THIS PROJECT IS FUNDED BY THE EUROPEAN UNION THROUGH THE EC UN JOINT MIGRATION AND DEVELOPMENT INITIATIVE

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THIS PROJECT IS FUNDED BY THE EUROPEAN UNION THROUGH THE EC‐UN JOINT MIGRATION AND DEVELOPMENT INITIATIVE

“GEORGIAN DIASPORA FOR DEVELOPMENTS IN KUTAISI”

Market Research Kutaisi, Georgia

Georgia Foundation / Georgian Diaspora (GD) in the Netherlands

Local Democracy Agency (LDA) in Georgia

2010

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Contact details of the consortia: Georgia Foundation /Georgian Diaspora in the Netherlands Local Democracy Agency (LDA) in Georgia Postal address: NL: P.O.Box 19057, 3501 DB Utrecht, The Netherlands GE: Rustaveli str. 124, kutaisi 4607, Georgia Telephone number: (+31 623) 996670 (+995 331) 51551 Fax number: (+31 847) 147160 (+995 331) 51551 Email address : info@geo‐diaspora.nl [email protected]

This publication has been produced with the assistance of the European Union through the EC‐UN Joint Migration and Development Initiative. The contents of this publication can in no way be taken to reflect the views of the European Union, IOM or the United Nations, including UNDP, UNFPA, UNHCR and ILO, or those of their member states.

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3 “ Georgian Diaspora for developments in Kutaisi “ Market Research Kutaisi 2010

Summary

Results of this market research shows a distinct and clear view of business processes of Small and Medium Enterprises in Kutaisi.

Kutaisi has a high rate of unemployment. 24 % and 25 % are employed respectively in Industry and Health sector. 20 % is employed in the education field and 16 % in retail trade. In the Imereti region the amount of Small Enterprises grew in the last years. The outcome of questionnaires showed a clear view of business processes of participated companies. Owners and managers have answered several questions. After the questionnaires, discussion groups are held in which employees, managers and owners participated. Main topics were Business processes, Education and management skills, Human resources, Products and services, Finance, Law and regulations and Perspectives. Results of desk and field research have demonstrated that the level of the Small and Medium Enterprises is very low. The train‐the‐trainer concept will contribute improving marketing skills but also the strategic management skills of employees, managers and owners in companies. External factors that influences the success of the company is seen by owners and managers as the biggest problem. Money plays an important role and is the only tool to motivate employees. This mind‐set has to be changed.

A couple of recommendations are given. The training programs can be split up into 2 levels. The first one is a training program for Small Enterprises which will focus on improving marketing skills. It is recommended using practical examples and solutions which can be implemented directly. Level 2 is for Medium Enterprises which will focus on marketing skills and strategic management skills. A Quick‐Company‐Scan will give a clear situation of the business processes of participating companies. This method can be used. Participants would like to learn practical solutions. Strategic management is unfortunately a difficult subject to show direct solutions but case studies can be used as a tool for this. Training programs in both levels can make a distinction between product orientated marketing and service orientated marketing since there are some service sectors in Kutaisi. Business economics administration is an additional course which teaches participants on basics of business economics and administration. Owners, managers and employees can apply to this course. The last recommendation emphasizes the role of the Regional Chamber of Commerce and Industry in Kutaisi for the continuation of the training programs.

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Executive organizations NL en GE

Market research is one of the first parts of the overall project. Georgia Foundation / Georgian Diaspora is the project manager and final responsible related to this market research.

Main responsible of this part of the project was Mr. Cees A.M. den Teuling MBA , managing partner of Orange Business Improvement. This company was recruited by GD in recommendation of OEC to do the market research. He coordinated the activities and gave advices related to the executive process. Lars Wirckx did the desk research at the beginning of the project. Marjola van Kuijk did the field research and reporting all the results. Methods of desk research and field research are written in capital 2. Final approvals of all this parts are given by Mr. den Teuling.

Georgian Foundation / Georgian Diaspora (GD) ‐NL

The organization was founded by higher educated Georgian migrants – all occupied as management professionals, in the Netherlands in 2004. Its goal is the increasing of interest and realization of interconnections between individuals and between organizations in the Netherlands, Georgia and EU. Mein goal of the strategic directions: 1. Support/develop /implement the development projects in industrial, health, finance, agriculture, tourism, manufacturing and education sectors in Georgia. 2. Support and develop active knowledge exchange between the Netherlands, Georgia and European Neighborhood countries for the development. As applicant and project manager this organization is also responsible to achieve the joint results.

