Small Business as a Strategic Direction of the Development of

Economy

Niiara B. Demiroglu

Crimean Engineering and Pedagogical University in the name of Fevzi Yakubov, Simferopol, Russia

Keywords: Entrepreneurship, Small Business Entities, Economic Crisis, Assessment of Entrepreneurship Development.

Abstract: The article provides an overview of small business as an economic category from the point of view of various

opinions of researchers. The development of small businesses in the system of changes in the main indicators

characterizing the state of the Russian economy is analyzed: gross domestic product, investment in fixed

assets, retail turnover. An assessment of the structure of small business entities in the regional aspect has been

carried out to identify the greatest concentration and further formation of areas of support for small and

medium businesses in various federal districts. Conclusions are made about the beginning of the way out of

the crisis and the further growth of the effectiveness of the activities of small businesses, taking into account

the implementation of measures of state support.

1 INTRODUCTION

In a market economy, small businesses and the

medium-sized businesses that have grown on their

basis act as an indicator in assessing economic

transformations and a way out of the current crisis

situation associated with the spread of the new

coronavirus infection COVID-19. Sustainable

development of countries and regions is associated

with it, since, on the one hand, their activity

contributes to the development and maintenance of

the market environment, and on the other hand, small

and medium-sized businesses adapt more quickly to

changes in external conditions. These qualities of

entrepreneurial behavior have become the most in-

demand in recent years, since the speed of innovation

processes in all spheres of activity is increasing, and

the entrepreneurial sector generates ideas for its

adaptation, which will subsequently provide a

qualitatively new development of the economy as a

whole.

At the moment, in Russia, the focus is shifting to

solving environmental problems, increasing export

potential, developing and implementing innovative

solutions.

Small and medium-sized businesses in the

country have been declared as one of the national



https://orcid.org/0000-0003-1519-3549

priorities of the economy, as the foundation for the

emergence of conditions for intensive economic

growth; the main directions and target indicators in

assessing the level of development of small business

entities (SBE) have been identified.

Referring to the norms of the Federal Law “On the

Development of Small and Medium-Sized

Businesses in the Russian Federation” and the laws of

the regions of the Russian Federation on the support

and development of small and medium-sized

businesses, it should be noted that the very definition

of the categories “small business” and “micro-

entrepreneurship” is not presented in the considered

normative acts. Many scientists, both domestic and

foreign, note that there is no definite approach to the

definition of the category of “small business”.

In the works of scientists, small business is

considered as a certain sector of the economy, as a

separate economic category, and even as an integral

economic system (Yershova, et al., 2014). According

to scientists S.E. Grishchenko and A.N. Alisov,

“small business” is defined as a socio-economic

category and is interpreted as a special type of

entrepreneurial activity, the main purpose of which is

to make a profit and meet the demand for goods,

works and/or services. At the same time, the

entrepreneur-owner acts at his own risk on an

innovative basis under his own economic

Demiroglu, N.

Small Business as a Strategic Direction of the Development of Economy.

DOI: 10.5220/0010665400003223

In Proceedings of the 1st International Scientiﬁc Forum on Sustainable Development of Socio-economic Systems (WFSDS 2021), pages 159-164

ISBN: 978-989-758-597-5

159

responsibility and seeks to rationally use the available

resources and socio-economic conditions (Alisov,

Grishchenko, 2003).

F.F. Khamidullin defines “small business” as an

economic system, noting that “… it is a complex,

probabilistic, dynamic system, covering the processes

of production, exchange, distribution and

consumption, material goods, and like any complex

system should be considered in different aspects. If

we consider it from the point of view of material

production, then its input is the material flows of

natural and productive resources, information, the

output is material flows of consumer goods, services,

products intended for accumulation and replacement,

goods for export, as well as production waste. In the

socio-economic aspect, its input is certain socio-

economic relations of people in society, the output is

the production relations reproduced and developed by

the system, the content of which is determined by the

regulated and self-regulated ratio of the elements of

property ”(Khamidullin, 2006).

E.V. Romanenko defines the category of “small

business” as a separate sector of the economy that

occupies a certain place in the socio-economic space,

which is a specific systemic formation (Khamidullin,

2006).

