Do you have an
international
partner?(%)
Are you looking
for an international
partner? (%)
Yes 16.9 24.3
No 83.1 75.7
Total 100.0 100.0
Source: BSCK SME Survey 2010.
Moreover, the type of partnership with the foreign
partner is an important factor that indicates
the level of the internationalization of SMEs
(Table 6.3). The majority of surveyed frms that
have an international partner declared that their
Export Barriers
Barrier
Intensity
factor
Delays at the border 52.27
Inadequate legislation 49.00
Poor Infrastructure 48.91
Political Risk 46.74
Personal documentation (ex. Visa) 38.04
Contract enforcement 38.04
Lack of information on market 26.04
Certifcate of product origin 26.00
Banking sector 6.25
Quality certifcates 3.13
Source: BSCK SME Survey 2010.
Import Barriers
Barrier
Intensity
factor
Customs 40.2
Inadequate legislation 39.0
Transportation 35.3
Poor Infrastructure 28.5
Methods of payment 19.6
Total ???
Table 6.1: Import and Export Barriers Faced by SMEs
Note: Individual values were multiplied by the number of respondents and divided by the possible maximum
value of the indicator. This yielded a percentage value of maximum 100 (all respondents attributing maximum
importance to the factor) and minimum 0 (all respondents attributing minimum importance to the factor).
33 Research report
cooperation largely has to do with imports (52.3)
and exports (11.9 percent). Other forms of
cooperation include joint ventures (10 percent),
branch partners (9.2 and technical assistance (7.3).
Table 6.3: Types of cooperation with
international partners
Type of cooperation %
Import 52.3
Export 11.9
Joint venture 10.1
Technical assistance 7.3
Branch of foreign company in Kosovo 9.2
Penetration in foreign markets 5.5
Franchise 1.8
Other 1.8
Source: BSCK SME Survey 2010.
34 Entrepreneurship and Small Business Development in Kosovo
The fndings indicated that employees are more
likely to be qualifed from gymnasium and other
professional secondary school education; around
60 percent (Table 7.2). The share of employees
with university level education is around 27
percent, unqualifed employees 8 percent, while
the remaining part are with masters and doctoral
degrees. Going down from the highest educational
level to the lowest, the survey fndings show
that females are less educated that males in each
employment category.
7. Human Resources
SME research indicates that enterprises started
their businesses with a small number of employees.
The average number of employees at the time of
start-up were 4.4 employees, suggesting a relatively
small size when frms enter the market. According
to the BSCK SME survey the average size of
employment has increased continuously since
startup. In 2007 the average employment went
up to 13.4 employees while the same enterprises
declared an average of around 15.5 employees in
2010. This indicates that the number of workers
on average from the start-up phase has increased
by 33 percent, whilst comparing 2007with 2010; it
has increased by 1.5 percent.
Table 7.1 presents the employment status of SMEs.
The majority of SMEs employees work on a full
time basis (92.2 percent) while the remaining share
belongs to other part time types of employment,
such as permanent part time employees, seasonal
workers and other specifc arrangements with
or without contracts. This fnding indicates that
SMEs do not take full advantage of other fexible
forms of employment.
Table 7.1: SME employment status by percentage
Description % share of number of employees
Full time employees 92.2
Permanent part time employees 1.1
Seasonal employees with contract 5.1
Seasonal employees without contract 1.7
Total 100.0
Source: BSCK SME Survey, 2010.
35 Research report
SME management
The SME literature pointed out the importance
of human capital for entrepreneurial success.
5
The BSCK questionnaire contained questions
regarding the managerial structure and their
educational level. The survey fndings presented in
Table 7.3 demonstrate that 64.2 percent of SME
managers have a secondary level education, 34.7
percent have a university level education and only
1.1 percent has a primary education.
Table 7.2: Education of employees by gender and average salary
Educational Level
Number of employees (in %)
Average monthly
salary (in )
Total Male Female
Doctor of Science 0.1 0.1 0.1 626
Masters degree 1.9 1.4 3.7 608
University degree 26.8 22.7 40.5 392
High school 3.9 4.7 1.3 289
Gymnasium/Professional secondary school education 59.2 62.2 49.4 229
Unqualifed (primary school
not completed)
8.0 8.9 4.9 220
Total/Average 100.0 100.0 100.0 282
Source: BSCK SME Survey 2010.
