Description
In this particular detailed explanation with regards to free enterprise and entrepreneurship in serbia an analysis of motivations, financing.
American J ournal of Economics and Business Administration 3 (2): 338-346, 2011
ISSN 1945-5488
©2010 Science Publications
338
Free Enterprise and Entrepreneurship in Serbia: An Analysis
of Motivations, Financing and Obstacles
Nina Radojevich-Kelley
Department of Management, Metropolitan State College of Denver,
Campus Box 78, Box 173362, Office WC 240A
Denver, CO 80217-3362, 303-556-8477, USA
Abstract: Problem statement: Entrepreneurship is considered to be a major driving force to
economic development throughout the world. Free enterprise is challenging in any country, especially
in a developing nation such as Serbia where communism and socialism prevailed for decades. The
purpose of this study is to examine entrepreneurship and free enterprise in Serbia as well as the
challenges or obstacles they face. The hope is to understand how Serbian entrepreneurs operate in their
nation, especially since little is known about them. Approach: A questionnaire was designed and
distributed to a sample of Serbian entrepreneurs. Descriptive statistics were calculated based on
responses from participants. The study investigates 59 entrepreneurs; identifying commonalities in
funding, motivation behind entrepreneurship and common challenges they face. Underlying
similarities or differences are examined. Results: Empirical evidence indicates that the majority of
Serbian entrepreneurs rely on equity funding to finance their ventures, form businesses to pursue
personal freedom, bootstrap their nascent firms and provide services or represent/sell someone else’s
products rather than create their own. Results indicate that the greatest challenges to Serbian business
owners are with administrative issues associated with their government, political instability and
economic uncertainty. Analogous to the USA, Serbian entrepreneurs create business for freedom,
independence and monetary gain. Conclusion: The overall results of the study confirm the benefit of
entrepreneurship in the transitioning economy, while highlighting the many obstacles that entrepreneurs
face. Results indicate that entrepreneurship in Serbia is gaining interest due to the belief that it promotes a
better life. Political instability, uncertainty about the future, difficulty obtaining clients and general
inexperience pose the greatest threats to Serbian business owners. As entrepreneurship continues to
expand in Serbia, they will have greater impact on the local and European economy. Any shifts or
changes occurring in entrepreneurship should be examined closer in the future.
Key words: Driving force, political instability, new ventures, economic development, financial
sector, identifying commonalities, new venture funding, entrepreneurial activities, Small
and Medium Enterprises (SME), Venture Capital (VC)
INTRODUCTION
Entrepreneurship is considered to be a significant
force and key to economic development throughout the
world. It is evident in all industries, ranging from
agriculture, to construction, education, agriculture,
sports, health care, art, retail, transportation, high-tech
and administration (Azizi et al., 2010).
Entrepreneurship is present in nascent firms, in Small
and Medium Enterprises (SMEs) and in well
established public/private corporations. Most countries
focus on the importance of innovation from an
economic perspective where entrepreneurship is the
driving force for a nation’s economic prosperity
(Williams, 1983).
The study of entrepreneurship and entrepreneurship
behavior taking place in different countries throughout
the world is an important subject area because it is in
infancy, with huge potential for growth. The behavior
of entrepreneurs, the various managerial characteristics
utilized and different entrepreneurial activities
occurring globally provide a unique opportunity to
learn about our diverse, international environment. In
fact, more researchers are investigating entrepreneurial
activities in different nations to try to understand their
economic impact (Lussier et al., 2009; Sonfield and
Lussier, 2009). Perhaps the most significant reasons to
study entrepreneurial activity in different countries is to
add to the body of knowledge in entrepreneurship, to
gain a deep understanding of entrepreneur behavior,
Am. J. of Economics and Business Administration 3 (2): 338-346, 2011
339
challenges and obstacles they face from country to
country and to identify cultural differences or
similarities in multiple nations.
An earlier version of this study was presented at
the 2010 Applied Business and Entrepreneurship
Association International Conference (ABEAI),
Waikoloa, HI. November 16-20 2010.
Due to the escalading interest in entrepreneurial
activity abroad, the intent of this study is to investigate
entrepreneurship in a developing nation. The objective
of the study is to examine entrepreneurs and free
enterprise in Serbia; identifying commonalities in
funding, motivation behind entrepreneurship and
various challenges owners face. The study focuses on
Serbia because little is known about entrepreneurship in
the country and it was a place the researcher spent her
childhood. The author observed for decades the growth
and demise of Serbian businesses. Recently, it became
evident that more Serbians are seizing opportunities and
creating or growing businesses throughout the region.
The hope is to examine and learn more about these
entrepreneurs and their interests in forming businesses.
It is important to note that free enterprise is a
relatively new concept for the citizens of Serbia
because communism and socialism prevailed for
decades. In fact, the Serbian economy is defined as a
post-socialist transition economy on its way to
becoming a market economy (Duh et al., 2009). Over
the years Serbia’s growth performance has improved;
however, significant challenges remain (Strengthening
Serbia’s Economy, The World Bank). In the years
following the war and breakup of Yugoslavia, Serbia
suffered tremendous isolation and near economic
collapse. The financial sector was a complete fiasco;
citizens and businesses lacked trust in the banking
system. As with most planned economies, the
majorities of Serbia’s state-owned businesses were
riddled with debt, lacked corporate authority, were
extremely inefficient and unproductive (Strengthening
Serbia’s Economy, The World Bank). The country was
experiencing run-a-way inflation and tremendous
unemployment. The World Bank interceded, assisting
with the restructuring of the financial sector and aided
in the privatization of enterprises. The intent was to
foster growth in the private sector, encourage free
enterprise and help create jobs for local citizens
(Strengthening Serbia’s Economy, The World Bank).
Questions addressed in the study are as follows: 1)
How do entrepreneurs in Serbia finance and fund their
start-ups? 2) Are start-ups in Serbia product or service
oriented? 3) What motivates Serbians to go into
business for themselves? 4) What challenges or
obstacles do Serbian business owners face? 5) How are
Serbian small business owners and entrepreneurs
similar to American SMEs? The research focuses on
answering basic questions about entrepreneurship in a
country where little is known. This study is important
because researchers, SMEs and foreign investors may
gain a deeper understanding of entrepreneurial behavior
that extends across national borders. Specifically, the
study allows individuals to realize how Serbian
entrepreneurs operate; along with the challenges
associated with conducting business in the transitioning
economy. Long-term, the hope is to understand the
impact of entrepreneurship in Serbia compared to those
of other nations. For the purpose of this study,
entrepreneurship is defined as the pursuit of opportunity
beyond the resources an entrepreneur currently controls
(Stevenson and J arillo, 1990; Roberts, 2006).
Literature review:
Historical reasons for entrepreneurship: Research
shows that entrepreneurs create businesses for multiple
reasons. The most reported, common and prime reason
people form new ventures is for personal freedom,
independence, or to create something new (Allen, 2011;
Williams, 1983). Most entrepreneurs desire to be their
own boss due to the frustration they experience working
for others or from an intrinsic personal desire to own or
run a venture (Barringer and Ireland, 2009). Another
reason individuals become entrepreneurs is to pursue
their own interests, ideas or for the sheer joy of creation
(Shane, 1993; Shumpeter, 1934). Finally, people become
entrepreneurs because they want to be in control of their
own future, want greater wealth, have a zeal for novelty
and are drawn to the unknown (Barringer and Ireland,
2009).
Funding new ventures: Historically, entrepreneurs
face many problems when seeking funding for their
start-ups. New ventures commonly rely on
bootstrapping, angel investing, family or friends,
venture capitalists and banks to provide the necessary
capital for their businesses. According to research,
companies require capital for expansion purposes, for
investment reasons, to increase cash flow or to off-set
cash flow difficulties in their organization (Barringer
and Ireland, 2009). New ventures struggle to raise
capital because they are inexperienced, unknown and
untested (Mantell, 2009; Barringer and Ireland, 2009).
This is especially true for the young entrepreneur with
little business knowledge, experience and collateral. In
a developed nation, it becomes extremely difficult for
nascent entrepreneurs to secure bank loans or obtain
capital from Angels or Venture Capital (VC) due to
their lack of experience (Mantell, 2009). In a
developing country, such as Serbia, these alternative
methods of funding are limited or non-existent.
