criterion the number of employees. More specifically: . micro enterprises are employing up to five individuals; . small enterprises have between 6 and 20 employees; and . medium enterprises employ 21-80 employees. In contrast, the Statistical Institute of Albania (INSTAT) has adopted a different classification. Interestingly, the criterion remains the same (the number of employees), but in different size categories (Table I): . small enterprises: those employing only one employee; . medium enterprises: employ between two and ten employees; and . large enterprises: have ten employees or more.
Year 1993 1994 1995 1996 1997 1998 1999 2000 2001 Total
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Size class One employee 8,386 8,179 4,598 4,778 2,191 4,403 5,985 6,580 5,940 51,040 Two to ten employees 2,694 2,307 1,176 898 411 572 397 770 543 9,768 More than ten employees 471 372 59 43 15 11 35 32 13 1,051 Total 11,551 10,858 5,833 5,719 2,617 4,986 6,417 7,382 6,496 61,859 Source: INSTAT (2003)
The Business plan on Intro To Business Businesses Product Consumers
Introduction to Business Business plays a major role within our society. It is a creative and competitive activity that continuously contributes to the shaping of our society. By satisfying the needs and wants people cannot satisfy themselves, businesses improve the quality of life for people and create a higher standard of living. It is a way for individuals to provide goods and services to ...
Table I. Active enterprises by class size
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According to Klein (2002), the EU member states and most of the countries in transition use the following classification: . micro enterprises: 1-9 employees; . small enterprises: 10-49 employees; . medium-sized enterprises: 50-249 employees; and . large-sized enterprises: 250 or more employees. We adopt and base our study on Mancellari’s (2002) definition for two reasons: first, Mancellari’s definition employs not only quantitative criterion such as the number of employees, but also financial criterion (i.e. turnover): . small enterprises are those with up to two employees, and an annual turnover under 2 million leks; . medium enterprises are those with two to ten employees, and an annual turnover of 2-8 million leks; and . large enterprises are those with more than ten employees, and an annual turnover over 8 million leks (for comparison, in 2002, the exchange rate stood at 1US$ ¼ 140 leks).
Second, in our empirical study we endeavour to answer an important research question in relation to SME definitions and the actual business environment in Albania. We believe that it is difficult to establish a common SME definition that could be acceptable to both the EU and the countries in transition. For this reason, we provide a background for a general overview of classifications, by giving statistical data and presenting the changes in definition in relation to SMEs in Albania. SMEs, in most of countries, are those businesses that employ fewer than 250 individuals (exceptions are some countries like the USA, Italy and Australia in which SMEs are those with fewer than 500 employees).
In Albania, 99.9 per cent of all economically active businesses can be classified as SMEs. In our experience, the standard SME definition in Albania is undergoing a dynamic change, as informed by the transition from a centralised to a market economy. Importantly, however, the number of employees remains the most commonly used criterion to define SMEs in Albania. Obstacles to entrepreneurship in the Albanian business environment In an attempt to study obstacles to entrepreneurship in the Albanian business environment, Rusi and Sadiraj (2003) conducted a survey that used a random sample of 350 enterprises in seven cities. They found that trade is one of the most dynamic sectors of the Albanian economy. Accordingly, the share of industry in Albania is 11 per cent of GDP, agriculture is 48 per cent, services is 41 per cent and trade accounts for 35 per cent of GDP (EBRD, 2003).
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Rusi et al. (2003) noted that 59 per cent of enterprises were found in locations which did not coincide with the addresses found in the taxation office, and 81 per cent of these businesses had one to nine employees and only 7 per cent employed more than 20 individuals. In this context, Rusi and Sadiraj (2003) reported that the factors that negatively affect enterprises included: competition from the “Black Market” (70 per cent), followed by low demand in the local market (50 per cent) and unclear economic legislation (48 per cent).