Local Democracy Agency (LDA) Georgia‐GE

The mission of LDA Georgia is to strengthen local democracy and civil society, support democratic reforms in Georgia and to develop new and innovative approaches to local and national challenges, by co‐operating with the local and international stakeholders.

East European Centre (OEC) ‐NL

A network foundation which tries to develop active knowledge exchange between Eastern Europe countries (Poland, Hungary, Rumania) and the Netherlands, develop a positive attitude about Eastern Europe and support with concrete actions the development of European Neighborship. The OEC tries to build up a strong relationship with Georgia.

Orange Business Improvement (OBI)‐ NL an alliance of experienced international Consultants who are providing business services to SME’s in Central‐ East‐ South East Europe and Asia. The key distinctive feature of ORANGE BUSINESS IMPROVEMENT is that we combine high level scientific achievements with the reality of business practices, while in diverse cultural environments.

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Acknowledgment

Before completing this report, lots of people contributed to this research. This research started with the desk research at the East European Center (OEC). Mr. Den Teuling from Orange Business Improvement and the steering group were a guide regarding to this project and contributed to the

market research.

Many thanks to Mrs. Togonidze of the Georgian Diaspora, the main organization and overall manager of the project and the employees of Georgian Diaspora. She was assisting during research from the beginning, prepared the trip to Kutaisi and used her network which helped us with the market research.

Especially LDA Georgia who made it possible to do the research in Kutaisi. They scheduled meetings with companies and were assisting during desk research from the beginning. Many thanks to Mr. Khakhaleishvilli and Mr. Gvantseladze and the employees of LDA Georgia.

Hopefully, the outcome of this report will contribute to the rest of the activities of the project and mainly helps developing the concept of the train‐the‐trainer programs which will be done by the Rooi Pannen in cooperation with the other involved organizations.

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Preface

Georgia is bordered by the Black Sea in the west, by Turkey and Armenia in the south, by Azerbaijan in the east, and Russia in the north. The country has a rich and long history. In the last years the country had to suffer from political and financial crises and war. It damaged the economy dramatically. A solution for this economic and social damage is the rebuilding of Georgian Entrepreneurship ‐ and especially the local, specialized Small and Medium Sized Enterprises (SME’s) in order to create additional value, earn money and new jobs.

The project is starting in Kutaisi (the second largest city in Georgia) as a pilot. The outcome of this research will give information and recommendations for the development of the training programs for managers and employees. These training programs are one of the instruments to support the construction of Georgia by developing Entrepreneurship.

The results of this market research provide information about the economical situation of Kutaisi. The research focuses primarily on the business processes of a number of Small and Medium Enterprises in Kutaisi to get a distinct view of all the processes of companies. This enables us to develop a high qualified training program that is in line with the wishes and needs of companies. The first chapter starts with a brief overview of Georgia that is about the economical situation of the country. The method is important for the structure of research and will be explained in the second chapter. The third chapter deals with the desk research of Kutaisi which is extended in some parts to the Imereti region. The field research is divided in the questionnaires and field research in Kutaisi in chapter four and five. The last two chapters will explain the conclusions and the recommendations.

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Summary 3 Acknowledgment 5 Preface 6 I Overview of Georgia 8 II Market research method 10 III Desk research 11 IV Field research questionnaires 15 V Field research in Kutaisi 16 VI Conclusions 24 VII Recommendations 25 Annex I Georgia economic facts 28 Annex II Kutaisi Regional Chamber of Commerce 29

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I Overview of Georgia

Georgia is a country of 4,4 million habitants and a surface of nearby 69.700 km2. The country has a rich and long history. The unemployment rate is 16%. Georgia is hit by the import stop by Russia (already since 2005; formally Russia was the most important business partner), the armed conflict

with Russia (August 2008) and the financial crisis (2008‐2009). Many companies have been closed, a

huge unemployment exists, and Georgia is in a postwar situation and slowly falls into poverty. Reconstruction is needed. 55,6 % of the labor force is working in the agricultural sector, 8.9 % in the industry sector and 35.5 % in the trade and services sector. According to the statistical office, the average monthly salary for hired employees fell to Lari 512 (US$ 340) in the first quarter of 2009, compared with Lari 590 in the fourth quarter of 2008. Salaries rose by a modest 5 % year on year in nominal terms, although this was much smaller than the gains of 30‐40 % registered in 2006‐08. The number of salaried employees in the private sector fell to 229,000 in the first quarter of 2009, from 253,000 in the fourth quarter of 2008 and 236,000 in the first quarter of 2008. Despite an increase in the number of individuals engaged in subsistence agriculture, the number of salaried employees in the agricultural sector fell sharply in the first quarter of 2009, especially in the rural provinces of