Am. J. of Economics and Business Administration 3 (2): 338-346, 2011
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From a global perspective, the overarching concern
is that the majority of nations around the world have a
reduction or shortage of risk capital; thus, limiting the
development of new ventures in the economy (Sorheim
and Landstrom, 2001; Brainard and LaFleur, 2005).
Until recently, Serbia was under the strict control of the
government. All or most factors of production and
resources were monitored or controlled by the nation and
government. Although the nation allowed some private
enterprise in the later part of the 20th century, it was
really a nation in-between a dictatorship and democracy.
In the past, even if an entrepreneur wanted to create a
business, the necessary resources were either
unavailable or difficult to find. Historically, it was near
impossible for Serbian entrepreneurs to obtain loans for
their ventures, thus many failed to succeed or relied
heavily on personal savings, friends and family to
finance them. This is simply because there were no other
alternatives for funding.
In transitioning economies such as Serbia, massive
economic change and social unrest brought an end to
the period where private enterprise was forbidden. In
turn, a new era was born creating tremendous
opportunities for entrepreneurship and new venture
creation to help rouse the developing nation (Duh et al.,
2009). As Serbia continues to transition into a market
economy, funding will become more accessible
providing entrepreneurs with greater means to operate
and succeed. As the bank reforms continue to move
forward in Serbia, more capital is available for nascent
business owners. Thus it will provide entrepreneurs
with more means to operate, grow and start their
ventures. Research shows that entrepreneurship and
SME development is crucial and a prime mover of a
nation’s economy. SMEs provide the largest number of
jobs in all economies; therefore, as Serbia becomes
more entrepreneurial friendly it stands to prosper as an
economy.
Serbia country history: Today, seven countries
comprise former Yugoslavia: Serbia, Croatia, Bosnia
and Herzegovina, Kosovo, Macedonia, Slovenia and
Montenegro. During the 20th century, communism and
socialism dominated Yugoslavia resulting in
government control of key resources. By the end of the
1980’s, local economists actively encouraged private
enterprise in Yugoslavia. They supported
entrepreneurship based on the belief that it could infuse
innovation and generate increased productivity in an
economy that was long disadvantaged by strict
government control. In Serbia, the establishment of the
SME sector began to actively develop private
enterprises at the beginning of 1990s, late 1980’s. As
with all transitioning economies, for decades Serbia’s
economy was dominated by government entities and a
few large firms, with minimal existence of small
enterprises outside of agriculture and craft (Duh et al.,
2009). At the time, Yugoslavia’s small enterprises were
comprised of peasant farms, tradesmen, craftsmen,
retail businesses, restaurants and tourist businesses. The
government permitted these types of free enterprise to
be independently owned and operated. However, during
the postwar period, former Yugoslavia as a nation
remained extremely hostile to private enterprise and
small businesses. As with most transitioning
economies, Serbian citizens struggled to shift their
attitudes from government owned to readily accepting
and encouraging private enterprise.
From a social perspective, this new entrepreneurial
focus posed challenges because citizens were not taught
to think entrepreneurial, lacked training or basic
entrepreneurial skills and were raised in a culture where
for generations private enterprise was not
commonplace, promoted or highly valued (Stankovic,
2006). Even today, these same issues still exist.
However, as the Serbian economy continues to
transition from a planned economy to a market
economy, fewer government jobs will be available. As
a result, individuals residing in Serbia will turn to
entrepreneurship as a necessity to fill the gap in the
workforce and marketplace.
According to the OECD report (2003), during the
early 1990’s Serbia had a healthy tradition for private
enterprise activity; however, recently SMEs show
significant lethargy. Almost 60% of SMEs in Serbia
were formed prior to 1992, with minimal SMEs
established thereafter (Organisation for Economic Co-
operation and Development and European Bank for
Reconstruction and Development) OCED (2003). Since
1992, there is a marked decline in SME production,
employment, output and inception compared to other
countries; thus reinforcing the notion that Serbia lacks
the developmental climate or culture for sufficient SME
progress (Organisation for Economic Co-operation and
Development and European Bank for Reconstruction
and Development) OCED (2003). In fact, a recent GEM
report (2009) indicates that Serbia is highly necessity
driven as far as entrepreneurship and relies heavily on
established business ownership rather than on early
stage, nascent entrepreneurial activities (Bosma and
Levie, 2009). Over the past several years, Serbia has
seen a decline in the nascent entrepreneurship rate, new
business ownership rates, early stage entrepreneurship
rates compared to other similar efficiency driven
economies (Bosma and Levie, 2009).
Am. J. of Economics and Business Administration 3 (2): 338-346, 2011
341
Table 1: Country data (Former Yugoslavia and USA) (estimates)
Gross domestic GDP (per Capita, Nominal) GDP Per Capita
Population product (Current US$) (Current US$) (Purchasing Power Parity)
Country (The World Bank, 2008) (The world bank, 2009) (The world bank, 2009) (The world bank, 2009)
Serbia 7,350,221 $ 42,593,583,030 $ 5,819.0 $ 11, 611
Croatia 4,434,000 $ 63,033,554,760 $ 14,222.4 $ 19, 803
Montenegro 622,344 $ 4,085,857,182.6 $ 6,545.6 $ 13, 117
Bosnia/Herzegovina 3,773,100 $18,511,525,614 $ 3,700 $ 8,529
Macedonia 2,041,342 $ 9,221,076,357.2 $ 4,514.6 $ 9,054
Kosovo 1,800,000 $ 5,000,000,000 $ 1,800 (2007) NA
Slovenia 2,021,316 $ 48,477,215,893 $ 23,725.6 $ 27, 008
USA 307,006,550 $14,256,300,000,000.0 $ 46,381 $ 46,436
The World Bankhttp://data.worldbank.org/indicator/NY.GDP.MKTP.CD The World Bank Grouphttp://search.worldbank.org/data?qterm=USA+gdp&language=EN&format=html GDP (Purchasing Power Parity) per capita, value of all final
goods and services produced within a nation in a given year divided by the average (or mid-year) population for the same year
The Republic of Serbia, with a population of
approximately 7.3 million people has an estimated
34116 square miles of territory (Serbian Chamber of
Commerce, International Monetary Fund, World
Economic Outlook Database). Serbia is one of seven
countries fashioned from former Yugoslavia. The
country is in the early stages of establishing a market
driven economy with minimal intervention from the
government. Serbia has a strong strategic location near
the East, between Western and Central Europe. It is
located in the center of CEFTA zone with non-tariff
access to nearly 30 million consumers. The labor
market is comprised of a highly educated workforce
that boasts the highest percentage of English speakers
in Central and South Europe. According to the World
Bank Group, Serbia has the lowest personal income tax
rate in Europe at 12%, a corporate profit tax rate of
10% and a VAT tax rate of 18% (The World Bank
Group). Serbia’s GDP for 2010 is estimated at $ 43.6
Billion (USD), compared to $ 42.9 Billion (USD) in
2009 and 48. 9 Billion (USD) in 2008 (The World Bank
Group, International Monetary Fund, World Economic
Outlook Database, 2010). Their GDP (per capita) is $
5,819 for 2009, with an unemployment rate of 13.1 %
for 2009 and 18.1 % in 2008 (The World Bank Group,
International Monetary Fund, World Economic Outlook
Database, 2010). See Table 1 for a summary and
comparison of Serbia to 8 other nations.
According to the Statistics Office of the Republic
of Serbia, Serbian foreign trade declined 29.3% in 2009
to nearly 24 billion US dollars, as a result of the global
economic downturn (Statistics Office of the Republic of
Serbia, (0000)). In 2009, Serbian exports declined
nearly 24% to $8.34 USD billion, largely due to falling
global prices for primary export products. Imports
shrank 28% to USD $11 billion, due to declining
domestic consumption and declines in industrial
production in Serbia. The bulk of Serbian exports in
2009 consisted of intermediary products (60%),
consumer goods (31%) and equipment (9%) (United
States of America Department of Commerce). In 2009,
imports consisted of intermediary goods (59%),
consumer products (27%) and equipment (15%)
(United States of America Department of Commerce,).
The most common exported products for Serbia were
steel/iron products (USD $648 Mill.), apparel ($533
USD Mill.) and grain products (USD $477 Mill.)
(United States of America Department of Commerce).
