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12ECONOMIC SCIENCES
STUDY OF MANAGEMENT FEATURES OF SMALL AND MEDIUM-SIZED BUSINESSES IN THE
REPUBLIC OF AZERBAIJAN
Hasanova M.
head teacher
Azerbaijan State Agrarian University, the department of agribusiness and management
Rzayeva U. head teacher
Azerbaijan State Agrarian University, the department of agribusiness and management
Ismayilova G. head teacher
Azerbaijan State Agrarian University, the department of agribusiness and management
Mushkiyev Z. assistant teacher
Azerbaijan State Agrarian University, the department of agribusiness and management
DOI: 10.5281/zenodo.6532825
ABSTRACT
At the present stage of economic development, support for the development of small and medium-sized businesses is a very important and urgent issue. The presence of SMEs creates favorable conditions for the recovery of the economy, as a competitive environment develops, they contribute to the saturation of the market with goods and services, the growth of export potential, and the better use of local raw materials. The development of small and medium-sized businesses is also important for Azerbaijan, since it is they who create a competitive environment in the country's economy and prevent monopolization. One of the weak points of SMEs is the problems of their management, the lack of sufficient knowledge in the field of management among the leaders of small and medium-sized businesses. And the lack of such knowledge makes it impossible to create a management system that meets modern requirements. This explains the relevance of this article, which examines the management features of small and medium-sized businesses in Azerbaijan.
Keywords: small and medium-sized businesses, management, competition, diversification, employment, efficiency, management, management, structure, unity of command, collegiality, solution, consulting.
Introduction
The modern economy is characterized by the presence of industries with different sizes. These can be large firms created to produce high-tech products or small enterprises created to provide various services. The development of science and technology contributes to the concentration of production. The concentration of production leads to the emergence of large firms with a large amount of material, financial and labor resources. They use economies of scale and have great opportunities for introducing scientific and technological innovations. But in the economy there have always been and are small and medium-sized businesses (SMEs), which many scientists call the locomotive of the economy. In Azerbaijan, such enterprises began to be created and developed after gaining independence and market reforms in the economy. They operate mainly in industries requiring relatively little capital and labor. Most of them are in the industries for the production of consumer goods and the provision of services.
Small and medium-sized businesses are one of the most important socio-economic institutions in many developed countries. According to many researchers, small and medium-sized businesses are a stable basis for a market economy. The place that they occupy in the economy of various countries can be characterized by various indicators. The main ones are such indicators as the share of workers employed in this area in the
total number of the employed population of the country, the share of products produced by them in the country's GDP, etc.
Main chapter
In many countries, medium and small businesses in terms of production are regional in nature and occupy a large place in the regional economy, form the structure of the regional economy. They, using the resources of the region, satisfy the needs of its population, determine the place of the region in the national economy. SMEs are more widespread than large businesses, and since they are closer to consumers, they can more fully use their public function. Since SMEs increase the level of employment in the country, providing the population with income (livelihood), we can say that they contribute to reducing social tension. It is SMEs that form the middle stratum of the population and play an important role in the democratization of market relations. Small and medium-sized enterprises in the labor market occupy an important place as an employer. Since the cost of creating jobs at such enterprises is much lower, they are used in the implementation of state social programs to reduce unemployment. Attracting labor resources to social production is also included in the social functions performed by SMEs.
In recent years, large-scale measures have been taken in the Azerbaijani economy to ensure the competitiveness of local production and achieve sustainable economic development. As a result of economic reforms and support for business entities operating in the
non-oil sector of the country's economy, the implementation of a policy of additional benefits and incentives in this area has made significant progress.
The effective activity of small-scale production forms is associated with a number of their advantages compared to large-scale production. These advantages are proximity to local markets and adaptation to customer requirements (large firms are not profitable), the absence of a large number of management links, etc. The diversity and diversification of demand in the consumer goods industry contributes to the creation and development of small forms of production.
Taking into account the specifics of small business, it is important to accurately define the criteria for classifying enterprises as small and medium-sized businesses. Until 2018, in the Republic of Azerbaijan, the number of employees and annual turnover were taken as such criteria.