Imereti, Samegrelo‐Zemo Svaneti, Shida and Kvemo Kartli, and the autonomous republic of Adjara.1

Real GDP contracted by 5,9 % year on year in the first quarter of 2009. This represents the sharpest year‐on‐year slowdown in any quarter since 1994. As in the final two quarters of 2008, the construction sector was hit hardest. The banking sector continued to shrink in April – July 2009, although the rate of contraction appears to have slowed. The annual rate of inflation turned negative in August for the first time since April 2000. In 2009‐10 the trade deficit is expected to narrow compared with 2008, as a global energy prices moderate. This will contribute to a gradual fall in the current –account deficit, to 14 % of GDP by 2010.2 Georgia’s inflation target is set at 6 % for 2010‐12 but annual inflation is currently under target at 2.7 %.3 The data of 2008 shows that the main destination of exports is Turkey, Azerbaijan, Ukraine and Bulgaria. The main origin of imports in 2008 is Turkey, Ukraine, Germany and Russia. In Annex I the major export and import commodities are published and the gross domestic product by sector is given. The new tax code adopted in 2005 reduced the number of taxes from 21 to 7. Georgia has the lowest tax rates in the region, which is inviting for foreign investors. The customs duties were also reduced. The VAT is 18 %, profit tax 15% property tax 1 % of the property value annually, Customs duty is 0 % ‐ 1 http://statistics.ge/main.php?pform=48&plang=1 2 The Economist Intelligence Unit , Country Report September 2009 3_{Financial times, money‐supply, February 18, 2010}

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9 “ Georgian Diaspora for developments in Kutaisi “ Market Research Kutaisi 2010 5 % ‐ 12 % (most products except agricultural products are exempt from customs duty), excise tax varied and income tax is 20 %.

Georgia has huge difficulties to set up a commercial sector. Big problems are a scarcity of raw materials and a lack of modern technologies, approaches and standards – especially in rural areas – that makes it nearly impossible to create modern industry.

Kutaisi was a main industrial area in Georgia (agro industry; textiles; machinery – equipment; raw materials; auto motive; airplane industry). During last 15 year many companies were closed. Nowadays important projects are set up by central government or by self‐governance in order to improve the local economy and develop the city. The city has 188.600 inhabitants and a unemployment rate of 16% (in fact it should be nearly 50%, our opinion).

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II

Market research method

Desk research method Desk research is the first part of the research. Different statistics about the Kutaisi market has been found. Mostly by the use of the internet and the report made by LDA. Field research method To obtain more detailed information about the Kutaisi market, it is necessary to do a field research in Kutaisi. The results of the desk research are not enough to get a clear view of the operating SME’s in the Kutaisi market. The Kutaisi market is divided into business sectors: wood/furniture manufacture, construction, Bread & other bakery products manufacture, sewing / production of special clothes and uniforms, marble manufacture, restaurants, trade, education, healthcare. The field research mainly concerns 3 types of research. Questionnaires, group discussions and interviews.

Questionnaires

GD/OEC had made a questionnaire which will be translated by LDA. Questions are about the processes in a company. The start up of the business, structure of the company and questions about the employees are one of the topics of the questionnaire.

Group discussions

These group discussions which will lead to conversations about the problems / working methods of owners, managers and employees experiencing in their companies. In total 8 groups are formed separated in owners, managers and employees and all the participants have a different background (sector of the company). For each group there are different segments to be discussed: Business processes, Education and management skills, Human resources, Products and services, Finance, Law and regulations and perspectives.

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11 “ Georgian Diaspora for developments in Kutaisi “ 11 “ Georgian Diaspora for developments in Kutaisi “ Market Research Kutaisi 2010

Employed populations number according to the fields in Kutaisi

25% 16% 5% 6% 20% 24% 1% 2% 1% Industry Retail Trade Markets and Fairs Social Nutrition Communication Building Transport Valuable Education Market Research Kutaisi 2010

III

Desk research

This chapter shows the economic situation in Kutaisi and will show the different sectors in the Kutaisi but in the Imereti region as well. Many details are not up to date. The Regional Chamber of Commerce provided some information.