Table 7.3: Education of SME Management by gender
Gender
Average
age
Educational level
Managerial position Male Female University
Secondary
school
Primary
School
General manager 81.6 18.4 41.5 34.7 64.2 1.1
Financial manager 92.9 7.1 41.4 64.9 33.8 1.3
Operations/Technical
Manager
91.7 8.3 44.0 81.6 18.4 0
Marketing manager 72.2 27.8 34.0 92.3 7.7 0
Total 81.6 18.4 40.2 34.7 64.2 1.1
Source: BSCK SME Survey 2010.
5
For more details see Krasniqi, B. (2012).
36 Entrepreneurship and Small Business Development in Kosovo
Comparing the different managerial positions
and their educational level, several differences
are observed. As the majority of owners of small
businesses are usually general managers, they have
a major share of managerial positions without a
university degree. In other areas of management
practice where certain types of specialized
management tasks are required to be performed,
such as operations, fnance and marketing
(that usually go beyond the owners managerial
capabilities) more people with a university level
education are employed in the business. Going
back to the earlier section in the report in which
we discussed about ownership, this fnding
again reconfrms the conservatism approach in
delegating tasks and suggesting the reluctance
of the SME owners to divorce ownership and
management which is supposed to increase the
managerial capabilities of frms and hence support
SME growth.
Current and future growth plans
Only 25.4 percent of surveyed enterprises
employed additional employees in 2010. From
the total number of newly employed people
77 percent of them had completed secondary
school, 18.4 percent university studies, 4.4 percent
high school and only 0.3 percent master and
doctoral studies (Table 7.4). This fnding prevails
that the most common employee in SMEs in
Kosovo has secondary school and university level
education, refecting the current labour market
trends. Quite different results are found from
the enterprise responses for their future plans of
new employment and their educational structure.
During 2011, SMEs plan to hire more employees
with a low level education and also increase the
number of employees with MA and PhD level
education.
Table 7.4: Educational level of employees
Educational level
% share of
newly hired
employees in
2010
% share of
employees
planned to be
hired in 2011
Doctor of Science 0.1 4.4
Master degree 0.2 8.2
University degree 18.4 4.9
High school 4.4 0.0
Gymnasium/
Professional
secondary school
education
77.0 17.0
Primary education
completed
0.0 34.6
Unqualifed 0.0 30.8
Total 100.0 100
Source: BSCK SME Survey 2010.
Training and consultancy
Training of employees is an integral part of human
capital development at both the managerial and
non-managerial level. From the survey fndings we
observed that only 24 percent of SME managers
have completed some type of training for
management and business practice (Table 7.5). In
addition we observed an even smaller proportion
of them that have managers with previous
managerial experience in other organizations.
37 Research report
Regarding the consultancy services that SMEs in
Kosovo make use of, we observed unsatisfactory
results as only 13.6 percent of enterprises declared
that they receive some type of consultancy
services from other organizations. SMEs seem to
enjoy only limited benefts from consultancy. If we
compare the small percentage of frms that have
experienced managers and also the small portion
of them that have received management training,
it becomes more obvious that SMEs should make
more efforts to contract complementary skills
form external consultants in order to increase
managerial capabilities. However, from companies
that received consultancy, only 46 percent were
satisfed with the quality of consultancy services,
raising questions about the quality of consulting
frms in Kosovo.
Table 7.5: Training, experience and consultancy services
Responses
Have you or your mangers
attended any training in
the area of management
and business?
(%)
Have you or your
mangers ever worked in
a managerial position
before joining this
company?
(%)
Have you used any type
of consultancy from other
institutions/organizations?
(%)
Yes 24.3 22.8 13.6
No 75.7 77.2 86.4
Total 100.0 100.0 100.0
Source: BSCK SME Survey 2010.
38 Entrepreneurship and Small Business Development in Kosovo
Innovation
Innovation plays an important positive impact on
the performance of companies. This BSCK report
is amongst the frst attempts to provide data on
the level of innovation activities of SMEs. Several
questions included in the questionnaire measure the
level of activity and types of innovation activities.
According to the BSCK fndings only 19.6 percent
of SMEs stated that during the past three years the
company has undertaken R&D activities for the
creation or substantial modifcation of products,
services or new processes. The average number of
new products or services introduced during the
past three years by companies is 15.9 products/
services.
Besides the small number of innovations conducted
by SMEs, the quality of these innovations is not
satisfactory either. Among the companies which
performed innovation, 36.3 percent declared
that innovations were new to Kosovos market
and the remaining 63.7 percent were new to the
frm. The low level of cooperation amongst
frms is observed in terms of frm-frm and frm-
institutions partnerships. Data provided in Table
8.1 indicates that 60 percent of frms mainly
conduct innovation in house without cooperating
with other organizations. Only 27.1 of surveyed
companies do cooperation with other companies
in producing innovation and at the same time,
12.8 percent of them with other organizations.