Within the framework of this study, we propose to

understand “small business” as a complex of socio-

economic and legal features inherent in small

enterprises that meet the criteria defined by Federal

Law No. 209-FZ, and the concepts of “small

business” and “small entrepreneurship” are

considered synonyms, due to the similarity of their

inherent phenomena and processes. The criteria for

classifying business entities as small and medium-

sized enterprises are systematized by the author in an

earlier study (Demiroglu, 2019). The close attention

to the development of small business and the

formation of its proper support are a sign of the

success of Russia and other states, which indicates the

importance of small business for the economy and

social sphere of countries at different stages of

development (Blinov, Rudakova, 2014). Sustainable,

balanced development of the small business sector

indicates a harmonious policy of the country in

relation to small business, a healthy economy, and

trends of successful development. Small enterprises

are an integral part of the system of socio-economic

relations and a part of the economic structure, create

jobs, healthy competition, form the basis for a

technical breakthrough (Blinov, Rudakova, 2014).

The problem of economic contradictions between

the goals of the SBE and the state is not only scientific

but also practical. The digitalization of small

businesses has increased dramatically in 2020 and,

according to experts, can lead to a significant

reduction in the demand for workers in many

professions. In this context, the problems of the

formation of an entrepreneurial environment and the

inclusion of small and medium-sized businesses in

the strategies for transforming the Russian economy

have not been sufficiently studied.

The aim of the study is to analyze the main trends

in the economy of the country and assess the role of

small and medium-sized businesses in solving current

problems and strategies for the integrated

development of the Russian economy.

2 RESEARCH METHODOLOGY

To achieve the stated goal of the study, we analyzed

statistical data on the development of small and

medium-sized businesses in Russia as a whole and in

the context of organizations in federal districts.

To identify the relationship between the indicators

of the development of the SBE and the dynamics of

macroeconomic indicators of the state of the country's

economy as a whole, mathematical and statistical

methods were used.

3 RESULTS OF THE STUDY

It should be noted that the growing role of small and

medium-sized businesses in the country's economy,

in the formation of the prosperity of society, is

primarily associated with their performance of the

economic and social functions and is natural. Despite

the dynamic development of small businesses, there

are a number of reasons that restrain them. To identify

the reasons, it is proposed to use a functional-

integration approach, which allows in the future to

determine measures to support small businesses in

terms of the functions of the support infrastructure

and, at the same time, due to objective reasons for

reducing resources for creating an infrastructure for

supporting small and medium-sized businesses, to

integrate functions into groups in order to concentrate

resources for the solution of large-scale tasks and the

effective implementation of the very functions of

infrastructure support. In terms of infrastructural

support, the integration approach makes it possible to

combine efforts, increase the effectiveness of control

and regulation, and create strong economic relations

in the interaction of infrastructure organizations.

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In the modern world, it is impossible to imagine

separately organizational processes without their

technical support, just like providing information and

bringing it to individual consumers without providing

consulting services. The knowledge obtained as a

result of training and retraining of personnel is

transformed at the enterprise into an information

resource, due to which the function of training and

retraining of personnel is recommended to be

included in the information and consulting group.

Norms and law define the restrictions, duties,

responsibilities and rights of entrepreneurs, in fact,

what are classified as formal institutions. Economic

processes include financial aspects and are

inseparable from each other. The very existence of the

reasons restraining the development of small

enterprises is determined by political, economic

conditions, the cyclical nature of the production of

products (works, services).

4 DISCUSSION

The study of the degree and speed of adaptation of

SBE to changing conditions can be carried out on the

basis of comparing the dynamics of economic

processes over the past few years in Russia as a whole

and by type of business. During this period of time

(since 2015), stable work was noted in the country's

economy, the criteria of the crisis were manifested

and tendencies were formed to get out of it. The crisis

phenomena were accompanied by a decrease in the

gross domestic product, industrial output, investment

in fixed assets, retail turnover, real money income of

the population – this is the period of 2020. The

positive dynamics of the main economic indicators

can be considered a manifestation of positive trends

in the development of the economy (Table 1).

