Proceedings of the 2016 International Conference ECONOMIC SCIENCE FOR RURAL DEVELOPMENT No 41

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1 Jelgava, LLU ESAF, April 2016, pp FACTORS DETERMINING DEVELOPMENT OF BUSINESSES IN KUJAWSKO-POMORSKIE PROVINCE AS A PART OF THE POMERANIAN SPECIAL ECONOMIC ZONE - STUDY RESULTS Malgorzata Zajdel 1, PhD; Malgorzata Michalcewicz-Kaniowska 1, PhD 1 University of Technology and Life Sciences in Bydgoszcz, Poland, Faculty of Management Abstract: Production companies which operate in Special Economic Zones (SEZs) are the key element in leading the economic growth of Poland. They are responsible for new investment initiatives, which boost socio-economical situation of different regions in Poland. The aim of the research was to identify the factors which either facilitate or hinder business development in the newly-created SEZs. In order to perform the study, researchers used questionnaires among all companies operating in the Pomeranian Special Economic Zone (PSEZ). Researchers adopted the following hypothesis: operating in the PSEZ offers new opportunities for faster development of a business. The study proves beyond doubt that locating business in the PSEZ indeed offers producers a chance to speed up business development, and, what is more, significantly improves competitiveness. The study also shows that favourable conditions created in the zone may also moderately improve the general functioning of the whole company. Keywords: Special Economic Zones (SEZs), entrepreneurship, business development, regional development. JEL code: R11 Introduction The creation of SEZs was an important step forward, not only for the businesses operating in the zone but also for the whole region and its overall development (Zajdel M., Michalcewicz- Kaniowska M., 2015). The main beneficiaries are micro- and small businesses, as they may take advantage of tax exemption. One of the main goals for SEZs was to facilitate and assist innovation in business, by helping those enterprises, which invent new production technologies and implement modern solutions in the process, aimed at increasing competitiveness of their products and services. Allocating special purpose areas in a country is hardly a new idea. The concept dates back as far as the ancient times. The first SEZs were established worldwide several decades ago, and they have been operating in Poland for a dozen or so years (Kolczynski M., Wojtasik W. 2010). SEZs are becoming an increasingly popular way of facilitating regional development and competitiveness of local businesses (Michalcewicz-Kaniowska M., Zajdel M., 2015). The notion of "Special Economic Zone" has been defined by the National Ministry of Economy as "an administratively separate part of Polish territory, allocated for the running of businesses on preferential terms." These "preferential terms" are numerous incentives offered to entrepreneurs doing business in the zones. This is a similar mechanism to that of social cooperatives, which also offer financial help and assistance aimed at supporting regional development (Zajdel M., Michalcewicz-Kaniowska M., 2015). In the case of SEZs, this help can take the form of profits generated by investors being exempt from income tax, new investments receiving financial support at different stages of their development, and entrepreneurs purchasing complete development areas, tax-free, at competitive rates etc. (Polish Investment Promotion Agency, 2015). The research concentrated on production companies that operate in the Special Economic Zone in Kujawsko-Pomorskie (part of the Pomeranian SEZ). The primary aim of the research was to identify the factors responsible for development of production companies in the zone. A detailed approach allowed to identify the following two groups: factors promoting company development, and those which obstruct it. The results should provide a satisfactory answer to the following dilemma: do production companies operating in the zone develop faster than their equivalents from outside? Researchers made the following assumption: production companies which operate in the Special Economic Zone are more likely to develop faster, and the co- 1 Corresponding author. Tel.: (0048) ; m.zajdel@utp.edu.p 180l

