Small and medium entrepreneurship plays an important role in the country’s economy.
SMEs may not generate as much money like big companies, but they are significant component to measure the strength of the country’s economy. Small entrepreneurships present more new work opportunities and serve more people than big companies. In developed countries, SMEs provide 95 % of total enterprises, 50 % of employment, 40 % of investment, 50 % of total production, and 30-40 % of total exports. Small entrepreneurship brings growth and innovation to country’s economy, and contribute to developing of local economy. They also help to stimulate the local economic growth by providing new work opportunities to people who may not be employable by big companies. They bring new solutions for existing ideas and meets tiny needs of the society more than big companies.
Small businesses are also a great deal for big businesses in the same community, and they play a crucial role in completing the various business functions and outsourcing of large corporations. Because of these reasons, all countries attach great importance to the development of small businesses. In addition, small businesses have many advantages over large corporations. So, many small businesses have quick response and adaptability to changing economical climates. Because they are often very customer-oriented.
Many local customers are loyal to their favorite small businesses in the midst of the economic downturn. This commitment indicates that even small businesses can even boost local economies and continue their economic activity even during the economic crisis. SMEs earn less income than large corporations, but are less likely to suffer during the economic crisis. Some of the small businesses continue to grow rapidly over time. For example, companies like Adidas, Puma, and Nike, which began functioning as a small business, have grown to become major global companies over time.
Small businesses, which are transformed into large enterprises, remain largely in a society where business has been created, and it can help to provide employment and stimulate the local economy. Until recent times, the development of entrepreneurship in Azerbaijan could not be considered satisfactory. But in recent years, small entrepreneurship has also grown substantially in Azerbaijan.
Entrepreneurship is a topical issue lately. Many countries also take important measures to attract entrepreneurs and develop small business communities. But how do you do it? There are a lot of ways to develop entrepreneurship in the country such as government leadership and private sector. Governments are important factor for development of entrepreneurship inside the country. The first task of the government is to create a legal basis for political stability and development of entrepreneurship in the country and take the necessary measures to prevent unfair competition.
Because entrepreneurship can not develop unless these conditions are met in the country. Governments also have some other tools to stimulate entrepreneurship. Firstly we can give example taxes.
Many countries implement new taxation policies that support modernization and innovation. It is implemented in countries with both developing and advanced economies. Here, two trends focus on taxation in the private sector for innovative activities. The first trend directs to eliminate the problems that hinder trade across countries and regions. ?n some developing countries such as Serbia and Croatia government exempt entrepreneurs from taxes for some period. This method encourage and stimulate entrepreneurs, especially small and medium entrepreneurships.
For example government should exempt entrepreneurs for first 5 year. I think it will tempt people to join to the entrepreneurial activity and it will lead to growing and stimulating entrepreneurial environment. Besides, government will get more taxes after some years when entrepreneur’s tax exemption period finish. It will also lead to future growth of country.
The second motivating trend is that, government can create suitable conditions to involve foreign investment because of low-cost workforce and manufacturing capabilities. This method will tend to involve foreign capital and increase employment in the country. These trends, focusing on customer priorities, has resulted in further acceleration of economic growth for developing and developed countries. These trends do not cause any negative results. For these reasons governments will continue to pursue tax policies that promote entrepreneurship. Some countries which are successful in entrepreneurship initiative tend to set up a tax platform covering a range of corporate owners and investors such as: low taxes, industry-specific low tax rates, or tax holidays, a regime of R&D tax incentives such as credits or deduction. In addition, the government has various incentive methods for entrepreneurial activity. One of the most effective ones is government subsidies.
Direct subsidies are often targeted to certain industries that are strategically important. Direct subsidies are the best way to promote high-risk projects and achieve specific policy goals. This ensures that the state budget is spent on the best projects within the scope of the issues determined by the political authorities. In this issue, the government’s control over the subsidies will result in more efficient use of those subsidies.
For stimulate entrepreneurship, country should found some organizations which lead to develop entrepreneurship. For example in US Small Business Administration has played an important role in the construction of many businesses. According to SBA the person who has a business idea, he prepare a business plan and submit it to bank. After reviewing the business plan, the bank submits the project to the SBA. Then, 40 % of the required capital paid by bank, 50 % paid by SBA, and just 10 % of required capital paid by entrepreneur. ?t is the great opportunity to develop entrepreneurship. ?n the US SBA tend to found today’s some big companies such as “Chobani Yogurt”.
That type of organizations tempt government and some financial intermediaries help to developing of private sector. Banks are at least as important as government for the development of small and medium-sized businesses. Many small and medium-sized enterprises in the world and in our country are failing and can not continue their business due to lack of capital.
Because of this reason the role of banks is indispensable in the financing of small and medium-sized enterprises. Lack of funds, in turn, slows down or impedes the use of new technologies in production. When the new technology is not applied, the first is that good quality products can not be manufactured, and secondly, cheap products are not available. As a result, SMEs produce non-quality products, and at the same time, price can not be lower. In this situation, SMEs fall into an unequal competitive environment with large entrepreneurs in the market. The main role of banks in this issue is to finance entrepreneurs on favorable terms and contribute to entrepreneurship development. In this regard, one of the best things banks can do is to provide entrepreneurs with concessional loans and low interest rates. In addition to banks, insurance companies also play a major role in the development of entrepreneurship.
Because insurance companies share risk with entrepreneurs and contribute to a more secure environment for them In addition, some companies in the world practice provide credit or lease of certain technology and equipment. This method provides entrepreneurs with limited financial opportunities with the necessary technology and equipment on favorable terms. Leasing financing is longer than bank loans. Thus, Azerbaijani banks do not issue loans for more than 18 months but at least three years are required for leasing loans. Financial leasing allows the lender to simplify the burden of his own tax debts at the expense of rapid depreciation.
Lease payments are recognized as a payment for the value of the property acquired at the expense of the lease transfer and deducted from the taxable amount. In accordance with the Tax Code of the Republic of Azerbaijan, amortization costs can be accelerated to measure the value of leased property. The leasing business operates as a private sector of entrepreneurial activity. If leasing is widespread, it can act as a powerful impulse for the technical supply of production, the reorganization of the Azerbaijani economy and the filling of the market with high quality goods. The effectiveness of leasing transactions reflects the improvement of the financial position of the leasing company in the activation of the investment process, and the increase in the competitiveness of small and medium businesses.
Another factor that affects the development of entrepreneurship in the country is the existence of free economic zones. Different types of discrimination and incentives are applied in free economic zones such as reduction or cancellation of export-import duties, simplification of foreign trade transactions, and etc. It encourages tax incentives for certain types of activities in free economic zones. These discounts can cover the tax base and its separate components, the level of tax rates, permanent or temporary deductions from taxes. At the same time, free economic zones apply financial incentives covering different forms of subsidies and administrative incentives such as enterprises registration, simplification of entry and exit visas of foreign citizens. As a result, the importance of entrepreneurship and the impact on the economy in any country is undeniable. Therefore, a number of measures are being taken in the direction of development of entrepreneurship in our country. But we should do more.
The development of entrepreneurship in our country is not simply a matter of financial factors. In addition to financial factors, it is also important to increase the business literacy of people. At present, some business case competitions in our country have a great role in raising students’ business literacy and business environment. At present, all steps taken towards the development of entrepreneurship play a crucial role in the further development of our country.