Sector

The total number of people active in Small and Medium Enterprises in Imereti is about 100.000 people. Judging by number of employees in quarter 4 2008, most work in the Health and Social Work business (21 %). Followed by the Trade and repair of motor vehicles and personal and household goods and Manufacturing Industry sectors which are represented almost equally by number of employed, respectively 17,4 % and 16,6 %. The Real Estate, renting and consumer services sector is booming in Imereti and is the fourth largest sector now by number of employed (13,9 %). This sector include other customer service activities, real estate activities, letting of own property, architectural and engineering activities and related technical consultancy and advertising. The Transport and Communications sector also grew considerably and is the fifth largest sector by number of employed (12,8%).

Below the chart of employed population number according to the city Kutaisi.

Employed populations number according to the fields in Kutaisi

25% 16% 5% 6% 20% 24% 1% 2% 1% Industry Retail Trade Markets and Fairs Social Nutrition Communication Building Transport Valuable Education Health

The geographical location of Imereti region, landscape, historical, cultural and natural monuments, and agriculture represents a good basis for developing tourism in the region. There are a couple of resorts and healing caves and caverns. Imereti region has a rich flora and fauna. And more than 250 historical – cultural monuments including the Bagrati temple – XI century which is located in Kutaisi.

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The Chamber of Commerce included in their report the new perspectives for the agro tourism in the villages near Kutaisi. Limited Liability companies make up the most part of economic activity in the Imereti region. In this construction, the company is liable to creditors with its entire property, while partner’s responsibility is limited to his/her share in the authorized capital. The second largest share is made up by individual enterprises (sole proprietorships). In Imereti, Small Enterprises have emerged. In quarter 4 of 2007 medium enterprises had a total turnover of 390,038,000 Lari and in quarter 4 of 2008 a turnover of 348,015,000 Lari. Small enterprises however had a turnover of 439,158,000 Lari in quarter 4 of 2007 and a total turnover of 534,229,000 Lari in quarter 4 of 2008. Whereas the Medium Enterprises suffered from 11 % decrease in turnover, small enterprises’ total turnover grew by 22 %. The classification of enterprises as either small or medium is based on number of employees and annual turnover: Small enterprises ‐ 20 employees and an annual turnover not exceeding 500,000 Lari,

Medium enterprises – 100 employees and an annual turnover not exceeding 1,500,000 Lari.4

Budgetary sphere

Under the Georgian Law “Budgetary System” Kutaisi Budget belongs to the local budgets of Georgia. By Georgian Law local budget mainly is financing municipal infrastructure

Kutaisis budget expense dynamic according to the sectors in 2006-2008 years

0 5000 10000 15000 20000 25000 30000 35000 40000 Man age men t Cul ture Spor t Educ atio n Pub lic h ealth So cial a id Infr actrucru te Other exp ense s 2006 y 2007 y 2008 y 4 Ministry of Economic Development of Georgia Department of Statistics Small and Medium Business in Georgia. www.statistics.ge

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13 “ Georgian Diaspora for developments in Kutaisi “ Market Research Kutaisi 2010 Communication In Kutaisi there are two telephone service providers. Branch of JSC Georgia Communication and LTD New Networks and 3 mobile telephone providers : Magti Com, Geocell and Beeline. All this 5 telecommunication companies are in same time Internet providers in Kutaisi. Kutaisi communication system consists of 3 decadal‐sepal NTI (3,4,5) exchanges. The primary amount of exchanges was 23 400 consumers. The mentioned exchanges are fossil and need to be changed by modern techniques. The majority of city’s cable industry is governed by STC Georgia Communication and its certain part is taken for rent by New Network Telephone underground and air wired are fossil. Also deplorer boxes are in worrisome state. Bank sphere

