Management Accounting I [615764]

Management Accounting I
Role of Small and Medium -Sized Enterprises in Romania

Polytechnic Institute of Braganca
School of Public Management, Communication and Tourism
Public Management and Administration
Narcis Gabriel Nedeluț

Abstract
In this study, I present the main problems that confront different companies (SME) in
Romania. In the first part I analyzed the enterprises SME, what does means and what are the
requirements for small enterprises; how SME survive and which factors influenced SME. I
present the concept, main principles, and their purpose on economy market. In the second part, I
illustrated the positive roles for society and how was development the SME after the communist
regime was gone.
INTRODUCTION
The Concept and Characteristics of Small and Medium -Sized Enterprises
Due to the fact that, together with the other countries in the region, Romania has entered
the transition to the market economy, as well as on the path to integration into the European
Union, legislative norms were developed to adapt the Romanian legislation to the requirements
Europe. Regarding the SME sector, the main law currently governing measures aimed at creating
a favorable framework for the establishment and development of these enterprises is Law No.346
of July 14, 2004. According to it, the enterprise is any form of organizing an economic, self –
employed activity patrimonial and authorized, according to the legislation in force, to do
business acts and deeds in order to obtain p rofit, under competitive conditions. Businesses may
be: commercial companies, cooperative societies, independent individuals and family
associations, all authorized under applicable law.
Under Law 346/2004, small and medium -sized enterprises are considered to meet the
following conditions: they have an average number of employees of less than 250, achieve an
annual turnover of up to eight million (equivalent in lei) or have a balance sheet result that does
not exceed the RON equivalent of EUR 5 million and also meet the criterion of independence, ie
they are not owned by more than 25% of their share capital by other companies which are not
SMEs.
In the economic reality, there are two types of SMEs: the small traditional enterprise
(which, as a rule, does not have a long -term strategy, has a small market for selling and the
procedures for generating goods are transmitted from generation to generation) and modern

SMEs (using cutting -edge technologies, are constantly looking for new markets and, through
competen ce, aim to maximize the efficiency of their business).
SMEs, especially traditional ones, have strong strengths and weaknesses that manifest
themselves in close connection with the leaders' involvement and their human dimension. They
are usually established because of the courage and talent of their founders. The leaders of these
businesses are real "entrepreneurs" who risk their fortune and destiny. This risk is supported by
the following statistical data: in developed market economies, 20% of ne w small and medium
enterprises do not go through the first year of life, another 20% fail to reach two years, and 50%
do not reach the fifth anniversary. So, statistically, only 10% of SMEs have the chance to survive
more than five years on the market.
All in all, small and medium -sized enterprises are in a very diverse, heterogeneous
reality, characterized by flexibility, dynamism and adaptability. The state of health of an
economy depends on the number and dynamics of SMEs, as well as their degree of succ ess on
the market. The specific features, as well as the dynamism of the market, make a particular
approach to the management of these firms. They operate on certain coordinates, determined by
their distinctive features. These are: the limited size that li mits their growth potential and market
shares, the rapid pace of setting up, but also bankruptcy of SMEs, caused by the "natural
selection" of firms, strict specialization dictated by their small size, the weight small market, but
which has advantages as a better knowledge of the demand and higher flexibility or difficulties
in entering or leaving a market, which SMEs can also use in the interest of preserving their own
position.
Under these conditions, the management of small and medium -sized enterprises i s
influenced by certain factors such as the fact that the SME market is local or zonal, as the offer is
highly competitive and atomized because of the large number of firms and their small size, and
that most SME – SMEs are micro -enterprises or small busine sses that offer varied but similar
goods. At the same time, because of the large number, it is difficult to make a hierarchy of
competitors (in principal and secondary, direct or indirect), and they have a very important role
because the decisions of these companies, especially those regarding the price, are strongly
influenced by the attitude of other competitors. In addition to the managerial process of the
enterprise, it also has the stage or phase of the life cycle of the company being run, because thei r

