Geographica Timisiensis, vol. 15, nr. 1-2, 2006, (pp. 109- 121) ●

ENTREPRENEURIAL INITIATIVES AND THEIR ROLE IN THE SOCIAL-ECONOMIC DEVELOPMENT OF THE SMALL TOWNS OF ROMANIAN . CASE STUDY: THE TOWN OF F ĂGET

Ramona I FĂNESCU Universitatea de Vest din Timi oara

Abstract . Entrepreneurial initiatives, by their role in the mobilization and coordination of local resources, represent an important tool in the local development policies, contributing to the diversification and development of economic and social activities within a territory. The stimulation of these initiatives and the establishment of a new economic sector, i.e. the sector of small and medium-sized entreprises, are very important factors in the process of local development. The effects of the entrepreneurial sector on local development depend on the domain in which these initiatives are oriented, the size, the profile and way of integration of the new entreprises but, especially, on the characteristics of the geographic territory in which they are set. In small towns, the etablishment and development of SMEs, dynamic and which render profitably the local resources (raw materials, local labor force), influence the development of local economic activities and contribute to the gradual expansion of these growth poles, with an important role in the social-economic development of the rural establishments that they polarize. The town of F ăget belongs to this category. Faget is situated in the north- eastern part of Timi County, on the superior flow of Bega , in F ăget basin, about 100 km far from Timi oara. Although with a short history as a town, having been declared as such only in 1994, F ăget imposed itself as a polarizing centre of the settlements up the river Bega and even in the Mure Valley since the previous centuries. Which were the factors that led to the apparition and development of the entrepreneurial initiatives in this area? In what way do the local entrepreneurs take advantage of the traditional local activities? What part could the predominant rural and agricultural resources of the space polarized by Făget play in the development of some entrepreneurial initiatives? In what way the local urban community and the neighboring rural communities take advantage of the entrepreneurial initiative? Does F ăget constitute an attractive area for investor only due to the existence of labor force? These are some questions to which we will attempt to answer by means of this study; the analysis realized being grounded on interviews with local social-economic actors, but also on direct field research.

Rezumat. Ini Ńiativele antreprenoriale i rolul lor în dezvoltarea social-economic ă a ora elor mici din Banatul românesc. Studiu de caz: ora ul F ăget . Prin rolul lor în mobilizarea i coordonarea resurselor locale, ini Ńiativele antreprenoriale reprezint ă un instrument de bază în politicile de dezvoltare local ă, contribuind la diversificarea i dezvoltarea activit ăŃ ilor economice i sociale la nivelul unui teritoriu. Stimularea acestor ini Ńiative i conturarea unui nou sector economic, cel al întreprinderilor mici i mijlocii sunt premise importante în procesul de dezvoltare economic ă local ă. Efectele sectorului antreprenorial asupra dezvolt ării locale depind de domeniul în care se manifest ă ini Ńiativele, de m ărimea, profilul i modul de integrare al noilor întreprinderi, dar mai ales de specificul spa Ńiului geografic în care acestea se dezvolt ă. În ora ele mici, apari Ńia i dezvoltarea întreprinderilor de acest tip, dinamice, care s ă valorifice resursele locale (materii prime, for Ńă de munc ă), contribuie la dinamizarea activit ăŃ ilor economice la nivelul comunit ăŃ ilor respective, dar mai ales la transformarea treptat ă a acestora în poli 110 ● Entrepreneurial initiatives and their role in the social-economic development de cre tere localã, cu rol semnificativ in dezvoltarea socio-economic ă a localit ăŃ ilor rurale pe care le polarizeaz ă. În aceastã categorie se înscrie i Fãgetul, ora situat în nord- estul jude Ńului Timi , pe cursul superior al râului Bega, în Depresiunea Fãgetului, la o distan Ńã de aproximativ 100 km de Timi oara. De i istoria acestuia ca ora este scurtã, el dobândind acest statut în anul 1994, Fãgetul s-a impus încã din secolele trecute ca un centru polarizator al localitã Ńilor de pe cursul superior al râului Bega i chiar de pe Valea Mure ului. Care sunt factorii care au contribuit la apari Ńia i dezvoltarea ini Ńiativelor antreprenoriale în acest spa Ńiu ? In ce m ăsur ă tradi Ńiile în diverse activit ăŃ i sunt valorificate de c ătre antreprenorii locali ? Ce rol ar putea juca fondul preponderent rural i agricol al spa Ńiului polarizat de F ăget în dezvoltarea unor ini Ńiative antreprenoriale ? În ce măsur ă comunitatea urban ă local ă i comunit ăŃ ile rurale din vecin ătate beneficiaz ă de aportul antreprenorial ? Este F ăgetul doar o zon ă atractiv ă pentru investitori datorit ă existen Ńei for Ńei de munc ă ? Iat ă câteva întreb ări la care vom încerca s ă r ăspundem în acest studiu, analiza întreprins ă sprijinindu-se pe interviuri cu actori social-economici locali, dar i pe observa Ńia direct ă de pe teren.

Key-words : entrepreneurial initiative, small and medium-sized enterprises, local development, small towns, F ăget, Banat. Cuvinte cheie : ini Ńiativ ă antreprenorial ă, întreprinderi mici i mijlocii, dezvoltare local ă, ora e mici, F ăget, Banat.