It is important to note that none of the frms
that performed some innovation activities has
cooperated with academic institutions.
Table 8.1: Sources of innovation and
cooperation of frms
Sources of innovation %
Mainly from company 60.2
Company in cooperation with other
companies
27.1
Company in cooperation with other
academic and research institutions
0.0
Mainly from company and institutions
outside company
12.8
Total 100.0
Source: BSCK SME Survey 2010.
These fndings suggest that the quality of
educational and research institutions is very
low and not supportive to the needs of private
companies. This fnding urges the need for more
proactive government policies to support the
academic institutions in order to increase the
quality of their services for meeting the needs of
the private sector.
Regarding other types of innovation, we observed
that only 17.1 percent of companies performed
some organizational innovation. Slightly more
companies (19.7 percent) have introduced a
marketing method which was new to the market
(Table 8.2).
8. Innovation and Strategy
39 Research report
Table 8.2: Types of innovation (organizational
and marketing innovation)
Type of innovation
Percentage of
Yes responses
Over the past three years has your
company substantially modifed
or fully changed its organisational
structure?
17.1
Over the past three years has
your company introduced any
new method of marketing for its
products that was not used by
other companies in the market
19.7
Source: BSCK SME Survey 2010.
Business strategy and future plans
The most important strategy for business in
Kosovo is to improve the quality of products and
services. The survey data shows that 37.8 percent
of enterprises claimed that improvement in the
quality of goods and services is the main strategy,
30.8 percent reduction of costs, 14.2 percent
marketing and promotional activity, 9.0 percent the
advancement of technology and equipment, and
8.2 percent enhancement of employees skills for
better performance (Table 8.3). The technological
advancement does not seem to be an important
strategy of frms, which reconfrms the results on
low SME investment in machinery and equipment
as compared to other categories discussed earlier.
Table 8.3: SME business strategy
Most important business strategy %
Quality improvement of goods
and services
37.8
Marketing and promotional activities 14.2
Technological advancement (machinery,
equipment etc)
9.0
Enhancement of employees skills
for better performance
8.2
Cost reduction 30.8
Total 100.0
Source: BSCK SME Survey 2010.
In terms of future strategic planning and
investment we observed that SMEs are not
innovative in fnding new markets and business
opportunities. More than 80 percent of frms are
planning to continue to operate in the same areas
as their current business (Table 8.4). Only 3.5
percent plan to invest in new areas of business.
Table 8.4: Future strategic directions of SMEs
Future developments %
Continue to operate in
the same business
80.9
Invest in the new area/market 3.5
Both of the above (Continue to operate
in the same business and Invest
in the new area/market)
9.8
Have not decided 5.9
Total 100.0
Source: BSCK SME Survey 2010.
40 Entrepreneurship and Small Business Development in Kosovo
In todays knowledge based economy the use of
information technology by frms adds to their
competitive advantage. Moreover, not only is the
intensity of the use of IT, but also the quality
of the use of IT is an important factor for SME
development. According to the BSCK survey
59.42 of frms declared that they have computer/s.
On average SMEs have around 6.5 computers per
enterprise. Only 40 percent of companies that do
not have computers are planning to buy a computer
in the future.
In addition to the low intensity of the use of
computers by SMES, we also observed that the
quality of use is not good either (Table 9.1).
The majority of companies use computers
for purposes of fnancial record keeping (37.7
percent). Around 16.7 percent of companies
us companies use computer for planning, 15.3
percent for market research and 11.7 percent for
word processing, suggesting that the quality of the
use of computers is unsatisfactory compared to
the use of computers for production management
(8.0) and quality control (6.8).
Table 9.1: Purposes of computer usage
Computer usage %
Financial record keeping 37.7
Planning 16.7
Word processing 11.7
Market research 15.3
Production/operations management 8.0
Quality control 6.8
Other 3.8
Source: BSCK SME Survey 2010.
More than 86 percent of companies use the
internet. Table 9.2 shows that of the companies
that do use the internet, 46.6 percent use the
internet for market research, 15.4 percent for
promotion and advertising activities, 13.9 percent
for the selling of goods and services, 18.1 percent
for email communication and the remaining 5.7
percent for other purposes.
Table 9.2: Internet usage
Internet usage %
Market research 46.8
Promotion and advertising 15.4
Selling products 13.9
E-mail communication 18.1
Other specifc business purposes 5.7
Total 100.0
Source: BSCK SME Survey 2010.