By the decision of the Cabinet of Ministers of the Republic of Azerbaijan No. 556 dated December 21, 2018, the criteria for classifying business entities as small and medium-sized businesses were changed. Now, the average annual number of employees and their average annual profit are accepted as criteria for referring to SMEs. In accordance with this decision, micro business entities include business entities, the average annual number of employees of which is 1-10 people, and the average annual income is up to 200 thousand manats; 3,000 thousand manats, to medium-sized businesses - entities whose indicators are respectively 51-250 people and from 3 million to 30 million manats, and to large ones, respectively - over 351 people and more than 30 million manats. [one]
The number and sectoral affiliation of small and medium-sized businesses operating in Azerbaijan is presented in Table 1.
Table 1.
The number of micro, small and medium-sized businesses operating in Azerbaijan by type of ownership and eco-
Indicators Total Including
State Non-state Of them
Private Foreign Joint
Total, including by type of economic activity 316370 1811 314559 311296 2519 744
Agriculture and fisheries 3264 162 3102 3034 40 28
Industry 14007 476 13531 13154 266 111
Construction 11670 182 11488 11169 235 84
Trade and repair of vehicles 103707 135 103572 102674 691 207
Transport and warehousing 65987 189 65798 65653 109 36
Tourist accommodation and catering 20513 17 20496 20302 148 46
Information and communication 6939 130 6809 6696 90 23
Real estate transactions 7282 93 7189 7122 42 25
Education 6358 52 6306 6237 49 20
Health and social services 3793 52 3741 3699 35 7
Other industries 72850 323 72527 71556 814 157
Source: www.stat.gov.az
An analysis of the number of SMEs operating in the country showed that in 2020, 316,370 business entities operated in Azerbaijan, of which 8.7 thousand units are SMEs. Most of the subjects of the Ministry of Railways are in the trade and repair of vehicles, where their number is somewhere around 2.5 thousand units, and in industry about 1.4 thousand units.
The presence of small businesses creates favorable conditions for the recovery of the economy, as a competitive environment develops, additional jobs are created, economic restructuring is activated, and the consumer industry is developing. In addition, the development of small business contributes to the saturation of the market with goods and services, the growth of export potential, and the better use of local raw materials. [8]
Small businesses play an important role in the economies of many countries. In the countries of the European Union, the USA and Japan, more than 50% of the employed population works in small and medium-sized enterprises. They account for more than 60% of GDP. Small and medium business entities play a leading role in the macroeconomics of developing countries. But in underdeveloped countries, their share in GDP production and employment is slightly lower. So, if in developed countries the share of small and medium-sized businesses in the production of GDP is over 60%, then in countries with economies in transition this figure is 40%, and in countries with low rates of development it is about 30%. In providing employment for the population, the share of small and medium-sized businesses in developing countries is 50%, in countries
with economies in transition - 36%, and in weakly developing countries it fluctuates around 30%. [9]
Thus, the economic development of the country directly depends on the state of small and medium-sized businesses. And this position of SMEs in the economy is associated with their characteristics. The fact is that SMEs have the opportunity to get more products and a greater variety of products with less investment; economic fluctuations have little effect on them; they adapt more easily to changing demand and its diversity; they ensure a relatively even economic development of the regions and, most importantly, they minimize the inequity in the distribution of income. [6] Such features allow SMEs to become the main participants in solving important problems in the economy of our country too. The development of small and
medium-sized businesses is also important for Azerbaijan, since it is they who create a competitive environment in the country's economy and prevent monopolization. In the field of small and medium-sized businesses, a significant part of national resources is being formed, and prerequisites are being created for the development of large businesses.
The positive role of small business in the scale of the economy of countries is expressed in the fact that it is more flexible and mobile, quickly responds to changes in the external environment, and creates new jobs. [2]
Economic indicators determining the role of small and medium businesses in the economy of Azerbaijan are presented in table 2.
Table 2.
Main macroeconomic indicators of small and medium-sized businesses in Azerbaijan
Indicators Total Share of SMEs in the national economy, in %
Created value added, one million manat 10 941,0 16,7
Number of employees, thousand people 348,7 42,1
Average monthly nominal wage, manat 612,3 X
Investments in fixed assets, one million manats 2 674,1 23,2
Source: www.stat.gov.az
Analyzing the place of small and medium-sized businesses in the country's economy, we found that the share of SMEs in the added value created in the country for 2020 was 16.7%, and the number of employees employed here is 42.1% of all employed in the country. Investments in fixed assets made by SMEs account for 23.2% of all investments in the country's economy over the same period. The average monthly nominal salary in the country in 2020 was 707 manats, in SMEs this figure is 612.3 manats.
