Small and Medium-sized enterprises (SMEs) in Georgia: Institutional Challenges and Prospects for EU Market Integration

Abstract

Small and medium-sized enterprises (SMEs) are the most dynamic and expanding business sector globally. They are extensively studied from many perspectives, and their sustainability and prospects vary by nation, and their sustainability and prospects are different in every country. In addition to being major employers, SMEs in Georgia contribute significantly to the state budget. In order to guarantee their sustainability, the state is developing a variety of financial reseources and supporting institutional mechanisms and financing resources to ensure their sustainability, resulting in their rapid development. Although a lot of elements define the successful activities of business entities, the most crucial among them is a favorable economic environment, which includes an excellent international image of the country, a stable political environment, attractive business regulations, the inclusion of a business-supporting component in state programs, and perfect operating of state institutions.

When it comes to improving the business climate and growing small and medium-sized enterprises, Georgia has challenges that are like those of several other countries. It should be mentioned that despite having the greatest number of small and medium-sized enterprises operating, their GDP contribution is still quite small. Georgia became an EU candidate country in 2023. To fulfill the requirements for full membership, the country will have to make significant institutional and regulatory changes. The hypothesis of the paper is following: the regulations for business entities operating within the European Union differ greatly from those in force in Georgia, which may cause challenges to the process of integration of business entities into the European Union economic space.

In 2023, Georgia was accepted as a candidate for the EU. The country will need to implement substantial institutional and regulatory reforms to fulfill the requirements for full membership. It is also important to mention that in order for Georgian business entities to completely integrate into the EU environment, they must also fully understand the considerable differences between Georgian and EU business legislation. This will not be a simple process. The study's objective is to examine the expected difficulties faced by companies doing business in Georgia from the standpoint of EU membership status. These difficulties include those related to standards, certification, organizational structure, financial accounting, and institutional development. The context of considering Georgia's targets to join the European Union, it is essential to study the expected advantages and disadvantages for the business sector and to formulate significant findings and suggestions which can act as an important document for government organizations and the business community to ensure the complete and organized integration of business entities into the EU. The foundations of the research include an analysis of regulations, in-depth interviews, empirical research on business entities, and an examination of official documents. The study carried out by both Georgian and international academics serves as the theoretical foundation for the publication. Keywords: SMEs; EU; Georgia; EU Market Integration; Opportunities.

Acknowledgement: The article was written in the frame of the targeted  scientific-research project funded by Batumi Shota Rustaveli State University (Georgia), “European Union standards and requirements for small and medium-sized business entities and the possibility of their implementation in Georgia”, Decree: N06-01/25, 20.03.2024.

Keywords: SMEs; EU; Georgia; EU Market Integration; Opportunities