1. MOLDOVA – ENTERPRISE SEGMENTATION AND NEEDS Competitiveness Enhancement Project II April 2015

2. Moldova is pursuing export-oriented growth. But of the total SME universe, relatively few companies are exporting or export-ready. CategoryDefinitionApprox. Number of Companies Export-ReadyThe company has everything to be successful, but needs additional sales channels and access to markets 100 Export-CloseThe company has developed its offering and already works towards exporting; however, it does not have developed corporate marketing tools and do not have export manager 200-300 Not Ready for ExportThe company does not have a product for export up to international standards, or lacks other business elements such as corporate marketing, skills for development and export promotion Thousands Not interested in export or not applicable The company is either not interested in export or works in a non-tradeable sector, but is still important for the internal market Thousands 1 These findings from the Export Study show there is scope to further support the companies, to help meet Moldova’s economic goals. In 2009-2013, there were almost 35,000 of active SMEs in Moldova. This short presentation summarizes the findings from the Export Study and SME Segmentation study developed under the CEP II Project Preparation Grant (TF016060)

3. The SME universe, which needs more assistance than larger enterprise, can be broken down by segments defined by key features Present the SME segmentation, with more detail on the sub-sectors included in each group. Highlight visually where the target export sectors are from the export study. You can also incorporate some of the details from figure 4.1 of the Segmentation report (page 50) 2 Segment % of Total SME Value Added Key Features Sub-sector Examples #1 - Very Small, Dynamic Manufacturing 2.6%  Medium to highly technological intensive, manufacturing industries with a very small number of SMEs  Strong export orientation, even if largely in the hand of a few (often) foreign-owned firms  Positive SME development in terms of performance variables  Similar degree of SME activity of the peers, but huge productivity gaps  Chemicals and pharmaceuticals  Computers, electronic products and electrical equipment  Basic metals #2 - Emerging Business Services 4.6%  Recently established, modern business-oriented services, including high-tech activities  Fast-growing segment, but limited efficiency gains recorded (especially in high-tech services)  Smaller concentration of SME activity than in the peers and much lower labor productivity in knowledge-intensive services  Computer programming and information services  Activities of head offices  Office administrative support activities Summary SME Segments #3 – Traditional, Restructuring Manufacturing 15.4%  Low technology, labor-intensive industries, with a significant presence of SMEs  Modest SME demographic and employment growth, but significant productivity (and export) expansion  Higher concentration of SME activity (especially in food and beverages) and lower productivity than in the peers  Food and beverages  Textile, wearing and leather  Rubber and plastic  Mineral-based products In red – sub-sector identified as a priority for export promotion

4. 3 Segment % of Total SME Value Added Key Features Sub-sector Examples Summary SME Segments - continuation #4 - Average Business and Households Services 9.7%  Mixture of traditional and modern, professional and less-knowledge intensive services for households and businesses  Positive, but modest SME performance dynamics, in line with SME average  Lower SME presence (especially in knowledge- intensive market and accommodation services) than in the peers  Accommodation and travel agencies  Legal, accounting and advertising services  Entertainment and recreation activities #5 – Slow, Big Sectors52.8%  Domestic market-oriented and little innovative activities, with an important economic role at national level  Positive, but modest SME performance dynamics  Much stronger SME activity in trade than in the peers  Wholesale and retail  Construction  Transport services #6 - Very Small, Declining Services 1.4%  Knowledge-intensive, but ‘outdated’ services, with minimal SME presence  Declining segment, with SME employment losses and productivity contraction  Printing and publishing  Scientific research and development In red – sub-sector identified as a priority for export promotion The SME universe, which needs more assistance than larger enterprise, can be broken down by segments defined by key features (cont’d)

5. The export study recommends specific sectors as the focus for export assistance 4 The sectors are: agricultural products, manufacture of processed food and beverages, electronic and mechanical appliances, of textiles and apparel, and IT&BPO services 5 big industries represent approximately 75% of domestic exports While support to other industries should be directed toward export capacity-building, these priority industries already have experience in export-related matters. They mainly require assistance towards export enhancement Assistance should be split into export enhancement and investment attraction for export development, according to industry needs

6. Other sectors could benefit from a further focus on SME development and assistance: Manufacture of electrical equipment, plastic and rubber products, non-metallic mineral products, computer programing and information, travel agency and other related services 5 SME SegmentSelected Sub-sectorsWithin Segment SME PerformanceStrategic Importance #1 - Very Small, Dynamic Manufacturing Manufacture of electrical equipment  Second highest annual increase in the number of SMEs (8.4%)  Third highest annual growth rate of productivity (9%)  Exponential growth of exports, and limited share of re- exports High: geographically concentrated with an increased level of FDI, with sizable opportunities for positive spillover effects in the local economy #2 - Emerging Business Services Computer programming and consultancy and information services  Highest value added contribution  Highest increase in the number of SMEs among knowledge-intensive services (12% per year)  Second largest annual employment growth rate among knowledge-intensive services (15.4%)  Highest level of productivity Very High: potentially offering widespread gains as the generated technologies often support innovation and productivity across the entire economy #3 – Traditional, Restructuring Manufacturing Manufacture of plastic and rubber products  Only sub-sector recording a significantly positive annual rate of growth of the number of SMEs (8%)  Third highest annual employment growth rate, after textile and leather (6.5%)  Positive productivity growth in line with the segment (15% per year)  Positive net export trend Medium: largely oriented to the domestic market, but with some regional export potential Manufacture of non-metallic mineral products  High contribution to SME value added  Third highest level and positive annual growth of labor productivity (15% per year)  Very positive SME net export trend (growing at an estimated annual rate of 23%) Medium-High: largely oriented to the domestic market, but with some regional export potential, especially considering that raw materials are locally available (cement, clays, gypsum, limestone, sand and gravel) #4 - Average Business and Households Services Travel agency, tour operator and other reservation service & related activities  Second highest increase in the number of SMEs (9% per year)  Fourth highest employment growth rate (3% per year)  Second highest level of productivity and third annual growth rate (9.8%) High: enabler for tourism development, which have significant potential socio- economic impacts, such as employment creation and forex earnings