dynamics is very rapid both at the start -up and the disappearance of SMEs. If the management
process is carried out efficiently, it favors the growth and development of the company's size or
the transition to a higher stage of development.
The activity o f these small and medium enterprises is under the influence of general or
specific environmental factors. In a transition economy, such as ours, which is still in the process
of strengthening and strengthening the SME sector, environmental factors (general ly highly
unstable) act through numerous and diverse constraints. Perhaps the most important are
legislative ones, which are reflected in regulations (fiscal, primarily) dissipated, changing and
sometimes contradictory. It has not yet been possible to impo se a uniform and stable vision on
the tax system and no judicious classification of direct taxes on income categories, while the
method of calculating corporation tax is, in some ways, non -stimulating. Financially, the
constraints lie in the chronic shorta ge of resources, but also in the difficulties that businesses
encounter in dealing with banks or insurance companies, due to the limited range of specific
services and poorly trained banking staff. The constraints are unfortunately complemented by a
deplor able state of physical infrastructure elements and a poor supply of basic services such as
transport, utilities, urban planning and others.
Positive roles of SMEs in the economy
Concluding, in Romania, as in any market economy, SMEs have beneficial effect s for the
economic system, through the roles they fulfill. Among them we mention:
1. Small and medium -sized enterprises are important for job creation, thereby
contributing to the social stability of the area. (Zahiu L., 2004)
2. The SME sector is the main source of middle class training, which has a decisive role
to play in ensuring the country's socio -political stability. This is possible due to the
fact that the distribution of economic power through the system of small and medium –
sized companies leads to a favorable distribution of power in society.
3. Another important role is that they increase the competitive nature of some markets,
as they are sources of competition, thus leading to better satisfaction of consumers'
needs.

4. SMEs co ntribute to the formation of supply of goods and services, and thus to GDP
formation, to increased exports and national investment.
5. There are combinations of some factors of production which, under other conditions,
probably would not be used: local resour ces, by -products of large firms and others.
With large enterprises, SMEs have cooperative relationships that are either in the
form of partnership agreements (financial, technological, etc.), or in the form of sub –
loans (capacity, specialty etc.).
6. The fact that SMEs are managed directly by the owners makes the decision -making
system very simple and depends on their talent and managerial capabilities. That's
why small and medium -sized firms show great flexibility and resilience during the
recession, given th e ability to adapt to market changes.
7. They provide the potential for development of future large businesses, thanks to the
growth and development processes they will take.
8. The emphasis on innovation processes, both in technology and management, is
another important feature of SMEs.
9. Small and medium -sized enterprises can integrate relatively easily into a regional
economic network, which contributes to the development of the region and to the
reduction of unemployment.
10. Their reduced dimensioning helps to red uce bureaucratic practices and avoid
depersonalizing human relationships, due to the shortening of the document and
information circuit in the company. That is why SMEs ensure a high quality of
employment in terms of performance and job satisfaction. Relat ionships in these
businesses are less formal, and there is a stronger link between individual efforts and
business objectives.

Evolution of the SME sector in Romania
In retrospect, the transition to the market economy meant for Romania, as for most former
communist countries, the manifestation of two processes : the privatization process, the transfer
of state ownership over the existing enterprises to different persons of private law, as well as the

process of emergence of new private firms. These two phen omena manifested themselves more
or less simultaneous ly, but with different rhythms.
Regarding these two economic events after 1989, D. Voiculescu, said that privatization
corresponds in fact to a division of distribution of national wealth, made more or l ess inspired,
while encouraging the establishment of new enterprises are the function of construction, which
the authorities should have assumed more decisively, because this leads to the increase of the
national wealth. Interesting were the effects of the se two processes on the labor market in our
country. Thus, if the privatization eventually led to a drop in the number of jobs in the firms
subject to this property transfer (due to necessary restructuring and efficiency processes, or due
to less successfu l privatizations that led to bankruptcy) , the new private sector was the main
provider of jobs for the domestic economy, which was in crisis at the time. Small private
businesses, the SME sector, were therefore the main elements of labor force absorption, making
a decisive contribution to the formation of a new Romanian entrepreneurial sector and a mass of
employees with healthy, correc t optics on economic phenomena . (D, 1999)
Statistically, we find that in 2003, 356,710 small and medium -sized enterprises were
active in Romania, which had 2,134,956 employees, which corresponded to a double number of
employees per enterprise than the other countries in the area.