In their research study, Shahu and Liperi (2003) reported that Albanian entrepreneurs were not interested in performing market research before starting up a business. Moreover, they emphasized that an Albanian entrepreneurs do not realize the importance of investigating the market niche in which they intend to operate. This can be attributed to information imbalances, lack of management skills and relevant vocational education. In contrast, foreign companies located in Albania do not risk starting up a business without first studying the local market and taking into consideration all the risks and obstacles that they might encounter. In the late 1990s, a number of surveys[1] were conducted in Albania, Georgia and other transition countries by the World Bank Group. The most important obstacles encountered by Albanian entrepreneurs included bad infrastructure (roads, water supply, electricity, etc.), followed by corruption and unclear tax regulations. Noteworthy of mention is the considerable discrepancy between Albania and other countries in the World Bank Group sample, as concerns the infrastructure factor, which seems an overwhelming impediment in Albania but not so significant in other countries.
Martin (2002) added to this the long isolation period that Albania experienced as an explanatory reason. Moreover, corruption is perceived as another significant problem for Albanian entrepreneurs and is widespread in every sector of the business environment. In 1998, “The Enterprise Survey”, performed by the Australian Council for Educational Research (ACER) and the World Bank provided some interesting and relevant results. The main focus of this survey was on corruption. The two study-groups in the sample (small versus medium and large enterprises) highlighted that, on average, enterprises were prepared to pay a 10 per cent higher tax rate if corruption could be eliminated. Surprisingly, the “small enterprises” category preferred to pay additional taxes (even higher than larger companies) in support of corruption being eliminated. According to Fries et al. (2003), the countries facing the most severe problems of tax evasion included Albania, Georgia, the Kyrgyz Republic and Tajikistan, while countries with relatively strong tax discipline were Estonia, Slovenia, Lithuania, Armenia and Poland. However, Fries et al. (2003) point out that organisations in the latter countries, both under-reported actual sales to tax authorities and bribed them in order to reduce their fiscal burden.
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A “Public Officials” survey was conducted in 1998 by ACER in collaboration with the World Bank. It reported that more than half of the public officials admitted to dishonesty and briberies of some sort. Customs appears as a highly corrupted institution, as nearly 90 per cent of its officials resorted to dishonest practices. The Judiciary and Tax inspection institutions followed, respectively. The business environment and enterprise performance survey (BEEPS) conducted by the World Bank from June to August 1999 (Fries et al., 2003) compared the level of corruption across countries in the research sample. Firms admitted to making illegal payments to public officials if “things are to be done” (World Bank, 2000).
In comparison with other SEE countries, Albania appears to have the highest corruption index. In 2002, the Foreign Investment Advisory Centre (FIAC, 2003) undertook a project that examined administrative barriers in Albania within a sample of 500 private companies. The most striking result was the extent and level of corruption regarding “unofficial payments”. Specifically, the highest percentages of briberies were in the “Customs Import Clearance” practices, the “Construction Permits” and the “Tax Inspection” procedures.
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INTRODUCTION The assignment will explore ERP from its origin and would shed light on its fundamentals and implementation procedures. ERP will be evaluated from two perspectives of two different companies which implemented the ERP solution. First we will be discussing! SS Cisco! |s!" ERP implementation and the technical and business issues related to that and then we will move on to the other case ...
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In 2000, a comparative survey based on public opinion in relation to corruption was conducted in Albania, Bulgaria and FYROM, with the cooperation of Vitosha Research (Center for the Study of Democracy in Bulgaria), the Albanian Center for Economic Research and the Forum for Strategic Research and Documentation (FYROM).
The survey was based on the Corruption Monitoring System of Coalition, which was created by Vitosha Research in 2000 and was an initial step towards implementation of the Regional Corruption Monitoring System. While public opinion in Albania perceives corruption as the primary social problem at present, in Bulgaria, corruption is among the four most crucial problems, while in FYROM it ranks in the seventh place. In Albania, corruption is most widespread among customs officers (95 per cent), tax officers (79.5 per cent), as well as among all representatives of the judicial system – judges (85 per cent), lawyers (77 per cent), investigators (74 per cent), and public prosecutors (72.5 per cent).
