Description
In this description tam bas brief for croatia.
TAM/BAS BRIEF FOR CROATIA
2009-2011
April 2008
This document provides recommendations for TAM/BAS intervention in Croatia over the period 2009-2011. It is a
product of the staff of the European Bank for Reconstruction and Development undertaken by the TAM/BAS
Programme team and the Office of the Chief Economist. The findings, interpretations, and conclusions expressed
in this volume do not necessarily reflect the views of the Board of Directors of the EBRD or the governments they
represent.
The EBRD does not guarantee the accuracy of the data included in this work.
This Report has been prepared by a core team led by Francesca Pissarrides (Office of the Chief Economist) and
Valeria Della Rosa (TAM/BAS Programme).
The team was assisted by Shahrooz Badkoubei, Birgit Goetz, Renata Deiuri, Ana Betica.
The team also acknowledges the support from: HAMAG – Croatian Agency for SMEs; BICRO – Business
Innovation Centre of Croatia; Croatian Chamber of Economy; HUP – Croatian Employers’ Association; Croatian
Chamber of Trades and Crafts; Zagreb School of Management; National Competitiveness Council; APIU – Trade
and Investment Promotion Agency; HPB – Hrvatska Poštanska Banka; CEPOR – SMEs and Entrepreneurship
Policy Centre; HBOR – Croatian Bank of Reconstruction and Development; Ministry of Economy, Labour and
Entrepreneurship; IMO – Institute for International Relations; Delegation of the European Commission to the
Republic of Croatia; USAID / DAI; Erste Bank.
TABLE OF CONTENTS
1. Abbreviations .................................................................................................................. 3
2. Executive Summary........................................................................................................ 4
3. Previous TAM/BAS experience in Croatia................................................................... 8
3.1. TurnAround Management (TAM) Programme .............................................8
3.2. Business Advisory Services (BAS) Programme..........................................10
3.2.1. BAS Projects........................................................................................11
3.2.2. Market development activities.............................................................18
3.3. Linkages with banking.................................................................................20
3.3.1. TAM cooperation with EBRD Banking teams ....................................20
3.3.2. BAS cooperation with EBRD Banking teams .....................................20
4. The MSME sector and infrastructure for business advisory services ..................... 21
4.1. Macroeconomic context...............................................................................21
4.2. Entrepreneurial activity and the MSME sector............................................22
4.3. Business environment ..................................................................................26
4.3.1. Regulatory framework .........................................................................26
4.3.2. Financial and tax issues .......................................................................26
4.3.3. Education and training.........................................................................27
4.3.4. Innovation and R&D............................................................................27
4.4. Market for business advisory services .........................................................27
4.5. Infrastructure of business support ................................................................34
4.6. Government policies and programmes for the MSME sector .....................36
4.7. International donor programmes..................................................................39
5. Recommendations for future TAM/BAS interventions............................................. 41
5.1. TurnAround Management (TAM) Programme ...........................................41
5.2. Business Advisory Services Programme (BAS) Programme ......................42
5.2.1. BAS Projects........................................................................................42
5.2.2. Market development activities.............................................................44
5.3. Addressing cross-cutting issues ...................................................................45
5.3.1. Increasing energy efficiency and reducing pollution at the enterprise
level ..............................................................................................................45
5.3.2. Encouraging Women in Business ........................................................45
5.3.3. Reaching out to rural regions...............................................................45
5.3.4. Stimulating entrepreneurship...............................................................45
5.4. Linkages with banking.................................................................................45
5.5. Informed contribution to EBRD policy dialogue.........................................46
6. Annexes.......................................................................................................................... 47
6.1. Croatia MSME Factsheet.............................................................................47
6.2. Background information on MSME stakeholder interviews in Zagreb.......48
6.3. Background information on the 2008 enterprise survey..............................49
6.4. Programmes supporting MSMEs in Croatia................................................51
6.5. References....................................................................................................53
2
1. ABBREVIATIONS
AMC Association of Management Consultants
APIU Trade and Investment Promotion Agency
BAS Business Advisory Services Programme
BEEPS Business Environment and Enterprises Performance Survey
BICRO Business Innovation Centre of Croatia
BRSF Balkan Region Special Fund
CARDS Community Assistance for Reconstruction, Development and Stabilization
CEI Central European Initiative
CEPOR SMEs and Entrepreneurship Policy Centre
DFID Department for International Development (UK)
GEF Global Environment Facility
GEM Global Entrepreneurship Monitor
GGM Grant Guideline Matrix
HAMAG Croatian Agency for Small Businesses
HBOR Croatian Bank for Reconstruction and Development
HUP Croatian Employers’ Association
ICMCI International Council of Management Consulting Institutes
IFI International Financial Institutions
IPA EU Instrument for Pre-accession Assistance
LEF Local Enterprise Facility
MELE Ministry of Economy, Labour and Entrepreneurship
MSME Micro, Small and Medium sized Enterprises
OCE EBRD Office of the Chief Economist
TAM TurnAround Management Programme
TEA Total Entrepreneurship Activity
3
2. EXECUTIVE SUMMARY
Previous TAM/BAS
experience in Croatia
Since inception in 2000 the TAM/BAS Programme in Croatia has mobilised over €3.2
million. Donor funding has been provided by the CEI, DFID, Germany, Austria,
BRSF, and most recently Luxembourg. TAM/BAS Croatia has also benefited from
EBRD funding since 2007.