In contrast, the most imported products were oil (USD
$1.5 Bill.), vehicles (USD $ 1.2 Bill.) and natural gas
(USD $ 771 Mill.) (Williams, 1983). Serbia exports
their products predominantly to Russia (USD 2 Bill),
Germany (USD $1.9 Bill) and Italy (USD 1.5 Bill)
(Statistics Office of the Republic of Serbia). More than
half of Serbia’s foreign trade was with other European
Union countries. Serbia traded various agriculture
products with other CEFTA members (Central
European Free Trade Agreement) generating almost 1.4
Billion USD in 2009 (Statistics Office of the Republic
of Serbia).
According to the Serbian Business Registers
Agency, there are over 110,000 legal business
entities (partnerships or limited partnerships; joint stock
companies; limited companies; and cooperatives) and
222,000 sole traders or sole proprietors (Serbian
Business Registers Agency).
MATERIALS AND METHODS
Research design: The research design was survey
research. Data was collected using a newly developed
instrument, which included an undeclared pretest to
examine the effectiveness of the survey. The
questionnaire was originally constructed in English,
then translated into Serbian, pre-tested and translated
back into English for accuracy. A total of five
individuals from Serbia took the pre-test survey after
which adjustments were made to various questions and
Am. J. of Economics and Business Administration 3 (2): 338-346, 2011
342
to the instruction page on the scale. The survey
instrument was accompanied by a cover letter with
relevant instructions to help ensure that respondents
understood the purpose of the study. The objective of
the study was to obtain general, descriptive information
about entrepreneurs and business owners in Serbia.
Sample: For the purpose of this study, Serbia was
selected as the country for data collection. The data was
collected in Belgrade, Novi Sad and Sremska
Mitrovica, Serbia. The sample of Serbian businesses
was collected using the survey
instrument/questionnaire. Each survey was either hand-
delivered or electronically delivered to participants for
the study. The sample was a random, convenience
sample. There were a total of 75 emailed or hand-
delivered surveys distributed to target participants,
resulting in 59 useable questionnaires. The response
rate was 78.67%. According to Dennis (2003), this is an
acceptable response rate and sample size for small
business and entrepreneurship (Dennis, 2003). Nearly
one-third of studies published in top entrepreneurship
journals report response rates of less than 23% (Dennis,
2003).
Measures and analysis: The actual survey instrument
utilized a combination of open ended and close-ended
questions. The close-ended questions allowed
participants to select from pre-existing sets of multiple
choice questions and dichotomous answers. In addition,
open-ended questions were included to allow more
expansive answers on issues. During open-ended
questions, respondents were encouraged to explain their
answers, opinions and thoughts. Descriptive statistics
were reported based on findings.
RESULTS
Descriptive statistics: As evident in Table 2, the
greatest percentage of participants in this study came
from micro or small businesses or enterprises at 88.1%.
According to the results, most of the sampled
businesses employ between one and twenty individuals.
See Table 2 for a summary of descriptive statistics.
As apparent in Table 3, the vast majority of the
sample businesses or 86.5% of the businesses were
formed between the years 1990 and 2009. As indicated,
very few new businesses were created prior to 1990.
See Table 3 for a summary of descriptive statistics.
Table 2: Descriptive Statistics- Distribution of Sample by Size
Size of business Number of employees Sample (N =59)
Medium 51-60 4 / 6.7%
Small 41-50 3/5.1%
Small 31-40 2/3.4%
Small 21-30 4/6.7 %
Small 11-20 10/16.9%
Micro 1-10 42/71.2%
Table 3: Descriptive Statistics- Greatest Entrepreneurial Activity
Decade/ year of business
inception-date Sample (N =59) Percentage (%)
1980-1989 4 6.7
1990-1999 26 44.1
2000-2009 25 42.4
2010-2019… 4-so far 6.7
Table 4: Funding Results (Close-ended questions)
Variable n/% (N =59)
Product producing business 17/28.8%
Service oriented 42/71.2%
Financing in Past 5 years
Debt 21/35.6%
Equity 38/64.4%
Breakdown of funding (last 5 years)
Bank Loan 20/33.9%
Borrow fromfamily 1/1.7%
Borrow fromfriends 1/1.7%
Credit card 1/1.7%
Personal resources 32/54.2%
Other equity 4/6.8%
Funding at start-up
Bank loan 3/5.1%
Borrow fromfamily 12/20.3%
Borrow fromfriends 3/5.1%
Credit card 1/1.7%
Personal resources 37 62.7%
Other equity 3/5.1%
Funding-equity versus debt close-ended results:
Results from Table 4 indicate that the majority of
Serbian businesses are service based organizations at
nearly 71%, compared to nearly 29% that are product
producing businesses. Nearly two thirds of the
businesses use equity funding to help finance their
ventures in the last five years, compared to just over
one third that used debt. As a former communist or
socialist country the majority of Serbian citizens had
limited to no access to capital in the form of bank loans
or credit cards. Thus as a society, historically Serbians
were taught to save, rather than use debt to finance
items. According to the sample, more than half (54.2%)
of Serbian business owners used personal resources to
fund their businesses in the past 5 years. At inception,
the majority of Serbian entrepreneurs used personal
resources, borrowed from friends and family to begin
their ventures (88.1%), compared to obtaining a bank
loan or using credit cards (6.8%). In other words, at
start-up the vast majority of entrepreneurs in Serbia use
equity funding (93.1%) to finance their ventures,
Am. J. of Economics and Business Administration 3 (2): 338-346, 2011
343
compared to debt funding at 6.8%. However, as the
venture grows and expands, the majority of business
owners rely slightly more on debt funding to grow their
ventures at 35.6% compared to the start-up stages
(6.8%). As the banking systems continue to reorganize
in Serbia, the availability of capital for entrepreneurs is
more accessible. See Table 4 for a summary.
Motivation for starting a business: According to the
results in the study, nearly 60% of respondents cited
that their primary motivation for going into business
was to create or realize their dream. Furthermore,
financial independence was a high motivator for
beginning a venture at nearly 38%. Nearly 94% of
respondents cited that they would create their business
all over again if they could. See Table 5 for a summary.
Ownership structure results: As evident in Table 6,
nearly half of the businesses surveyed were classified as
corporations, while 40% were classified as sole
proprietorships.
Value of owning a business: According to participants
in the study, the majority of the sample believes that
owning a business and becoming an entrepreneur is
worthwhile and a good career choice, at nearly 97%.
More than half of respondents cited that the single
greatest benefit from owning their own business is
personal independence and freedom, with financial
prosperity rating second at nearly 26% and realizing
their dreams rated third at nearly 23%. Interesting
enough, the respondents said that their primary
motivator for going into business at the beginning was
not for personal independence but instead was to realize
their dreams. However, respondents cited that as their
ventures began they quickly realized that the single
greatest benefit was personal freedom and financial
prosperity, with the pleasure of realizing your dream
rated slightly less. See Table 7 for a summary of the
findings.
Challenges and obstacles with owning a business in
Serbia: More than half of the respondents reported that
the biggest obstacle with running a venture in Serbia is
poor government administration, corruption of the
government and large bureaucracy. Nearly a quarter of
Serbian entrepreneurs cited economic uncertainty, lack
of monetary support, inefficient banking systems and
currency instability as other major challenges for
business owners in the country. During the first year of
operation, approximately 50% of nascent entrepreneurs
in Serbia cited the inability to find work, inability to
acquire clients, inability to obtain financing for the
venture and general uncertainty about the future as the
single greatest obstacles to overcome. See Table 8 for
more details.
Table 5: Motivation for starting a venture
Variable n/% (N =5 9)
Motivation for creating business
Financial independence 22/37.3%
Personal freedom 3/5.1%
Create/realize your own idea 34/57.6%
Would you do it again?
Yes 55/93.2%
No 4/6.8%
Table 6: Ownership Structure Results
Variable n/%(N =59)
Ownership structure
Sole proprietorship 26/44.1%
Partnership 1/1.71%
Corporation 28/47.5%
Other 4/6.8%
Table 7: Value of owning a venture ( open ended survey questions)
Open ended questions/ categories
built fromcommonalties Total N =59
Is it worth having your own business? n/ %
Yes 57/96.6%
No 0/0%
Not Sure 2/3.4%
Benefits of being in business for Yourself?
Satisfaction and pleasure of realizing your dream 13/22.7%
Personal freedom/ independence 30/51.9%
Financial gain/ financial prosperity 15/25.4%
Table 8: Obstacles and challenges of owning a business in serbia
Variables n/% (Total N =59)
Biggest obstacles and challenges with
starting a business in serbia?
