Research Report 4

Entrepreneurship
and Small Business

Development in
Kosovo in 2013
RESEARCH REPORT
This research was supported by the Netherlands Ministry of Foreign Affairs through SPARK.
All opinions expressed are those of the authors and have not been endorsed by donor.
Entrepreneurship
and Small Business
Development in
Kosovo in 2013
RESEARCH REPORT
Authors
Besnik A. Krasniqi, Project Leader
Muhamed Rexhepi
Kastriot Ajeti
Yllka Azemi
Besart Hajrizi
Blerta Murturi
Albulena Zeneli
Trim Berisha
Data processing & editing
Besnik A. Krasniqi
Besart L. Hajrizi
Cover page & layout
projectGRAPHICS
Entrepreneurship and small businesses are
the backbone of economic development all
over the world. They play an important role
for employment, income and societal changes,
particularly in transition economies. This
research report is concerned with the nature
and the extent to which the entrepreneurship
and small business in Kosovo has been
developed so far, and outlines the main current
and future challenges and prospectives for the
development of the small and medium sized
enterprise (SME) sector.
Kosovo, like other countries in the region,
has faced radical changes during its transition
trajectory. Moreover, because of its special
political conditions, the country has been
subjected to extreme business environment
conditions affecting entrepreneurship
development during various stages. As
an Autonomous Province in the former
Yugoslavia, it was subject to national and
labour market discrimination, occupation and
fnally War 1999, making Kosovo a unique
case of transition in its economic and political
transformation path. The development of
entrepreneurship and small frms are seen as
the main sources of income and job creation
that may help Kosovo in its economic recovery
process. However, achieving the full potential of
entrepreneurship and small business is linked to
the entrepreneurial potential i.e. entrepreneurs
with the ambition and ability to grow and also
upon opportunities or constrains originated by
the institutional environment settings.
The purpose of this research report is to share
information from this work on the profle of
entrepreneurs and small businesses, as well as
the problems and policy issues in small business
development. The report shows the short
history of entrepreneurship in Kosovo and
the key motivational factors behind business
start ups, types of businesses, ownership
and management issues, the performance of
frms and their expectations, fnances, taxes,
the internationalization of SMEs, human
resources, innovation and social capital. The
study seeks to provide insights on the process of
entrepreneurship and SME sector development
in Kosovo. For this purpose a nationally
representative SME survey was conducted by
Business Support Centre Kosovo (BSCK) at
the end of 2013.
The decision to conduct this research was
infuenced by a desire to address what BSCK
and its contributors to this study perceived to
be a gap in current academic and policy debates
on SME development in Kosovo. On the one
hand there was a lack of primary source data
that could enable more empirically grounded
analysis and on the other hand, there were some
topics that, although important, have not been
addressed at all, such as innovation activities
and social capital. At the same time there was
a strong commitment by BSCK to implement
its mission in supporting entrepreneurship
development in Kosovo.
It is the result of work undertaken by BSCK in
collaboration with SPARK, a non-governmental
institution, and the fnancial support of the
Dutch Ministry of Foreign Affairs who wished
to support research and policy debate on SME
development in Kosovo. I hope it will stimulate
the development of effective SME policies and
practices in a wide range of settings.
Foreword
Dr. Besnik A. Krasniqi
Director, Business Support Centre Kosovo
Table of Contents
Abbreviations ............................................................................................................................................................. 6
Acknowledgments .................................................................................................................................................... 7
Executive Summary ................................................................................................................................................. 8
Main fndings ........................................................................................................................................................... 8
Introduction ............................................................................................................................................................... 10
Aims of the research .............................................................................................................................................. 10
Methodology ........................................................................................................................................................... 10
Data and Sampling ................................................................................................................................................. 11
Quality control ........................................................................................................................................................ 12
Statistical analysis .................................................................................................................................................... 12
The rest of the report ............................................................................................................................................ 12
2. Entrepreneurship and SME Profle ............................................................................................................... 13
Background of entrepreneurship ......................................................................................................................... 13
Entrepreneurial motives ........................................................................................................................................ 13
Founders and Owners ............................................................................................................................................ 15
Location ................................................................................................................................................................... 16
Organizational and legal format ........................................................................................................................... 17
Sector ........................................................................................................................................................................ 17
3. Performance, Assets and Business Activities .............................................................................................. 18
Business performance ............................................................................................................................................ 18
Business expectations ............................................................................................................................................. 19
4. Finance ................................................................................................................................................................... 20
Sme investment by sectors..................................................................................................................................... 20
Discouraged borrowers ....................................................................................................................................... 21
5. Taxes ........................................................................................................................................................................ 22
6. Internationalization of SMEs: Exporting and importing ....................................................................... 24
7. Human Resources ............................................................................................................................................... 26
SME management ................................................................................................................................................... 27
Current and future growth plans .......................................................................................................................... 28
Training and consultancy........................................................................................................................................ 28
8. Business Environment ....................................................................................................................................... 29
9. Social capital ......................................................................................................................................................... 32
References .................................................................................................................................................................. 34
6 Entrepreneurship and Small Business Development in Kosovo in 2013
Abbreviations
BSCK Business Support Centre Kosovo
CBAK Central Banking Authority Kosovo
CBK Central Bank of Kosovo
EU European Union
FDI Foreign Direct Investment
MEF Ministry of Economy and Finance
MoF Ministry of Finance
MTI Ministry of Trade and Industry
OECD Organization for Economic Cooperation and Development
SME Small and Medium Size Enterprises
SOE Socially Owned Enterprises
TAK Tax Authority of Kosovo
UNMIK United Nations Mission in Kosovo
TE Transitional Economies
7 Research report
Acknowledgments
Business Support Centre Kosovo would like to acknowledge the fnancial support of SPARK
through the Ministry of Foreign Affairs. BSCK is also grateful to students of the Faculty of
Economics (University of Prishtina) and University College of International Management
GLOBUSfor their contribution and efforts in conducting feld interviews.
The fndings in this research report are endorsed by BSCK and do not refect the views of the
donor. All errors remain ours.
This report presents fndings from the survey of
500 SMEs conducted by BSCK in December
2013. The purpose of this research was to identify
and subsequently address challenges and problems
of SME development for both the individual
(entrepreneur) frms and business environment
level. These two levels of analysis are important
in order to promote practices and policies for
unlocking entrepreneurial potential of small
businesses in the country. The survey and analysis
cover topics on the profle of entrepreneurship
and SMEs, motivational factors at start up stage,
ownership and management issues, performance
of SMEs and business expectations, investment,
human resources, the impact of fscal policy,
innovation and business strategy, implementation,
use of information technology and the social capital.
Identical research to this current study has been
conducted and published in 2011 (BSCK research
report 2011) and in 2012 and 2013, and is also
planned to be conducted in the coming years. These
research reports will serve as a comparison base
for future development trends in this sector. The
following section presents the main conclusions.
Main fndings
Identical to the BSCK fndings for 2010 and
2011, 2012 the statistical analysis of 2013
conclude that the number of active SMEs is
much smaller than offcial statistics provided by
the Ministry of Trade and Industry (Kosovo
Business Registration Agency). According to
the initial random sampling procedure in SPSS
we can conclude that more than 60 percent of
companies from our initial sample do not exist.