These indicators reflect the important role of SMEs in the country's economy.
Small and medium-sized businesses play an important role in the development of the country's economy, the creation of jobs and employment of the country's population, and the development of technological innovations. But despite this and the strong support of the state, many small and medium-sized businesses go bankrupt and go out of business. One of the important reasons for this is that the leaders of small and medium-sized businesses do not have sufficient knowledge in the field of management. And the lack of such knowledge makes it impossible to create a management system that meets modern requirements. Therefore, speaking about small and medium-sized businesses, it is necessary to pay attention to the features of their management, since management in small enterprises differs in many respects from the management system of large enterprises.
Large enterprises usually form a diversified management system with managers of different levels. And at small enterprises, the management system is simplified. But this does not mean that in small enterprises the management process is simpler. On the contrary, in
many cases the management of SMEs is more complex. [3].
Small and medium-sized businesses, as well as large enterprises, are subject to the influence of various factors of the internal and external environment. The factors of the internal environment include the fixed and working capital of small and medium-sized businesses, the people who work here and the relationship between them. Environmental factors include the economic policy of the state, the investment environment, suppliers and buyers, legislation, nearby population, etc. These factors directly affect the formation and implementation of the management process. And depending on the quality of management, the influence of these factors can be increased or decreased.
Effective management of the SME entity will create favorable conditions for their further development. Features of the management of SMEs depend on their form of ownership, on the basis of what property they are created. But the most pressing issue in the field of their management is the possibility of introducing modern management technologies.
Here, the management process is primarily affected by the creation of a management system. The formation of a management system solves several issues, such as:
- creation of an optimal organizational and managerial structure;
- distribution of official powers;
- formation of a system for evaluating the activities of both managers and ordinary workers.
SMEs operating in Azerbaijan have a simple governance structure. It can be represented schematically as follows.
Figure 1. Simple organizational structure of management in small enterprises
For SMEs operating in Azerbaijan, you can often find such an organizational structure of management. Here, the head of the enterprise is one leader, who is usually its owner. This leader can be said to be the sole manager of this enterprise. Sole management and management gives him the opportunity to reduce disagreements when choosing the goals and objectives of the enterprise, when making certain management decisions, spend less time on the decision-making process and control the implementation of these decisions himself. This can be done if the SME entity belongs to one person. And if the owner has enough knowledge and skills for this, the decisions are correct, effectively implemented and manage to achieve the management goals.
When the owner of an SME entity is several people, then at such an enterprise the position of a chief or just a director is used, who takes on the responsibility for making management decisions, and their last option is presented to the owners of the company, informing them of the consequences of these decisions. If these consequences cause controversy, then the decision is put to the vote of the founders of the company, after which the final decision is made.
With sole management in the field of finance, supply, procurement, production, sales, all decisions are made and the director (owner) is fully responsible for this.Even enterprises with such a small management structure face a number of challenges. One of these problems is the lack of managerial knowledge of the head-owner of the company. Sometimes the owner of an SME does not have both technical and managerial knowledge, and in some such enterprises nepotism flourishes, with the owner's relatives taking over the reins of power. Therefore, the study of various issues of
management of small and medium-sized businesses is very relevant.
Based on this, in order for SMEs to function and develop in a competitive environment, they must either use the services of consulting enterprises or involve professional managers in management.ecisions are made and the director (owner) is fully responsible for this.
When an SME entity has several founders (owners) and is headed by a chief director, these enterprises have a system of subordination and distribution of powers. That is, to resolve financial issues there is a financial director, for the selection and placement of personnel, the head of the personnel department, who are responsible for the quality and consequences of these decisions. And in larger enterprises, management groups are formed. In some enterprises, these groups consist of a manager, a specialist in procurement, finance, sales, production, marketing, etc.
Even enterprises with such a small management structure face a number of challenges. One of these problems is the lack of managerial knowledge of the head-owner of the company. Sometimes the owner of an SME does not have both technical and managerial knowledge, and in some such enterprises nepotism flourishes, with the owner's relatives taking over the reins of power. Therefore, the study of various issues of management of small and medium-sized businesses is very relevant.
