Small business

2.2 Establishing criteria for intervention and support 
Objective: To set up a framework for intervention by policy makers relating to:
• Creating a market for SME business services; 
• Areas where small businesses are at a clear disadvantage; 

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• Value added opportunities that would go unrealised;
• Integration of the informal sector;
• Institutional weaknesses.
Creating markets for SME business development services does not mean relying exclusively on ‘for
profit’ support. Rather, it means recognising that intervention may be justified when it helps to articulate
SME needs more clearly, so that a clear demand for certain services is created which markets can provide.
It also requires ensuring that commercial suppliers of support are equipped to deal with that demand. In
the microfinance field for example it may be desirable to ‘build’ markets by encouragement of innovative
‘bottom up’ savings and credit schemes while at the same time supporting the efforts of banks to move
downmarket and experiment in micro credit activity. 
The degree and focus of any subsidy to SME development will depend on whether the government
follows an interventionist approach or not. The stage of evolution of the particular country is also an
influencing factor on the policy path chosen. 
In implementing a programme of privatisation and restructuring, it should be recognised that the
restructuring process, if left solely to the market forces, may create substantial unemployment and incur
considerable social costs. Supporting a programme of careful restructuring by the creation of new business
out of the old, engaging under-utilised assets, with or without an element of public subsidy, may add
considerable value to local economies. The experience of the transitional economies in Europe shows the
potential for creating small businesses out of large company restructuring. 
EFFECTIVE POLICIES FOR SMALL BUSINESS - © OECD 2004
2. Policy Setting
32
The former Soviet state company Prompribor in Chuvash, Russia was a conglomerate with electrical and electronic
devices as its core products and a number of related industries and services. It employed 3000 people. In restructuring the
company in the early 1990s, the challenge was to retain business viability under market conditions and create job/business
opportunities for staff. On the basis of a carefully formulated plan, the result of extensive internal discussion, a holding
company (ZEIM) was created. In spite of financial and legal obstacles, ZEIM consisted of 25 linked SMEs by mid 1994 (For
more details, see the source listed in Annex 1), with workers and retired workers in many cases holding the majority of shares.
New markets were being explored and only 200 jobs were lost.
The Tesla plant in Lanskroun, Czech Republic, was the only producer of capacitors in Czechoslovakia, and of machinery
for that purpose. After central planning was abolished, AVX Kyocera gradually took over the plant and a process of selective
restructuring took place. The combination of gradual change and a positive outlook for the long-term viability of operations
encouraged many former employees (the average qualification level was high) to set up their own small supplier firms for
AVX Kyocera. After a few years, these local suppliers were able to compete with Japanese suppliers.
The institutional and regulatory structure is often based upon large company norms. Informal businesses
or micro businesses will therefore find it difficult to move into the more formal sector and grow. This justifies
the creation of regulations and organisations focusing specifically on small enterprises (labour regulations,
aspects of planning, safety, taxation, etc).