This high fgure of inactive SMEs might indicate
a high failure rate, informal sector or even creation
of frms only for one purpose or project.
According to the BSCK SME Survey 2013, the
main reason to start up a business is the desire
to realize my dream of having my company,
followed by the spot of a business opportunity,
and being unemployed and had to do something
to earn a living. As well, fndings for both years
indicate the substantially large impact of both
push and pull factors in the decision of people
to start up a business in Kosovo during the
different stages of transition.
Huge differences between male and female
owned business were found. Findings of
research for 2010, 2011, 2012 and 2013 assert
that more than 90 percent of companies are
male owned while solely 10 percent are female
owned businesses, suggesting the low level of
female entrepreneurial activity.
Almost 38 percent of companies stated that
company sales have decreased in 2013 compared
to 2012. The average monthly turnover of
surveyed enterprises has increased from 25
percent in 2012 to 28 % in 2013.
Identical to the fndings of 2011 and in 2012 the
majority of respondents - around 53 percent -
declared that proftability is not very high. On
the other side, it was a decrease to from 9.7% in
2012 to 7 percent the percentage of companies
thinking that proftability is very high in sectors
they operate, primarly as of unfavorable doing
business environment.
Although more than 39 percent evaluated their
business performance in 2013 to be worse than
in 2012, the business expectations are optimistic
as almost 63.5 percent of SMEs expect better
business performance in 2013. This optimism
was 60 percent in 2012.
Around 41 percent of frms did make an
investment in 2013. Majority of investment in the
sample was fnanced by internal sources (More
than 70 percent), suggesting the importance of
internal funds for growth of the SME sector in
Kosovo and a lower role of banks in supporting
the fnancial needs of SMEs.
Executive Summary
9 Research report
According to the BSCK Survey 2013, the
entrepreneurs have ranked the three main
obstacles for not applying for the loan as follows.
Interest rate too high (23.21 percent) and, very
often interest rate exceeds the margin of proft in
specifc sectors. Collateral requirement too high
(16.2 percent) followed by Repayment period
was not suffcient (1.15 percent). This probably
is due to the more conservative approach of
banks towards SMEs.
BSCK SME Survey presents that 28.6 percent
of businesses proclaim the tax rates in Kosovo
are high or very high, while 35.6 percent as high
and only 0.3 percent of respondents consider
that tax rates are low. Compared to fndings
of 2011 and 2012 occurred an increase on
entrepreneurs sharing the frst above opinion.
Thus, high taxes continue to remain a very
crucial issue although the tax rates are not high
compared to other countries.
According to this research, only 6.4 percent in
2013 percent of enterprises export their goods
and services compared to 5.9 in 2012 showing a
slight increase.
The issues mentioned as obstacles to exporting
enterprises are also delays at the border,
inadequate legislation, lack of infrastructure and
political risk. Enterprises face obstacles during
imports too, such as customs and inadequate
legislation, while methods of payment are seen
as a lower barrier of these enterprises.
According to the BSCK SME survey, the
average size of employment has increased
continually from the start up until 2013. The
average employment size in 2007 was 13.4 while
in 2013 this has been increased by 47 percent.
The majority of SMEs employees work on a full
time basis (71 percent) while the remaining share
belongs to other part time types of employment
such as permanent part time employees,
seasonal work and other specifc arrangements
with or without contracts. This fnding indicates
that SMEs do not take full advantage of other
fexible forms of employment. Although the
part time employment has shown an increase in
2013 compared to 2012.
Around 66 percent of SME employees are more
likely to be qualifed with a gymnasium and other
professional secondary school education level.
Only 19.65 percent of surveyed enterprises
have employed additional employees in 2013
compared to 23.9 in 2012. This is a decrease
compared to additional employment in 2012.
Regarding the satisfaction of employers with
their newly employed staff they declare that
employees who completed their education
abroad are the most qualifed to perform
well in their jobs followed by employees who
completed their education in public universities
in Kosovo, foreign universities in Kosovo and
private universities in Kosovo.
Identical to the fndings of 2011, in this current
study less than 33.06 percent of SME managers
have completed some type of training for
management and business practice. In addition
we observed that even a smaller proportion of
them have managers with previous managerial
experience in other organizations. Around
35.5 of companies have used some type of
consultancy services which has shown an
increase since 2012 (33 percent)
Similar to previous years in 2013 this research
study shows that businesses are more concerned
with constrain related to external environemnt
rather than with internal factors. The major
problems are pointed to the corruption and
rule of law while the major improvement has
been achieved in the area of transportation and
infrastructure.
More than 69 percent of SMEs think that contacts
with family, friends and business associations are
very important for the development of their
business. In a scale of 1 to 10 entrepreneurs
were asked to rank the level of trust with their
collaborators. Findings from 2013 show a small
decreasein the level of trust in their partner.
Aims of the research
This research report contains fndings from
the survey of 500 small and medium sized
enterprises (SMEs)
1
carried out in December
2013. The aim of this research is to analyze
the profle of entrepreneurship and SMEs in
Kosovo and it is planned to be implemented
in subsequent years by making comparative
statistical analysis regarding performance of
SMEs and changes in business and institutional
environment. BSCK has conducted research
for the years 2010 and 2011, and published
the data gathered on BSCK research report
2010, 2011 and 2012. Prior to this type of
report there was a lack of primary source data
that will enable a more empirically grounded
analysis and on the other hand, there were
some topics that although important, have
not been addressed at all, such as innovation
activities and social capital and their role on
business performance.
The outcome of this survey is that the research
report addressed several aspects of SME
management and its interaction with policy
environment. As such the SME research
report is aimed to support the needs of both
SME managers on several aspects infuencing
business performance and policy makers
and the government (both local and central)
by providing inputs for making informed
decisions about SME development policies.
Methodology
This research report is based on statistical
analysis of the data collected as a part of a wide
ranging Survey conducted by Business Support
Centre Kosovo which included 500 companies
in Kosovo. The process of designing the survey
questionnaire and the sample selection has been
supported by numerous experts. In addition,
discussions were held with relevant stakeholders
and there was also a piloting of the questionnaire.
The interviews were conducted face to face
with the key people in each enterprise, mainly
owner/managers or fnancial managers. The
questionnaire contains nine sections covering
major aspects of entrepreneurship and SME
development in Kosovo. The respondents
were asked to provide qualitative (their motives
for start up and growth, data on enterprise
performance, perceptions of the business
environment and future prospects) and a
quantitative answer on internal characteristics
of the respective frm (years in the business,
location, size of the company in terms of
employment, value of assets, sector of activity,
etc) and information on their innovation
activities and information technology.