The share of small and medium-sized businesses

in the gross domestic product of the Russian

Federation is a relative indicator characterizing the

contribution of the activities of small and medium-

sized businesses to the formation of the gross

domestic product. It is counted on an annual basis for

the country's economy as a whole. And it is calculated

as a quotient of dividing the total volume of gross

value added in current prices for all sectors of the

national economy created by small enterprises

(including micro-enterprises), medium-sized

enterprises and individual entrepreneurs by gross

value added in basic prices of all economic entities of

the economy.

Table 1: Dynamics of the main indicators characterizing the

state of the Russian economy for 2015-2020 (as a

percentage of the previous year).

Indicators 2015 2016 2017 2018 2019 2020

Gross

Domestic

Product

(constant

prices) 98.0 100.2 101.8 102.8 102.0 97.0

Share of

small and

medium-

sized

businesse

s in gross

domestic

product,

(current

prices)

no data no data 22.0 20.4 20.8 no data

Fixed

capital

investme

nts

99.7 106.1 108.7 111.0 108.7 104.1

Retail

turnove

102.7 90.0 95.2 101.3 101.9 96.8

The economy of small and medium-sized

businesses is characterized by the same dynamics in

terms of the number of entities (Table 2).

Table 2: Dynamics of the number of small and medium-

sized businesses for 2018-2021 (as a percentage of the

previous year).

Business

entities

2018 2019 2020 2021

TOTAL 103.0 100.0 97.9 96.1

including

legal entities

of which

micro-

enterprises 100.1 96.7 93.6 93.5

small

usinesses 99.6 93.4 88.6 96.1

medium-sized

enter

rises 100.0 92.7 90.5 103.8

individual

entrepreneurs

of which

micro 105.7 103.3 101.9 97.7

small 98.0 97.9 95.8 100.8

medium-size

88.1 90.1 95.3 101.6

It should be noted that, in general, there is a

decrease in the number of micro, small and medium-

sized entities for the entire period of the study,

especially a sharp decrease is observed in 2020.

However, in 2021, there is already a trend towards an

increase in the number of business entities, namely,

small and medium-sized legal entities and individual

entrepreneurs.

Small Business as a Strategic Direction of the Development of Economy

161

Consequently, SBE began to reduce their

activities, and in this regard, we can talk about a

higher speed of response to the environmental factor.

But the thesis of a more rapid adaptation of small

businesses to the changing conditions of the external

environment is not confirmed – the beginning of

cautious growth coincides with the positive dynamics

of the economy as a whole. To a greater extent, we

can say that in times of crisis, the organizations that

have more funding at the initial stage are more stable.

Next, we will consider the structure of small and

medium-sized businesses in the context of federal

districts for 2020 (Figure 1).

Figure 1: The structure of small business entities in the

context of federal districts of the Russian Federation for

2020,%

(Unified Register of Small and Medium

Enterprises).

The conducted analysis shows that the largest

number of small and medium-sized businesses is in

the Central Federal District i.e. 34.19% and 28.79%,

respectively, of legal entities and individual

entrepreneurs. At the same time, the smallest share in

the structure of SBEs is typical for the North

Caucasian Federal District (2.05% – legal entities and

4.34% – individual entrepreneurs), which is

confirmed by the high level of unemployment in the

constituent entities of this federal district.

It is expedient to single out four main trends in the

development of Russian small business in modern

economic conditions:

 development in the intermediary sphere and

sectors that do not require significant capital

investments;

 close interaction with large enterprises

through the systems of cooperation ties and

subcontracting. The most common forms of

interaction: cooperation ties, subcontracting, leasing,

franchising;

 concentration of innovative small businesses

in business incubators based on technology parks and

technology-innovation zones associated with the

entrepreneurial need for an innovative infrastructure;

 import substitution and export-oriented

activity of small enterprises is a trend that has

developed under the influence of external factors.

The development of small businesses in modern

realities is constrained by four problems:

administrative barriers, insufficient funding, lack of

qualified personnel, and difficulties in selling

products.