9. Information Technology
41 Research report
10. Business Environment
The dynamic growth of the new private sector
has been one of the key driving forces behind
the economic recovery in all former communist
countries. Kosovo is not an exception. Despite
its importance, the business environment has
not been very conducive for SMEs. In particular,
institutions and their quality are key determinants
of private sector development.
However, unlike other TEs, Kosovo faced specifc
challenges in building market economy institutions.
Because of the War, the transformation process
and privatisation was delayed while new institutions
were built from scratch. One of the main
challenges in this transition path was the creation
of new institutions and a favourable business
environment for entrepreneurship (Krasniqi,
2012). Based on the experiences of other TEs, the
promotion of entrepreneurship and small frms
remains the single solution to promote economic
development.
Despite their importance, SMEs in Kosovo still
face an unfriendly business environment. Table
10.1 summarises the key fndings of the BSCK
SME surveys conducted in 2010 concerning
the obstacles to the development of SMEs as
perceived by entrepreneurs.
Table 10.1: Obstacles to business
Obstacle Intensity factor
Informal economy/black economy 72.9
Strong competition 71.1
Corruption 69.8
Taxes too high 66.1
Fiscal evasion 60.2
Supply with electricity 58.3
Law enforcement 57.4
Sufcient and adequate Laws 53.7
Political instability 53.2
Administrative burden 51.7
Crime, robbery and anarchy 51.3
Lack of market demand 48.5
Delayed collection of debts 44.8
Access to fnance 41.1
Insufcient capacities 29.2
Supply of materials, machinery and equipment 24.6
Lack of information concerning business 21.2
Transport 20.0
Business Licensing 16.2
Employee skills 13.2
Managerial skills 8.7
Source: BSCK SME Survey 2010.
42 Entrepreneurship and Small Business Development in Kosovo
The survey results show that entrepreneurs are
more concerned with constraints related to the
external environment rather than with internal
factors such as managerial or employees skills,
which were ranked at the very bottom of the list of
constraints. Entrepreneurs perceive the informal
economy, strong competition and corruption as
three top obstacles. Other obstacles that score
above the intensity factor of 50 are taxes, fscal
evasion, supply with electricity, suffcient and
adequate laws, political instability, administrative
burden, crime, robbery and anarchy. As can be
noted all obstacles with an intensity factor of
more than 50 are related to the external and largely
institutional environment suggesting the poor
institutional environment for doing business in
Kosovo.
Concerns of entrepreneurs about the business
environment originate mainly from the high
informal sector and corruption. Conducting
business under the conditions of unfair competition
distorts frms incentives because under these
circumstances the performance of the frm in
the market does not refect the real performance
achieved through building competitive advantage
based on resources and/or effcient use of these
resources, but may indicate the ability of frms to
engage in the informal economy, tax avoidance
and corruption. The presence of an informal
economy and corruption, which in turn is affected
by an inadequate legal framework, creates an
uncompetitive business environment, leading to
the increased cost of doing business for frms that
operate offcially compared to their counterparts
that operate informally or partially informally.
The fndings have some major conclusions. The
frst one is related to the quality of institutions
which remains the main challenge for building a
competitive business environment. As suggested
by the literature of new institutional theory, both
formal and informal institutions appear to be
important obstacles and related to each other in
shaping the rules of the game. However, according
to entrepreneurs perceptions of obstacles in
Kosovo, institutional variables scored highest in
the list of obstacles in operating their business.
Unfair competition stemmed from weakly installed
legal framework (as a formal barrier) or its weak
and biased enforcement together with corruption
or other informal means (informal barrier). In
the business environment alike, frms that use
informal means such as corruption for example,
create incentives for other frms to go informal,
stimulating unproductive entrepreneurship as
suggested by Baumol (1990).
43 Research report
Social capital that takes the form of norms, trust,
and networks is one of the main factors that affect
SME development and competitiveness enabling
individuals and organizations to bond together and
bridge gaps. In particular some researchers such as
Aidis et al. (2008) argue that in an environment of
weak formal institutional, enforcement and high
corruption, business interactions based on trust
are especially important. This is because the frms
need to develop informal institutions in order to
compensate for the lack and/or inadequacy of
formal institutions.
Entrepreneurs ranked very high the importance
of social capital for the development of their
business (Table 11.1). More than 71 percent
think that contacts with family, friends and
business associations are very important for the
development of their business.
Table 11.1: Importance of social capital
(How important are contacts with friends, family
and business associations)
Importance %
1 (not important) 1.4
2 0.2
3 0.2
4 0.8
5 (neutral) 3.6
6 2.8
7 2.6
8 6.8
9 10.1
10 (very important) 71.4
Total 100.0
Source: BSCK SME Survey 2010.