The data for SMEs were collected by the trained
team of interviewers at Business Support Centre
Kosovo who were students at the Faculty of
Economics of the University of Prishtina and of
University College of International Management
GLOBUS. The training for interviewers
was organized by BSCK and delivered by
Prof. Besnik Krasniqi from BSCK, for the
Introduction
1 The terms Small frm, Small and Medium Enterprise (SME) and Small Business are used interchangeable in this report. The precise
defnition is based on the generally accepted defnition of SMEs: enterprises that employ less than 250 employees are considered SMEs (OECD
and European Commission). Medium enterprises are considered those with 50-249 employees; small enterprises with 10-49 employees; and
microenterprises up to nine employees.
11 Research report
part of the questions included in the research
instrument regarding economic and business
aspects. During the training each interviewer
has completed one questionnaire in order to
practice and better understand the topics and
related questions in the questionnaire. Among
other things, the aim of this training session was
to explain to the interviewers the importance of
this research, and the technical issues involved in
implementing the survey.
Data and Sampling
The sample is drawn randomly from the
business register kept at the Ministry of Trade
and Industry/ Agency for Business Registration.
The procedure for selecting the sample size
and companies to be interviewed was done
in Excel and SPSS using random command.
After several testing phases the team decided
to do stratifcations of the sample by two
categories: size of the company and sectors
of business activity. This stratifcation was
important because the random sampling yielded
unsatisfactory results in terms of representation
of medium frms and manufacturing frms.
Both these categories were underrepresented
in the sample and as such would not have been
useful in analyzing these categories. Therefore,
the stratifcations were applied and satisfactory
results in terms of statistical representation of
the both sector and size class was yielded. Table
1.1 presents more accurate information on the
share of enterprises in the population and the
initial sample by size and sector.
After statistical stratifcation the total sample
by sector and size was chosen, as presented
below on table 2.1.
Table 1.1: Share of enterprises in the population and the sample by size and sector (in %)
Sector Size Micro Small Medium Total
% Share of sector
in population
% Share of sector
in the sample
Manufacturing 95.2 2.4 2.4 100.0 10.1 23
Services 97.0 1.7 1.3 100.0 40.0 35
Trade 98.7 0.8 0.6 100.0 50.0 42
% share of company size
in the population
97.7 1.3 1.0 100.0 100.0 100
% share of company size
in the sample
70 25 5 100 - -
Table 2.1: Total sample by sector and size (number of frms)
Sector Size Micro Small Medium Total
Manufacturing 34 24 6 115
Service 140 64 12 174
Trade 176 37 7 211
Total 350 125 25 500
Source: BSCK SME Survey 2012.
This randomly stratifed sample enables us to
draw generalized conclusions about the whole
population of SMEs in Kosovo. The sample
includes SMEs across all regions of Kosovo and
is stratifed by three main sectors in order to refect
the differences between trade, production and
services. Statistical stratifcation was also done in
terms of size in order to ensure the representation
of medium frms within the SME sector. During
the implementation of the feld survey we found
that at least 43 percent of the frms were not
operating orhave exitinted their businesses. This
high fgure of inactive SMEs might indicate high
failure rate, informal or even lounching of frms
only for one purpose or project.
Quality control
The frst phase of the quality control was
testing the questionnaire during the training,
during which we received few remarks about
the questions and technical errors. In the
second phase 50 interviews were conducted
as part of the piloting phase. Each interviewer
conducted approximately one interview in the
feld. After the piloting phase each interview
provided a feedback to the BSCK project team
and fnal preparations were made to launch the
fnal interviews.
In addition, the BSCK project team supported
the interviewers in conducting at least one
interview in the feld. Another stage of quality
control included the logical control by the BSCK
team at BSCK offce. Completed questioners
were reviewed and cross checked for specifc
questions and consistency of responses. In each
stage, the project team ensured the removal of
some questionnaires (although only a few cases
were found) and replaced them with other frms
and in some cases interviewers were sent back to
the company to collect the required data. Then,
the collected data was processed in MS Excel and
SPSS by the BSCK team.
Furthermore, these data were consistent with the
research fnding of the last years (BSCK research
report 2011 and BSCK research report 2012).
Thus, this is an additional proof of high validity
and reliability of the data of this current research.
Statistical analysis
Statistical data analysis was done in Excel and
SPSS statistical software. BSCK team and
external consultants cleaned the database in
order to make available the database for statistical
analysis. The research analyses in this report are
primarily based on descriptive statistics using
cross tabulation techniques. Occasionally this
report makes use of more advanced techniques
such as correlation techniques. Some short
references to entrepreneurs and their phrases
during the interview are recorded and reported
only occasionally here to provide additional and
deeper insides about certain aspects of business
operations.
The rest of the report
The rest of the report contains eleven chapters.
Chapter 2 seeks to profle entrepreneurship and
the SME sector. Chapter 3 analyzes business
performance and business activities. Chapter 4
deals with fnance issues of small businesses.
Chapter 5 discusses tax related concerns
of small businesses. Chapter 6 examines
the internationalization of SMEs including
exporting and importing. Chapter 7 investigates
human management practices utilized by small
and medium frms. Chapter 8 studies innovation
and business strategy. Chapter 9 focuses on
the use of information technology by SMEs.
Finally, Chapter 10 discusses the importance of
business environment/institutions, and Chapter
11 presents the role of trust and social capital in
business development.
13 Research report
Background of entrepreneurship
The roots of entrepreneurship and private
enterprises in Kosovo can be found in ancient
times. Before the Second World War the
private sector in Kosovo consisted of family
businesses concentrated mostly in agriculture,
cattle rising and handicrafts under poor
conditions and using relatively primitive
technology. Producers of basic consumption
goods, traditional artisans and small
manufacturers dominated the production
activities, while the service sector consisted of
traditional services such as carpenters, leather
craftsman, and blacksmiths (Riinvest, 1998).
During the phases of the centralized socialist
system (1945 50), Kosovos private economy
was limited to family farms (in agriculture),
greengrocers, small shops, restaurants, tailors
and handicrafts. In 1950, the Soviet type
socialism was abandoned and the economic
system was modifed towards a more market
oriented system or the so called self-
management socialism (Krasniqi, 2012).
After the fall of the communist system,
Kosovo, like other countries in the region, faced
radical changes during its transition trajectory.
Because of its special political conditions,
the country has been subjected to extreme
business environment conditions affecting
entrepreneurship development during various
stages. As an Autonomous Province in former
Yugoslavia it was subject to national and labour
market discrimination, occupation and fnally
War in 1999, making Kosovo a unique case
of transition. It enjoyed some of the benefts
of the acceptance and implementation of
Yugoslavias market based socialism during
the communist era. The existence of a small
private business sector in former Yugoslavia
had a positive impact on the overall attitude
of the population towards entrepreneurship.
During the 1999s, Kosovo faced an economic
downturned caused by the declaration
of emergency measures by the Milosevic
government and the subsequent occupation
of the country by Serbian military and police
forces which led to the dismissal of more than
150, 000 Albanian employees from the social
and the state sectors. This strengthened the
push factor for the ethnic Albanian citizens to
engage in entrepreneurial activity.
Kosovo is the latest country in the Balkan region
to embark on the process of transition to a
market economy. The privatization process, as
a fundamental element of this process, began
during the Markovic government in 1988 but
its implementation in Kosovo was interrupted
by the Serbian regime and the Albanian
population was excluded from the process.