Moreover, 71 per cent of the respondents have fallen victims to corrupt practices involving doctors. Municipal officers (20 per cent), tax officers (15.5 per cent), and police officers (12.5 per cent) also exert substantial corruption pressures. Furthermore, the data suggests that the institutional spread of corruption in these three countries largely reproduces public assumptions about common corrupt practices among different occupational groups. Customs and tax officers, and the judicial system are among the first five institutions determined by the respondents as “centers” of high levels of corruption in Albania, Bulgaria, and FYROM. On the other hand, the Army, the National Institute of Statistics, and the Presidency are institutions where corruption appears to be the least widespread. In the Global Corruption Report 2003 prepared by Transparency International, Jovic (2003, p. 190) examined SEECs[2] and concluded that:
The countries of Southeast Europe witnessed high levels of corruption in the past 12 months [2002], much of it attributable to ineffectual state institutions and the weak implementation of legislation. Nevertheless, many countries in the region are consolidating state institutions as they proceed with the transition to liberal democracy. The transition is being accelerated by international pressure, which continues to be a major force behind anti-corruption efforts. Yet corruption continues to be widespread in Southeast Europe: old networks of influence and “parallel systems” offer a semi-legal or illegal way of gaining access to services or products.
In Bulgaria, Bitzenis (2004, 2005) found that more than half of the total foreign MNEs mentioned corruption, bribery or other illegal actions from “mafia” as decisive obstacles for the operation of their FDI projects. A worldwide questionnaire survey was conducted from August 1996 to February 1997 by the World Bank to examine the most serious obstacles to foreign MNEs. Its findings were reported by Pfeffermann and Kisunko (1999).
They concluded that the most decisive barriers for the Albanian business environment were the inadequate business infrastructure, followed by the unpredictability of judiciary institutions, corruption, crime and theft. At the same time, the findings for Bulgaria showed that the inflation, tax regulations and/or high taxes, general uncertainty on costs of regulations, crime and theft were major barriers. In FYROM tax regulations and/or high taxes, and financing problems were identified as most decisive obstacles. IDRA et al. (2001), found that the most decisive problems in Albania included tax levels, followed by state bureaucracy and the lack of political stability, unfair competition and the low physical infrastructure level, respectively. In FYROM, the main problems were state bureaucracy, corruption, the unpredictability of laws and
regulations, problems with technology/production, and the unstable exchange rate. Unpredictability of laws and regulations, corruption and state bureaucracy, the high tax level, and problems in financing appeared to impede entrepreneurship and business activities in Bulgaria. Muent et al. (2000) conducted a survey in Albania with a sample of 104 enterprises. The main result of this survey was that registered companies regard competition from the informal economy as the most important problem they face in doing business in Albania. Moreover, they mentioned that poor access to loans was also a significant obstacle and thus, companies tend to rely on their sources in any stage of business activities. Furthermore, they argued that unregistered firms have a significant advantage because they evade the high tax burden. In addition, they noted that there is anecdotal evidence that many firms in Albania, in the formal sector also evade taxes to some extent by maintaining “two sets of books”. They pointed out that almost all the companies in Albania are SMEs as defined by the European Union (employing fewer than 250 individuals) and that 98 per cent of all companies were micro enterprises (with fewer than ten employees).
The above discussion helps us to construct a general overview of the obstacles that exist in the business environment of a country in transition. Special attention has been given to levels of corruption in Albania. We conclude that corruption seems not just a temporarily phenomenon, but a widespread, serious and pervasive impediment for Albanian enterprises. Notwithstanding different anticorruption programs implemented by the Albanian government, corruption remains pervasive and a negative influence upon the economic development in this country (GTZ, 1999; ACER, 2000; Council of Ministers – Republic of Albania, 1998; World Bank, 2000; FIAC, 2003).