Bureaucracy/ poor government 31/52.5%
Administration/ corruption of government
/Bribery/ Excessive Permit Delays/
In-effective Government
Economic uncertainty/ lack of monetary 14/23.7%
Support/ poor and ineffective banking
System/ dinar instability
Political uncertainty, instability of 7/11.9%
Government and laws
Other-Increased competition, inexperienced 7/11.9%
workforce, huge taxes
Greatest challenges/ obstacles
Faced in first year
Lack of funding 6/10.2%
Getting clients/ finding work 18/30.5%
Uncertainty about future 5/8.5%
Comparing USA to Serbia: In Serbia, there are over
110,000 legal business entities (partnerships or limited
partnerships; joint stock companies; limited companies;
and cooperatives) and 222,000 sole traders or sole
proprietors. In the USA, there are a total of 23,343,821
business entities from which 17,646,062 are sole
proprietorships with no payroll (no employees other
than themselves) and 5,697,759 businesses with payroll
and employees. See Table 9 for a breakdown and
Table 10 for analysis.
Am. J. of Economics and Business Administration 3 (2): 338-346, 2011
344
Table 9: USA compared to Serbia
Total number Total number corporation/
sole proprietor/ sole trader partnership/other Total firms in country Population size
Country (firms w/ no payroll) (employer with payroll) (firms w/ or w/out payroll) of country
USA 17,646,062 5,697,759 23, 343,821 307,006,550
Serbia 222,000 110,000 332,000 7,350,221
Table 10: Comparison Analysis (Number of people in Population who have a business)
Country Population/ #of Businesses What does this mean?
USA 13.1515 1 in every 13 people in the USA are business owners
Serbia 22.1392 1 in every 22 people in Serbia are business owners
Population size divided by the number of businesses in the country
Currently in the USA, 1 out of every 13 people
owns a business, versus 1 out of 22 people in Serbia.
Individuals residing in America are nearly twice (1.69
times) as likely to own a business compared to Serbian
citizens. Entrepreneurship in Serbia remains sluggish;
however, with continued reduction of government jobs
many citizens will turn to entrepreneurial endeavors out
of necessity. According to a recent Global
Entrepreneurship Monitor (GEM) report (2009), almost
41% of Serbians were compelled to create new ventures
and new businesses due to necessity (Bosma and Levie,
2009). As bank reforms continue throughout the nation,
capital will be readily available allowing entrepreneurs
to obtain necessary funding to pursue opportunities
DISCUSSION
More than half (52.5%) of business owners report
that the greatest challenges or obstacles they face with
owning a business in Serbia is bureaucracy and poor
government administration. Specifically, participants
cited bureaucracy, poor government administration,
corruption of government, bribery; excessive permit
delays and an overall in-efficient government as a
massive source of frustration and major challenge to
starting and running a business in the country. Another
challenge/obstacle for business owners in Serbia is
economic instability. For many businesses (23.7%), it
seems that the lack of monetary support, a poor banking
system and an unpredictable currency makes operating
a Serbian business difficult. Privatizations within the
nation began approximately 7 years ago, at which time
a massive bank system reform was prioritized. For
years the state-governed banks were riddled with debt,
thus prohibiting start-ups from obtaining capital to
operate. The World Bank explains that overarching
payment problems, insufficient capital, along with a
lack of government follow-through on privatization
remains problematic for the transitioning economy.
The data indicates that Serbians create businesses
to pursue their own ideas and for financial
independence. According to the results, over half or
50.9% of Serbian business owners created businesses to
gain personal freedom and independence. Nearly one
quarter (25.4%) became business owner in hopes of
generating personal wealth, while 22% became
entrepreneurs for the sheer pleasure of pursuing their
ideas. In addition, the vast majority, approximately
96.6%, of business owners in Serbia believed that
owning their own business was worthwhile and valuable.
According to the study, the most common method
of funding start-ups in Serbia is through personal
resources (62.7%) and borrowing from family (20.3%).
This finding supports the notion that banks play a minor
role in entrepreneurial development in the nation and
should continue massive reform. Without proper
capital, many entrepreneurs are unable to launch
businesses to pursue their dreams or must rely on
alternative sources to fund their ventures. However, it is
evident that Serbian entrepreneurs are finding methods
of coping with an inefficient banking system and
continue in their entrepreneurial endeavors.
Furthermore, it is evident that the culture does not
promote or encourage debt funding, due to the lack of
interest in utilizing credit cards to fund ventures, even
though credit cards are readily available. Serbians tend
to save their money and then utilize their personal
savings to fund things, compared to the USA that relies
heavily on credit card debt for funding.
The value of this study is to add to the body of
knowledge on Serbian entrepreneurs to help gain an
understanding of whom they are, what motivates them
and how they fund their businesses. Currently, very
little is known about entrepreneurs in Serbia therefore
any research conducted helps business owners,
researchers and foreign investors understand
entrepreneurship and its future potential in the country.
In the future, these findings may be combined with
comparable future studies to examine similarities and
differences between countries and among entrepreneurs
operating throughout the world. This would help
researchers gain a much broader vantage-point in
Am. J. of Economics and Business Administration 3 (2): 338-346, 2011
345
understanding how entrepreneurs behave globally, who
they are, challenges they face, how they operate and
similarities or difference among nations.
Limitations: The survey instrument is new. As with all
new instruments, continued research and utilization
helps strengthen reliability and validity. A greater
sample size is suggested to confirm current results and
allow for broader, larger generalizations. Results should
not be interpreted and generalized to the entire
population of entrepreneurs in Serbia because the
sample size is small.
CONCLUSION
Most of the findings in this study support research
done on entrepreneurs in other nations. Similar to the
USA, Serbian entrepreneurs go into business for
freedom, independence and for monetary rewards
(Allen, 2011; Barringer and Ireland, 2009). They fund
their start-ups predominately with personal resources or
bootstrapping. However, the key difference between
Serbian entrepreneurs and USA entrepreneurs are evident
as far as funding. Serbians fund their start-ups through
personal resources due to necessity and a lack of
monetary funds available from the banking system.
According to Serbian business owners, the greatest
obstacles they face are with administrative issues
associated with the government, banking systems,
political instability and economic uncertainty. The USA
does not face these same obstacles.
According to the World Bank Doing Business 2009
Report, the USA is ranked fourth out of one hundred
and eighty three in the world for ease of doing business,
eight in the world for starting a business, twelfth in the
world for registering property and fourth in the world
for ease of obtaining credit (World Bank Doing
Business, 2009). Serbia is ranked eighty-eight in the
world out of one hundred and eighty three for ease of
doing business, seventy-third for starting a business, one
hundred and fifth for registering property and fourth for
obtaining credit (World Bank Doing Business, 2009). As
stated earlier, Serbia historically lacked monetary support
fromthe banks making it difficult to operate or open
businesses. However, recent bank reforms sponsored by
the World Bank are helping to mitigate these issues,
enabling credit to become available.
In this study, participants cited that uncertainty
about the future, difficulty obtaining clients and
inexperience securing contracts pose the greatest
challenges to business owner and their future. This
supports GEM (2009) findings as far as perceived
opportunities (Bosma and Levie, 2009) According to
the 2009 GEM Global Entrepreneurship Monitor
Report, Serbian citizens believe there is high media
attention paid to entrepreneurs, have a moderate to low
perception of opportunity for entrepreneurship, high
perceived capability for entrepreneurship and a
moderate fear of failure (Bosma and Levie, 2009). In
addition, according to GEM (2009) Serbian citizens
believe that entrepreneurship is a good career choice
(Bosma and Levie, 2009). In support of these findings,
this research study discovered that approximately 97%
of respondents felt that owning their own business was
a worthy endeavor.
It is important to note that there are a limited
number of prior studies conducted in Serbia, especially
focusing on funding, motivation and obstacles
entrepreneurs face. More research is needed to fully
understand entrepreneurship in the transitioning
economy. As entrepreneurship expands in Serbia, they
will have greater impact on the local economy and on
Europe’s economy. Any shifts or changes occurring in
entrepreneurship should be examined closer. Future
research should focus on the cultural aspects of the
society to see if attitudes hinder participation in
entrepreneurship. Furthermore, studies examining
women entrepreneurs would be beneficial to identify
specific problems and challenges they face. Lastly,
studies comparing transitioning economies with one
another and cross-country comparisons would benefit
researchers, business owners and foreign investors.