Violence escalated during 1998 and culminated
in the 1999 war. In the aftermath of the War,
Kosovo faced war damages and problems of
building an institutional framework because
everything started from scratch.
Entrepreneurial motives
Motives for start ups have been subject to
research investigations in numerous studies on
entrepreneurship. It is particularly interesting
to investigate the motivation of people in
transition economies at the start-up phase
of their business. A systematic change under
which the entrepreneurship evolved provides an
2. Entrepreneurship and SME Profle
interesting topic for examining the importance
of the environment for entrepreneurship
and other distinguished characteristics of
enterprising people in Kosovo (Krasniqi,
2009). Accordingly, it is argued that the
entrepreneurship in transition economies was
mainly considered as necessity driven and to the
limited extent opportunity driven.
For the frst time in Kosovo, BSCK, in 2010,
conducted the data and published the research
report of 2011 on the motivation of start
ups using a representative sample. According
to the BSCK SME Survey 2010, majority of
the respondents (29.9%) proclaimed that
they spotted a business opportunity and
started up their businesses; in 2011 only 12.5
percent of respondents have started their
businesses as of the business opportunity. In
this current research is noticed an an almost
a more than 6% increase in the percentage
ompared to the previous year (2012) in terms
of the meotivcaiton for realizing their dreams.
According to the extant fndings of BSCK
researches, spotted business opportunity
motivation is a direct reason of the destabilized
market and business environment in Kosovo.
As for this current research (report 2014), the
quaite large number of entrepreneurs (22.3)
still assert that they had toto have their own
company, thus they started their businesses.
These statistics indicates the substantially large
impact of both push and pull factors in the
decision of people to start up business in
Kosovo in different stages of transition.
Table 2.1: Reasons for starting up business
Start up motivations % (2010) % (2011) % (2012) % (2013)
I spotted a business opportunity and I decided to act upon
it and establish my own company
29.9 12.5 26.13 27.4
I have been unemployed and had to do something to earn
a living
26.6 11.5 23.97 22.3
I always wanted my dream of having my own company to
come true
20.7 8.9 32.61 38.1
Dispute with my previous employer partner 1.4 1.1 2.38 2.3
I inherited from my family 7.6 10.0 8.21 9.6
Other 1.6 0.4 0.22 0.3
Source: BSCK SME Surveys
In entrepreneurship literature, it is argued that
the previous business experience of owners
play an important role in the decision to enter a
business career. The fndings reported in Table
2.2 assert that the number of entrepreneurs
who had extensive experience prior to starting
up the business has increased more than 4
percent. Whereas, number of respondents
15 Research report
who had limited experience prior to starting
up the business has descreased by around 2
percent. Yet, the average experience for both
groups remains almost the same for both years
(more than 8 years). This average suggests
that average experience of more than 8 years
is necessary to accumulate knowledge and
information about customers, suppliers and
markets in order to make use of knowledge
for business purposes. This is explained by
the decreasing rate of return from learning
from experience.
Founders and Owners
Ownership structure of SMEs in Kosovo
is mainly infuenced by the family relations.
Most SMEs 86.9 in 2013 (82.27% in 2012)
are established by a single owner. About 72
percent (in 2102 70) of these enterprises are
managed by the owners themselves. This
migh be because of the entrense of new small
companies that are manged by their owners. If
we analyze the structure of these SMEs which
are individually owned, then we can see that
most of them are micro enterprises. Because of
a large share of micro enterprises in the overall
structure of SMEs in Kosovo. It is obvious
that this share is even higher among micro
enterprises (87.4%). Small enterprises present a
higher diversity of founders, because over 30
percent of them are found by two, three and/
or more founders. Individuals are also the main
founders of medium sized enterprises (65.4%),
but the share of three and more founders is the
highest (31%) among all groups. Partnership
structure of the surveyed SMEs has not
changed much from the previous year. There
is a slight increase of professional relations in
establishing of enterprises, while the share of
technological relations has been halved. The
survey showed that the number of enterprises
with joint fnance is more stable and appears
as one of important forms of fnancing their
business.
Like in the previous surveys, the survey of 2013
regarding the gender structure of founders
in SMEs shows that the share of women is
underrepresented compared to men. With little
changes from the previous surveys, men are the
founders of enterprises in almost 90 percent of
the cases, while women only in 10 percent.
The representation of women in total number
of employees has remained approximately the
same as in the previous year, with a very slight
increase. Yet; there is a need to strengthen
the role of the women in private sector, in
particular the need to support women in
business. Some positive trends of women in
Table 2.2: Experience of SME owners in business prior to start-up
Did you have any experience in the feld where you started
your own company?
% (2010) % (2011) % (2012) % (2013)
I had extensive experience 42.8 56.0 41.11 44.5
I had limited experience 30.0 23.7 31.48 29.7
I did not have experience 27.2 20.3 27.41 25.8
Total 100 100 100 100
business have been noticed in the last four
years with women with unvieristy degres
having estbaished their companies.
Table below presents the ownership structure
by gender and educational level. It is important
to note that majority of SMEs, 2010, 2011,
2012, and 2013 have owners with a secondary
school education (56.8, 61.6%, 57.1%, 54.8 %).
Furthermore, the table below present that the
level of education of University, MSc Degrees
has grown up compared to previous years.
Table 2.3: Ownership structure, gender and educational level
Male (founders) 89.8 % Female (founders) 10.2 %
Education Level % (2010) % (2011) % (2012) % (2013)
Doctors 1.0 2.9 0.9 0.3
Master degree 2.3 4.2 4.3 3.2
University degree 31.3 32.1 37.2 37.5
Secondary school 61.6 57.1 54.8 56.8
Primary school 3.9 3.1 2.8 2.30
Total 100.0 100.0 100.0 100.0
In order to thoroughly investigate the group of
frms that operate as partnerships, the BSCK
survey included questions that asked about
the relationships between owners. In cases
where businesses are declared as partnerships,
majority of respondents declared that they
have family relationships (92 percent), 5.2
percent professional relationships, and 2.4
percent were joint ventures/joint fnancing.
The weak institutional environment and
particularly contract enforcement may play a
big role in building partnerships because family
relationships are usually reported to be used in
the context of weak institutional environments.

Location
BSCK research asserts that the overwhelming
majority of surveyed enterprises in Kosovo
(85.5%) operate in one location, whereas
12.1 percent of businesses are found to be
operating in two or more locations. There
is a very small proportion of SMEs 2.4
percent (in 2012 2.46%) which in addition
to the operation in Kosovo, operate abroad.
According to the BSCK SME survey around
86.7 percent of them are located in cities, 7.6
percent in rural areas while only 5.7 percent of
businesses are located in both rural and urban
areas. SMEs seek more growth opportunities
and also other benefts of being located in
cities, including a better supply with inputs,
low transportation costs etc.
17 Research report
Organizational and legal format
The majority of businesses are organized
as individual businesses (90 percent). The
remaining of companies in the sample are
organized as business partnerships and and
shareholding companies, reconfrming the
earlier conclusion that business partnerships
are not common although increasing slightly.