7. Enterprises have identified their key operating challenges. Cost of credit, accessing foreign markets, linkages with larger firms and lack of technical expertise are among the most severe 6 It is important to note that enterprises stating the cost of credit is a major problem may actually be facing problems related to the capacity of the enterprise to develop and put forth credit-worthy projects, as found in the 2013 WB Enterprise Access to Finance note. Interest rates and spreads in Moldova were in line with comparator countries.

8. Business constraints are also sector-specific Sub-sectorMost Frequent Top-One Most Frequent Top- Three Manufacture of plastic and rubber products  Technical expertise  Access to foreign markets  Cost of credit Manufacture of non-metallic mineral products  Cost of credit Manufacture of electrical equipment  Access to foreign markets  Cost of credit  Marketing weaknesses Computer programming and consultancy and information services  Technical expertise Travel agency, tour operator and other reservation service & related activities  Access to foreign markets  Marketing weaknesses 7 Challenges for which external assistance is demanded For sectors identified as having important growth potential, cost of credit, technical expertise and access to foreign markets are top constraints. External assistance requested by enterprises needs to focus both on management and technical aspects, as well as export-oriented aspects

9. Therefore, there is a continuum of needs to be covered by ODIMM and MIEPO along all sectors and SMEs segments 8 Not interested in exporting or not possible to export Not ready for export Export close – one step to export Export ready ODIMM’s clients MIEPO’s clients

10. ODIMM should strategically focus on addressing SME development constraints before export is concerned T ypes of services that could be provided by ODIMM include: Strengthening management capacity (planning, organization & governance, HR) Support development of innovative products and services, diversification and sophistication Help build technical competencies of companies and employees in priority industries Promote quality standards and certification (knowledge & implementation) Help build general marketing & sales capacities Facilitate domestic market linkages and development of value chains Facilitate access to affordable credit and other funding Priority sectors may be those identified as by the SME Segmentation study as having important potential for economic growth, job creation and productivity enhancement: Assistance should also remain open to all sectors - for new industries to emerge and grow. 9 Manufacturing Electrical equipment, plastic and rubber products, non metallic mineral products, food products and beverages, textile, leather and wearing apparel Services Computer programming, consultancy and information services, business process outsourcing, travel agency, tour operators, other

11. MIEPO should strategically focus on addressing constraints specifically concerning export and investment attraction Types of services that could be provided by MIEPO include: Export enhancement Help develop export manager profession Support corporate marketing development Offer education in export process, industry and quality standards, target market expectations Perform market overviews and information Organize study visits and B2B missions Support export promotion activities Promote country image and brand(s) Investment attraction Inform potential investors about opportunities and Moldova’s business environment Organize site visits to Moldova Provide assistance in setting up businesses by investors and investor after-care Promote the country at specialized investor forums Others to be identified in the forthcoming Investment Reform Map (IFC) and “investment for export development” study 10

12. MIEPO’s target sectors are those currently one-step to export or export ready – as identified by the Export Study: The priority sectors are:  Agricultural products  Processed food and beverages  Manufacturing of electronic and mechanical products Machinery and mechanical appliances Measuring, checking, precision, medical instruments and apparatus Vehicles, and associates transport equipment  Textiles and apparel  IT and BPO services Some assistance should remain open to all sectors to allow for changing competitive advantages and new exporting industries 11

13. MIEPO’s strategic profile: advisor in long-term export development 12 MIEPO: -Identifies needs, obstacles and required efforts -Follows international market demands -Supports new export oriented sectors -Partners with international donors -Advises Ministries on export policies and business climate -Recommends financial instruments -Promotes Moldovan brands

14. Therefore, there is opportunity to expand the range of ODIMM and MIEPO’s programs, based on enterprises’ needs New program areas for ODIMM Technical trainings -Efficient use of energy -Quality management -Consumer health and product safety -Customer relationship management -Marketing and promotion -E-commerce Facilitation of Business Services -Quality management and certification Facilitation of market linkages -Promote networking and industry association -Connect SMEs to domestic value chains 13 New program areas for MIEPO Export manager development -Identify, train existing and new managers -Develop special education curricula Intelligent Exporter Development -Export awareness raising – export forum -Export skills training – export academy -Educational materials – with industry associations Export promotion -Incoming of purchasing organizations -Trade missions and B2B matching Inward investor services -Site visits to Moldova -Assistance setting up a business -Investor after care This list is not exhaustive. It is based on the Export Study and SME Segmentation Study. The findings will be further developed through the CEP II activities to support strategies for each institution.

15. At the same time, there is space for collaboration and coordinating of ODIMM and MIEPO assistance ODIMM and MIEPO should collaborate on helping SMEs upgrade Enterprises at a low level of sophistication/development may work with/receive support from ODIMM and then from MIEPO once they are further developed. Enterprises at a higher level of development may receive assistance from programs run by both agencies at the same time (e.g. improve human resource management capacity or use Credit Guarantee Facility [ODIMM] while exploring new markets [MIEPO]) ODIMM and MIEPO should coordinate and share information, in a collaborative way This will also be further developed through the institutional strategies to be supported under CEP II. 14 Not ready for export Export close – one-step to export