It is necessary to summarize several ways that

small business entrepreneurs can take note of in their

activities to reduce the negative impact of corruption:

knowledge of the laws; knowledge of the

characteristics of the behavior of corrupt officials, the

use of the opportunity to “get ahead” or “bypass”

them; striving to be an honest and decent entrepreneur

in an economic sense; leveraging participation in

business communities to solve problems; the use of

official opportunities of state support for small

business.

Lack of funding significantly complicates the

functioning of small businesses. Possible solutions to

this problem include the use of the following

alternatives: leasing packages of banking services;

instruments of state support in the form of subsidies,

grants, subsidies, etc.; microfinancing; participation

in professional exhibitions and fairs in order to find

an investor; increasing financial literacy for optimal

use of own funds and reducing the volume of

accounts payable.

As for the problems of product sales, it is

connected, on the one hand, with the imperfection of

the logistics system for servicing small entrepreneurs,

on the other hand, with a low level of financial and

economic literacy of entrepreneurs. It is advisable to

solve this problem at the national level, through sales

promotion tools: assistance in partnership with

suppliers and consumers, construction of regional

logistics centers, etc. Entrepreneurs themselves must

think about distribution channels before starting

production, using independent search, participate in

fairs, cooperate with enterprises on a subcontracting

system, and also carry out small-scale sales through

direct contact with the consumer.

The prospects for the development of small

businesses are mainly associated with the main trends

that determine the vector of future development, a

high degree of dependence on external factors, with a

strategic focus of state support for entrepreneurship in

the country.

The main prospects for the development of small

business at the present stage are:

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 import substitution and export-oriented

activities;

 innovative business in special zones of

industrial development;

 increasing the role of business unions and

associations;

 regulation of the proportions of sectoral

development through a system of competitive

selection for government orders;

 expanding opportunities for youth

entrepreneurship.

Prospects for the development of small business

are manifested only if entrepreneurs themselves have

such important qualities as mobility and quick

adaptation to a dynamic market environment, as well

as a certain set of basic and professional financial and

economic knowledge, which makes it possible to

assess the significant situation and build a forecast of

business development in short and medium term.

5 CONCLUSIONS

The study of the degree and speed of adaptation of

small businesses to changing conditions in the

country's economy and their capabilities in solving

current problems and achieving strategic goals in

transforming the country's economy allows us to

conclude that small and medium-sized businesses

demonstrate the economic processes similar in

dynamics to those of the country's economy in

general, but their transformation is more effective

from the standpoint of business, but not from the

standpoint of a socially-oriented state. The

contradictions between the goals of the business

environment and the state are manifested in the form

of mutual claims. The business environment does not

consider the existing measures to develop and support

entrepreneurship as sufficient. Today, in the opinion

of public business structures, small businesses are

generally not interested in expanding their activities,

or they do not have the opportunity. Additional

measures are needed to stimulate the development of

small enterprises and their transition to the category

of medium and large enterprises.

In our opinion, the existing mutual claims are

based on different initial prerequisites for the

interaction “business – state”. State programs for the

development and support of SBE proceed from the

concepts of forming an entrepreneurial environment

from the standpoint of an “economical person” i.e.

their rational behavior will contribute to solving the

problems of the national economy.

Funding for innovative entrepreneurship in Russia

as a segment for the commercialization of innovations

is formed on the basis of a system of startups,

attraction of business navigators and state support

funds based on their selection criteria and investment

conditions. But this applies to a fairly narrow segment

of the existing business environment. For all the rest,

the main sources of financing for innovations remain

credit products and sources of their own funds, which

do not have an upward trend. A mass initiative can be

stimulated by all sorts of benefits and incentives, that

is, by economic methods. Russian legislation

provides for tax incentives (simplified taxation

systems, reduced rates of taxes and fees, etc.).

For the formation of the entrepreneurial initiative

at a higher level and the inclusion of SBE in the

strategies of innovative transformation of the

economy of the country and regions, it is necessary

that one of the main motives of entrepreneurship is

interest in the business process itself, the

development and implementation of technological

and marketing innovations. This is an even longer

process that requires further research.

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