2 Jelgava, LLU ESAF, April 2016, pp operation with the Investment Project Management Bureau results in increasing their competitiveness. In order to support the above claim, the research was carried out between April and May 2015 among all production companies belonging to the Special Pomeranian Economic Zone in Kujawsko-pomorskie province. The questionnaire was made up of three parts, each of them including fourteen questions: one open, eight closed (single choice type), and five closed (multiple choice type). The first part of the questionnaire concerned factors determining development of production companies operating in the SEZ. The second part focused on analyzing competition between production companies in the zone. The third - and final - part of the stud concerned the current situation of the companies as determined by belonging to the zone. The research used reports on Special Economic Zones published by the Ministry of Economics, decrees of the Cabinet about Designated Business Areas, and other legal acts, which regulate the functioning of the Special Pomeranian Economic Zone. Results and discussion 1. Functioning of the SEZs as the driving force of entrepreneurship - theoretical background The success of a company, and keeping in pace with its changing surroundings depend on effective support of entrepreneurship (Zuzek D., 2006). The above statement also applies to SEZs, which offer entrepreneurs exceptional conditions for doing business. Creating and managing SEZs in Poland is regulated by the Special Economic Zone Act passed by the Polish Parliament on 20 October 1994 (Official Journal of Laws, 2015, ch. 282). The free market economy was established in Poland as the result of significant political changes which took place in They have had a considerable impact on the creation of SEZs. The first SEZ was called "Euro-Park", and it was established in Mielec (Podkarpackie province) in Initially, it was treated as a preliminary project but soon more SEZs appeared: the Katowice and Suwalki SEZs (Trojak A., Wiedermann K., 2010). Currently, there are 14 SEZs, serving Poland's sixteen provinces. A special law was passed by the Cabinet in 2013, which secures the existence of every SEZ until Interestingly, the areas occupied by SEZs are continually expanded, currently occupying of ha (Ministry of Economy, 2015). Generally, businessmen may choose an area and apply for it to be turned into SEZ. Successful applicants have to meet certain criteria, the size and the innovative character of the project being the most important ones (Baranski P., Krzyzak R., Mankowski M., Modzelewska A., 2014). What is more, it is imperative that the newly-created SEZs help in a region's development by creating new work places, increasing export, creating new technologies which can be used to help in developing the country's economy, increasing competitiveness of products and services, and developing the region's industry and its unused land (Siudak P., Wątorek W., 2011). 2. Development opportunities of production companies operating in the Pomeranian Special Economic Zone - research results The subject of the study was the Pomeranian Special Economic Zone (PSEZ). It was established in 1994, its total area equals ha, and it covers separated industrial areas in four regions: Pomorze (Pomerania), Zachodniopomorskie (West Pomerania), Kujawsko-Pomorskie province and Wielkopolskie (Greater Poland). Between 2005 and 2014 the PSEZ area was expanded by ha. While the smallest increase in the zone's area occurred in 2012, a mere 8.60 ha, the biggest increase of ha was recorded in Researchers carried out a detailed study, including all companies operating in the PSEZ in Kujawsko-pomorskie province. The feedback of the poll was 66%. At first, poll participants were asked which factors were critical for a company's 1 Corresponding author. Tel.: (0048) ; m.zajdel@utp.edu.p 181l

3 Jelgava, LLU ESAF, April 2016, pp success, to which they replied "internal" (53%), and "external" (29%). The remaining 18% failed to provide a satisfactory answer. Then they were asked if they had taken a loan from a bank, to which the majority (92%) replied in the affirmative. Next, the respondents were asked to list factors which would be necessary for the successful development of companies in PSEZ. The questionnaires provided the following answers: business location and proximity of the road network (32%); quality of goods and services on offer (12%); qualified staff (28%); opportunity to obtain funds and get a loan (18%); dealing with public offices in a convenient and efficient way (0%); available technical infrastructure (12%); export (6%); new investments (22%); environmental policies (2%); information and promotion. Not surprisingly, most respondents agreed that location of a business, with particular regards to proximity of the road network, was a decisive factor in its development. Employing qualified staff is also significant (28%). The third most important factor playing a key role in a company development is planned investment (22%). While offering quality products and services, and the availability of technical infrastructure were also recognized as fairly important, company's exports and its policy towards the environment were perceived as irrelevant by the respondents. So was "successful dealing with public offices" - perceived as not at all important for development of a company. The following factors were recognized as company development inhibitors: competition (26%), shortage of qualified staff (19%), high building rent and maintenance costs (13%), unstable markets (0%), complicated and vague laws and tax regulations (10%), insufficient capital (8%), local administration (3%), low demand for products or services (14%), red tape (30%), transport infrastructure (0%). The study clearly shows that bureaucracy (30%) and competition (26%) are the two major factors responsible for hindering development of most companies. While the lack of trained and highly qualified staff (19%) or meagre demand for products and services (13%) may also be worrying, limited space to do business or contacts with local administration are perceived as a minor concern, recognized only by 3% of the polled. Neither did the respondents see high rent and maintenance costs, the existing transport infrastructure or unstable market as potential obstacles. Competitiveness is an integral part of the free market economy, and it is an indicator of a company's economic potential. The majority of respondents took advantage of a bank loan to facilitate dynamic development of their companies. Interestingly, the respondents suggested that the PSEZ authorities should allow a three-month "trial period" for new businesses as a possible measure aimed at tackling excessive bureaucracy in the zone. With regards to customers, production companies operating in the PSEZ sell their products and services mainly to small and medium companies (51%), large businesses (36%), shops and wholesalers (18%). Small retailers or individual customers constitute only a fraction of the exchange (5%). When asked about the factors responsible for increasing the competitiveness of the PSEZ production companies, the respondents claimed that price was of primary importance (33%), followed by the quality of products or services (20%), the company's production potential (20%), and efficient distribution of products and services (16%). Market share and product characteristics are of secondary importance (6%). 1 Corresponding author. Tel.: (0048) ; m.zajdel@utp.edu.p 182l

