1. SMALL AND MEDIUM-SIZED ENTERPRISES AND EMPLOYMENT: THE CASE OF TURKEY Naci GÜNDOĞAN Anadolu University IABE Conference Stockholm, June 06-08, 2008

2. There is a broad concensus in the world about the central role played by SMEs in  economic growth,  competitiveness,  innovation,  job creation and employment,  regional & local development,  social cohesion.

3. SMEs are dynamic tools for  restructuring economies,  combating poverty,  accelarating the social & economic development

4. SMEs are particularly important in supporting economic growth and livelihoods in developing countries, because they:  tend to use more labour-intensive production processes than large enterprises, boosting employment and leading to more equitable income distribution;

5.  provide livelihood opportunities through simple, value-adding processing activities in agriculturally-based economies;  nurture entrepreneurship; and  support the building up of systemic productive capacities and the creation of flexible economic systems, through linkages between small and large enterprises.

6. Table1- Definition of SMEs OrganisationSectoral definition Criterion for definition Micro-sized enterprise Small-sized enterprise Medium- sized enterprise OECDNon-primary private1-9 workers10-99 workers 100-499 workers EUNon-primary privateNumber of workers 1-9 workers10-49 workers 50-249 workers KOSGEBManufacturing industryNumber of workers --1-50 workers51-150 workers HALK BANKManufacturing industryNumber of workers -- 1-250 workers UNDER SECRETARIA T OF TREASURY Manufacturing industry, tourism, agro- industry, mining, education, health, software development Number of workers 1-9 workers10-49 workers 50-250 workers

7. Table 2- The New SME Definition, Which Entered into Force on 18 May 2006 Enterprise category Number of employees Turnover YTL millions Micro-sized10 1 million Small-sized50 5 million Medium-sized250 25 million

8. OVERVIEW OF SMEs IN TURKEY SMEs constitute a major part of the Turkish economy, accounting for a large proportion of the country’s businesses and total employment. They constitute;  99 per cent of all the enterprises,  76 per cent of employment,  8 per cent of export,  38 per cent of value added,  26 per cent of investments.

9. Table 3- Size Distribution of Firms in Selected Countries and Turkey (2003) (%) Country- 910 - 4950 - 250250 - Germany83.014.22.30.5 France92.26.51.10.2 UK86.111.41.80.4 Italy94.54.90.50.1 Portugal92.46.50.90.1 Spain92.26.90.80.1 EU-2787.310.81.60.3 Turkey95.33.090.40.1

10. Table 4- Characteristics of SMEs in Selected Countries and Turkey (2003) (%) Share of SMEs total: USAGermanyJapanUKFranceTurkey Enterprises99.799.099.498.899.8 Employment56.664.081.436.063.176.7 Production43.049.052.025.153.238.0 Export32313822268.0

11. Table 5- Sectoral Distribution of Enterprises in Turkey SectorsNumber of Enterprises %Number of Employees % Wholesale and retail trade794.71546,192.048.264432,38 Manufacturing246.89914,352.043.81532,31 Transportation, Communication and Storage 244.49014,21500.1047,91 Hotel and restaurants163.1129,48526.8458,33 Community, Social and Personel Services 90.9195,28213.4003,37 Real Estate, Leasing and Busines Services 90.4735,26325.6975,15 Construction35.7022,07229.4003,63 Health and Social Services31.5461,8399.9661,58 Financial Services13.5380,79123.1781,95 Education5.6920,3376.4351,21 Mining and Quarrying1.8090,1180.3411,27 Electricity, gas and water1.7030,1057.5910,91 Total1.720.598100,006.325.036100,00

12. EMPLOYMENT IN SMEs Table 6- Distribution of Employment by Firm Size (2003) (per cent) Country- 910 - 4950 - 250250 - Germany19.621.918.739.8 France23.320.716.939.2 UK21.117.914.846.2 Italy47.12212.418.5 Portugal39.823.517.519.2 Spain38.625.814.720.9

13. EU considers SMEs as “a key source of jobs and main driver for innovation”. Europe’s private sector jobs are in:  Micro-enterprise: 29.8 %  Small enterprise: 20.8 %  Medium-sized: 16.5 %  Large: 32.9 %

14.  In Turkey, SMEs currently employ 76 per cent of the labour force.  Indeed, 75 per cent of all businesses employ five people or less.

15.  The employment share of micro enterprises is substantially higher in Turkey than in the developed countries.  While the average European enterprise employs 6 people, Turkish enterprises only 2-3 people.

16. Table 7- Size Distribution of Enterprises and Employment in Manufacturing Sector Countries1-9 Employees 10-49 Employees 50-249 Employees Number of Enterprises (%) Employment (%) Number of Enterprises (%) Employment (%) Number of Enterprises (%) Employment (%) Turkey89.727.68.2420.91.6634.9 Australia72.614.121.820.54.117.8 Denmark71.47.421.118.96.026.3 Finland84.09.011.414.83.622.5 France81.612.014.019.03.422.3 Germany62.16.727.314.58.423.7 Italy83.425.514.431.01.920.8 Japan50.910.839.228.48.529.9 Norway60.68.729.422.97.628.3 Spain78.419.218.431.92.822.6 Sweden85.411.110.815.23.020.7 UK71.710.121.018.85.925.8

17. Table 8- Average Size in Sectors in Terms of Number of Employees in Turkey SectorsSize Mining and Stone Extraction44.41 Electricity, gas and water distribution33.82 Educational services13.43 Financial intermediary activities9.10 Manufacturing8.27 Construction6.43 Commerce2.58 Transportation, storage, communication 2.05 Real estate, renting and business activities 3.60 Health and social services3.17 Other social, community and personal services 2.35 Hotels and restaurants3.23

18. SOME OF THE NEGATIVE FEATURES OF SME EMPLOYMENT IN TURKEY  Informality and unregistred employment  Underemployment  Inadequate training  Low Wages  Lack of employment security  Low unionisation  Common use of child labour

19. CONCLUSION AND FUTURE STUDIES  In conclusion, it is apparent that SMEs play an important role in the Turkish economy due to their large share in the total number of enterprises and in total employment.  The general importance of SMEs is widely recognised, because of their vital role in job creation. But directly linking with SME growth to job quality is an issue remaining to be addressed in future studies.  In short, there are two concerns dealing with SMEs, these are namely job creation and job quality as a whole. These two concerns have to be brought more closely together.

20. THANKS FOR YOUR PARTICIPATION