In 2007 crediting of town economics by commercial banks “Bank of Georgia”, TBC Bank, ProCredit Bank, “People’s bank” “Bank Cartu”. Branches amounted to 87.823 million Lari that exceeds the volume of issued credits (41.43 million Lari) in analogous period of last year with 112%. Correspondingly the role of Kutaisi has increased in the credit market and equals 7.64% when last year it was only to 4.6%. The biggest flow of credit resources are directed to crediting of trade, service and individuals that amounted to 37% (32.75 million) and 51% (44.31 million) of total loans. The rate of growth of crediting these branches is increased (correspondingly 131.% and 128%). The high rate of growth has crediting of building (approximately three times increase) – 886 thousand. In 2007 2.64 million Lari had been issued and the role of the building was conformably increased (3%) in credit showing. Reducing of industry crediting is very important. In 2006 crediting of this branch from issued 3.667 million Lari was reduced with 27.63% (2.653 million Lari), and correspondingly the role of industry was sharply reduced‐ from 8.85% to 3%. It is the truth that crediting of agriculture has been increased, but its role in general crediting doesn’t exceed 0.16%. There is a problem‐ on the whole there are small farms round Kutaisi, the big and medium farms are less and the peasants need small loans, just such loans are issued by micro financial organizations in parallel of the banks. Though, in last month’s the banks of the town became more active to this direction. Increasing was fixed by formed deposits in the bank system: the volume of deposits increased with 137% and amounted to 23.551 million Lari. It is true that it is not even 3% of bank system deposits but it is significant that the rate of growth (137.24) is much higher in Kutaisi than in the whole country and at the same time the showing of deposits dollarization in Kutaisi is low than in Kutaisi and it equals to 67%. Mainly deposits are increased by the money transferred from abroad by emigrant citizens of Kutaisi. The long‐term deposits are increased seven times from 0.765 million to 5.387 million. This

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clearly shows that in Kutaisi financial sector becomes stable and confidence to bank system is much more increased. The volume of currency transferred from other countries to Kutaisi has been greatly increased and it amounted to 196.9 million Lari. Total amount of transferred money amounts to 97.5 million Lari and especially the main part of the money is for individuals (98.9%) that is a living source of the population of the town. At the same time the volume of the sum transferred abroad is increased‐ it reached to 85.4 million Lari. Education in 2007 there existed the following public establishments of pre‐school and secondary education: 44 secondary schools, 45 kindergartens, 2 state Universities and 4 Supreme Educational Establishments, 3 State Secondary Polytechnic Colleges, 7 State Secondary Special Colleges (Technical Schools), 14 Nongovernmental Secondary Special Schools, 11 private kindergarten, 18 private schools, 14 Nongovernmental Supreme Educational Colleges. The number of Kutaisi’s secondary education colleges has about 28 thousand pupils and 2573 teachers.

Transport

Kutaisi is perfectly located in Georgia. Roadways and railroads are build and in Imereti region there are two airports for International and local routes. But for the local routes is reconstruction of the near airports needed. This system is damaged.

Kutaisi Regional Chamber of Commerce

Kutaisi Regional Chamber of Commerce and Industry represents a corporative organized juridical representative of public justice. The Chamber started in 1995 and is in function according to the law about ‘Chamber of Commerce and Industry Georgia’. In the annex some goals and functions of this Chamber are added. Annex II is about business proposals of economical development in the Imereti Region.

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IV

Field research Questionnaire

The table below shows some graphics which were filled in by managers and owners of companies who also participated in the discussion groups. Some of the topics are explained in detail. Table 1. Sector Wood furniture manufac ture Construc tion Bread & other bakery Sewing productio n special clothes uniforms Marble manufac ture Hotel Restau rant Trade Educa tion Health care Total ent 0 0 1 2 1 0 1 3 3 11 No but it would have been better to have 2 4 1 0 2 3 2 1 0 15 Departm Not applicable 1 0 2 1 0 0 0 0 0 4 Total 3 4 4 3 3 3 3 4 3 30 Business processes

Almost half of the companies who have filled in the survey said that their company is divided into departments. During the meetings became clear that another interpretation of ‘department’ is used by the managers and owners. ‘Not applicable’ is explained in the size of the company. Smaller companies do not see any importance of structuring the company into departments.

Table 2 shows the influences of employees in the companies related to the decision‐making‐process. This question is focused on the presence of meetings. But as the table shows, they only obtain a certain influences when they get a high position in the company and being a part of the management team.

Relating to the companies who took part in this field research we can speak of some Small and some Medium Enterprises. Sector Sewing, Healthcare, Education, Construction and Other bakery products belongs to the medium enterprises. The other sectors belong to the Small Enterprises.

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Table 2.

Influences employees

Yes most of them have

Yes only for

management Total

Wood furniture manufacture 1 2 3

Construction 1 3 4

Bread & other bakery 1 3 4

Sewing production special clothes uniforms 1 2 3 Marble manufacture 2 1 3 Hotel restaurant 0 3 3 Trade 0 3 3 Education 1 3 4 Sector Healthcare 3 0 3 Total 10 20 30 Education

Managers and owners indicated that most of the employees need to be graduated. Besides this managers said that more training is needed. Some of the owners has an opposite opinion and are satisfied with the knowledge of the employees. Table 3 shows the answers. Education, Trade and Wood furniture manufacturing have remarkable answers. All the representatives of these sectors mentioned that they need more training for their employees.