TAM TAM has undertaken a total of 13 projects, 3 of which are still in progress, with new
enterprises currently being screened. Of the 8 projects fully completed, all were rated
satisfactory or better. TAM projects have enjoyed a wide coverage across both industry
and geographic location with 77% of all projects undertaken outside of Zagreb.
TAM projects are complex and with interventions carried out in many areas of
business operations. In Croatia, the area of focus sought by most projects was in
marketing, product design and development. What has been identified as a key
factor for TAM project success has been the degree of willingness and eagerness of the
staff of assisted enterprises to learn from the TAM team.
BAS BAS, on the other hand, has undertaken a total of 292 projects with 278 MSMEs,
engaging 151 consultants – 130 of which are local. A total of 217 BAS projects have
been internally evaluated in Croatia, with over 95% as being “successful”. It has also
undertaken a number of market development activities, including two trainings
promoting the development of the local consultancy market.
BAS assisted enterprises widely differ in size, industry and geographic location. Over
the period 2000 to 2007 the number of projects engaging smaller enterprises increased.
If one compares industries served across the two comparison periods, one can observe
distinct shifts in the industry classification of BAS clients. These significant shifts in
the industries of BAS projects indicate a change in demand for business advice across
industries. There has also been an increase in the number of projects located outside of
Zagreb. BAS supported projects have had a variety of objectives and have
encompassed a wide range of advisory services. There has also been a marked change
in the focus of advice required by BAS clients towards more sophisticated business
objectives. Comparing BAS project costs in the period 2000 to 2003 versus 2004 to
2007, we see that while the BAS contribution has remained roughly the same on
average, there has been an increase in total costs of projects, translating into a greater
investment on the part of the client.
Linkages with
banking
4 TAM assisted enterprises in the Croatia have attracted 5 investments from the EBRD
or EBRD related financial intermediaries, of which EBRD financed over €134.3
million, mobilising a total project value of over €321.4 million. Although no BAS
assisted enterprises in Croatia have attracted investments from the EBRD or EBRD
related financial intermediaries, 116 BAS enterprises have received over €81.9 million
from external financing sources in Croatia.
The MSME sector
and infrastructure for
business advisory
services:
This section lays out some of the main challenges and transition obstacles for the
MSME sector in the country. It provides insights into the level of entrepreneurial
activity, the business environment, challenges faced by the MSME sector and the
supply of business support services.
a stable
macroeconomic
context
The most developed of all TAM/BAS countries of operation; Croatia has experienced
stable and robust economic growth in recent years and is at an advanced stage of
transition to a market economy; however, the country faces challenges with respect to
regional inequalities.
with growing Indicators show that entrepreneurial activity has increased, but the country suffers from
4
entrepreneurial
activity
both regional and gender biases in this area. A large proportion of entrepreneurs still
start their business because of financial needs and not because they perceive the
presence of a business opportunity.
The Croatian enterprise sector has made some progress in terms of international
competitiveness in recent years, however innovation activities are still relatively
scarce.
An EBRD run enterprise survey revealed a very high level of satisfaction of Croatian
entrepreneurs with the performance of their company, yet international benchmarks do
indicate that is room for Croatian enterprises to significantly improve their
performance.
a growing yet
underperforming
MSME sector
The importance of the MSME sector in Croatia has increased in recent years in terms
of its contribution to GDP and employment, but despite its focus as a sector of key
strategic importance, the 2005 Business Environment and Enterprises Performance
Survey (BEEPS) highlights that the MSME sector has slightly underperformed.
moving towards a
friendlier business
environment
The government has simplified the administrative system in recent years; however,
entrepreneurs still have to deal with a high level of bureaucracy.
The Croatian government is increasingly recognizing the importance of investing in
R&D and new technologies to boost economic development and to improve the
country’s international competitiveness; however, the business sector’s R&D
expenditure remains relatively low, partly explaining the lack of market orientation of
R&D investments
1
. It is also focusing on promoting the entrepreneurial spirit in youth
as well as assisting enterprises in acquiring skills to improve their performance.
In terms of its financial sector, Croatia has a relatively advanced banking sector and the
tax system is generally evaluated as transparent and stable, however Croatian MSMEs
face financing constraints.
a fairly developed
market for business
advisory services yet
entrepreneurs don’t
see the need for
business advice
The private market for business advisory services has developed significantly over the
last few years, yet Croatian MSMEs are still quite reluctant to draw on the help of
consultancy services. Affordability constraints only seem to be significant for
enterprises in underdeveloped areas and for micro enterprises in general. The business
advisory services currently most demanded are fairly basic business services including
“Reorganisation/ Restructuring”, “Computerised financial / management information
systems” and “Market analysis and planning”. There is a clear need however to
promote the need for long term strategic planning, the compliance with EU standards
and the potential of ICT.
a present yet
heterogeneous
infrastructure of
business support
The Croatian government has increased its support for business support facilities in
recent years. Also, the private consultancy market is developing rapidly, but still
exhibits some shortcomings in terms of regional coverage, quality and pricing issues.
Most stakeholders in the MSME sector suggested that the BAS programme should try
to concentrate its efforts in the Areas of Special State Concern and in the
wood/furniture, food-processing, health care/cosmetics, plastics and electronics
sectors.
a strong but
fragmented policy
environment for the
MSME sector
The Croatian government has recognized the importance of the MSME sector for
economic growth and job creation. It has established a relatively strong policy
framework and provides a variety of support programmes – on the national, regional
and local level - to foster the development of the MSME sector.