Sector
SMEs in Kosovo mostly operate in the sectors
of trade (41%) and services (22.4%). This
percentage share of trade and services sectors in
the population is comparatively higher because
the BSCK sample was based on stratifed random
sampling techniques. However, it is important
to note some differences in terms of business
activities within the main sectors. For example,
we observed that the number of companies in
building construction and material construction
(27%) remains the dominant activity within
the industry sector.Wood processing is also a
dominant activity of manufacturing companies.
In the trade sector the majority of frms operate
as retail stores (33.2 percent). In the services
sector the most dominant activities are transport,
hotels and tourism.
Increasing trend of registered enterprises in
production and trade marks the beginning of a
positive change in the structure of enterprises
by sector in Kosovo.
Finally, in all three sectors there was a substantial
share of frms that declared operating in two
or more business activities suggesting that
a large number of SMEs do diversify their
portfolios by penetrating in different sectors.
Table 2.4: Location of business activity of SMEs (in %)
Location of businesses %(2010) %(2011) %(2012) %(2013)
Only one location 83.7 87.8 86.30 85.5
Two or more locations 15.5 11.3 11.06 12.1
In Kosovo and abroad 0.8 0.8 2.46 2.4
Total 100.0 100.0 100.0 100.0
Business Performance
In last three years the 2011-2013 BSCK research
reveals that the number of businesses facing
a decrease in sales and proft is larger than
those businesses facing growth enhancemnt.
However, the percentage of businesses facing
a decrease is lower in 2013 comapred to 2012
and 2011. This percentage has gone down
from 47 percent in 2011 and 38 percent
in 2012 to 34 in 2013. As for the proft of
the SMEs in Kosovo, there is a decrease of
more than 2 percent in 2013 comapred to
2012 (41.3) whcih again has decreased by 6
percent from 2011. This decrease in sales and
is mainly due to external factors such as the
decrease in demand, low purchasing power,
corruption and other external factors. With
the decrease in sales and profts, in 2012 which
similar also in 2013. However, this data should
be interpreted cautioulsy becuase are study
sampled only exisiting frims which means that
those who might have been in diffculties in
terms of their sales are no longer in the market.
This means that the performance of the SME
sector may be worse than it is presented in this
report. This data show that there is a decline in
the overall SME sector in Kosovo.
3. Performance, Assets and Business Activities
Table 3.1: SME performance (qualitativemeasure-sales and proft)
Compared to past 12 months
your sales/proft has:
Sales Proft
%(2011) %(2012) %(2013) %(2011) %(2012) %(2013)
Decreased 47.37 38.41 34.3 47.88 41.33 38.2
Nochange 22.11 36.53 37.6 21.82 34.32 35.0
Increased 30.53 25.05 28.1 30.29 24.35 26.7
Total 100.0 100.0 100.0 100.0 100.0
As for the growth of the industry under
which businesses operate, the surveyed SMEs
in 2013 show almost the same performance
patterns as in 2012 and 2011. There is a slight
decrease of the coampnies who declared that
the performance of the sector in which they
operate is not very high proftability (from
10 percent in 2013 to 7 percent in 2013). In
line wiht this there is a increase in number
of comapnies stating that the sector under
which they oeprate is characterised by very
low proftbaility (from 10.34 in 2012 to 14.2 in
2013) It can be concluded that a considerable
number of businesses are making losses
based on the data from this and previous
years. Table below shows the perceptions of
frms about the proftability of frms in the
sector they operate for 2011-2013.
19 Research report
Business expectations
When asked about the performance of
their businesses in 2012, compared to 2011,
40.70 percent of frms responded that their
business performance has been worse than
2011 (this fgure was 48 percent in 2011).
29.45 percent of frms consider that their
business performance is better in 2012 than
2011. However compared to 2012 , in 2013
the business optimism has increased for 2014
from around 60% to 63.5 who declare that they
expect better business performance. The table
below shows the evaluation of current and
future performance of businesses in Kosovo.
Table 3.2: Proftability of frms in industry/sector
What do you think is proftability of frms
operating in your industry or sector?
%(2011) %(2012) %(2013)
Very high proftability 10.68 9.70 7.0
Not very high proftability 48.46 53.38 53.1
Not very low proftability 26.69 26.37 25.7
Very low proftability 14.17 10.34 14.2
Total 100.0 100.0 100.1
Table 3.3: Current evaluation and future expectation of business performance
2012 2013
How do you
evaluate your
business
performance
%
What business
performance do
you expect in
2012
%
How do you
evaluate your
business
performance
%
What business
performance do
you expect in
2014
%
Better than 2011 29.45 Better than 2012 60.69 Better than 2012 31.7 Better than 2012 63.5
No changes 29.86 No changes 25.00 No changes 29.0 No changes 24.9
Worse than 2011 40.70 Worse than 2012 14.31 Worse than 2012 39.3 Worse than 2012 11.6
Source: BSCK SME Survey
According to the BSCK research in 2012 only
41.6 percent of frms made investments. The
internal fnance remains the main source of
funding for SME investment in 2013. The
fgure 4.1. below indicates that more than
70 percent of investments are fnanced by
entreprenurs own resoruces.
4. Finance
Figure 4.1. Sources of investment in 2013
Source: BSCK SME Survey 2013
Own
resources
Local banks
International
banks
Donors
Family and
friends
FDI
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
-
72.0
19.4
0.3
0.6
7.4
0.3
Similarly to 2012 in 2013 personal savings
was the main source of fnancing for working
capital representing. In 2013 the pperosnal
savings was 41.3 percent while in 2012 this was
36.7 percent, while only 9.9 percent used bank
loans for this purpose in 2012 and 9.2 in 2013.
SME investment by sectors
Regarding investment allocation by sector,
incontrast to the previous year the survey
shows thatmajor share of investment was in
service (48.88%) with small decrease in 2013
,followed by trade sector- 36%, manufacturing
11.8% and other 5.1.%. The activity in terms of
SME investment and their sectoral allocation
reamined very stable across various years with
major share in the services. This may indicate
that the services sector might be an impetus
for development of Kosovan economy.
Table 4.2: Allocation of investment by sector
Sectors 2010 2011 2012 2013
Manufacturing 23.00% 16.00% 9.55% 11.8
Trade 34.80% 42.10% 34.83% 36.0
Service 42.20% 38.00% 48.88% 47.2
Other 0.00% 36.20% 6.74% 5.1
Total 100.00% 100.00% 100.00% 100.0
21 Research report
Table 4.3: Reason for not applying for loan
2011 2012
I did not need a loan - company had sufcient capital 73.48% 45.83% 56.16
Application procedures was very complex 2.74% 0.93% 0.57
High interest rates 14.35% 31.48% 23.21
Collateral requirement too high 3.87% 2.31% 16.62
Repayment period was not sufcient 2.87% 2.62% 1.15
I did not know how to apply 0.76% 0.68% 0.86
I was not confdent that my loan application would be
approved
1.93% 0.93% -
Other 0.00% 15.22% 1.43
Total 100.00% 100.00% 100.00
Source: BSCK SME Survey
Discouraged borrowers
The slight decrease on the loan interest rates
(CBK), refected on the number increase of
the frms that applied for a loan in 2012 (30.9
percent in 2012, 29.70% in 2011 and 36.7% in
2010). Yet, this reserach shows that 9.34 percent
of the frms applying for bank loans were
rejected and the data illustrate that main factor
for loan rejection is the absence of collateral.