Based on this, in order for SMEs to function and develop in a competitive environment, they must either use the services of consulting enterprises or involve professional managers in management.
Figure 2. A simple organizational and managerial structure for managing SMEs based on the distribution of
powers.
In such small enterprises, the general management is carried out by its head, who is usually its owner. All responsibility for the activities of the enterprise lies with him. But there are specialists here who help him make better and more effective decisions.
For more efficient enterprise management in slightly larger SMEs, two basic principles must be observed. This is the distribution of powers and strict structuring of the enterprise. [5] Such enterprises in Azerbaijan are created in the organizational-legal form of a cooperative or joint-stock company. The management of such SMEs is based on the principles of collegiality. At such enterprises, the supreme governing body is the general meeting of members of the cooperative or shareholders of the company. The meeting decides strategic issues of enterprise development. For example, organization and reorganization, liquidation of an enterprise, change in the authorized capital, adoption of the annual
production and financial report, election of the board (board of directors), audit commission, supervisory board, etc. Decisions on the list of these issues are also taken by the general meeting and are reflected in the charter of the subject. At such SMEs, a board or board of directors is elected at the general meeting to carry out current management, and an audit commission is elected to carry out control functions. At the first meeting of the board (board of directors), the chairman of the board (general director) is elected among its members. The board (board of directors) forms the management structure, makes management decisions and reports to the owners of the company. In accordance with the organizational structure, the divisions are reflected in the management structure and their leaders are indicated. At SMEs, these are mainly units related to the supply, production and marketing of products.
General meeting
audit committee
board (board of directors)
supervisory board
Chairman of the Board (CEO)
procurement
director
Production Director
sales director
Figure 3. Organizational structure of management of MPS entities based on collective shared ownership
Conclusion
In a small business, management has its own characteristics. The manager working here is a generalist who can work in several areas of management. One of the main features of management in SMEs is that power is exercised in an informal style and therefore special requirements are imposed on the manager. He is responsible not only for the results of work, but also for the climate in the team, he is flexible and businesslike, sets specific tasks and controls their implementation, and simultaneously solves several issues. The manager of an SME entity builds business relationships with various people, has authority among employees, and gives good advice.
In conclusion, we can say that managers working in SMEs are different from managers in large enterprises. This fact is based on: here the manager in most cases is also the owner; there is no system of divisions, which means that there is no need for heads of structural divisions; the team is usually small here, sometimes they are relatives and close acquaintances of the owner of the enterprise. On the one hand, this is good, since they feel the work as their own business and treat it responsibly, non-verbal methods of management can be used in relation to them. But. On the other hand, this can lead to such a phenomenon as "nepotism", when positions are distributed not in accordance with business qualities, but according to the degree of kinship. In this case, the rest of the employees are unmotivated and work carelessly.
In recent years, large-scale measures have been taken in Azerbaijan to achieve sustainable economic development and ensure the competitiveness of domestic production. As a result of economic reforms and support for small and medium-sized businesses operating in the country's non-oil sector. The implementation of additional benefits and incentive policies in this area has made significant progress. Studies show that despite this, in the development of small and medium-sized businesses, there are some problems associated with their management. To support the subjects of the Ministry of Railways in solving these and other problems existing in the industry, the Strategic Roadmap for the development of
SMEs provided for the creation of special consulting services that provide them with information and consulting services. But studies show that small and medium-sized businesses turn to such services very little in general, including for advice on business management. Although in international practice the use of such services creates additional opportunities for their sustainable and effective development of SMEs.
In our opinion, in order for small and medium-sized entrepreneurs to pay due attention to such services and use their services, it is necessary to carry out explanatory work among entrepreneurs, to give examples from world practice.
References
1. Decision No. 556 of the Cabinet of Ministers of the Republic of Azerbaijan dated December 21, 2018
2. Dorofoeeva, O. H. Features of management in small business [Electronic resource] Access mode: http: // 3
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4. Roadmap "Strategic Roadmap for the production of consumer goods at the level of small and medium enterprises in the Republic of Azerbaijan" approved by the Decree of the President of the Republic of Azerbaijan dated December 6, 2016
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10. www.stat.gov.az