Despite a clear national strategy for the promotion of the MSME sector and the
existence of a network of organisations representing the sector’s needs and providing
1
Government of Croatia (2007)
5
support, assistance however remains fragmented and deficiencies in the national
MSME policy still exist.
international donor
programmes have left
the floor to the EU
In the past, various international donors have provided Croatia with funds to support
the business sector, some of which to support the development of MSMEs., The key
player is currently the European Union, through the new “Instrument for Pre-
Accession” IPA.
Recommendations for
future TAM/BAS
interventions
This section highlights the proposed TAM/BAS interventions to address the gaps and
challenges analysed in the previous section.
Continuation of TAM There is still great potential for local enterprises to benefit from TAM projects in
Croatia. TAM should focus on the manufacturing industry where such industry-
specific advice is not widely utilised.
and BAS Stakeholders in the enterprise sector unanimously believe that Croatian entrepreneurs
could benefit strongly from the help of business advisory services. The BAS grant
should remain a key component of BAS assistance, however targeted market
development activities should be a big component of BAS assistance in Croatia.
A Grant Guideline Matrix is proposed in order to prioritize intervention in order to
preserve the Programme’s additionality. Higher grants should be given to:
• smaller enterprises
• projects aiming to improve management performance, introduce quality
management and certification and to improve environmental management
• enterprises located in “areas of special State concern” – mostly the war-
affected areas in the East and the South of the country and some other
economically depressed regions.
in addition to targeted
market development
activities
It is recommended to complement BAS assistance at the enterprise level with the
following market development activities in order to maximise the Programme’s
transition impact in Croatia:
• Visibility and dissemination: The BAS Programme should take steps to
promote the use of business advisory services and to disseminate success
stories to entrepreneurs.
• MSME and consultancy training: The BAS Programme should address the
existing gaps in the supply of advisory services by building capacity in:
sophisticated financial advisory services, environmental management and
energy efficiency, assistance with obtaining funds from EU programmes. In
addition, in the areas of special state concern, BAS should consider
assisting start-ups through the provision of training in basic business skills.
• Support to and development of existing relevant local institutions –
particularly in relation to the market for local business advisory services:
There is potential for BAS to partner with the Association of Management
Consultants (AMC) and to cooperate closer with the Croatian Agency for
Small Businesses (HAMAG) in order to combine efforts in this field.
with a strengthened
focus on addressing
cross-cutting issues
In order to address cross-cutting issues that are pertinent to Croatia’s MSME sector’s
development, the TAM/BAS programme should promote measures to increase energy
efficiency or to reduce environmental pollution at the enterprise level. Each TAM
project should strive to incorporate such measures and it is recommended that the BAS
programme offer high shares of co-financing for projects related to energy efficiency
and environmental protection. It should also devote efforts to attracting more female
entrepreneurs, primarily by targeted BAS market development activities, for example
disseminating success stories of women in business. Reaching more remote areas, with
special focus on the areas of special state concern should remain a high priority for
6
TAM/BAS. Finally, there is a case for providing targeted assistance to young
entrepreneurs, particularly via BAS market development activities in less developed
areas.
this brief as
contribution to
EBRD’s policy
dialogue
This brief can be used as a source of information for EBRD’s policy dialogue, as it
provides insight into the entrepreneurial activity, business environment and challenges
faced by the MSME sector; names the major stakeholders of the MSME sector; and
provides a clear picture of the MSME support programmes.
Future challenges for the government are mainly identified as simplifying the
regulatory framework, improving the educational system and intensifying the
incentives for innovation and R&D activities.
an input for
enhancing linkages
with banking
In line with the TAM/BAS Strategic Plan 2008-2010, TAM/BAS should continue to
assist the Bank to meet its objective of generating a commercially viable project
pipeline for direct investments by the Bank that will be transitional, in three ways: i)
identifying potential pipeline (pre-investment); ii) providing ‘consulting and business’
services for the preparation and support of Bank private enterprise financing projects
and for the enterprises themselves; iii) providing candidates for non-executive board
member positions. In addition, the Programme should link SMEs in need of finance
with local financial institutions supported by the EU/EBRD SME Finance Facility.
This will strengthen the Bank’s impact in the enterprise sector and in the financial
sector, as outlined in the EBRD Country Strategy for Croatia approved by the EBRD
Board in May 2007.
7
3. PREVIOUS TAM/BAS EXPERIENCE IN CROATIA
The TAM/BAS Programme promotes economic transition in the countries of EBRD operation
through the TurnAround Management and Business Advisory Services Programmes,
complementary programmes which develop the micro, small and medium sized enterprise
sectors through a multi- tiered approach.
TAM/BAS combines direct assistance to the private sector at the enterprise level with
systemic market development interventions. Thereby TAM/BAS achieves enterprise level
change and the development of a sustainable infrastructure of business advisory services in its
countries of operation. TAM/BAS also contributes to improving the policy and regulatory
environment for business through its informed input to EBRD’s policy dialogue.
The overall planning, programming and implementation of the TAM/BAS Programme is
managed and controlled by the TAM/BAS Programme Team, a unit of the Banking
Department, based in EBRD’s London headquarters. TAM/BAS, operating within banking, is
a core institutional building activity of the Bank.