In addition, the BSCK SME survey included
other questions regarding trust in business and its
importance for businesses. On a scale of 1 to 10,
entrepreneurs were asked to rank the level of trust
with their collaborators. The fndings suggest that
business trust among entrepreneurs in Kosovo is
very high too. Results reported in Table 11.2 show
that 48.65 percent of respondents declared that
they have maximum trust in their partners. Linking
to the other studies of transition economies
mentioned above, this might suggest that because
of the poor institutional environment, businesses
in Kosovo use business trust in trying to mitigate
the negative effect of weak institutions.
Table 11.2: Level of trust in business collaboration
Level of trust in partners % share
1 (does not trust at all) 5.2
2 1.4
3 2.2
4 2.6
5 (neutral trust) 9.2
6 7.8
7 6.8
8 14.5
9 8.6
10 (maximum trust) 41.6
Total 100.0
Source: BSCK SME Survey 2010.
In order to further investigate the role of business
trust we included the question is a high level of
trust with other companies an important factor for
compensating the lack of assets in your company.
Again, more than 41 percent declared that this is
11. Social capital
44 Entrepreneurship and Small Business Development in Kosovo
very important; suggesting that trust in cooperation
with other businesses may act as a complementary
resource (Table 11.3).
In relation to this it is important to cite the
response of one entrepreneur who said My main
business partner - supplier has helped me to get out of
fnancial diffculties because I had a problem with cash and
the bank did not gave me a loan he (the business partner)
supplied me with inputs for my company and I did not have
to pay him immediately, so I could pay the money back
after I sold my goods. In this particular case, as noted
from this entrepreneur, the trust enabled him to
compensate for trade credit or a loan for fnancing
working capital. Under these circumstances, the
bank was probably not able to loan this company,
but somebody from his network that had insider
information about the quality of the person
and possibly the companys future performance
facilitated this supplier who used this information
and trust to supply him.
Table 11.3: Importance of high trust for the
compensation of lack of assets by other companies
Importance %
1 (not important) 5.2
2 1.4
3 2.2
4 2.6
5 (neutral) 9.2
6 7.8
7 6.8
8 14.5
9 8.6
10 (very important) 41.6
Source: BSCK SME Survey 2010.
46 Entrepreneurship and Small Business Development in Kosovo
Aidis, R., Estrin, S. And Mickiewicz, T. (2008). Institutions and entrepreneurship development in
Russia: A comparative perspective, Journal of Business Venturing, Vol. 23, No 6, pp. 656-672.
Central Bank of Republic of Kosovo (2011). Monthly Statistics Bulletin (no.118), Prishtin, Republic
of Kosovo: Central Bank of Kosovo.
Davidsson, P., Kirchhoff, B, HatemiJ, A. and Gustavsson, H. (2002) Empirical analysis of
business growth factors using Swedish data, Journal of Small Business Management, Vol. 40, No. 4,
pp. 332349.
Greiner, L. (1972) Evolution and revolution as organizations grow, Harvard Business Review,
Vol. 50, No. 4, pp. 3746.
Greiner, L. (1998) Evolution and revolution as organizations grow, Harvard Business Review,
MayJune, 5566.
Kon, Y. and Storey, D. (2003). A theory of discouraged borrowers. Small Business Economics,
Vol. 21, pp. 3749.
Krasniqi, A, Besnik (2009), Personal, Household and Business Environmental Determinants of
Entrepreneurship, Journal of Small Business and Enterprise Development, Vol. 16, No 1, pp. 146 166.
Krasniqi, B. (2012), Entrepreneurship and small business development in Kosovo, New York, US: Nova
Science Publisher (forthcoming).
Ministry of Finance (2011). Mid-Term Expenditure Framework 2012-2014, Prishtin, Republic of
Kosovo: Ministry of Finance of Kosovo.
van de Ven, A. H. and Poole, S. M. (1995) Explaining development and change in organizations,
Academy of Management Review, Vol. 20, No. 3, pp. 510 540.
Riinvest (1998). Economic activities and democratic development of Kosovo, Prishtin: Riinvest Institute for
Development Research.
References
Katalogimi n botim (CIP)
Biblioteka Kombtare dhe Universitare e Kosovs
65(047)
Entrepreneurship and Small Business Development in Kosovo
: (Research report) / Besnik A. Krasniqi... [et al.]. Prishtin :
Business Support Centre Kosovo, 2012. 49 f.: ilustr.; 28 cm.
Foreword : f. 3. - References : f. 49
1. Krasniqi, Besnik A.
ISBN 978-9951-19-017-6