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In this particular detailed explanation with regards to free enterprise and entrepreneurship in serbia an analysis of motivations, financing.
American J ournal of Economics and Business Administration 3 (2): 338-346, 2011
ISSN 1945-5488
©2010 Science Publications
338
Free Enterprise and Entrepreneurship in Serbia: An Analysis
of Motivations, Financing and Obstacles
Nina Radojevich-Kelley
Department of Management, Metropolitan State College of Denver,
Campus Box 78, Box 173362, Office WC 240A
Denver, CO 80217-3362, 303-556-8477, USA
Abstract: Problem statement: Entrepreneurship is considered to be a major driving force to
economic development throughout the world. Free enterprise is challenging in any country, especially
in a developing nation such as Serbia where communism and socialism prevailed for decades. The
purpose of this study is to examine entrepreneurship and free enterprise in Serbia as well as the
challenges or obstacles they face. The hope is to understand how Serbian entrepreneurs operate in their
nation, especially since little is known about them. Approach: A questionnaire was designed and
distributed to a sample of Serbian entrepreneurs. Descriptive statistics were calculated based on
responses from participants. The study investigates 59 entrepreneurs; identifying commonalities in
funding, motivation behind entrepreneurship and common challenges they face. Underlying
similarities or differences are examined. Results: Empirical evidence indicates that the majority of
Serbian entrepreneurs rely on equity funding to finance their ventures, form businesses to pursue
personal freedom, bootstrap their nascent firms and provide services or represent/sell someone else’s
products rather than create their own. Results indicate that the greatest challenges to Serbian business
owners are with administrative issues associated with their government, political instability and
economic uncertainty. Analogous to the USA, Serbian entrepreneurs create business for freedom,
independence and monetary gain. Conclusion: The overall results of the study confirm the benefit of
entrepreneurship in the transitioning economy, while highlighting the many obstacles that entrepreneurs
face. Results indicate that entrepreneurship in Serbia is gaining interest due to the belief that it promotes a
better life. Political instability, uncertainty about the future, difficulty obtaining clients and general
inexperience pose the greatest threats to Serbian business owners. As entrepreneurship continues to
expand in Serbia, they will have greater impact on the local and European economy. Any shifts or
changes occurring in entrepreneurship should be examined closer in the future.
Key words: Driving force, political instability, new ventures, economic development, financial
sector, identifying commonalities, new venture funding, entrepreneurial activities, Small
and Medium Enterprises (SME), Venture Capital (VC)
INTRODUCTION
Entrepreneurship is considered to be a significant
force and key to economic development throughout the
world. It is evident in all industries, ranging from
agriculture, to construction, education, agriculture,
sports, health care, art, retail, transportation, high-tech
and administration (Azizi et al., 2010).
Entrepreneurship is present in nascent firms, in Small
and Medium Enterprises (SMEs) and in well
established public/private corporations. Most countries
focus on the importance of innovation from an
economic perspective where entrepreneurship is the
driving force for a nation’s economic prosperity
(Williams, 1983).
The study of entrepreneurship and entrepreneurship
behavior taking place in different countries throughout
the world is an important subject area because it is in
infancy, with huge potential for growth. The behavior
of entrepreneurs, the various managerial characteristics
utilized and different entrepreneurial activities
occurring globally provide a unique opportunity to
learn about our diverse, international environment. In
fact, more researchers are investigating entrepreneurial
activities in different nations to try to understand their
economic impact (Lussier et al., 2009; Sonfield and
Lussier, 2009). Perhaps the most significant reasons to
study entrepreneurial activity in different countries is to
add to the body of knowledge in entrepreneurship, to
gain a deep understanding of entrepreneur behavior,
Am. J. of Economics and Business Administration 3 (2): 338-346, 2011
339
challenges and obstacles they face from country to
country and to identify cultural differences or
similarities in multiple nations.
An earlier version of this study was presented at
the 2010 Applied Business and Entrepreneurship
Association International Conference (ABEAI),
Waikoloa, HI. November 16-20 2010.
Due to the escalading interest in entrepreneurial
activity abroad, the intent of this study is to investigate
entrepreneurship in a developing nation. The objective
of the study is to examine entrepreneurs and free
enterprise in Serbia; identifying commonalities in
funding, motivation behind entrepreneurship and
various challenges owners face. The study focuses on
Serbia because little is known about entrepreneurship in
the country and it was a place the researcher spent her
childhood. The author observed for decades the growth
and demise of Serbian businesses. Recently, it became
evident that more Serbians are seizing opportunities and
creating or growing businesses throughout the region.
The hope is to examine and learn more about these
entrepreneurs and their interests in forming businesses.
It is important to note that free enterprise is a
relatively new concept for the citizens of Serbia
because communism and socialism prevailed for
decades. In fact, the Serbian economy is defined as a
post-socialist transition economy on its way to
becoming a market economy (Duh et al., 2009). Over
the years Serbia’s growth performance has improved;
however, significant challenges remain (Strengthening
Serbia’s Economy, The World Bank). In the years
following the war and breakup of Yugoslavia, Serbia
suffered tremendous isolation and near economic
collapse. The financial sector was a complete fiasco;
citizens and businesses lacked trust in the banking
system. As with most planned economies, the
majorities of Serbia’s state-owned businesses were
riddled with debt, lacked corporate authority, were
extremely inefficient and unproductive (Strengthening
Serbia’s Economy, The World Bank). The country was
experiencing run-a-way inflation and tremendous
unemployment. The World Bank interceded, assisting
with the restructuring of the financial sector and aided
in the privatization of enterprises. The intent was to
foster growth in the private sector, encourage free
enterprise and help create jobs for local citizens
(Strengthening Serbia’s Economy, The World Bank).
Questions addressed in the study are as follows: 1)
How do entrepreneurs in Serbia finance and fund their
start-ups? 2) Are start-ups in Serbia product or service
oriented? 3) What motivates Serbians to go into
business for themselves? 4) What challenges or
obstacles do Serbian business owners face? 5) How are
Serbian small business owners and entrepreneurs
similar to American SMEs? The research focuses on
answering basic questions about entrepreneurship in a
country where little is known. This study is important
because researchers, SMEs and foreign investors may
gain a deeper understanding of entrepreneurial behavior
that extends across national borders. Specifically, the
study allows individuals to realize how Serbian
entrepreneurs operate; along with the challenges
associated with conducting business in the transitioning
economy. Long-term, the hope is to understand the
impact of entrepreneurship in Serbia compared to those
of other nations. For the purpose of this study,
entrepreneurship is defined as the pursuit of opportunity
beyond the resources an entrepreneur currently controls
(Stevenson and J arillo, 1990; Roberts, 2006).
Literature review:
Historical reasons for entrepreneurship: Research
shows that entrepreneurs create businesses for multiple
reasons. The most reported, common and prime reason
people form new ventures is for personal freedom,
independence, or to create something new (Allen, 2011;
Williams, 1983). Most entrepreneurs desire to be their
own boss due to the frustration they experience working
for others or from an intrinsic personal desire to own or
run a venture (Barringer and Ireland, 2009). Another
reason individuals become entrepreneurs is to pursue
their own interests, ideas or for the sheer joy of creation
(Shane, 1993; Shumpeter, 1934). Finally, people become
entrepreneurs because they want to be in control of their
own future, want greater wealth, have a zeal for novelty
and are drawn to the unknown (Barringer and Ireland,
2009).
Funding new ventures: Historically, entrepreneurs
face many problems when seeking funding for their
start-ups. New ventures commonly rely on
bootstrapping, angel investing, family or friends,
venture capitalists and banks to provide the necessary
capital for their businesses. According to research,
companies require capital for expansion purposes, for
investment reasons, to increase cash flow or to off-set
cash flow difficulties in their organization (Barringer
and Ireland, 2009). New ventures struggle to raise
capital because they are inexperienced, unknown and
untested (Mantell, 2009; Barringer and Ireland, 2009).
This is especially true for the young entrepreneur with
little business knowledge, experience and collateral. In
a developed nation, it becomes extremely difficult for
nascent entrepreneurs to secure bank loans or obtain
capital from Angels or Venture Capital (VC) due to
their lack of experience (Mantell, 2009). In a
developing country, such as Serbia, these alternative
methods of funding are limited or non-existent.