Since inception in 2000 the TAM/BAS Programme in Croatia has mobilised over €3.2
million. Donor funding has been provided by the CEI, DFID, Germany, Austria, BRSF, and
most recently Luxembourg. TAM/BAS Croatia has also benefited from EBRD funding since
2007.
This section provides an update on the progress of activities carried out by the Programme to
the end of December 2007.
3.1. TurnAround Management (TAM) Programme
The TAM Programme supports economic transition by achieving enterprise change in
potentially viable small and medium enterprises in the EBRD countries of operation.
TAM intervention occurs at the enterprise level. TAM transfers relevant commercial and
technical know how from experienced directors and senior managers, from economically
developed countries, resulting in the introduction of new management culture and improved
management skills in the assisted enterprises.
TAM projects frequently involve complete restructuring, encompassing all aspects of the
enterprise. Projects usually have a timespan of around 18 months.
TAM has no field infrastructure. TAM projects are implemented by the TAM team,
consisting of experienced directors and senior managers, contracted only on the basis of
individual projects.
The TAM Programme began operations in Croatia in late 1999 under funding from both
Finland and Ireland for a joint project. Since then, TAM has undertaken a total of 13
projects, 3 of which are still in progress, with new enterprises currently being screened.
TAM projects have enjoyed a wide coverage across both industry and geographic location
with 77% of all projects undertaken outside of Zagreb (see Figure 1 and 2).
8
Figure 1: Project distribution by industry
Textile Mills, 1
Pharmaceutical and
Medicine, 1
Miscellaneous
Manufacturing, 2
Food Manufacturing, 2
Food and Beverage
Stores, 2
Apparel
Manufacturing, 1
Wood Product
Manufacturing, 1 Accomodation, 3
Figure 2: Project distribution by geographic location
CAKOVEC, 2
KOPRIVNICA, 1
NOVOSELEC, 1
NASICE, 1
OPATIJA, 1 POREC, 1
TUHLEJ, 1
VINKOVCI, 1
ZAGREB, 3
BJELOVAR, 1
Although the TAM Programme has been operating in Croatia for nearly 10 years,
inconsistency in donor funding has led to discontinuity in programme activity, making it
difficult to draw many conclusions.
Initial years of TAM intervention in Croatia saw two instances of early project closure caused
by reluctance from the management of enterprises to fully take on-board the advice provided.
Ownership change, common in enterprises in need of restructuring, can lead to a change in
view that may not be favourable to outside advice. A change in ownership poses an
9
unforeseeable risk for TAM projects that is difficult to mitigate; however, early closure has
only been the case in two projects in Croatia.
Of the 8 projects fully completed, all were rated satisfactory or better. All cases showed
great benefits to the operations of the enterprises assisted, with improved market positions
and healthy growth.
TAM projects are complex and with interventions carried out in many areas of business
operations. The projects undertaken in Croatia coved a range of objectives, including:
improving management and organisational structure, improving production efficiency,
marketing and product design/ development, implementation of information technology
and/or management information systems (MIS), improvements in financial management, cost
reduction and improving profitability, and developing strategic alliances. Some projects even
addressed cost-cutting issues such as environmental management and certification (ISO
9000).
In Croatia, we find that the area of focus sought by most projects was in marketing, product
design and development – in some cases for both domestic and Western markets (see Figure
3).
Figure 3: Areas of focus within TAM projects
Marketing, 26%
IT and MIS
17%
Organisational and
Management
Structure
17%
Reduce Costs
6%
Financial
Management
11%
Partnerships and
Contracts
6%
Business Plan
6%
Production
Environment
11%
What has been identified as a key factor for TAM project success has been the degree of
willingness and eagerness of the staff of assisted enterprises to learn from the TAM team.
This in part is made possible to the commitment of management and their openness to give
the TAM team access to all parts of the organisation and actively encouraged staff to learn
from the team.
3.2. Business Advisory Services (BAS) Programme
The BAS Programme supports economic transition, by both achieving enterprise change in
potentially viable micro, small and medium enterprises and developing sustainable
infrastructures of business advisory services in the EBRD countries of operation.
10
BAS intervention is systemic in that it targets a market system by acting as a facilitator for the
use of private-sector consultants by MSMEs to obtain a diverse array of services. BAS
operates on both the demand side and on the supply side. On the one hand, it stimulates
demand by raising the understanding of MSMEs of the potential benefits of using external
consultants. On the other, it directly increases the supply and quality of local advisory
services.
BAS activities include assisting individual enterprises to engage with local consultants on
narrowly-based, specific projects with a rapid payback. BAS supported projects typically last
around four months. Additionally, BAS carries out market development activities. Examples
of the latter include MSME and consultancy training, support to, and development of, existing
relevant local institutions, visibility and dissemination, and informed contributions to EBRD
policy dialogue.
BAS Programmes are implemented through a well defined field management structure,
comprising BAS Teams of local nationals in each country of operation.
The BAS Programme in Croatia was established in 2000 with funding from the Central
European Initiative (CEI). To the end of December 2007, BAS in Croatia has undertaken a
total of 292 projects with 278 SMEs, engaging 151 consultants – 130 of which are local (see
Table 1).
Table 1: BAS Projects in Croatia
BAS
Projects
Enterprises
Assisted
Consultants
Engaged
Projects outside of
Zagreb
Projects with
Enterprises with
In this description tam bas brief for croatia.
