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9th LUMEN International Scientific Conference Communicative Action &

Transdisciplinarity in the Ethical Society | CATES 2017 |
24-25 November 2017 | Targoviste, Romania

Communicative Action &

Transdisciplinarity in the Ethical Society

Factors Affecting the Performance of Small

and Medium-Sized Enterprises in Romania
Silviu Constantin NASTASIA, Diana Elena TOMA (NASTASIA),
Anca VRÎNCEANU

https://doi.org/10.18662/lumproc.18

How to cite: Nastasia, S. C., Toma (Nastasia), D. E., & Vrînceanu, A. (2018).
Factors Affecting the Performance of Small and Medium-Sized Enterprises in
Romania. In T. Ciulei, G. Gorghiu (eds.), Communicative Action &
Transdisciplinarity in the Ethical Society (pp. 183-191). Iasi, Romania: LUMEN
Proceedings. https://doi.org/10.18662/lumproc.18

© The Authors, LUMEN Conference Center & LUMEN Proceedings.

Selection and peer-review under responsibility of the Organizing Committee of the conference
9th LUMEN International Scientific Conference Communicative
Action & Transdisciplinarity in the Ethical Society | CATES
2017 | 24-25 November 2017 | Targoviste, Romania

Factors Affecting the Performance of Small and

Medium-Sized Enterprises in Romania

Silviu Constantin NASTASIA1*,

Diana Elena TOMA (NASTASIA)2, Anca VRÎNCEANU3

Abstract

Small and medium-sized enterprises, as a main element of any economic system, have a
significant influence on durable development of a state. Moreover, it becomes clearer that
SMEs have gained a significant role in terms of employment, development of innovation and
wealth creation. However, in many cases, enterprises face problems and, as a result, some
perform dismally and fail to grow while others end up to bankruptcy. Given the high failure
rate, it is of big interest to research the factors that may enable the SMEs to survive and
develop up to the point they perform. The growth of an economic entity is in dependence with
multiple factors, of which identification and evaluation is determinant for any proper
appreciations of enterprise’s future perspectives. The objective of this paper was to examine the
factors affecting business success of small and medium-sized enterprises listed in Romania such
as management experience, access to infrastructure, access to finance and access to relevant
information in affiliated sector of activity. Thus, the paper aimed to highlight the factors that
impact enterprise’s achievements and to stress out the importance of entrepreneur’s attitude
towards the influence of such factors on performance of the enterprise.

Keywords: SME; performance; development; factors.

Introduction
Small and Medium scale Enterprises (SMEs) are defined [4] as
businesses which employ less than 250 staff and have an annual turnover
of less than €50 million, and/ or their balance sheet total is less than €43

1 Valahia University of Târgovişte, [email protected].

2 Valahia University of Târgovişte, [email protected].
3 Valahia University of Târgovişte, [email protected].

https://doi.org/10.18662/lumproc.18
Corresponding Author: Silviu Constantin NASTASIA
Selection and peer-review under responsibility of the Organizing Committee of the conference
 Silviu Constantin NASTASIA, et. al. | LUMEN Proceedings 4 | CATES2017

million. Further, the SMEs may be divided in three categories depending

on size, thus there can be distinguished: micro, small, and medium sized
enterprises.
SMEs makeup a large part of many economies, reason why they
are considered to be the backbone of any economy having in view that
in some, SMEs contribute to more than 50% of the Gross Domestic
Product (GDP).
In the European Union (EU28), SMEs have a significant
contribution in the non-financial business field and make over 99% of all
enterprises, 57.4% of added value, and 66.8% of all employment.
As of 2015, around 23 million SMEs of EU28 generated €3.9
trillion in added value and employed about 90 million people, which
accounts for two thirds of EU28 total employment and up to three fifths
of added value in the non-financial business sector. The majority of
SMEs are small enterprises with less than 10 employees, accounting for
almost 93% of all enterprises in the non–financial business sector [2].
Developed and developing countries acknowledge that SMEs
have reached to serve as a key instruments to be used against economic
and social issues and, as well, to achieve expansions objectives.
Consequently is not surprising that political strategies have often
perceived SMEs as the base of economic revitalisation.
The importance of SMEs is particularly underlined in their ability
to provide services, reasonably priced goods, employment and income to
a certain number of people. Therefore, there should be a growing
interest by the government for the improvement of the performance and
growth of the small and medium sized enterprises.
Even in the current uncertain economic context, one of the prior
objectives of each enterprise remains to improve the value of
investments, fact that may be observed by studying the rates of
performance.
The performance rates of enterprise are reflected primarily by the
enterprise's accounting results. Thus, an increase in turnover may lead to
an increase in profitability but the same can be applied backwards in the
event of a production decrease.
Nevertheless, the company's performance is not only influenced
by internal factors, but external factors as well, like entrepreneurships
characteristics of the owner, strategy, structure and business
environment [1].
The research seeks to identify whether economic factors,
availability of relevant business information and management factors
affect the performance of SMEs.