Am. J. of Economics and Business Administration 3 (2): 338-346, 2011
340
From a global perspective, the overarching concern
is that the majority of nations around the world have a
reduction or shortage of risk capital; thus, limiting the
development of new ventures in the economy (Sorheim
and Landstrom, 2001; Brainard and LaFleur, 2005).
Until recently, Serbia was under the strict control of the
government. All or most factors of production and
resources were monitored or controlled by the nation and
government. Although the nation allowed some private
enterprise in the later part of the 20th century, it was
really a nation in-between a dictatorship and democracy.
In the past, even if an entrepreneur wanted to create a
business, the necessary resources were either
unavailable or difficult to find. Historically, it was near
impossible for Serbian entrepreneurs to obtain loans for
their ventures, thus many failed to succeed or relied
heavily on personal savings, friends and family to
finance them. This is simply because there were no other
alternatives for funding.
In transitioning economies such as Serbia, massive
economic change and social unrest brought an end to
the period where private enterprise was forbidden. In
turn, a new era was born creating tremendous
opportunities for entrepreneurship and new venture
creation to help rouse the developing nation (Duh et al.,
2009). As Serbia continues to transition into a market
economy, funding will become more accessible
providing entrepreneurs with greater means to operate
and succeed. As the bank reforms continue to move
forward in Serbia, more capital is available for nascent
business owners. Thus it will provide entrepreneurs
with more means to operate, grow and start their
ventures. Research shows that entrepreneurship and
SME development is crucial and a prime mover of a
nation’s economy. SMEs provide the largest number of
jobs in all economies; therefore, as Serbia becomes
more entrepreneurial friendly it stands to prosper as an
economy.
Serbia country history: Today, seven countries
comprise former Yugoslavia: Serbia, Croatia, Bosnia
and Herzegovina, Kosovo, Macedonia, Slovenia and
Montenegro. During the 20th century, communism and
socialism dominated Yugoslavia resulting in
government control of key resources. By the end of the
1980’s, local economists actively encouraged private
enterprise in Yugoslavia. They supported
entrepreneurship based on the belief that it could infuse
innovation and generate increased productivity in an
economy that was long disadvantaged by strict
government control. In Serbia, the establishment of the
SME sector began to actively develop private
enterprises at the beginning of 1990s, late 1980’s. As
with all transitioning economies, for decades Serbia’s
economy was dominated by government entities and a
few large firms, with minimal existence of small
enterprises outside of agriculture and craft (Duh et al.,
2009). At the time, Yugoslavia’s small enterprises were
comprised of peasant farms, tradesmen, craftsmen,
retail businesses, restaurants and tourist businesses. The
government permitted these types of free enterprise to
be independently owned and operated. However, during
the postwar period, former Yugoslavia as a nation
remained extremely hostile to private enterprise and
small businesses. As with most transitioning
economies, Serbian citizens struggled to shift their
attitudes from government owned to readily accepting
and encouraging private enterprise.
From a social perspective, this new entrepreneurial
focus posed challenges because citizens were not taught
to think entrepreneurial, lacked training or basic
entrepreneurial skills and were raised in a culture where
for generations private enterprise was not
commonplace, promoted or highly valued (Stankovic,
2006). Even today, these same issues still exist.
However, as the Serbian economy continues to
transition from a planned economy to a market
economy, fewer government jobs will be available. As
a result, individuals residing in Serbia will turn to
entrepreneurship as a necessity to fill the gap in the
workforce and marketplace.
According to the OECD report (2003), during the
early 1990’s Serbia had a healthy tradition for private
enterprise activity; however, recently SMEs show
significant lethargy. Almost 60% of SMEs in Serbia
were formed prior to 1992, with minimal SMEs
established thereafter (Organisation for Economic Co-
operation and Development and European Bank for
Reconstruction and Development) OCED (2003). Since
1992, there is a marked decline in SME production,
employment, output and inception compared to other
countries; thus reinforcing the notion that Serbia lacks
the developmental climate or culture for sufficient SME
progress (Organisation for Economic Co-operation and
Development and European Bank for Reconstruction
and Development) OCED (2003). In fact, a recent GEM
report (2009) indicates that Serbia is highly necessity
driven as far as entrepreneurship and relies heavily on
established business ownership rather than on early
stage, nascent entrepreneurial activities (Bosma and
Levie, 2009). Over the past several years, Serbia has
seen a decline in the nascent entrepreneurship rate, new
business ownership rates, early stage entrepreneurship
rates compared to other similar efficiency driven
economies (Bosma and Levie, 2009).
Am. J. of Economics and Business Administration 3 (2): 338-346, 2011
341
Table 1: Country data (Former Yugoslavia and USA) (estimates)
Gross domestic GDP (per Capita, Nominal) GDP Per Capita
Population product (Current US$) (Current US$) (Purchasing Power Parity)
Country (The World Bank, 2008) (The world bank, 2009) (The world bank, 2009) (The world bank, 2009)
Serbia 7,350,221 $ 42,593,583,030 $ 5,819.0 $ 11, 611
Croatia 4,434,000 $ 63,033,554,760 $ 14,222.4 $ 19, 803
Montenegro 622,344 $ 4,085,857,182.6 $ 6,545.6 $ 13, 117
Bosnia/Herzegovina 3,773,100 $18,511,525,614 $ 3,700 $ 8,529
Macedonia 2,041,342 $ 9,221,076,357.2 $ 4,514.6 $ 9,054
Kosovo 1,800,000 $ 5,000,000,000 $ 1,800 (2007) NA
Slovenia 2,021,316 $ 48,477,215,893 $ 23,725.6 $ 27, 008
USA 307,006,550 $14,256,300,000,000.0 $ 46,381 $ 46,436
The World Bankhttp://data.worldbank.org/indicator/NY.GDP.MKTP.CD The World Bank Grouphttp://search.worldbank.org/data?qterm=USA+gdp&language=EN&format=html GDP (Purchasing Power Parity) per capita, value of all final
goods and services produced within a nation in a given year divided by the average (or mid-year) population for the same year
The Republic of Serbia, with a population of
approximately 7.3 million people has an estimated
34116 square miles of territory (Serbian Chamber of
Commerce, International Monetary Fund, World
Economic Outlook Database). Serbia is one of seven
countries fashioned from former Yugoslavia. The
country is in the early stages of establishing a market
driven economy with minimal intervention from the
government. Serbia has a strong strategic location near
the East, between Western and Central Europe. It is
located in the center of CEFTA zone with non-tariff
access to nearly 30 million consumers. The labor
market is comprised of a highly educated workforce
that boasts the highest percentage of English speakers
in Central and South Europe. According to the World
Bank Group, Serbia has the lowest personal income tax
rate in Europe at 12%, a corporate profit tax rate of
10% and a VAT tax rate of 18% (The World Bank
Group). Serbia’s GDP for 2010 is estimated at $ 43.6
Billion (USD), compared to $ 42.9 Billion (USD) in
2009 and 48. 9 Billion (USD) in 2008 (The World Bank
Group, International Monetary Fund, World Economic
Outlook Database, 2010). Their GDP (per capita) is $
5,819 for 2009, with an unemployment rate of 13.1 %
for 2009 and 18.1 % in 2008 (The World Bank Group,
International Monetary Fund, World Economic Outlook
Database, 2010). See Table 1 for a summary and
comparison of Serbia to 8 other nations.
According to the Statistics Office of the Republic
of Serbia, Serbian foreign trade declined 29.3% in 2009
to nearly 24 billion US dollars, as a result of the global
economic downturn (Statistics Office of the Republic of
Serbia, (0000)). In 2009, Serbian exports declined
nearly 24% to $8.34 USD billion, largely due to falling
global prices for primary export products. Imports
shrank 28% to USD $11 billion, due to declining
domestic consumption and declines in industrial
production in Serbia. The bulk of Serbian exports in
2009 consisted of intermediary products (60%),
consumer goods (31%) and equipment (9%) (United
States of America Department of Commerce). In 2009,
imports consisted of intermediary goods (59%),
consumer products (27%) and equipment (15%)
(United States of America Department of Commerce,).
The most common exported products for Serbia were
steel/iron products (USD $648 Mill.), apparel ($533
USD Mill.) and grain products (USD $477 Mill.)
(United States of America Department of Commerce).