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17 “ Georgian Diaspora for developments in Kutaisi “ Market Research Kutaisi 2010 Table 3. Sector Wood furniture manufacture Construc tion Bread & other bakery Sewing production special clothes uniforms Marble manufacture Hotel

Restaurant Trade Education Healthcare Tot

Yes but all well educated 0 1 2 1 0 2 0 0 2 8

Yes but needs more training 3 2 1 1 1 1 3 4 1 17 Education No it is not needed 0 1 1 1 2 0 0 0 0 5 Total 3 4 4 3 3 3 3 4 3 30 Human resources A bit outstanding are the job contracts for employees in a verbal way. Most of the owners indicated that all the employees have a verbal agreement. The managers of the same companies announcing that the employees have a written agreement. Pie 4.

Predominantly, through friends and family vacancies are filled. Managers and owners confirming

this.

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Hardemployee

Yes No Total

Wood furniture manufacture 1 2 3

Construction 3 1 4

Bread & other bakery 4 0 4

Sewing production special clothes uniforms

1 2 3

Marble manufacturing 2 1 3

Hotel & restaurant 2 1 3

Trade 3 0 3 Education 3 1 4 Sector Healthcare 3 0 3 Total 22 8 30 Table 5. Shows the difficulty of getting new employees, mainly the sector bakery & other bakery. But in general all of the sectors facing problems relating to new staff. Marketing Bar 6 shows a remarkable result. Lots of managers uses the facilities of the chamber of commerce but the owners do this not quite often. Initially owners have to gather first information for the

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19 “ Georgian Diaspora for developments in Kutaisi “ Market Research Kutaisi 2010 company but in this case the managers taking care of this. To respond properly to the market needs is the knowledge about your competitors a key element in the marketing. Owners and managers answered almost the same. Few of them do not exactly know their competitors (bar 7.)

Being aware of market opportunities is a second important element of the marketing. In the questionnaire the managers and owners had to answer whether or not there are opportunities for the company.

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In bar 8 three options are published for each sector. Most of the sectors focusing on the internal market. There are opportunities for sector ‘hotel and restaurant’ in the Georgian market. It is remarkable because this sector is in general focusing on foreign countries. Sector education shows a remarkable answer as well.

All managers and owners are aware of the law and regulations made by the government.

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V

Field research Kutaisi

The first part of this chapter is related to the discussion groups with employees. The main and important answers are written below. The answers of the managers and owners are also written in this chapter. A couple of companies took part in these sessions and were representing three categories.

Employees

Business processes

Most of the employees described ‘departments’ of the company. Often these departments are related to business aspects. Hardly, there is a division in departments such as sales department and marketing department. But the participants frequently announce the financial department. The size of the companies should be taken into consideration. A couple of them are a bit small with about 10 employees. Most of the employees agreed that more financial support will help to structure the company into departments.

In every discussion group the employees had announced the moderate meetings that are held every week and month. For them it is a positive experience. All issues and problems can be discussed during these meetings.

Responsibilities are largely carried by the managers and owners. The employees indicate that these responsibilities are well divided. This division has to be taken in account because the employees made clear that all the managers getting all the responsibilities. There is no real division. Financial and sales responsibilities are combined. The owner is most often the manager in the company which is a remarkable situation. Making policy is an important aspect of the business processes in a company. Sector Healthcare and Education had formulated and implemented different policies which are all known by the employees. The other sectors do not pay attention to this part. Everybody knows what to do and is aware of the tasks of their colleague. As they said, written policies are not needed. Human resources In general all the employees have a verbal agreement. The content of this agreement is only about the availability of the employer. In 1 of 4 discussion groups they had all written contracts in which is described the salary and personal data. The sector Education is an exception were agreements have certain content. Holidays and descriptions of the job are included.

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LDA Georgia attended to this session and said that it cannot be true. Hardly anyone has a written agreement in Georgia. If they have this particular agreement, it is only made for the income tax and no secondary conditions are not mentioned. The employees cannot imagine any benefit of a written agreement. Largely, the absence of law and regulations are an important factor. Even if the employees have a written agreement it is based on nothing.

