Simona Agoston

To differentiate between several types of companies To identify the main organizational characteristics of companies belonging to different categories To identify and comment the main forms for capital raising To explain the concept of franchising

Branch of industry Goods producing businesses/ service businesses Size (SMEs, large companies) Cooperation form (strategic alliances, joint venture, cartel etc.) Legal form (sole proprietorship, private limited company, public stock ownership etc. ) Ownership (private, public)

Goods producing businesses tangible goods from activities such as manufacturing, construction, agriculture etc. capital intensive businesses require substantial investments in buildings, machinery, equipment etc.

Service businesses intangible products from activities such as finance, retail trade, entertainment, health care, banking, education etc. labor intensive company- is dependent on the knowledge and skills of the employees

Some companies produce both goods and services

Growth of the service sector

Key factors which trigger the growth of service sector: Consumers have more disposable income Changing demographic pattern and lifestyle trends Services are needed to support complex goods and new technology Specialization/ need for professional advice Barriers to entry are low

SMEs criteria (Romania): Average annual number of employees < 250 Net annual turnover < 50 Mio. Euro Total assets < 43 Mio. Euro (IMM # SRL # SA) In most economies SMEs prevail, representing over 98% of the companies Special financial support for SMEs (e.g. European funding, Mihail Kogalniceanu credit etc.)

Economic roles of SMEs Provide the majority of jobs (>50%) Significant contribution to the GDP (55%-95%) Create product and service innovation Provide specialized goods and services Support the economy during crisis time (more dynamism, flexibility and willingness to try new things than big businesses)

No.

Country

% SMEs of total number of enterprises 99.6 99.8 99.7 99.75 99.79 99.63 99.95 99.59 99.54 99.62 99.56 99.87 99.89 99.67 99.8

% SMEs contribution to the GDP 50.86 64.49 58.75 44.33 45.76 60.17 82.87 33.02 71.38 74.2 56.06 66.8 55.3 51.51 38.4

% SMEs contribution to employment 65.5 68.9 68.74 59.15 66.86 59.85 86.68 69.59 80.34 72.32 62.47 78.87 79.45 61.37 55.3

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Spain Sweden Great Britain

Source: CNIPMMR (2007), Cartea Alba a IMM-urilor din Romania, p.22

SMEs in Romania

Source: European Commission, 2011

Companys size
Romanias SBA (Small Business Act) profile
Romanias performance against the EU average

Below average profile for Romania Sub par performance in 4 of the 8 principles for which data are available (Access to finance, Responsive administration, Skills and innovation and Internationalization)

Source: European Commission, 2011

Profile of the Romanian entrepreneur

-just 17.5% of Romanians consider the option of starting up a business in the next 6 months (place 56 out of 59 evaluated countries- high risk adversity) - 46% of the Romanians are afraid of financial failure - Low density of SMEs (EU- 42 SMEs/ 1000 inhabitants, Romania 24 SMEs/ 1000 inhabitants) - In the last 2 years 250.000 SMEs were closed - Negative figures regarding feminine entrepreneurship in Romania (64% men) - SMEs established in 2011: commerce 30%, other services 25%, agriculture 16%, rate of innovative businesses very low life-style business/ high growth venture
Source: Barzoi, V., Businesscover, 30th Oct. 2012

Options 1. To start from scratch

Advantages
Total control over your business Doing what you enjoy Ability to reach your full potential

Disadvantages
High risk Higher efforts to build a reputation Complete responsibility Usually longer working hours

2. To buy an existing business

Established customer and supplier base Functioning business system Location Proven product or service Trained employees Easier financing You can concentrate on making improvements

Many businesses are overpriced Limited freedom Risk of incompatibility between the new owner and existing employees Unknown (covered) problems with suppliers, customers etc.

3. To buy a franchise

You are sure that you get a viable business Instant brand recognition National advertising programs Standardized quality for goods and services Support from the franchisor (financial assistance, site research, training, decoration, network of suppliers, technical assistance etc.)

High dependence on the franchisor (He falls, you fall) Restricted control over your business (sell just some goods and services, established suppliers, rules) Goods often supplied by the franchisor itself at the price he sets Small flexibility and adaptability Monthly payment (royalty) to the franchisor If the franchisee fails to meet the minimum standards, the franchisor might terminate the licence

A form of business organization in which a firm which already has a successful product or service (the franchisor) enters into a contractual relationship with other businesses (franchisees) operating under the franchisor's trade name and usually with the franchisor's guidance (http://www.investorwords.com/2078/franchise.html, 20. Oct.2011). Types of franchises Product franchise- the right to sell trademarked goods which are purchased from the franchisor and resold Manufacturing franchise- the right to produce and distribute the manufacturers products, using supplies purchased from the franchisor Business format franchise- the right to open a business using franchisors name and format for doing business Cost of franchises = initial fee + monthly royalties

Venture capitalists (VCs) - investment specialists who provide money to finance new businesses with high potential and management expertise for a portion of the ownership VCs the business becomes profitable long term investors Very selective Offer large amount of money

Business angels wealthy individuals who put their own money into start-ups with the goal of eventually selling their interest for a larger profit Smaller amounts of money than VCs Offer their business expertise to the new business and are involved longer in the company

IPO (initial public offering)- offering shares of ownership or stock to the public for the first time Can be an expensive procedure and requires a longer period of time

Incubators centers that provide start-ups with various services and facilities: office space, legal and accounting advice, marketing support etc. 80% of businesses nurtured in incubators succeed Open to all businesses, or just to some sectors Tenants graduates

Crowd funding- the collective effort of individuals who network and pool their resources, usually via the Internet, to support efforts initiated by other people or organizations. - funding of a company by selling small amounts of equity to many investors Internet, banks, state aid, European funds etc.

THANK YOU!