In contrast, the most imported products were oil (USD
$1.5 Bill.), vehicles (USD $ 1.2 Bill.) and natural gas
(USD $ 771 Mill.) (Williams, 1983). Serbia exports
their products predominantly to Russia (USD 2 Bill),
Germany (USD $1.9 Bill) and Italy (USD 1.5 Bill)
(Statistics Office of the Republic of Serbia). More than
half of Serbia’s foreign trade was with other European
Union countries. Serbia traded various agriculture
products with other CEFTA members (Central
European Free Trade Agreement) generating almost 1.4
Billion USD in 2009 (Statistics Office of the Republic
of Serbia).
According to the Serbian Business Registers
Agency, there are over 110,000 legal business
entities (partnerships or limited partnerships; joint stock
companies; limited companies; and cooperatives) and
222,000 sole traders or sole proprietors (Serbian
Business Registers Agency).
MATERIALS AND METHODS
Research design: The research design was survey
research. Data was collected using a newly developed
instrument, which included an undeclared pretest to
examine the effectiveness of the survey. The
questionnaire was originally constructed in English,
then translated into Serbian, pre-tested and translated
back into English for accuracy. A total of five
individuals from Serbia took the pre-test survey after
which adjustments were made to various questions and
Am. J. of Economics and Business Administration 3 (2): 338-346, 2011
342
to the instruction page on the scale. The survey
instrument was accompanied by a cover letter with
relevant instructions to help ensure that respondents
understood the purpose of the study. The objective of
the study was to obtain general, descriptive information
about entrepreneurs and business owners in Serbia.
Sample: For the purpose of this study, Serbia was
selected as the country for data collection. The data was
collected in Belgrade, Novi Sad and Sremska
Mitrovica, Serbia. The sample of Serbian businesses
was collected using the survey
instrument/questionnaire. Each survey was either hand-
delivered or electronically delivered to participants for
the study. The sample was a random, convenience
sample. There were a total of 75 emailed or hand-
delivered surveys distributed to target participants,
resulting in 59 useable questionnaires. The response
rate was 78.67%. According to Dennis (2003), this is an
acceptable response rate and sample size for small
business and entrepreneurship (Dennis, 2003). Nearly
one-third of studies published in top entrepreneurship
journals report response rates of less than 23% (Dennis,
2003).
Measures and analysis: The actual survey instrument
utilized a combination of open ended and close-ended
questions. The close-ended questions allowed
participants to select from pre-existing sets of multiple
choice questions and dichotomous answers. In addition,
open-ended questions were included to allow more
expansive answers on issues. During open-ended
questions, respondents were encouraged to explain their
answers, opinions and thoughts. Descriptive statistics
were reported based on findings.
RESULTS
Descriptive statistics: As evident in Table 2, the
greatest percentage of participants in this study came
from micro or small businesses or enterprises at 88.1%.
According to the results, most of the sampled
businesses employ between one and twenty individuals.
See Table 2 for a summary of descriptive statistics.
As apparent in Table 3, the vast majority of the
sample businesses or 86.5% of the businesses were
formed between the years 1990 and 2009. As indicated,
very few new businesses were created prior to 1990.
See Table 3 for a summary of descriptive statistics.
Table 2: Descriptive Statistics- Distribution of Sample by Size
Size of business Number of employees Sample (N =59)
Medium 51-60 4 / 6.7%
Small 41-50 3/5.1%
Small 31-40 2/3.4%
Small 21-30 4/6.7 %
Small 11-20 10/16.9%
Micro 1-10 42/71.2%
Table 3: Descriptive Statistics- Greatest Entrepreneurial Activity
Decade/ year of business
inception-date Sample (N =59) Percentage (%)
1980-1989 4 6.7
1990-1999 26 44.1
2000-2009 25 42.4
2010-2019… 4-so far 6.7
Table 4: Funding Results (Close-ended questions)
Variable n/% (N =59)
Product producing business 17/28.8%
Service oriented 42/71.2%
Financing in Past 5 years
Debt 21/35.6%
Equity 38/64.4%
Breakdown of funding (last 5 years)
Bank Loan 20/33.9%
Borrow fromfamily 1/1.7%
Borrow fromfriends 1/1.7%
Credit card 1/1.7%
Personal resources 32/54.2%
Other equity 4/6.8%
Funding at start-up
Bank loan 3/5.1%
Borrow fromfamily 12/20.3%
Borrow fromfriends 3/5.1%
Credit card 1/1.7%
Personal resources 37 62.7%
Other equity 3/5.1%
Funding-equity versus debt close-ended results:
Results from Table 4 indicate that the majority of
Serbian businesses are service based organizations at
nearly 71%, compared to nearly 29% that are product
producing businesses. Nearly two thirds of the
businesses use equity funding to help finance their
ventures in the last five years, compared to just over
one third that used debt. As a former communist or
socialist country the majority of Serbian citizens had
limited to no access to capital in the form of bank loans
or credit cards. Thus as a society, historically Serbians
were taught to save, rather than use debt to finance
items. According to the sample, more than half (54.2%)
of Serbian business owners used personal resources to
fund their businesses in the past 5 years. At inception,
the majority of Serbian entrepreneurs used personal
resources, borrowed from friends and family to begin
their ventures (88.1%), compared to obtaining a bank
loan or using credit cards (6.8%). In other words, at
start-up the vast majority of entrepreneurs in Serbia use
equity funding (93.1%) to finance their ventures,
Am. J. of Economics and Business Administration 3 (2): 338-346, 2011
343
compared to debt funding at 6.8%. However, as the
venture grows and expands, the majority of business
owners rely slightly more on debt funding to grow their
ventures at 35.6% compared to the start-up stages
(6.8%). As the banking systems continue to reorganize
in Serbia, the availability of capital for entrepreneurs is
more accessible. See Table 4 for a summary.
Motivation for starting a business: According to the
results in the study, nearly 60% of respondents cited
that their primary motivation for going into business
was to create or realize their dream. Furthermore,
financial independence was a high motivator for
beginning a venture at nearly 38%. Nearly 94% of
respondents cited that they would create their business
all over again if they could. See Table 5 for a summary.
Ownership structure results: As evident in Table 6,
nearly half of the businesses surveyed were classified as
corporations, while 40% were classified as sole
proprietorships.
Value of owning a business: According to participants
in the study, the majority of the sample believes that
owning a business and becoming an entrepreneur is
worthwhile and a good career choice, at nearly 97%.
More than half of respondents cited that the single
greatest benefit from owning their own business is
personal independence and freedom, with financial
prosperity rating second at nearly 26% and realizing
their dreams rated third at nearly 23%. Interesting
enough, the respondents said that their primary
motivator for going into business at the beginning was
not for personal independence but instead was to realize
their dreams. However, respondents cited that as their
ventures began they quickly realized that the single
greatest benefit was personal freedom and financial
prosperity, with the pleasure of realizing your dream
rated slightly less. See Table 7 for a summary of the
findings.
Challenges and obstacles with owning a business in
Serbia: More than half of the respondents reported that
the biggest obstacle with running a venture in Serbia is
poor government administration, corruption of the
government and large bureaucracy. Nearly a quarter of
Serbian entrepreneurs cited economic uncertainty, lack
of monetary support, inefficient banking systems and
currency instability as other major challenges for
business owners in the country. During the first year of
operation, approximately 50% of nascent entrepreneurs
in Serbia cited the inability to find work, inability to
acquire clients, inability to obtain financing for the
venture and general uncertainty about the future as the
single greatest obstacles to overcome. See Table 8 for
more details.
Table 5: Motivation for starting a venture
Variable n/% (N =5 9)
Motivation for creating business
Financial independence 22/37.3%
Personal freedom 3/5.1%
Create/realize your own idea 34/57.6%
Would you do it again?
Yes 55/93.2%
No 4/6.8%
Table 6: Ownership Structure Results
Variable n/%(N =59)
Ownership structure
Sole proprietorship 26/44.1%
Partnership 1/1.71%
Corporation 28/47.5%
Other 4/6.8%
Table 7: Value of owning a venture ( open ended survey questions)
Open ended questions/ categories
built fromcommonalties Total N =59
Is it worth having your own business? n/ %
Yes 57/96.6%
No 0/0%
Not Sure 2/3.4%
Benefits of being in business for Yourself?
Satisfaction and pleasure of realizing your dream 13/22.7%
Personal freedom/ independence 30/51.9%
Financial gain/ financial prosperity 15/25.4%
Table 8: Obstacles and challenges of owning a business in serbia
Variables n/% (Total N =59)
Biggest obstacles and challenges with
starting a business in serbia?