Research methodology The aim of this empirical research is to evaluate the various obstacles that Albanian entrepreneurs encounter in their local business environment. We critically analyse the research results within the existing body of knowledge. The applied methodology is based on a survey using interview and questionnaire techniques. The sample was determined on a stratified basis (probability-random sampling) involving the random selection of respondents from various strata of the larger population (growth areas/cities in Albania) in order to obtain a greater degree of representativeness. This method reduces sampling errors as it makes the sample match the population, thus making it more representative. We formulated a strategy of dispersing the questionnaires in the most developed cities of Albania Tirana, Durres, Fieri, Vlora, Korca, Lushnje, Elbasan, Erseka, Saranda, Berati, and Gjirokastra. We received feedback from 226 out of the 350 companies contacted (64.5 per cent response rate).
However, as Babbie (1990) points out, the main disadvantage of probability sampling is that it can be relatively expensive and the researcher has no guarantee that all randomly chosen organisations will agree to take part in the study. Thus, responses from the selected strata were not distributed proportionally among the selected cities. We obtained 133 usable questionnaires from Fieri and 93 from other cities in Albania. The reason behind our success in Fieri could be explained by the access to an online database of companies in this area. Fieri is an economically significant city in Albania. For example, for 2002-2003, Fieri was in the third overall position in relation to the number of registered enterprises in Albania (Figure 1).
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Figure 1. Registered enterprises by prefecture (2002-2003).
In order to overcome and avoid biased results and analysis, a two-group study (Fieri and other cities) was undertaken. Respondents for the questionnaire survey were the entrepreneurs or chief executive officers (CEOs) of targeted enterprises. The respondent companies were interviewed either face-to-face or by telephone. The respondents were asked a mix of multiple choice and open-ended questions relating to their enterprises. Their opinions were sought in relation to problems faced when they started their business or encountered in other phases of their business activities. Analysis and discussion Descriptive and inferential statistical methods were employed to define and elaborate on the results. Tabular, graphical and matrix methods were used to summarize the emerging quantitative and qualitative data and to provide insights on variable analysis. We observe that 67 per cent of the enterprises are limited companies, 26 per cent are sole proprietorship and 8 per cent are Societe Anonyme (SA) companies (Table II).
It appears that Albanian entrepreneurs prefer to limit their business liability, as it seems that this type of organization is more convenient and familiar to them. Furthermore, less capital is needed and fewer documents are required for the registration process. The organizational size of the research sample is outlined in Table III. The respondents are classified in accordance with Mancellari’s (2002) definition. In total, 64 per cent of the sample were SMEs and 36 per cent emerged as large enterprises. This result differs from our theoretical knowledge where 98 per cent percent of all enterprises in Albania are SMEs. This can be explained by the following: . We introduced a unique and relevant criterion (large companies are those with more than ten employees and in excess of 8 million leks annual turnover).
According to the European Union standards (up to 250 employees are SMEs) almost 99.9 per cent of all the companies in Albania are SMEs.
Cities Table II. Type of business Fieri Other cities Total Ltd 78 73 151 SA 6 11 17 Sole proprietorship 49 9 58 Total 133 93 226
.
In this context, we note that Mancellari’s (2002) suggested definition might not be acceptable within wider comparative studies. Evidence suggests that different definitions have been employed and the changes to comply with the EU standards are a “dynamic process”.
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Data on enterprise longevity provided evidence that the maximum number of years in operation was thirteen. One must take into account that the transition to a free market economy only began in 1991 (Table IV).
Generally, in Albania, the first three years of a company’s activity indicates a “surviving process” (Bitzenis, 2004).
Between three and six years in operation is indicative of the “maturity process” and over six years of business a good criterion that an Albanian enterprise has “matured”. The data shows that 60 per cent of the companies in operation between 6 and 13 years are quite mature enterprises, while, 27 per cent are on their way to becoming mature, while 12 per cent belong to the “surviving process”. Our sample, for the most part, considers large and matured enterprises, those active for at least three to six years. Understandably, they might have more experience, better options and richer financial resources to survive in a difficult economic environment. Major obstacles that enterprises face in the Albanian business environment The questionnaire focuses specifically on the problems and obstacles that exist in the Albanian business environment. The matrix method provided the most useful and effective measurement of the results (Table V).
