MOLDOVA – ENTERPRISE SEGMENTATION AND

NEEDS

Competitiveness Enhancement Project II April 2015

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Moldova is pursuing export-oriented growth. But of the total SME universe, relatively few companies are exporting or export-ready.

Category Definition Approx. Number of Companies

Export-Ready The company has everything to be successful, but needs additional sales channels and access to markets

100

Export-Close The 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 Export The 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

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)

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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)

Segment % of Total SME

Value AddedKey

FeaturesSub-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

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Segment % of Total SME

Value AddedKey

FeaturesSub-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 Sectors 52.8%

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)

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The export study recommends specific sectors as the focus for export assistance

• 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

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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

SME Segment Selected Sub-sectors Within Segment SME Performance Strategic 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

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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

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.

0 10 20 30 40 50 60

Marketing weaknesses

Access to foreign markets

Cost of credit

Subcontracting and linkages with large firms

Technical expertise

Innovative product - service development

Access to credit

Raw materials and inputs

Lack of business skills and experience

Information on markets, new technology andproducts

Other

Moderate Problem Major Problem

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Business constraints are also sector-specific

Sub-sector Most 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

Marketing weaknesses

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

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Therefore, there is a continuum of needs to be covered by ODIMM and MIEPO along all sectors and SMEs segments

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

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ODIMM should strategically focus on addressing SME development constraints before export is concerned

Types 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.

• 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

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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

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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

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MIEPO’s strategic profile: advisor in long-term export development

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

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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

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.

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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.

Not ready for exportExport close –

one-step to export