4 Jelgava, LLU ESAF, April 2016, pp Source: own study Fig. 1. Factors determining company competitiveness - survey results Another key question the researchers focused on was whether belonging to the PSEZ has any influence on the development of a company whatsoever. Six variables were taken into account, determining the position of companies on the market. Researchers found that, beyond doubt, doing business in the PSEZ helped companies increase their revenue, make new investments, and increase employment (70%), while 51% of companies declared the increase in profit, the number of customers but also the cost of running a business. The study shows that 40% of the companies managed to maintain a steady increase of their revenue and customer numbers, 35% managed to maintain a steady level of profits and employment numbers, 47% boasted reduction in running costs of their businesses, while 35% experienced a slump in new investment. None of the companies recorded a fall in their profit, revenue, employment or customer numbers. It can be concluded that as far as business running costs and new investments are concerned, their levels did not remain at the same level but changed considerably after companies joined the PSEZ. The following part of the study concerned the question of how training and obtaining qualified staff enhance company development. According to 40% of the respondents, it is fairly insignificant in that respect. Only 10% had a different view, and maintained that training employees and having skilled and qualified staff was essential. While 60% of respondents declared that belonging to the PSEZ was fairly beneficial for the functioning of their companies, 30% believed otherwise, claiming that the influence was insignificant. Only 10% were convinced that locating business in the PSEZ would guarantee success in their endeavours. When moving or setting up business in the PSEZ, the CIT/PIT (corporate income tax / personal income tax) tax exemption was the most important factor for 85% of the polled, and the property tax exemption proved the biggest incentive for the remaining 15% of the respondents. 1 Corresponding author. Tel.: (0048) ; m.zajdel@utp.edu.p 183l

5 Jelgava, LLU ESAF, April 2016, pp Source: own study Fig. 2 Factors that determine market position of production companies survey results Conclusions The study shows that belonging to the PSEZ is an opportunity for production companies to develop faster and to become more competitive. What makes PSEZ particularly attractive to potential businesses is its favourable location in close proximity to the major transport routes, the availability of skilled workforce and the amount and type of new investment. The following were identified as the most significant factors inhibiting company development: red tape, competition, lack of qualified staff, and meagre demand for products and services. Most of the polled took advantage of bank loans in order to help develop their companies. Respondents stressed that in order to limit bureaucracy, the PSEZ authorities should make allowance for new investors and guarantee a three-month "trial period". This proposal means that they would not be required to register their companies for three months, and, at the same time, would not have to pay high insurance premiums. If successful, the new regulation would reduce costs in case of business failure, and it would encourage more start-up businesses too. It appears that, for over 40% of the respondents, offering training opportunities to existing staff or obtaining new qualified employees is either moderately significant or insignificant. Bibliography 1. Barański P., Krzyżak R., Mańkowski M., Modzelewska A., (2014). The KMPG Guide to Special Economic Zones in Poland (KPMG Przewodnik po SSE w Polsce), Kolczyński M., Wojtasik W., (2010). Special Economic Zones and Clusters and their Innovative and Social Influence (Innowacyjne i społeczne oddziaływanie specjalnych stref ekonomicznych i klastrów w Polsce), Towarzystwo Inicjatyw Naukowych, Katowice, Siudak P., Wątorek B., (2011). Special Economic Zones in Poland (Specjalne strefy ekonomiczne w Polsce), Państwowa Wyższa Szkoła Zawodowa im. Witelona w Legnicy, Legnica, 9. 1 Corresponding author. Tel.: (0048) ; m.zajdel@utp.edu.p 184l

6 Jelgava, LLU ESAF, April 2016, pp Michalcewicz-Kaniowska, M., Zajdel M. (2015). Development of the Kujawsko-Pomorskie Voivodeship in the light of Functioning of Economic Zones (Rozwój regionu kujawsko-pomorskiego w aspekcie funkcjonowania stref ekonomicznych), Europa Regionum, vol. 21, pp ) 4. Michalcewicz-Kaniowska, M., Zajdel M. (2015). Development of the Kujawsko-Pomorskie Voivodeship in the light of functioning of Social Economy Entities - Study Results (Rozwój regionu kujawsko-pomorskiego w aspekcie funkcjonowania podmiotow Ekonomii Spolecznej wyniki z badań), Europa Regionum, vol.22, Michalcewicz-Kaniowska, M., Zajdel M. (2015). Social Cooperatives as Social Economy Actors in the Development of Entrepreneurship - Based on the Example of the Kujawsko-Pomorskie Voivodeship, Yelgawa, Economic Science for Rural Development, no 39, Ministry of Economy, (2015). Retrieved from miczne/obszar+sse, valid on ). The Polish Information and Foreign Investment Agency, (2015). Retrieved from 7. Official Journal of Laws, (2015). The Law on Special Economic Zones, item 282 (Ustawa o Specjalnych Strefach Ekonomicznych, Dziennik Ustaw; 2015 r. ustęp 282). 8. Trojak A, Wiedermann K, (2010). Shaping Economic Development of Regions in Poland and the Czech Republic (Special Economic and Industrial Zones Specjalne strefy ekonomiczne i strefy przemysłowe w kształtowaniu rozwoju gospodarczego regionów na przykładzie Polski i Czech), Kraków Warszawa, Zuzek D., (2006), Small and Medium Companies as Being of Regional Entrepreneurship, (Male i srednie przedsiebiorstwa jako istota przedsiebiorczosci regionalnej) In: ActaAgrariaetSilvestri, Vol. XLVI / 1 (EconomicSection), Pub. Polish Academy of Sciences, Krakow, Corresponding author. Tel.: (0048) ; m.zajdel@utp.edu.p 185l