Job evaluation reviews are not introduced in Kutaisi. The employees mentioned that every problem relating to the working skills and environment can be discussed during the weekly and monthly meetings. Mainly the small companies discuss their problems in an informal way. There are not any meetings in which the progress will be discussed or improvement plans are implemented. In most of the companies job description are not described. All the employees know what to do and are aware of the tasks of their colleagues. Vacancies are usually filled by friends and acquaintances of employees whom are working within the company. In some cases there are job vacancies advertised in the newspaper or on TV but they are already filled internally. The sector Education is an exception. At certain times of the year teachers can apply for tests. In this way, people are selected. In most companies they use a trial period of 1 or 2 months.

When employees have new ideas which can be interesting for the company they have freedom to share these and the managers and owners will take it seriously. Most often this situation is constructed in a hierarchic way. Most of these new ideas will be discussed during weekly and monthly meetings.

Education

Further education and courses are not much offered. According to the employees the owner does as much as possible to keep qualified staff. Most of times employees are often trained by the company or they started with an internship. Employees are aware of the need to stay informed with latest techniques and knowledge. Furthermore there is a tendency that employees are trained within the company as a multifunctional work force.

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23 “ Georgian Diaspora for developments in Kutaisi “ Market Research Kutaisi 2010 Owners and managers Business processes

Owners and managers of these companies do not see the important aspect of working with departments. The same answers were given as the employees relating to the division of responsibilities. Owners and managers of smaller companies are taking the responsibilities for almost all the processes in the company. These companies also confirmed that it is not necessary to structure the company into departments. Various responsibilities for one person are not seen as a problem. An exception is the sector Education. Different employees have responsibilities and not all the responsibilities become a task for one person.

Human resources

Demand of highly qualified employees is an important issue. It should be taken into account whether that classification actually is on the Dutch Higher Education (HBO) level. Especially, they are concerned about the technical skills. The motivation of employees and staff is done by raising salaries and bonuses. Other methods are hardly used. In some cases, contracts are drafted based only on agreements between employees and owner. There is also a lack of legislation. The absence of these contracts doesn’t lead to the implementing of job evaluation review. Also owners are taking benefit from the market situation. The unemployment rate is high, so employees are unlikely to want a new job. Problems Factors like high interest rates for loans and a lack of investment possibilities will lead to a defunct of the company. The influences of these external factors are most important ones for owners and managers. The internal factors were less important. Because of this meetings it can be understood that managers and owners are not well aware of their internal problems for example based on human resources or management skills. They are not critical to their own management skills.

Education

Because of the lack of qualified workers, people are trained internally and they will get a practical training. The importance of qualifications is high and this is reflected in the huge number of schools that are concentrated in Kutaisi. This is in public and private schools.

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Marketing

During meetings a number of marketing examples were cited. It can be concluded that they have little knowledge of marketing strategies. All the participants recognize the lack of this marketing knowledge and are willing to see some development in the future on this process.

Law & regulations

Owners and managers indicated clearly that they are aware of all legislation. Sometimes they keep themselves updated by using the internet.

A lot of companies mentioned the need for knowledge exchange with Dutch companies. In general they meant the practical knowledge and sustainable production processes. There is just one company that wants to operate abroad.

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VI

Conclusions

In this chapter the final conclusions are made based on the desk and field research. The outcome of the questionnaires and the field research in Kutaisi general essentially shows that the company level is much lower than in the Netherlands and in the rest of Europe. This was reflected in the business structures and all the participants more or less explained the same during meetings. In most of the companies there is a sphere of a hierarchical structure within the company. Most of the employees agree with this structure and the roles are divided perfectly. Responsibilities are not divided and this outcome deserves attention in training programs.

The absence of policies and job descriptions shows the lack of knowledge in business skills. Concluding, owners do not investigate business processes which are very important for the future of the company and the probability of success.

The results of the questionnaires for owners and managers have shown some contradictions. These appear during the discussion groups. This means that the strategic way of thinking and views the business processes are not very well developed. There is a lack of a distinct vision of the owners.

There is a very strong demand on high qualified employees and all the sectors dealing with the same problem. To keep the employees updated they are trained in the company. But there is no improvement and innovation when there is a lack of qualified education. This is also the reason that the participated companies in this research clearly emphasize the need of knowledge exchange with foreign companies. Lots of owners and managers focusing on the external factors that influences the company but do not see any factors or problems internally. ‘Only with money you can solve problems and have a bright future’, that’s what most of them concluded. Stimulating of motivation of employees is related to money, raise of salaries as well. The mind‐set has to be changed!