TAM/BAS BRIEF FOR CROATIA
2009-2011
April 2008
This document provides recommendations for TAM/BAS intervention in Croatia over the period 2009-2011. It is a
product of the staff of the European Bank for Reconstruction and Development undertaken by the TAM/BAS
Programme team and the Office of the Chief Economist. The findings, interpretations, and conclusions expressed
in this volume do not necessarily reflect the views of the Board of Directors of the EBRD or the governments they
represent.
The EBRD does not guarantee the accuracy of the data included in this work.
This Report has been prepared by a core team led by Francesca Pissarrides (Office of the Chief Economist) and
Valeria Della Rosa (TAM/BAS Programme).
The team was assisted by Shahrooz Badkoubei, Birgit Goetz, Renata Deiuri, Ana Betica.
The team also acknowledges the support from: HAMAG – Croatian Agency for SMEs; BICRO – Business
Innovation Centre of Croatia; Croatian Chamber of Economy; HUP – Croatian Employers’ Association; Croatian
Chamber of Trades and Crafts; Zagreb School of Management; National Competitiveness Council; APIU – Trade
and Investment Promotion Agency; HPB – Hrvatska Poštanska Banka; CEPOR – SMEs and Entrepreneurship
Policy Centre; HBOR – Croatian Bank of Reconstruction and Development; Ministry of Economy, Labour and
Entrepreneurship; IMO – Institute for International Relations; Delegation of the European Commission to the
Republic of Croatia; USAID / DAI; Erste Bank.
TABLE OF CONTENTS
1. Abbreviations .................................................................................................................. 3
2. Executive Summary........................................................................................................ 4
3. Previous TAM/BAS experience in Croatia................................................................... 8
3.1. TurnAround Management (TAM) Programme .............................................8
3.2. Business Advisory Services (BAS) Programme..........................................10
3.2.1. BAS Projects........................................................................................11
3.2.2. Market development activities.............................................................18
3.3. Linkages with banking.................................................................................20
3.3.1. TAM cooperation with EBRD Banking teams ....................................20
3.3.2. BAS cooperation with EBRD Banking teams .....................................20
4. The MSME sector and infrastructure for business advisory services ..................... 21
4.1. Macroeconomic context...............................................................................21
4.2. Entrepreneurial activity and the MSME sector............................................22
4.3. Business environment ..................................................................................26
4.3.1. Regulatory framework .........................................................................26
4.3.2. Financial and tax issues .......................................................................26
4.3.3. Education and training.........................................................................27
4.3.4. Innovation and R&D............................................................................27
4.4. Market for business advisory services .........................................................27
4.5. Infrastructure of business support ................................................................34
4.6. Government policies and programmes for the MSME sector .....................36
4.7. International donor programmes..................................................................39
5. Recommendations for future TAM/BAS interventions............................................. 41
5.1. TurnAround Management (TAM) Programme ...........................................41
5.2. Business Advisory Services Programme (BAS) Programme ......................42
5.2.1. BAS Projects........................................................................................42
5.2.2. Market development activities.............................................................44
5.3. Addressing cross-cutting issues ...................................................................45
5.3.1. Increasing energy efficiency and reducing pollution at the enterprise
level ..............................................................................................................45
5.3.2. Encouraging Women in Business ........................................................45
5.3.3. Reaching out to rural regions...............................................................45
5.3.4. Stimulating entrepreneurship...............................................................45
5.4. Linkages with banking.................................................................................45
5.5. Informed contribution to EBRD policy dialogue.........................................46
6. Annexes.......................................................................................................................... 47
6.1. Croatia MSME Factsheet.............................................................................47
6.2. Background information on MSME stakeholder interviews in Zagreb.......48
6.3. Background information on the 2008 enterprise survey..............................49
6.4. Programmes supporting MSMEs in Croatia................................................51
6.5. References....................................................................................................53
2
1. ABBREVIATIONS
AMC Association of Management Consultants
APIU Trade and Investment Promotion Agency
BAS Business Advisory Services Programme
BEEPS Business Environment and Enterprises Performance Survey
BICRO Business Innovation Centre of Croatia
BRSF Balkan Region Special Fund
CARDS Community Assistance for Reconstruction, Development and Stabilization
CEI Central European Initiative
CEPOR SMEs and Entrepreneurship Policy Centre
DFID Department for International Development (UK)
GEF Global Environment Facility
GEM Global Entrepreneurship Monitor
GGM Grant Guideline Matrix
HAMAG Croatian Agency for Small Businesses
HBOR Croatian Bank for Reconstruction and Development
HUP Croatian Employers’ Association
ICMCI International Council of Management Consulting Institutes
IFI International Financial Institutions
IPA EU Instrument for Pre-accession Assistance
LEF Local Enterprise Facility
MELE Ministry of Economy, Labour and Entrepreneurship
MSME Micro, Small and Medium sized Enterprises
OCE EBRD Office of the Chief Economist
TAM TurnAround Management Programme
TEA Total Entrepreneurship Activity
3
2. EXECUTIVE SUMMARY
Previous TAM/BAS
experience in Croatia
Since inception in 2000 the TAM/BAS Programme in Croatia has mobilised over €3.2
million. Donor funding has been provided by the CEI, DFID, Germany, Austria,
BRSF, and most recently Luxembourg. TAM/BAS Croatia has also benefited from
EBRD funding since 2007.