Statistics conducted by BSCK declare that
the number of banks discouraged borrowers
hasdecreased in 2013 comapred to 2012.
According to our interview with entrepreneurs,
in 2012 31.5 percent of them stated that high
interest rate discourage them to apply for a
loan while in 2013 this is 23.21 percent. The
competetion in the banking sector has induced
banks to lwoer intrets rates. According to
respondent, 56.16 (in 2012 45.8 percent) of
SMEs did not apply for loans since they had
enough capital from their own activities to invest.
To conclude, the overall situation in terms
of SME fnancing acorss three years almost
remained the same during the 2011-2013.
Developing countries even today are facing
problems such as high informality and tax
evasions. Kosovo is no exception either, where
it is estimated that about 50% of turnover is
not declared from businesses to authorities
(TAK, 2012). Since 2011, tax collection has
improved due to more strict control from
Tax Administration offcials. The reports
published from TAK show an increase in tax
collection compared to the same period of
previous years.
According to BSCK SME Survey in 2013
63.2 percent of businesses consider that the
tax rates in Kosovo are high or very high
whcih is similar to 2012, 64.3 percent. This
represents a very tiny decrease ompared to
2012. In 2013 only 0.3 % and in 2012 about
0.2 percent of respondents considered taxes
to be low, while in 2011 around 21 percent of
respondents shared that opinion. This huge
percenatge decrease, without excluding other
possibilities, can be a result of a new more
strict approach from TAK inspectors towards
the tax evasion, which can be translated to
businesses providing more accurate data on
their turnover, therefore paying more taxes.
Also this may be infuenced by the lack of
demand and business performance from
businesses as indicated in section 3.
5. Taxes
Low Average High Very high
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
28.6
35.6 35.6
0.3
Figure 5.1: Perceptions of entrepreneurs about tax rates in Kosovo
Source: BSCK 2013
23 Research report
About 35.5 of businesses in 2013 are not
informed about the use of taxes collected
from tax administration and customs, while
38% have partial information and 28% are not
at all informed. This indicates that the Ministry
of Finance and the Government of Kosovo
should be more transparent about spending
and use of resources through information
campaigns and other transperancy methods.
On the other hand, respondents think that
companies in Kosovo declare around 42 percent
of their turnover to the Tax Administration.
The reasons why they do not declare the real
obligations start with high taxes (50.5 percent),
the habit of not paying taxes (14.4 percent),
insuffcient inspection from TAK (7.7
percent), and because other companies do not
pay taxes (6 percent). According to the BSCK
survey in 2013 the average percnetage of sales
whcih is not reported to the tax authorities by
competitiors is more than 26 percent.
Figure 5.2: Are businesses informed about the use of taxes collected by tax administration and customs
(BSCK, 2013)
Fully informed Partially informed Not at all informed
26.9
37.7
35.5
40
35
30
25
20
25
10
5
0
Internationalization is a tool that expands the
scope and potential of the frm; it affects the
number of entrepreneurial and strategic opera-
tions used throughout the company. SMEs can
use various forms to internationalize their op-
erations in effort to create wealth (e.g., exports,
licensing, acquisitions, strategic alliances, and
foreign direct investment). One way for frms
to create wealth can be international diversifca-
tion, organizational learning and improvements
of innovative skills, new skills improvementsfor
higher return. However, international diversi-
fcation can be counterproductive if the frm
lacks the infrastructure and entrepreneurial and
strategic capabilities required to cope with the
complexities of operating in diverse markets
(Hitt, Hoskisson, & Kim, 1997).
Data on the trade balance provided by the
Central Bank of Kosovo (Source: Central Bank
of Kosovo CBK Quarterly Assessment of
the Economy) show that Kosovo continues to
have a negative balance. Imports to Kosovo
in 2012, according to the CBK were in the
amount of 2,489 million, while exports were
269.3 million. The percentage of coverage
of imports by exports was only 10.82 %.
6. Internationalization of SMEs:
Exporting and importing
Table 6.1: Trade Balance of Kosovo (in million euro)
* Uncomplete data; Source CBK, KAS and IMF (2013)
2008 2009 2010 2011 2012
3.000.00
3.000.00
1.000.00
(1.000.00)
(2.000.00)
(3.000.00)
-
1.928.20 1.935.50
2.144.90
2.479.00 2.489.00*
Exports
Imports
Trade balance
269.30*
312.50
294.00
165.30
198.50
(1.729.70) (1.770.20)
(1.850.90)
(2.166.50)
(2.219.70)*
25 Research report
According to this survey, the percentage of
exporting enterprises in our sample in 2013
is 6.4 % compared to 2012 whcih was 5.91%.
The small number of exporting companies
refects the random smapling procedure
applied in this research. Most of the companies
started to export their goods and services in
2002, 2008 and 2011. Comparing with 2011,
the number of companies who are exporting
goods and services increased with 0.74% in
2012 and 0.5 in 2013.
Enterprises face different obstacles during
their exporting and importing activities. BSCK
research of 2013 present survey respondents
consider that main export barriers are: tariff
barriers (tariff amount), the culture of doing
business in the country of destination, personal
documentation (ex. Visa), lack of Banks
effciency, lack of information on market.
On the other side, the import barriers that
businesses in Kosovo face in blended years of
2013 remain customs, Inadequate legislation,
Transportation and Customs procedures.
Table 6.2: Export barriers (only barriers ranked as a number 1 by respondents)
1 Tarif barriers (tarif amount) 50.0
2 The culture of doing business in the country of destination 3.8
3 Personal documentation (ex. Visa) 7.7
4 Lack of Banks efciency 7.7
5 Lack of information on market 30.8
12 Total 100.0
SME research indicates that enterprises have
started their businesses with a small number of
employees. An average number of employees
at the time of startup were approximitaly 6
employees suggesting a relatively small size
when frms enter the market. According to
the BSCK SME survey the average size of
employment has increased continuously since
startup. In 2007 the average employment
went up to 13.4 employees while the same
enterprises declared an average of around
15.5 employees in 2010. This indicates that the
number of workers on average from the start-
up phase has increased by 33 percent, while
comparing 2007 and 2010 it has increased by
1.5 percent. Whereas, , comparing 2012 with
the prior year 2011 the number of workers has
increased by 1.7 percent. In 2013 comapred
to start-up year of companies on average the
employment grow about 47 % cumulative.
Table 7.1 presents the employment status of
SMEs. The majority of SMEs employees
work on a full time bases (71.29%) while
remaining share belongs to other part time
types of employment such as permanent
part time employees, seasonal work and
other specifc arrangements with or without
contracts. This fnding indicates that SMEs did
not take full advantage of other fexible forms
of employment. However, as we can see from
the data there is an increase by around of
10 percent of part time employees in 2013
coampring to 2012. It seems that SMEs started
to think for more fexible type of employment
arrangement such as part time contracts to
reduce their cost. There is an obvious increase
regarding the seasonal employees with or
without contract.