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Size Small Medium Large Unanswered Total
Fieri 43 56 33 1 133
Other cities 12 33 48 93
Total 55 89 81 1 226
Table III. SMEs versus large firms
x ¼ years x,3 3#x,6 6 # x # 13 Non-responded Total
Fieri 16 41 75 1 133
Other cities 12 21 60 93
Total 28 62 135 1 226
Table IV. Company life span
Unfair competition Number of enterprises 169
Lack of financial resources 127
Lack of public order 119
Changes in taxation procedures 142
Energy All the No crises Other factors answer 139 73 22 10
Table V. Major obstacles to entrepreneurship in Albania
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Most respondents (75 per cent) selected unfair competition as the major obstacle in the Albanian business environment, followed by changes in taxation procedures (63 per cent), energy crises (62 per cent) and lack of financial resources (56 per cent).
Respondents who selected “Other factors” mentioned problems such as bureaucracy, corruption, bad infrastructure, water supply and licensing procedures. Our findings are not in accordance with the literature review where bad infrastructure and corruption were identified as major obstacles. We concluded that the energy crises was a decisive obstacle, and this can be explained by the fact that after 13 years of transition, Albania finds itself as a net electricity importer. The energy sector has been and remains problematic for the country. The country’s production capacities have been insufficient while the economy grew from 5 to 8 per cent per annum, and the demand for consumption increased accordingly. Energy shortages involved frequent and prolonged “load shedding”. For example, in 2002 Albania suffered from the worst energy crises in its history, with blackouts of up to 12 hours a day. We also found that taxation problems existed, mainly due to relatively high taxation rates (for corporate income) which is 30 per cent (while in Bulgaria, for instance, the taxation rate is 15 per cent).
In addition, the VAT in Albania is also relatively high at 20 per cent. To facilitate collection of data relating to Taxation, we devised the following categories: “Accurate” data – 100 per cent reliable, “Reliable” data – not 100 per cent, but quite near to the real picture of a company’s condition, “Relevant” data are partly realistic, little information is disclosed about the company, and “None of these categories” – the data are totally unreliable (Table VI).
In total, 45 per cent of respondents believed that the data were “Relevant”, 27 per cent chose “None of these categories”, and 22 per cent claimed that the data were “Reliable”, but only 5 per cent believed that the data were “Accurate”. Consequently, we concluded that the respondents perceived the taxation office data to be inadequate to the economic reality of Albanian business. Our results could suggest that changes in the taxation law procedures constitute real obstacles to the establishment of new Albanian companies. Furthermore, we constructed a question to elicit evidence whether the taxation system is considered appropriate (proper, constant, enforced and favorable) to business development in Albania (Table VII).
Relevant Table VI. Relevancy, reliability and accuracy of taxation office data Fieri Other cities Total 51 51 102
Reliable 29 21 50
Accurate 4 8 12
None of the categories 49 13 62
Total 133 93 226
Yes Table VII. Do you believe the taxation system is appropriate? Fieri Other cities Total 13 10 23
No 98 63 161
Partly appropriate 17 16 33
No answer 5 4 9
Total 133 93 226
The results suggest that only 10 per cent of the sample believed that the taxation system is appropriate, 15 per cent felt that it is partly appropriate and needs further incentives for its improvement, while 71 per cent claimed that the taxation system is inappropriate. The category selecting “No” (the system is not appropriate) claimed that the taxation and VAT rates were too high. They also felt that in other countries such rates were lower and more conducive to business development. Those who replied “Yes”, stated that taxation regulations should be applied equally to everyone, without any exceptions. The option “Partly appropriate” confirmed that relevant laws and regulations existed, but were not enforced properly or justly. We also tried to determine the respondents’ perceptions in relation to the corruption in administrative institutions in Albania (level 1, the lowest; 10, the highest).
The results indicate that 35 per cent choose the highest level. The largest group of participants, 68 per cent selected the 5-10 level (Table VIII).