TAM TAM has undertaken a total of 13 projects, 3 of which are still in progress, with new
enterprises currently being screened. Of the 8 projects fully completed, all were rated
satisfactory or better. TAM projects have enjoyed a wide coverage across both industry
and geographic location with 77% of all projects undertaken outside of Zagreb.
TAM projects are complex and with interventions carried out in many areas of
business operations. In Croatia, the area of focus sought by most projects was in
marketing, product design and development. What has been identified as a key
factor for TAM project success has been the degree of willingness and eagerness of the
staff of assisted enterprises to learn from the TAM team.
BAS BAS, on the other hand, has undertaken a total of 292 projects with 278 MSMEs,
engaging 151 consultants – 130 of which are local. A total of 217 BAS projects have
been internally evaluated in Croatia, with over 95% as being “successful”. It has also
undertaken a number of market development activities, including two trainings
promoting the development of the local consultancy market.
BAS assisted enterprises widely differ in size, industry and geographic location. Over
the period 2000 to 2007 the number of projects engaging smaller enterprises increased.
If one compares industries served across the two comparison periods, one can observe
distinct shifts in the industry classification of BAS clients. These significant shifts in
the industries of BAS projects indicate a change in demand for business advice across
industries. There has also been an increase in the number of projects located outside of
Zagreb. BAS supported projects have had a variety of objectives and have
encompassed a wide range of advisory services. There has also been a marked change
in the focus of advice required by BAS clients towards more sophisticated business
objectives. Comparing BAS project costs in the period 2000 to 2003 versus 2004 to
2007, we see that while the BAS contribution has remained roughly the same on
average, there has been an increase in total costs of projects, translating into a greater
investment on the part of the client.
Linkages with
banking
4 TAM assisted enterprises in the Croatia have attracted 5 investments from the EBRD
or EBRD related financial intermediaries, of which EBRD financed over €134.3
million, mobilising a total project value of over €321.4 million. Although no BAS
assisted enterprises in Croatia have attracted investments from the EBRD or EBRD
related financial intermediaries, 116 BAS enterprises have received over €81.9 million
from external financing sources in Croatia.
The MSME sector
and infrastructure for
business advisory
services:
This section lays out some of the main challenges and transition obstacles for the
MSME sector in the country. It provides insights into the level of entrepreneurial
activity, the business environment, challenges faced by the MSME sector and the
supply of business support services.
a stable
macroeconomic
context
The most developed of all TAM/BAS countries of operation; Croatia has experienced
stable and robust economic growth in recent years and is at an advanced stage of
transition to a market economy; however, the country faces challenges with respect to
regional inequalities.
with growing Indicators show that entrepreneurial activity has increased, but the country suffers from
4
entrepreneurial
activity
both regional and gender biases in this area. A large proportion of entrepreneurs still
start their business because of financial needs and not because they perceive the
presence of a business opportunity.
The Croatian enterprise sector has made some progress in terms of international
competitiveness in recent years, however innovation activities are still relatively
scarce.
An EBRD run enterprise survey revealed a very high level of satisfaction of Croatian
entrepreneurs with the performance of their company, yet international benchmarks do
indicate that is room for Croatian enterprises to significantly improve their
performance.
a growing yet
underperforming
MSME sector
The importance of the MSME sector in Croatia has increased in recent years in terms
of its contribution to GDP and employment, but despite its focus as a sector of key
strategic importance, the 2005 Business Environment and Enterprises Performance
Survey (BEEPS) highlights that the MSME sector has slightly underperformed.
moving towards a
friendlier business
environment
The government has simplified the administrative system in recent years; however,
entrepreneurs still have to deal with a high level of bureaucracy.
The Croatian government is increasingly recognizing the importance of investing in
R&D and new technologies to boost economic development and to improve the
country’s international competitiveness; however, the business sector’s R&D
expenditure remains relatively low, partly explaining the lack of market orientation of
R&D investments
1
. It is also focusing on promoting the entrepreneurial spirit in youth
as well as assisting enterprises in acquiring skills to improve their performance.
In terms of its financial sector, Croatia has a relatively advanced banking sector and the
tax system is generally evaluated as transparent and stable, however Croatian MSMEs
face financing constraints.
a fairly developed
market for business
advisory services yet
entrepreneurs don’t
see the need for
business advice
The private market for business advisory services has developed significantly over the
last few years, yet Croatian MSMEs are still quite reluctant to draw on the help of
consultancy services. Affordability constraints only seem to be significant for
enterprises in underdeveloped areas and for micro enterprises in general. The business
advisory services currently most demanded are fairly basic business services including
“Reorganisation/ Restructuring”, “Computerised financial / management information
systems” and “Market analysis and planning”. There is a clear need however to
promote the need for long term strategic planning, the compliance with EU standards
and the potential of ICT.
a present yet
heterogeneous
infrastructure of
business support
The Croatian government has increased its support for business support facilities in
recent years. Also, the private consultancy market is developing rapidly, but still
exhibits some shortcomings in terms of regional coverage, quality and pricing issues.
Most stakeholders in the MSME sector suggested that the BAS programme should try
to concentrate its efforts in the Areas of Special State Concern and in the
wood/furniture, food-processing, health care/cosmetics, plastics and electronics
sectors.
a strong but
fragmented policy
environment for the
MSME sector
The Croatian government has recognized the importance of the MSME sector for
economic growth and job creation. It has established a relatively strong policy
framework and provides a variety of support programmes – on the national, regional
and local level - to foster the development of the MSME sector.