7. Human Resources
Table 7.1: SME employment status in percentage
Description
% share of
number
of employees
2010
% share of
number
of employees
2011
% share of
number
of employees
2012
% share of
number
of employees
2013
Full time employees 92.2 93.3 72.3 71.29
Permanent part time employees 1.1 4.0 8.6 18.41
Seasonal employees with
contract
5.1 1.9 18.2 8.89
Seasonal employees without
contract
1.7 0.8 0.9 1.41
Total 100.0 100.0 100.0 100.00
27 Research report
Regarding employees qualifcations, fndings
indicate that the largest number of employees
is more likely to be qualifed from gymnasium
and other professional secondary school
education level which for 2013 is around 62
percent (around 68.6 percent in 2012). The
share of employees with university level
education is around 27 percent, unqualifed
employees around 62 percent. Going
down from the highest educational level to
lowest, survey fndings show that males are
less educated than women almost in each
employment category exept for the category
of unqualifed workers. Average salary in the
private sector is 287 euros and is psotivly
linked with educational attainment.
Table 7.2: Education of employees by gender and average salary (2013)
Educational Level M F
Share in total
employement
Share of male versus female
in educational category
Average
salary
University 27.02 27.28 27.08 74 438
High school 0.44 0.93 0.93 58 278
Secondary school 9.90 9.21 9.21 76 222
Unqualifed 62.63 62.58 62.58 75 210
Total/average 100.00 100.00 100.00 287
SME management
The SME literature pointed out the importance
of human capital on entrepreneurial success.
2

BSCK questioner contained questions regarding
the managerial structure and their educational
level. The survey fndings demonstrate that SME
managers with university level education compose
36 percent, with secondary level education 28
percent and with primary education the rest.
Comparing different managerial positions and
their educational level, several differences are
observed. As the majority of owners of small
businesses are usually general managers, they
have a major share of managerial positions with
secondary school. In other areas of management
practice where certain types of specialized
management tasks are required to be performed
such as operations, fnance and marketing
(that usually go beyond owners managerial
capabilities) more people with university degree
education are found. Going back to the earlier
section in the report in which we discussed about
the ownership this fnding again reconfrms the
conservatism approach in delegating tasks and
suggesting reluctance of SME owners to divorce
ownership and management which is supposed
to increase managerial capabilities of frms and
hence support SME growth.
2
For more details see Krasniqi, B (2012).
Current and future growth plans
In 2013 only 19.65 percent of surveyed enterprises
have employed additional employees compared
to 23.95 in 2012. We asked entrepreneurs about
their precpetion regarding the quality of newly
hired staff. The results are presented in the Table
7.3 show that the employees educated abroad
show are rated as the best employes by their
employers in terms of thei qualities. Intresting,
the graduates from Public University of
Prishtina are rated better than those from foreign
universities in Kosovo.
Educational institution Percentage rated as very satisfed with employees
Foreign university (abroad) 33.9
Foreign university (in Kosovo) 19.2
Public University in Kosovo 35.0
Private University in Kosovo 8.5
Training and consultancy
Training of employees is an integral part of
human capital development at managerial and
non - managerial levels. From survey fndings we
observe that only 33.06 percent of SME managers
have completed some type of training for
management and business practice in 2011 (Table
7.4). In addition we observe that even a smaller
proportion of them have managers with previous
managerial experience in other organizations.
Table 7.3: Training, experience and consultancy services
2011
2012 2013
Responses
Have you or your
mangers attended
any training in the
area management and
business? (%)
Have you used
any type of
consultancy from
other institutions/
organizations? (%)
Have you used
any type of
consultancy from
other institutions/
organizations? (%)
Have you used
any type of
consultancy from
other institutions/
organizations? (%)
Yes 23.09% 14.59% 33.06% 35.5
No 76.91% 85.41% 66.94% 64.5
Total 100.0 100.0 100.0 100
Regarding the consultancy services that SMEs in
Kosovo make use of, we observe unsatisfactory
results as only 33.06 percent in 2012 and 35.5
percent in 2013 of enterprises declared that
receive some type of consultancy services from
other organizations. SMEs seem to enjoy only
limited benefts from consultancy although this
trend is increasing. However, from companies
that received consultancy only 42.2 percent were
satisfed with the quality of consultancy services
raising question about the quality of consulting
frms in Kosovo.
29 Research report
8. Business Environment
Business is one of the most important tools
for economic development and stability.
Strengthening the business environment in
Kosovo is a mechanism that would support
an increase of foreign direct investments
and would accelerate the institutionalization
of competitive conditions for both domestic
business growth and external businesses
investments in Kosovo (Business Environment
in Kosovo, 2012).
The extant fndings explain that dynamic
growth of the new private sector, particularly
of Small and Medium Enterprises has been
one of the key driving forces behind the
economic recovery in transition economies.
Furthermore, the existent research on the
experience of other TEs asserts that the
promotion of entrepreneurship and small
frms remains the single solution to promote
economic development.
Unlike majority of the TEs, Kosovo has
not been very conductive for SMEs, and it
continues to face an unfriendly environment.
Kosovo continues to face issues in creating
new institutions and a favorable business
environment coming primarily as of the war
consequences, diffculties of transition process
along with privatization, quality of institutions,
etc. Yet, as presented on table 8.1, market of
Kosovo possesses several other obstacles to
the development of SMEs. Table: 8.1 shows
the obstacles to the development of SMEs
as perceived by the entrepreneurs, and the
comparing of the results among 2010, 2011,
2012 and 2013 BSCK surveys. The results are
presented in average where 1- is not an obstacle
and 5- is the major obstacle the higher the
score the more obstacle is posing for SMEs.
Table 8.1: Obstacles to business
Obstacles to business 2013 2012 2011 2010
Strong competition 2.57 3.02 3.95 3.84
Informal economy/black economy 2.68 2.64 3.81 3.92
Corruption 3.04 2.54 3.55 3.79
Taxes too high 2.57 2.53 3.58 3.64
Lack of market demand 2.96 2.40 2.63 2.94
Crime ,robbery and anarchy 2.29 2.26 3.21 3.05
Law enforcement 2.31 2.25 3.22 3.3
Sufcient and adequate Laws 2.26 2.23 2.93 3.15
Fiscal evasion 2.27 2.22 3.34 3.41
Administrative burdens 2.23 2.18 3.18 3.07
Supply with electricity 1.68 2.10 3.57 3.33
Delayed collection of debts 2.09 2.05 2.68 2.79
Access to fnance 2.98 1.99 2.58 2.43
Insufcient capacities 2.04 1.97 2.22 2.17
Supply of materials, machinery and
equipment
1.92 1.84 1.98 1.98
Political instability 2.3 1.81 2.88 3.13
Transport 1.53 1.70 1.64 1.8
Lack of information concerning business 1.62 1.54 1.87 1.85
Employee skills 1.55 1.42 1.59 1.53
Business licensing 1.49 1.40 1.65 1.65
Managerial skills 1.13 1.04 1.35 1.22
31 Research report
Across all years the results showed that
entrepreneurs were more concerned with
constrains related to the external environment
rather than with internal factors such as managerial
or employees skills, which were ranked at the
very bottom of the lists of constrains. In 2012
entrepreneurs showed their concerns much
more with constrains related to the corruption
and other fair business related barriers.
