Healthy SMEs for a healthy economy

In Turkey, 99 percent of companies are small- and medium-sized enterprises, in other words, SMEs.

According to Turkish Statistical Institute (TÜİK) data from 2012, SMEs constitute 76 percent of employment and 63 percent of the total turnover and are generally defined as the “backbone” of the economy.

However, an Istanbul Chamber of Industry (İSO) survey released last week, “Turkey’s second largest 500 industry establishments,” has revealed that the “backbone” is quite sick. İSO Chair Erdal Bahçıvan first mentioned the positive aspects of SMEs as innovative, flexible and that if they adapt to change rapidly, then they were showing a very good performance. 

Their exports are better than Turkey’s and those of the first 500 big companies. Their share in total exports has displayed a continuous tendency to increase.  

As a matter of fact, I have met several of the “Anatolian Tigers” which suit the definition of the SME and there are many companies among them that have focused their creativity and entrepreneurship on exports.

A family company of 125 years, the Konya-based Helvacızade, for instance, is selling its vegetable oil production to 60 countries.

The same company has started producing “herbal medical products” under the brand name Zade, marketing them to drugstores and pharmacies. They believe these products could compete with Solgar.
 
They also aim to become a global brand with chain stores they plan to open in various countries.

Because of the fact that a majority of SMEs are established family companies, they do not have the R&D and innovative opportunities that the Helvacızade company has. 

In the research İSO has conducted for the second 500 biggest industrial companies, it is revealed that as a general rule the financial balance of SMEs are disrupt. 

In short, SMEs are in debt today.

As Bahçıvan said, the total debt of the second 500 companies in 2012 was 34.3 billion Turkish Liras. In 2013, this figure increased 28.5 percent to hit 44 billion liras. The SMEs have failed in financial management.

According to Bahçıvan, along with the SMEs being unable to use “financial tools” well, the state has also been unsuccessful in creating financial alternatives for companies. I also heard from Garanti Bank Executive Nafiz Karadere a few months ago that the SMEs, in an increasing trend, were having difficulty paying their loans.

Let’s take a look at another survey that only strengthens the İSO’s research findings.

In OECD’s report about the outlook of Turkish economy in 2014, one of the most striking findings is that big managements are four times more productive than smaller ones, in other words, SMEs. This is the biggest difference the Turkish economy has when compared to other OECD countries.

The gap in productivity is not so high between big and small companies in other OECD countries. Thus, the OECD recommends increasing productivity in SMEs to increase overall productivity in the economy.
According to the OECD, another important difference in Turkey between big and small companies is the issue of the unregistered economy.

Unregistered activities in small- and medium-sized enterprises are much larger compared to big companies.

Thus, for a healthy economy, it is critical that the “backbone” be healed.