Despite a clear national strategy for the promotion of the MSME sector and the
existence of a network of organisations representing the sector’s needs and providing
1
Government of Croatia (2007)
5
support, assistance however remains fragmented and deficiencies in the national
MSME policy still exist.
international donor
programmes have left
the floor to the EU
In the past, various international donors have provided Croatia with funds to support
the business sector, some of which to support the development of MSMEs., The key
player is currently the European Union, through the new “Instrument for Pre-
Accession” IPA.
Recommendations for
future TAM/BAS
interventions
This section highlights the proposed TAM/BAS interventions to address the gaps and
challenges analysed in the previous section.
Continuation of TAM There is still great potential for local enterprises to benefit from TAM projects in
Croatia. TAM should focus on the manufacturing industry where such industry-
specific advice is not widely utilised.
and BAS Stakeholders in the enterprise sector unanimously believe that Croatian entrepreneurs
could benefit strongly from the help of business advisory services. The BAS grant
should remain a key component of BAS assistance, however targeted market
development activities should be a big component of BAS assistance in Croatia.
A Grant Guideline Matrix is proposed in order to prioritize intervention in order to
preserve the Programme’s additionality. Higher grants should be given to:
• smaller enterprises
• projects aiming to improve management performance, introduce quality
management and certification and to improve environmental management
• enterprises located in “areas of special State concern” – mostly the war-
affected areas in the East and the South of the country and some other
economically depressed regions.
in addition to targeted
market development
activities
It is recommended to complement BAS assistance at the enterprise level with the
following market development activities in order to maximise the Programme’s
transition impact in Croatia:
• Visibility and dissemination: The BAS Programme should take steps to
promote the use of business advisory services and to disseminate success
stories to entrepreneurs.
• MSME and consultancy training: The BAS Programme should address the
existing gaps in the supply of advisory services by building capacity in:
sophisticated financial advisory services, environmental management and
energy efficiency, assistance with obtaining funds from EU programmes. In
addition, in the areas of special state concern, BAS should consider
assisting start-ups through the provision of training in basic business skills.
• Support to and development of existing relevant local institutions –
particularly in relation to the market for local business advisory services:
There is potential for BAS to partner with the Association of Management
Consultants (AMC) and to cooperate closer with the Croatian Agency for
Small Businesses (HAMAG) in order to combine efforts in this field.
with a strengthened
focus on addressing
cross-cutting issues
In order to address cross-cutting issues that are pertinent to Croatia’s MSME sector’s
development, the TAM/BAS programme should promote measures to increase energy
efficiency or to reduce environmental pollution at the enterprise level. Each TAM
project should strive to incorporate such measures and it is recommended that the BAS
programme offer high shares of co-financing for projects related to energy efficiency
and environmental protection. It should also devote efforts to attracting more female
entrepreneurs, primarily by targeted BAS market development activities, for example
disseminating success stories of women in business. Reaching more remote areas, with
special focus on the areas of special state concern should remain a high priority for
6
TAM/BAS. Finally, there is a case for providing targeted assistance to young
entrepreneurs, particularly via BAS market development activities in less developed
areas.
this brief as
contribution to
EBRD’s policy
dialogue
This brief can be used as a source of information for EBRD’s policy dialogue, as it
provides insight into the entrepreneurial activity, business environment and challenges
faced by the MSME sector; names the major stakeholders of the MSME sector; and
provides a clear picture of the MSME support programmes.
Future challenges for the government are mainly identified as simplifying the
regulatory framework, improving the educational system and intensifying the
incentives for innovation and R&D activities.
an input for
enhancing linkages
with banking
In line with the TAM/BAS Strategic Plan 2008-2010, TAM/BAS should continue to
assist the Bank to meet its objective of generating a commercially viable project
pipeline for direct investments by the Bank that will be transitional, in three ways: i)
identifying potential pipeline (pre-investment); ii) providing ‘consulting and business’
services for the preparation and support of Bank private enterprise financing projects
and for the enterprises themselves; iii) providing candidates for non-executive board
member positions. In addition, the Programme should link SMEs in need of finance
with local financial institutions supported by the EU/EBRD SME Finance Facility.
This will strengthen the Bank’s impact in the enterprise sector and in the financial
sector, as outlined in the EBRD Country Strategy for Croatia approved by the EBRD
Board in May 2007.
7
3. PREVIOUS TAM/BAS EXPERIENCE IN CROATIA
The TAM/BAS Programme promotes economic transition in the countries of EBRD operation
through the TurnAround Management and Business Advisory Services Programmes,
complementary programmes which develop the micro, small and medium sized enterprise
sectors through a multi- tiered approach.
TAM/BAS combines direct assistance to the private sector at the enterprise level with
systemic market development interventions. Thereby TAM/BAS achieves enterprise level
change and the development of a sustainable infrastructure of business advisory services in its
countries of operation. TAM/BAS also contributes to improving the policy and regulatory
environment for business through its informed input to EBRD’s policy dialogue.
The overall planning, programming and implementation of the TAM/BAS Programme is
managed and controlled by the TAM/BAS Programme Team, a unit of the Banking
Department, based in EBRD’s London headquarters. TAM/BAS, operating within banking, is
a core institutional building activity of the Bank.