Table nr.1 – The role of SMEs in Romania

(Statistics, 2004) (ANIMMC, 2004) SME
Total
SME Big
enterprises TOTAL Micro –
enterprises Small
enterprises Medium
enterprises
Number of enterprises 313.485 34.883 8.342 356.710 1.677 358.387
Number of employers 586.880 689.056 859.020 2.134.956 1.841.142 3.976.098
Number medium
of employers per
enterprises 2 20 103 6 1.098 11

Thus, in Romania in 2003, according to the employee weight criterion, the
dominant class was still large enterprises, while at the level of other former communist dominant
countries, SMEs were. This highlights some discrepancies to be resolved in the pro cess of
economic restructuring.
As a position in the Romanian economy, SMEs hold the first place in terms of their
share: 99.44% of the total number of enterprises registered in Romania at the end of 2003.
Moreover, the number of SMEs remained almost constant during 1999 -2003. Another important
indicator that characterizes the SME sector is the number of employees in the sector, e specially
as jobs are being absorbed and some of the redundant workforce from large enterprises. Thus,
according to INS data, during 1999 -2003 the number of employees increased by 19% in the
sector of small and medium -sized enterprises, ie about 340,000 ne w jobs were created, the share
of the sector in the total labor force increased from 43.4% in 1999 to 53.7% in 2003, so that more
than half of all employees were employed in SMEs. By sectors of activity, there is a growing
involvement of small and medium -sized enterprises in productive and construction activities,
signaling that these sectors have reached a good level of development, especially as the SMEs in
the industry are bigger and more perennial over time in services, while growth in construction
was significant in the traditional sector (infrastructure and industrial works).
Institutions set up in the SME sector have been numerous. Among them, we
mention the Romanian Center for Small and Medium Enterprises, a foundation that aims to
promote, stimulat e and coordinate the development policies of the SME sector and, at
governmental level, an institution with very important responsibilities for SMEs, the National
Agency for Small Enterprises , Means and Cooperation (ANIMMC). In addition to the complex
management measures of the field in question, the Agency has developed the "Strategy for
Support and Development of the SME Sector for 2004 -2008".
The main strategic measures envisaged to support the development of these
companies in the next period are the simplification of the tax system (but unfortunately, the 3%
turnover tax for microenterprises will be canceled, which, after being doubled in 2005, will be
replaced by a 16% tax on profits), subsidizing interest on bank loans, and facilitating access to
public utilities. The strategy provides for the improvement of legislation on judicial
reorganization and bankruptcy, and the introduction of alternative instruments for the recovery of
financial crisis crises, the reduction of transaction costs, the simpli fication of procedures for
obtaining special licenses and licenses, and the improvement of control methods on companies.
As concrete objectives, this strategy aims to increase the number of employees by 16%, to
increase labor productivity by at least 8% an d to increase the share of services in the structure of
small and medium enterprises by 14%.

Conclusions
In conclusion, SME are small and medium enterprises which needs to respect some
requirements and they are representing a risky investment because usually 10% of them survive
after five years. It is hard for them to survive because they are very influenced by facts like: high
competitively caused by the fact is a local market and there are more enterprises with same
goods which also determinate even an influenced price. They also have financial factors: the
limited size that limits their growth potential and market shares, the rapid pace of setting up, but
also bankruptcy of SMEs; and specific environmental factors: constr aints which represent by
insufficient resources and difficulties with banks. The positive roles are job creation, increase the
competition, big decisions are taken by the owner, accent innovation etc. The small enterprises
have evolved after the communist regime was gone and when was introduced the privatization
process and the process of emergence of new private firms.

Reference
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