It is clear from these data that when Albanian administrative institutions are examined, corruption and various bribery payments are perceived to play an important role in the business practices of entrepreneurs. Two “open” questions, without multiple choices or given levels we also asked: (1) “Do you operate according to the legal system?” (Table IX); and (2) “Do you believe that something has changed in Albania during the past ten years?” (Table X).
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Level 1-5 Fieri Other cities Total 13 10 23
Level 5 16 14 30
Level 5-10 92 62 154
No answer 12 7 19
Total 133 93 226 Table VIII. Corruption in administrative institutions
According to the legal system (a) Fieri Other cities Total 14 14 28
According to briberies (illegal payments) (b) 79 44 123
Both (a) þ (b) 32 27 59
No answer 8 8 16
Total 133 93 226 Table IX. Do you operate according to the legal system?
No Positive Fieri Other cities Total 15 2 17 40 37 77
Yes Negative 18 9 27
Insignificant 49 40 89
No answer 11 5 16
Total 133 93 226
Table X. Do you believe that something has changed in Albania in the past ten years?
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In total, 54 per cent of the research sample claimed that business activities in Albania are associated with briberies (illegal payments) as compared to 12 per cent of the participants who stated that they operate in compliance with the legal system. Moreover, 26 per cent of the sample believed in both forms of operations, while 7 per cent declined to give an answer (Table IX).
In relation to changes during the past decade (Table X), 85 per cent of respondents indicated that “Yes”, some changes have occurred in Albania during the period. Some respondents mentioned that positive changes and reforms have occurred in Albania, while others stated that only negative changes have taken place. Other respondents stated that insignificant changes have occurred in Albania. Some of the “Yes” respondents suggested that the current business environment is more advanced and that entrepreneurs tried to manage better their economic activities within the new legal framework. Nevertheless, they still perceived a degree of economic instability in Albania. Those respondents who stated that negative changes have occurred in this country mentioned corruption, briberies, unfair competition and other related obstacles to entrepreneurship. Most of the respondents who perceived only slight or insignificant changes, were mainly preoccupied with the widespread of the informal economy and related unfair competition. Financing problems in the Albanian economy Based on an extensive questionnaire survey, Bitzenis and Nito (2005b) found that when they encountered financial issues, 71 per cent of the respondent entrepreneurs preferred to borrow from banks, 21 per cent from the informal economy and 2 per cent from non-financial institutions. Interestingly, 4 per cent of respondents chose not to deal with debt but indicated a preference to wait for better economic conditions. The authors found that only 35 per cent of businesses required loans from banks, while 35 per cent of the respondents never borrowed. Significantly, however, 28 per cent of respondents had approached the informal economy for their financial needs. Thus, it appears that only about one third of these enterprises used bank credit lines (loans), even though a much larger proportion indicated a preference for this source of finance. In total, 41 per cent of the sample borrowed from “friends and acquaintances”, a category that emerged as a preferred source of financing. It emerged that the procedure for credit line approvals is relatively long winded, lasting between one to several months. It should be emphasized that although many more businesses have tried to apply for bank credits, high interest rates and bureaucratic procedures have forced them to withdraw their applications. Thus, bureaucratic procedures appear to represent real impediments in obtaining bank credits. Competition in the Albanian business environment We explored the Albanian business environment in order to establish the position of the businesses in the sample, according to their net profit stage (i.e. growing, stable or declining).
The results (Table XI) indicated that 46 per cent of all enterprises in the sample exhibited a growing stage, 44 per cent operated in a stable stage, and only 9 per cent believed that they were in decline. It appears that the Albanian economy presents some opportunities for accelerated business growth and development, prevailing conditions that are generally beneficial for the emergence of fast growing SMEs.
For further clarification we also sought information on prospective closures amongst the research sample (Table XII).
It appears that the majority of respondents maintained a positive and optimistic outlook and hoped to continue with their current business activities. Only 11 per cent admitted that they might have to close their businesses because of negative prevailing economic conditions. Some respondents mentioned the option of moving to neighboring countries, or to merge with other, more successful enterprises. A further 36 per cent declined to answer, mainly because they were unsure about their future plans strategies. In our survey, we also sought data in relation to business merging processes (i.e. mergers and/or acquisitions).