Since inception in 2000 the TAM/BAS Programme in Croatia has mobilised over €3.2
million. Donor funding has been provided by the CEI, DFID, Germany, Austria, BRSF, and
most recently Luxembourg. TAM/BAS Croatia has also benefited from EBRD funding since
2007.
This section provides an update on the progress of activities carried out by the Programme to
the end of December 2007.
3.1. TurnAround Management (TAM) Programme
The TAM Programme supports economic transition by achieving enterprise change in
potentially viable small and medium enterprises in the EBRD countries of operation.
TAM intervention occurs at the enterprise level. TAM transfers relevant commercial and
technical know how from experienced directors and senior managers, from economically
developed countries, resulting in the introduction of new management culture and improved
management skills in the assisted enterprises.
TAM projects frequently involve complete restructuring, encompassing all aspects of the
enterprise. Projects usually have a timespan of around 18 months.
TAM has no field infrastructure. TAM projects are implemented by the TAM team,
consisting of experienced directors and senior managers, contracted only on the basis of
individual projects.
The TAM Programme began operations in Croatia in late 1999 under funding from both
Finland and Ireland for a joint project. Since then, TAM has undertaken a total of 13
projects, 3 of which are still in progress, with new enterprises currently being screened.
TAM projects have enjoyed a wide coverage across both industry and geographic location
with 77% of all projects undertaken outside of Zagreb (see Figure 1 and 2).
8
Figure 1: Project distribution by industry
Textile Mills, 1
Pharmaceutical and
Medicine, 1
Miscellaneous
Manufacturing, 2
Food Manufacturing, 2
Food and Beverage
Stores, 2
Apparel
Manufacturing, 1
Wood Product
Manufacturing, 1 Accomodation, 3
Figure 2: Project distribution by geographic location
CAKOVEC, 2
KOPRIVNICA, 1
NOVOSELEC, 1
NASICE, 1
OPATIJA, 1 POREC, 1
TUHLEJ, 1
VINKOVCI, 1
ZAGREB, 3
BJELOVAR, 1
Although the TAM Programme has been operating in Croatia for nearly 10 years,
inconsistency in donor funding has led to discontinuity in programme activity, making it
difficult to draw many conclusions.
Initial years of TAM intervention in Croatia saw two instances of early project closure caused
by reluctance from the management of enterprises to fully take on-board the advice provided.
Ownership change, common in enterprises in need of restructuring, can lead to a change in
view that may not be favourable to outside advice. A change in ownership poses an
9
unforeseeable risk for TAM projects that is difficult to mitigate; however, early closure has
only been the case in two projects in Croatia.
Of the 8 projects fully completed, all were rated satisfactory or better. All cases showed
great benefits to the operations of the enterprises assisted, with improved market positions
and healthy growth.
TAM projects are complex and with interventions carried out in many areas of business
operations. The projects undertaken in Croatia coved a range of objectives, including:
improving management and organisational structure, improving production efficiency,
marketing and product design/ development, implementation of information technology
and/or management information systems (MIS), improvements in financial management, cost
reduction and improving profitability, and developing strategic alliances. Some projects even
addressed cost-cutting issues such as environmental management and certification (ISO
9000).
In Croatia, we find that the area of focus sought by most projects was in marketing, product
design and development – in some cases for both domestic and Western markets (see Figure
3).
Figure 3: Areas of focus within TAM projects
Marketing, 26%
IT and MIS
17%
Organisational and
Management
Structure
17%
Reduce Costs
6%
Financial
Management
11%
Partnerships and
Contracts
6%
Business Plan
6%
Production
Environment
11%
What has been identified as a key factor for TAM project success has been the degree of
willingness and eagerness of the staff of assisted enterprises to learn from the TAM team.
This in part is made possible to the commitment of management and their openness to give
the TAM team access to all parts of the organisation and actively encouraged staff to learn
from the team.
3.2. Business Advisory Services (BAS) Programme
The BAS Programme supports economic transition, by both achieving enterprise change in
potentially viable micro, small and medium enterprises and developing sustainable
infrastructures of business advisory services in the EBRD countries of operation.
10
BAS intervention is systemic in that it targets a market system by acting as a facilitator for the
use of private-sector consultants by MSMEs to obtain a diverse array of services. BAS
operates on both the demand side and on the supply side. On the one hand, it stimulates
demand by raising the understanding of MSMEs of the potential benefits of using external
consultants. On the other, it directly increases the supply and quality of local advisory
services.
BAS activities include assisting individual enterprises to engage with local consultants on
narrowly-based, specific projects with a rapid payback. BAS supported projects typically last
around four months. Additionally, BAS carries out market development activities. Examples
of the latter include MSME and consultancy training, support to, and development of, existing
relevant local institutions, visibility and dissemination, and informed contributions to EBRD
policy dialogue.
BAS Programmes are implemented through a well defined field management structure,
comprising BAS Teams of local nationals in each country of operation.
The BAS Programme in Croatia was established in 2000 with funding from the Central
European Initiative (CEI). To the end of December 2007, BAS in Croatia has undertaken a
total of 292 projects with 278 SMEs, engaging 151 consultants – 130 of which are local (see
Table 1).
Table 1: BAS Projects in Croatia
BAS
Projects
Enterprises
Assisted
Consultants
Engaged
Projects outside of
Zagreb
Projects with
Enterprises with