Meet Third Wave Of Russian Business

24.11.2009 — Analysis

The crisis year of 2009 literally exploded the entrepreneurial activity in the Urals region. Which market niches do new businessmen are trying to fill, would they be able to raise the importance of small business in Russia's economy? The RusBusinessNews observer has been finding answers to these questions.

A group of the unemployed in Chelyabinsk purchased a milk tank trailer and began supplying people with the natural product. The demand and, naturally, the profitability of the business are guaranteed as the milk price offered is much lower than that in shops since it is purchased from producers direct.

The implementation of this and many other projects has been possible in 2009 due to the governmental financial support to people's self-employment. Before you could only count on the financial support for the processing of necessary documentation for the registration of individual entrepreneur; now there is an important addition to these services, this is a grant offered to the unemployed for the establishment of own business.

In order to receive this you have to present and substantiate the business plan in the format of a viva. "No presented project is declined. In the worst case scenario we give time for further work and another viva," the Department for Social Development of the Tyumen Oblast told RusBusinessNews.

The size of the financial support from the State is rather modest, 60 thousand roubles (about 2 thousand dollars). Nevertheless this has become a substantial incitement for the unemployed to think about the establishment of own business. "It turned out that there were more people wanting to get the subsidy in the Chelyabinsk Oblast than money allocated for this purpose," Aleksandr Kalinin, the Head of the Chelyabinsk Oblast branch of the "OPORA Russia" organisation, told RusBusinessNews. "The reason is that the unemployment level here is significantly higher than the average across Russia. The crisis affected ferrous metal manufacturing, machine building, and construction more than other sectors. These are the three whales of our region's economy."

The self-employment programme in the Tyumen Oblast is also being implemented very successfully: in 9 months of 2009 more than 1,300 people received the lump sum payment for the development of small business.

The RF Ministry of Economic Development is implementing one more programme for the support of beginner entrepreneurs. This programme envisages the grant of 300 thousand roubles (about 10 thousand roubles) which depend on the business plan viva. Using this money it is possible to establish a small venture employing 3-4 people. There is a bonus in addition to the programme offered in the Sverdlovsk Oblast. This is the free of charge 15-day-long "Start Your Own Business" training, a German self-employment programme which has been adapted for Russia. 3,500 people in the region attended the training since 2008. 100 of these received grants last year, according to the 2009 results there will be 300 further grants issued.

"When entrepreneurs receive the grants they get the opportunity to further develop the declared projects - through a venture fund, a reimbursement of bank loan interest, obtaining bank loans guaranteed by the Oblast fund etc.," Igor Grebenkin, the Chairman of the Grants Committee for the Development of Small and Medium Size Entrepreneurship in the Sverdlovsk Oblast, informed RusBusinessNews.

It is the same here as it is in the West, small business is starting to develop in sectors of the least required initial outlay - retail and services. "When implementing projects in the production sector you need to buy industrial equipment which requires funding of up to 1-1.5 million roubles," explains Igor Grebenkin. "This is why new born small companies mainly specialize on services - legal, accounting (including audit), advertising, telecoms, repair, tourism, tailoring."

Olga Kuznechevskikh, the Director of the Department for Social Development of the Tyuman Oblast, informed RusBusinessNews that people in the region pick the following areas for the development of own business: smallholding farming (41%), retail (11%), tailoring (over 5%), bee keeping (about 5%), and hairdressing (about 3%). The most original business projects in the Tyumen Oblast are the following: guitar making and repair, aerography, and industrial alpinism.

According to Aleksandr Kalinin yoga and dance schools are mushrooming in Chelyabinsk which is connected to the growing aspirations of Russians for healthy way of life. At the same time small business is winding down its activity in the construction sector.

It is worth mentioning that small business in Russia has been developing in waves during the almost twenty-year-long period of market economy. Peaks of mass exodus of people into entrepreneurship coincided with crises in the economy. The first wave has been registered in early nineties. The next one was caused by the 1998 crisis. Now is the time for the third wave.

Experts are convinced that the current entrepreneurial activity will not result in the increase of the small business's share in the national economy any higher than the current 18-20%. "There will be no quantity growth in the next two years but the entrepreneurship will gain in quality, competence, and significance. Those who were needed before the crisis will remain, not those who made their living by speculative overfilling of some sectors of economy with money. The main goal for the beginner businessmen today should be the issue of the quality of services offered," thinks Igor Grebenkin.

In order for the third entrepreneurial wave to cause a significant increase of the proportion of small business the two fundamental goals must be achieved. Firstly, small business must be allowed in those sectors where there remains the monopoly of State and companies and organisations depending on the State. This would include healthcare, for instance.

"OPORA Russia" has carried out marketing research on the employment prospects of Russians losing their jobs. "We noticed that there are 10 times fewer healthcare companies per one employed person in Russia than in USA. This means that the healthcare sector is in demand, people are prepared to pay for it, but there is too much red tape there to do with licenses. This is why private capital is not flowing there so far. It is the same in the school education sector," pointed out Aleksandr Kalinin.

"The mainstay industrial enterprises always gave multiplicative effect. Tens and hundreds of small companies would always find use for their services around a large technological process. This is predominantly the market for services and small production orders. On the other hand large state owned companies outsource services only from their (openly or covertly) affiliated structures. And this results in the high cost and low quality of services," stressed Igor Grebenkin.

The second fundamental goal is the establishment of conditions favourable for the growth of companies. Small business must aspire and have the opportunity to grow into medium sized business, and medium sized - into large. So far the State does not give entrepreneurs enough incentive to create new jobs and expand production.

Pavel Kober