We concluded that merging activity is in its infancy stage in Albania, and that most entrepreneurs point at difficulties encountered when attempting to collaborate with other companies. They claim that, overall, disadvantages relating to collaborative activities largely outweigh any emergent advantages (Table XIII).
As a result, 56 per cent of respondents replied “No” to merging activities, while 28 per cent answered “Yes”. Within this category, a group of ten enterprises (out of the 64) admitted that they had merged in recent times. They comprise 4 per cent of the total sample. The respondents in the “Yes” category believed that the merging process could provide them with advantageous opportunities to grow their business. Finally, 12 per cent of the total sample replied “Perhaps”, meaning that it would be a good idea to merge. These respondents were actively involved in a search for lucrative collaboration opportunities with others firms in the same or similar sectors of economic activity.
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Growing Fieri Other cities Total 56 49 105
Stable 59 40 99
Declining 17 3 20
No answer 1 1 2
Total 133 93 226 Table XI. The operational stage of respondent firms
No Fieri Other cities Total 70 50 120
Yes 18 7 25
No answer 45 36 81
Total 133 93 226 Table XII. Prospective closures amongst respondent firms
Yes Fieri Other cities Total 35 29 64
No 77 50 127
Perhaps 15 12 27
Not expressing any preference 6 2 8
Total 133 93 226 Table XIII. Merging with other companies
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Conclusions The empirical research upon which this paper is based has highlighted a number of interesting results. Most small and medium sized enterprises in Albania prefer to have “limited” status. Most respondents believed that this type of business is more convenient, flexibility and incurred lower costs. The majority of respondents considered their businesses in the “matured” stage (6-13 years of operation) and hoped to continue in operation for the foreseeable future. Similarly, most of the respondents claimed to be against merging, either because they did not want to cooperate with others or because they had confidence in their own efforts (i.e. family oriented management style).
About three quarters of respondents indicated that the data held in the Albanian taxation office was not accurate or reliable. The research has established that the most important obstacles that entrepreneurs encountered in Albania included unfair competition, changes in the taxation office procedures, energy crises, lack of financial resources and breaches in of public order. Respondents usually complained about unfair competition from the informal economy, represented mainly by non-registered enterprises, but sometimes also from informal activities and practices of registered enterprises. Although a competition law exists in Albania, it is considered largely ineffective. Frequent changes in taxation procedures and unstable laws were also considered significant problems. Therefore, proposals for favourable legislation amendments and new legislation that would focuses specifically upon SME development should be implemented by the Albanian government in order to achieve a predictable and transparent fiscal reform, and to create a favorable business environment.
Notes 1. The three surveys [(“The View of the Firm”, 1996, “The Enterprise Survey”, and “Public Officials”)] are part of the project: “Combating Corruption in Albania: A comprehensive Reform Program”. The figures are taken from the site www.worldbank.org/wbi/gac/ gac_pdfs/albania.ppt. 2. Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, the former Yugoslav Republic of Macedonia (FYROM), Malta, Romania, Turkey, the ex Federal Republic of Yugoslavia (now Serbia and Montenegro).
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INSTAT (2001), Enterprises’ Indicators by Prefectures, Albanian Statistical Institute, Pegi Publisher, Tirana. INSTAT (2002), General Results of Annual Structural Survey of Economic Enterprises (Year 2000), Pegi-Publisher, Tirana. Janko, E. (2003), “Albanian business addresses its remarks for the competition law”, Monitor, Vol. 22 No. 75, pp. 8-11. Melani, P. (2003), “The way human resources are managed”, Monitor, Vol. 24 No. 77, pp. 32-3. Sinaj, S. (2003), “‘Cherchez la femme. . .’ but you will find only men”, Monitor, Vol. 3 No. 56, pp. 34-5. UN (1997) “World investment report”, paper presented at United Nations Conference on Trade and Development, New York, NY/Geneva. Vitosha Research (2000), “Corruption monitoring system (CMS) of coalition 2000”, available at: (accessed 13 August 2003).
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