Bureaucracy/ poor government 31/52.5%
Administration/ corruption of government
/Bribery/ Excessive Permit Delays/
In-effective Government
Economic uncertainty/ lack of monetary 14/23.7%
Support/ poor and ineffective banking
System/ dinar instability
Political uncertainty, instability of 7/11.9%
Government and laws
Other-Increased competition, inexperienced 7/11.9%
workforce, huge taxes
Greatest challenges/ obstacles
Faced in first year
Lack of funding 6/10.2%
Getting clients/ finding work 18/30.5%
Uncertainty about future 5/8.5%
Comparing USA to Serbia: In Serbia, there are over
110,000 legal business entities (partnerships or limited
partnerships; joint stock companies; limited companies;
and cooperatives) and 222,000 sole traders or sole
proprietors. In the USA, there are a total of 23,343,821
business entities from which 17,646,062 are sole
proprietorships with no payroll (no employees other
than themselves) and 5,697,759 businesses with payroll
and employees. See Table 9 for a breakdown and
Table 10 for analysis.
Am. J. of Economics and Business Administration 3 (2): 338-346, 2011
344
Table 9: USA compared to Serbia
Total number Total number corporation/
sole proprietor/ sole trader partnership/other Total firms in country Population size
Country (firms w/ no payroll) (employer with payroll) (firms w/ or w/out payroll) of country
USA 17,646,062 5,697,759 23, 343,821 307,006,550
Serbia 222,000 110,000 332,000 7,350,221
Table 10: Comparison Analysis (Number of people in Population who have a business)
Country Population/ #of Businesses What does this mean?
USA 13.1515 1 in every 13 people in the USA are business owners
Serbia 22.1392 1 in every 22 people in Serbia are business owners
Population size divided by the number of businesses in the country
Currently in the USA, 1 out of every 13 people
owns a business, versus 1 out of 22 people in Serbia.
Individuals residing in America are nearly twice (1.69
times) as likely to own a business compared to Serbian
citizens. Entrepreneurship in Serbia remains sluggish;
however, with continued reduction of government jobs
many citizens will turn to entrepreneurial endeavors out
of necessity. According to a recent Global
Entrepreneurship Monitor (GEM) report (2009), almost
41% of Serbians were compelled to create new ventures
and new businesses due to necessity (Bosma and Levie,
2009). As bank reforms continue throughout the nation,
capital will be readily available allowing entrepreneurs
to obtain necessary funding to pursue opportunities
DISCUSSION
More than half (52.5%) of business owners report
that the greatest challenges or obstacles they face with
owning a business in Serbia is bureaucracy and poor
government administration. Specifically, participants
cited bureaucracy, poor government administration,
corruption of government, bribery; excessive permit
delays and an overall in-efficient government as a
massive source of frustration and major challenge to
starting and running a business in the country. Another
challenge/obstacle for business owners in Serbia is
economic instability. For many businesses (23.7%), it
seems that the lack of monetary support, a poor banking
system and an unpredictable currency makes operating
a Serbian business difficult. Privatizations within the
nation began approximately 7 years ago, at which time
a massive bank system reform was prioritized. For
years the state-governed banks were riddled with debt,
thus prohibiting start-ups from obtaining capital to
operate. The World Bank explains that overarching
payment problems, insufficient capital, along with a
lack of government follow-through on privatization
remains problematic for the transitioning economy.
The data indicates that Serbians create businesses
to pursue their own ideas and for financial
independence. According to the results, over half or
50.9% of Serbian business owners created businesses to
gain personal freedom and independence. Nearly one
quarter (25.4%) became business owner in hopes of
generating personal wealth, while 22% became
entrepreneurs for the sheer pleasure of pursuing their
ideas. In addition, the vast majority, approximately
96.6%, of business owners in Serbia believed that
owning their own business was worthwhile and valuable.
According to the study, the most common method
of funding start-ups in Serbia is through personal
resources (62.7%) and borrowing from family (20.3%).
This finding supports the notion that banks play a minor
role in entrepreneurial development in the nation and
should continue massive reform. Without proper
capital, many entrepreneurs are unable to launch
businesses to pursue their dreams or must rely on
alternative sources to fund their ventures. However, it is
evident that Serbian entrepreneurs are finding methods
of coping with an inefficient banking system and
continue in their entrepreneurial endeavors.
Furthermore, it is evident that the culture does not
promote or encourage debt funding, due to the lack of
interest in utilizing credit cards to fund ventures, even
though credit cards are readily available. Serbians tend
to save their money and then utilize their personal
savings to fund things, compared to the USA that relies
heavily on credit card debt for funding.
The value of this study is to add to the body of
knowledge on Serbian entrepreneurs to help gain an
understanding of whom they are, what motivates them
and how they fund their businesses. Currently, very
little is known about entrepreneurs in Serbia therefore
any research conducted helps business owners,
researchers and foreign investors understand
entrepreneurship and its future potential in the country.
In the future, these findings may be combined with
comparable future studies to examine similarities and
differences between countries and among entrepreneurs
operating throughout the world. This would help
researchers gain a much broader vantage-point in
Am. J. of Economics and Business Administration 3 (2): 338-346, 2011
345
understanding how entrepreneurs behave globally, who
they are, challenges they face, how they operate and
similarities or difference among nations.
Limitations: The survey instrument is new. As with all
new instruments, continued research and utilization
helps strengthen reliability and validity. A greater
sample size is suggested to confirm current results and
allow for broader, larger generalizations. Results should
not be interpreted and generalized to the entire
population of entrepreneurs in Serbia because the
sample size is small.
CONCLUSION
Most of the findings in this study support research
done on entrepreneurs in other nations. Similar to the
USA, Serbian entrepreneurs go into business for
freedom, independence and for monetary rewards
(Allen, 2011; Barringer and Ireland, 2009). They fund
their start-ups predominately with personal resources or
bootstrapping. However, the key difference between
Serbian entrepreneurs and USA entrepreneurs are evident
as far as funding. Serbians fund their start-ups through
personal resources due to necessity and a lack of
monetary funds available from the banking system.
According to Serbian business owners, the greatest
obstacles they face are with administrative issues
associated with the government, banking systems,
political instability and economic uncertainty. The USA
does not face these same obstacles.
According to the World Bank Doing Business 2009
Report, the USA is ranked fourth out of one hundred
and eighty three in the world for ease of doing business,
eight in the world for starting a business, twelfth in the
world for registering property and fourth in the world
for ease of obtaining credit (World Bank Doing
Business, 2009). Serbia is ranked eighty-eight in the
world out of one hundred and eighty three for ease of
doing business, seventy-third for starting a business, one
hundred and fifth for registering property and fourth for
obtaining credit (World Bank Doing Business, 2009). As
stated earlier, Serbia historically lacked monetary support
fromthe banks making it difficult to operate or open
businesses. However, recent bank reforms sponsored by
the World Bank are helping to mitigate these issues,
enabling credit to become available.
In this study, participants cited that uncertainty
about the future, difficulty obtaining clients and
inexperience securing contracts pose the greatest
challenges to business owner and their future. This
supports GEM (2009) findings as far as perceived
opportunities (Bosma and Levie, 2009) According to
the 2009 GEM Global Entrepreneurship Monitor
Report, Serbian citizens believe there is high media
attention paid to entrepreneurs, have a moderate to low
perception of opportunity for entrepreneurship, high
perceived capability for entrepreneurship and a
moderate fear of failure (Bosma and Levie, 2009). In
addition, according to GEM (2009) Serbian citizens
believe that entrepreneurship is a good career choice
(Bosma and Levie, 2009). In support of these findings,
this research study discovered that approximately 97%
of respondents felt that owning their own business was
a worthy endeavor.
It is important to note that there are a limited
number of prior studies conducted in Serbia, especially
focusing on funding, motivation and obstacles
entrepreneurs face. More research is needed to fully
understand entrepreneurship in the transitioning
economy. As entrepreneurship expands in Serbia, they
will have greater impact on the local economy and on
Europe’s economy. Any shifts or changes occurring in
entrepreneurship should be examined closer. Future
research should focus on the cultural aspects of the
society to see if attitudes hinder participation in
entrepreneurship. Furthermore, studies examining
women entrepreneurs would be beneficial to identify
specific problems and challenges they face. Lastly,
studies comparing transitioning economies with one
another and cross-country comparisons would benefit
researchers, business owners and foreign investors.
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