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The authors have conducted the paper starting from the

hypothesis according to, poor owners competences such as general
management, marketing management or financial management are the
main factors leading to poor performance of SMEs.

Literature review
Although studies have been conducted about the relationship
between small-business development and economic growth in developed
countries, fewer researches of this kind where conducted for the
developing countries. The research in SMEs performance and
development are necessary in countries like Romania in order to
determine which factors are having the biggest weight in ensuring the
success of the enterprise.
It is also essential to understand how the factors are influencing
small-business performance in Romania considering they are, to some
extent, different from those facing Western Europe countries. Main
differences are highlighted for factors like: availability of business
information, access to finance, availability of managerial experience and
access to infrastructure.
In a study, Cragg and King [4] formulated a model involving the
relationships between different factors and SMEs financial performance.
The model explains that the main factors that are affecting the financial
performance are external factors, like markets in which the enterprise
operates and internal factors like managerial practices. According to the
study, the model is not quite accurate in terms of identifying all the
factors contributing to the growth of the SME, as a key role is played by
the characteristic of manager as antecedent variable.
In another study, Deakins and Freel [5] state that not much is
known about the growth process followed by an enterprise. On the
other hand, what can be asserted with certainty, with respect to the
approach that SMEs take, is the implementation of a management style
based on experience gained through daily operation, unplanned
management and the reactive approach instead of a proactive approach.
According to some other research [6], the performance of a
company is related to the attitude of the manager that may be
characterized as proactive, innovative or risk taker, last one showing a
tendency to challenge something, being an attitude that may be related to
commitment to deploy resources with the intention to register
appropriate results.

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In what regards the proactive attitude, the manager that shows

such behaviour is interested in predicting the future and identifying
appropriate measures in the future. This type of manager will be more
prepared to face changes, with well planned strategies, which will lead
the owned enterprise to perform better than the competition.
In Romania, in some studies [7], have been used econometric
models to scale the performance of the companies listed at BVB
(Bucharest Stock Exchange) which highlighted the implication of
intangible assets over the performance of the company, expressed
through price earnings ration, earning per share or the average market
price. Whatsoever, few researches have been conducted regarding the
factors affecting the performance of SMEs sector in Romania.

Factors affecting the performance of SMEs in Romania

Performance of enterprises in Romania depends on several
factors that may be divided into two categories as dependent and
independent variables. Independent variables refer to: availability of
managerial experience in related field of activity, access to relevant
business information, access to financial resources and access to
infrastructure. Government policies and regulations are included as a
moderating variable. The relationship of the variables is displayed in the
below figure.
SME
PERFORMANCE

Government
Regulations

Access to business Availability of Access to

information Access to finance managerial infrastructure
experience

Fig 1. Factors affecting SME performance.

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 Access to business information

Identified as one area that requires attention from governments,
access to business information in developing countries is required if the
SMEs sector is to reach sustainable development and growth. However,
access to information factor has not been given the required attention.
The establishment of an enterprise and the effective use of
quality business information have been set as crucial in achieving long-
term and sustainable economic growth for developed and developing
countries, as limited access to appropriate business information
continues to be an obstacle to competitiveness.
According to Moyi [8], the main source of business information
for an enterprise includes media, government publications, competitors,
business and industry associations. The source of information that
entrepreneurs rely on is diverse and depends on the nature of the issue
and constrains involved in managing business operation.
While in developed countries the SMEs enjoy easy access to
business information services because of well developed information and
communication technologies, the SMEs from developing economies face
many challenges due to limited and expensive access to latest
information and communication technologies.
The situation is faced also by SMEs registered in Romania, many
problems in achieving performance arising from limited access to
business information. The government and business service providers
have a determinant role in sustaining and making available to enterprises
an easy access to business information given the challenges facing the
SME sector.

 Access to finance
Limited access to instruments of financing is indicated frequently
as a key issue for SMEs. Financing restraints manifest in Romania in vary
ways, as the capital markets constrain the start-ups to manage only with
self-financing or loans granted by relatives or friends, the amounts
gathered not being enough in order to allow the enterprise to run its
business within optimal conditions.
Nevertheless, the absence of long term structured credit facilities
force enterprise managers to rely on short term credit facilities, which
may have higher costs attached and are not necessarily in line with
financing needs and optimal balance between short and long term debt.