Generally the training programs must have the aim to make internal processes more visible to the participants and focusing on the strategic management skills. The companies have shown an enormous lack of marketing skills and this was agreed by themselves. The training programs have to include this marketing aspect.

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VII Recommendations

After the conclusion in the earlier chapter, there are some recommendations that can be used to develop the train‐the‐trainer concept for this project.

The training programs can be split up into 2 levels. The first one is for small enterprises and the second one for medium enterprises. The selection will depend on the amount of employees in the companies. The division in small and medium enterprises as indicated earlier in this report may be retained. Placing owners, managers and employees in the same training group can be seen as a process of development. Cooperation may be developed arise in this set‐up.

Level 1 Small Enterprises

The participated companies in this research sector Bread, Construction, Trade, Wood, Education, Healthcare, Hotel & restaurant and Marble manufacturing belong to this level. Main objective in this level are the marketing skills. Practical skills in this program are presented and the participants can learn how to integrate different marketing models. The concept should focus on long term development. Although market research showed that companies would like to see direct solutions, making forecasts for some years is very important. Competition is integrated in the marketing skills. As for example the sector ‘Education’ is facing a high competition in Kutaisi. Making a SWOT analysis is a useful tool related to the competition. Only one or two companies in the market research made a webpage for their companies. The benefits of this digital area need attention. The training should primarily respond to the informal structure of Small Enterprises. Level 2 Medium Enterprises The participated companies in this research sector Sewing, Healthcare, Education, Construction and Other bakery products belong to this level. This level as well will mainly focus on marketing skills and introducing practical examples. The second objective of this level should be the identification of the strategic management skills. It is important that participants become aware of their business processes and structure and how they can improve this. Kind of Quick‐Company‐Scan would be a good start to study every process of participating companies. It is true that these Medium Enterprises also would like to learn more practical skills and implementing solutions. But these improvements of strategic management skills will not directly show any progress. For this part of the training it is possible to make use of several case studies. As written in chapter Conclusions, the mind‐set has to be changed! Probably this will take a lot of time.

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Some of the sectors offering services instead of products which are situated in both levels. The marketing theories and models are making a distinction between product orientated companies and service orientated companies. For example, relation marketing plays an important role in service orientated companies. The programs can offer product and service marketing.

Business economics / administration course

Business economics / administration is an additional course which teaches participants on the basics of business economics and administration. Making business plans, forecasts, price strategies and an annual report are examples which can be learned. Mainly, Medium Enterprises will apply to this course but is available for owners and managers as well employees.

Chamber of Commerce

In Annex III the goals and functions of the Regional Chamber of Commerce and Industry are described. The results of the questionnaires show that both managers and owners do not always consult the Chamber of Commerce for business purposes. It is necessary and useful to enhance the role of this organization. The involvement of the Chamber of Commerce in the training programs can be important for the continuation of the knowledge exchange in the future.

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ANNEX I

Georgia economic facts

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ANNEX II

Kutaisi Regional Chamber of Commerce

The goals and functions:

‐ To provide productive working conditions for enterprises located in Imereti Region and in Georgia. ‐ To support commercial, industrial on technical – scientific links with the enterprises located in Georgia and abroad. ‐ To support current economical reforms in Georgia ‐ To provide the businessmen with information and consultations ‐ To improve the professional education and qualification of businessmen, to send them abroad.

‐ To represent and save common and individual interests of businessmen connected with their acidity not only in Georgia but also in foreign countries ‐ To support the export of local products ‐ To support the preparation of documents about granting patents of inventions useful models, industrial patterns, firm names and services ‐ To hold meetings for businessmen, exhibition of local and foreign products and other activities ‐ To hold supportive activities for investments in Imereti and throughout Georgia.

‐ To support the suppression of unhealthy competition and monopolistic situation in Georgian fairs.

‐ To translate the documents for supporting the businessmen

‐ To serve the foreign organizations and enterprises that want to co‐operate with Georgian businessmen. ‐ To form informational systems and banks about products, services and business information ‐ To support the businessmen in preparing business plans ‐ To support the businessmen in fulfilling the demands defined by normative acts. ‐ To fulfill other tasks defined by normative acts ‐ To certify the certificates of imported and exported goods

‐ To examine and estimate the quantity and quality of local and foreign goods accredited according to Georgian Legislation