In BSCK 2013 survey entrepreneur perceive
the managerial skills, business licensing and
employee skills as lest obstacles for operation
and growth of their businesses.
Other obstacles ranked at the top of the
obstacles list include political instability,
access to fnance, delayed collection of debts,
supply with electricity, administrative borders,
fscal evasion, lack of law enforcement. These
obstacles are external factors and they illustrate
the very poor institutional environment for
doing business in Kosovo.
All these external obstacles that are ranked
higher in the table create an uncompetitive
business environment where the performance
of the frms in the market does not refect
the real performance achieved through
building competitive advantage based on
effcient use of resource, rather than these
circumstances indicate the ability of frms to
engage in informal economy, tax avoidance,
and corruption. Furthermore, these obstacles
lead to the increased cost of doing business
for frms that operate offcially compared to
their counterparts that operate informally or
partially informally.
Regarding the change in ranking of the
business obstacles, in 2013 the obstacles that
have the highest increase . Based on the results
we can say that external obstacles compared
to the internal obstacles are considered much
more important by the entrepreneurs. But
many obstacles with an average more than 3
are external and directly related with the quality
of the state institutions, removing or reducing
these barriers is an essential step and must be
the main objective for all Kosovos institutions.
The most notable imporvment has been
achieved in infrastructure and transportation.
This is lindked with huge investemnt of
goverment and hence imporvments of roads
and their benefts to businesses. To conclude
with, the current SMEs situation in Kosovo is a
result of the state institution, thus, institutions
have the main responsibility toward the
enhancement of SMEs current position.
Social capital that takes the form of norms,
trust, and networks is one of the main
factors that affect SME development and
competitiveness enabling individuals and
organizations to bond together and bridge
gaps. In particular some researchers such as
Aidis et al. (2008) argue that in an environment
of weak formal institutional, enforcement
and high corruption, business interactions
based on trust are especially important. This
is because the frms need to develop informal
institutions in order to compensate for the
lack and/or inadequacy of formal institutions.
The BSCK surveys proclaim that entrepreneurs
ranked very high the importance of social
capital for the development of their business
although this importance is declining (Table
9.1). In 2010 and 2011 more than 71 percent
respectively 74 percent, whereas in 2012 more
than 65 percent and in 2013 more than 69.3%
think that contacts with family, friends and
business associations are very important for
the development of their business.
In addition, the BSCK SME survey included
other questions regarding trust in business
and its importance for businesses. On these
questions, entrepreneurs were asked to rank
the level of trust with their collaborators.
Results reported in Table 9.2 show that in
the surveys of 2010 and 2011, 41.6 percent,
respectively 40.2 percent of respondents
declared that they have maximum trust in their
partners. Yet, the survey of 2013 declares a
slight desreasein the trust level (from 5.8 in
2012 to 4.1. in 2013). However, the maximum
9. Social Capital
Table 9.1: Importance of social capital (How important are contacts with friends, family and business
associations)
Importance of social capital
(How important are contacts
with friends, family and
business associations)
% 2010 % 2011 % 2012 % 2013
Not important 2.6 5.7 7.4 5.9
Neutral 25.9 20.0 27.0 24.8
Very important 71.5 74.3 65.6 69.3
Total 100.00 100.0 100.0 100.0
33 Research report
trust level has increased from 43.4 to 47.5 in
2013 from 2012. Linking to the other studies
of transition economies mentioned above,
this might suggest that because of the poor
institutional environment, businesses in
Kosovo use business trust in trying to mitigate
the negative effect of weak institutions.
Table 9.2: Level of trust in business collaboration
Level of trust in
partners
% share (2010 % share (2011) % share (2012) % 2013
Does not trust all 11.4 14.0 5.8 4.1
Neutral trust 47.0 45.8 50.8 48.4
Maximum trust 41.6 40.2 43.4 47.5
Total 100.0 100.0 100.0 100
Table 9.3: Importance of high trust for the compensation of lack of assets by other companies
Level of trust in
partners
% share (2010 % share (2011) % share (2012) % 2013
Does not trust all 12.7 13.7 5.4 12.0
Neutral trust 46.1 46.1 40.2 43.3
Maximum trust 41.2 40.2 54.4 44.7
Total 100.0 100.0 100.0 100
With the purpose of investigating the role of
business trust we included the question is a
high level of trust with other companies an
important factor for compensating the lack
of assets in your company. Even though, in
comparison to the fndings across 2010-2013
the statistics regarding the question above has
decreased signifcantly in 2013. This suggests
that the trust in cooperation with other
businesses may act as a complimentary resource
but with an deacresing trend (Table 9.3).
References
Aidis, R., Estrin, S. And Mickiewicz, T. (2008). Institutions and enterprenuershipdevelopment in Russia:
A comperative perspective, Journal of Business Venturing, Vol. 23, No 6, pp. 656 672.
Central Bank of Republic of Kosovo, 2011. Financial Stability Report no2.2011:
http://www.assembly-kosova.org/
Central Bank of Republic of Kosovo, 2011. Monthly Statistics Bulletin (no.118) [online] (Published on
12 August 2011):
http://www.bqk-kos.org/repository/docs/2011/BMS%20nr.118%20shqip.pdf
[Accessed: 01 October 2011]
Krasniq, A, Besnik (2009), Personal, Household and Business Environmental Determinants of
Enterprenuership, Journal of Small Business and Enterprise Development, Vol. 16, No 1, pp. 146-166.
Krasniq, A, Besnik (2012), Enterprenuership and smal business development in Kosovo,
New York, US: Nova Science Publisher
Ministry of Finance, 2011. Mid-Term Expenditure Framework 2012-2014 [online] (Published on
20 May 2011):
http://mef-rks.org/sq/download/korniza-afatmesme-e-shpenzimeve/korniza-afatmesme-e-
shpenzimeve-2012-2014/4033-korniza-afatmesme-e-shpenzimeve-2012-2014/download
[Accessed: 02 October 2011]
Riinvest (1998), Economic activities and democratic development of Kosovo, Prishtine: Riivest
Institute for DevelomentReserach.
World Bank Doing Business Report 2012:
http://publications.worldbank.org/index.php?main_page=product_info&products_id=24212
Katalogimi n botim (CIP)
Biblioteka Kombtare dhe Universitare e Kosovs
65(047)
Entrepreneurship and Small Business Development in Kosovo in 2013:
research report / Besnik A. Krasniqi... [et al.]. - Prishtin:
Business Support Centre Kosovo, 2014. - 34 f.: ilustr.; 26 cm.
Foreword: f. 3. References: f. 47
1. Krasniqi, Besnik A.
ISBN 978-9951-8872-0-5

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