Small business

4.10 Creating SMEs through effective privatisation and restructuring
Objective: To ensure that privatisation processes and the institutions developed for privatisation maximise the
potential for creation of SMEs.  

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There are three major challenges:
1) Recognising that the transfer of assets from public to private hands is not enough to create a market
economy or entrepreneurship. State monopolies in few private hands become private monopolies
giving ownership without responsibilities to shareholders, a situation that makes for corruption and
exploitation. Managers of former state enterprises find it difficult to behave differently in a privatised
enterprise when the culture has not changed. The key to success is the ability to redesign the
organisation to facilitate entrepreneurial behaviour and build the culture of entrepreneurship in the
organisation; 
2) Releasing and supporting the large numbers of potential micro, small and medium sized businesses
‘internalised’ in large state-owned enterprises. The process by which large companies can be
downsized while maximising the potential for the creation of small enterprises has been described
in several documents listed in Annex 1. It helps to avoid the waste of physical and human resources
which is the consequence of stripping a former state enterprise down to the sustainable core of the
business. The process needs careful management over several years, but the reward is the
preservation of employment and the creation of a network of new businesses, which may become
subcontractors to the large organisation or operate independently;
3) Mitigating some of the side effects of privatisation. Again, the potential for the creation of new
independent SMEs should be explored. Many large companies in OECD countries that went through
downsizing and restructuring in the 1980s and 1990s responded to local community and societal
pressures to mitigate the employment effects and co-operated with the government to help former
employees set up businesses for themselves. They made it possible for new and existing small
businesses to move into unused premises and utilise redundant resources, organised seminars on
self-employment for potentially redundant staff and linked with public agencies to help find ideas
and resources for the ideas of those facing redundancy. Some private companies even set up their
own financing and counselling schemes and organised ideas competitions to promote the business
generation process. All these corporate social responsibility efforts can be stimulated by public-
private sector partnerships.
EFFECTIVE POLICIES FOR SMALL BUSINESS - © OECD 2004
4. Stakeholder Development
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Chapter 5.