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Managing to obtain finance for start-up business may be one of the

biggest drawback that many managers face, obstacle that is not easy to
pass not even after getting started, as another issue occurs, that of getting
enough finance to sustain business growth..
The issue related to obtaining finance includes, among others,
insufficient information about the source of financing, bank restrictive
credit conditions, lack of collaterals or track record required by the
lender, field of activity that may be restricted for financing or not
included in bank’s priority, and so on.
The fact that an enterprise is not able to obtain financing or
enough financing according to its needs, may impact over the capacity of
the enterprise to develop or upgrade in order to meet demands or face
growing competition.
To some extents, the issue behind enterprise being deprived from
funding, may be attributed to financial institutions choice to lend
primarily governments, which provide less risk together with better
returns.

 Access to infrastructure
Developing countries are often missing appropriate physical
infrastructure, reason why their fast and substantial development is
essential in order to allow SMEs to perform. In countries like these,
excepting some major cities or capitals, most areas are missing modern
means of transportation and have limited access to water supplies and
electric power for agricultural and industrial use.
The improper development of the physical infrastructure is one of
the main causes of reduced level of investments and lame performance
of the SMEs. Lack of proper development of infrastructure, regardless
of its nature, makes difficult for an enterprise to function properly, thus,
some entrepreneurs may find it inappropriate to engage in some type of
business or engage at all.

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 Availability of managerial experience

Managerial skills, measured through the level of education,
experience or knowledge, have a positive impact on the performance of
SMEs.
In a research [12] intended to identify the importance of
management competence for the SMEs success, the absence of
managerial skills was identified to be the main factor why SMEs fail. It
has been revealed that small enterprises owners have basic knowledge of
accounting and show gaps regarding financial planning. In addition,
many of these managers have little interest in proper valuing the
information extracted from financial statements.
According to a study conducted by King and McGrath [9], the
majority of managers who own or administrate a SME don’t have
enough or proper educational background, thus they are not prepared to
carry out managerial decisions for their enterprises.
Given that typical managers of SMEs don’t have a management
approach bases on know-how or knowledge, except through a process of
attempts and errors, their managerial style is rather intuitive than
analytical, concerned on day-to-day operations that a long-term approach
and more opportunistic than strategic.
Bennett [10] defined management as a concern upon the
deployment of material, human and finance resources with the design of
organization structure, while other studies reflect that entrepreneurs
often have good ideas and are competent but they do not have a clue on
how to run a business and have no underlying appreciation of business
fundamentals.
Personal characteristics of the owner/manager were interpreted by
Larson and Clute [11] as lack of experience among small business
managers who happen to be the owners led to poor performance and
consequently to business failure.
Nevertheless, there has been identified a strong relationship
between the manager/owner experience relevant to the field of activity
and the impact upon enterprises existence and development. The impact
is particularly pronounced for micro and small firms operating in Eastern
Europe or, more generally, in developing countries.

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Conclusion
Although all the factors have a strong relevance, management
quality may be the most important factor for an enterprise to be
successful, enabling group or business goals to be accomplished through
the functions of planning, staffing, directing, controlling activities,
coordination and directing.
In case of Romania, many of the SMEs have managers or
shareholders with gaps in terms of managerial capabilities due to lack of
experience or proper training, reference could be made including to their
level of professional and scholar education.
Given the particularities of the SMEs listed Romania, availability
of managerial experience represents the factor which may affect the most
the performance and future of an enterprise. The availability of
managerial experience has a positive impact, ensuring enterprise
innovation and reducing uncertainty about the future results, providing,
as well, knowledge about how the enterprise should deal with potential
unanticipated issued, like a financial crisis.
Improving the managerial competencies may have, in the future,
the most positive impact on SMEs success. It is therefore crucial for the
Romanian government and the small business sector alike to take note of
this challenge hindering small business success and realise that without
adequate managerial competencies, the small business sector will be
unable to achieve its full potential.
The heightened awareness of the effects of managerial
incompetence could result in Romania experiencing increased economic
growth, job creation and social stability for the country as a whole.
By asserting the way internal or external factors relate to the
performance of SMEs, this study is intended to provide useful insights
on the linkages between management quality and business success. These
considerations underline the importance of management skills to assure
enterprise existence, form survival to competitiveness and development.
To date, major factors affecting the performance of small and
medium enterprises listed in Romania or Eastern Europe countries have
not been sistematicaly investigated. Given that existing studies have little
focused their attention on SMEs, with emphasis on large companies,
therefore the chalanges faced by SMEs not being properly investigated,
the present work is aimed to bridge this gap.

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