1. THEORETICAL AND METHODOLOGICAL ASPECTS ON THE RELATIONSHIP BETWEEN ENTREPRENEURIAL INITIATIVES AND LOCAL DEVELOPMENT

The analysis of the role of the entrepreneur and entrepreneurial initiatives in the social-economic development of a territory, but especially of the factors which influence entrepreneurial dynamics in a region represents interesting research topics for geographers. Starting with the definitions of the concepts of “entrepreneurial initiative”, considered to be “an action which supposes the founding of a new enterprise by assuming some risks” (Hoffman, K., Russel, R., 1994, p.6) and of “local development”, considered by Goeffe (1984) as a “process of diversification and development of the economic and social activities at a territorial level, starting from the valorization of local resources”, we may underline the tight connection between the development of the entrepreneurial sector and local economic growth. An entrepreneurial initiative in order to become a successful business requires the existence of a favorable entrepreneurial environment, i.e. of a favorable macroeconomic environment. Other requirements are: the features of the natural environment because they offer certain opportunities, the qualities of the entrepreneur, his innovative spirit, the capacity to turn to profit entrepreneurial opportunities, and also his abilities of attraction and management of resources etc. (Ra că, Lavinia, 1998). These are the main elements that determine the transformation on entrepreneurial initiatives into new components of space – Ramona I FĂNESCU ● 111 small and medium-sized enterprises - which play a major part in local development and consequently in space optimization. Small and medium-sized enterprises are relevant especially because of their shape and size, which grant them the flexibility and ability required for innovation, for the establishment of tight connections with the community by means of optimal capitalization of local resources, new employment possibilities, diversification and development of social and economic life at the level of the territory. But the main feature of the SMEs is their ability to adapt to difficult economic circumstances. Thus SMEs are considered to be a sign of economic growth and of stability which determines development at a lower level, i.e. local and regional. SMEs have a different impact on the economic development of the local communities according to their size, profile, and way of integration, but mainly according to the features of the natural environment in which they are situated. For an enterprise to be propulsive and to have an impact on the economic development of a territory it must have certain features. The most important such features are adequate size (sufficient to generate direct and indirect connections), dynamic evolution, renewal capacity, tight connections of the input/output type with other enterprises. This way the effects of its development can be refracted to the whole system (Popescu, Claudia, 1998). Although SMEs don’t have the same impact as large enterprises considering labor force and raw material fluxes due to their reduced size, they still have a major influence on local development because of SME clusters which form local development centers. In the analysis of SME – local development ratio we must also consider the domain of their activity. The most influential sector is the productive sector, because of the fluxes of raw materials and population towards and from the areas in which they focus their innovative aspect and because they are very flexible. In the tertiary field, SMEs play an important part in the increase of the polarizing character of the cities in which they are situated. This is more obvious in the case of the SMEs specialized in the training of human resources (e.g. private universities), in services for the population, in tourist activities etc. SMEs have the general tendency to change their field of activity in time, due to their great flexibility. This is another factor which must be considered when analyzing the ratio between SMEs and local development. The main tendency is the conversion from the commercial sector to the productive one, this conversion generating obvious modifications in space. Micro-scale studies show most obviously the multiplying effect of the SME’s on local development. The effects of the entrepreneurial field on local economic development are obvious on small and functionally homogenous areas, like rural areas and small towns. In small towns, the apparition and development of these dynamic types of activities that capitalize local resources (raw materials, labor force) determine the revitalizing of the local economic activities. Gradually these places become local focal points, with significant role in the social economic development of the polarized rural areas (fig.1). These enterprises act as major engines for the increase of local development and also in the increase of the local population’s 112 ● Entrepreneurial initiatives and their role in the social-economic development income. They determine changes in land structure, development of urban and transport infrastructure and of the service sector, the appearance and development of entrepreneurial sector.

Fig. 1 - The impact of SMEs on local development

The most important effect of this development is the reduction of the aging and depopulation processes of the villages situated at a long distance from major urban centers. The apparition and development of SME’s in small towns, polarizing some rural areas, are important means in the process of demographic and economic revitalization. SMEs generate new employment places and consequently attraction of the population in the area. Taking into consideration the fact that the majority of population is employed in agriculture, a less attractive activity for the young, the diversification of activities in these places by using local resources determines the decrease of the migration of the population to larger urban centers. In the majority of small cities, the low level of labor places have a restrictive effect on the apparition of SMEs, thus the entrepreneurs need the support of local authorities. By penetrating the economic and informational circuits the increase of income and standard of living through the modernization of infrastructure and of services is another important effect of SMEs on local development, especially at the level of rural communities and small towns. Ramona I FĂNESCU ● 113

Local entrepreneurial initiatives together with the existence of a high economic and human form represent an important strong point for the attraction of foreign investors. These, having important financial resources, start businesses especially in the productive field. Many SMEs started by foreign investors activate in lohn system, using local labor force and thus contributing to the increase of the population’s income and the development of an entrepreneurial climate. Foreign investments, together local initiatives are major developmental factors for small towns. Case studies on several SMEs in various locations best emphasize the effects of the entrepreneurial sector on local development. By means of questionnaires given to local entrepreneurs we may best find out their entrepreneurial motivations, the local factors which determined them to choose a specific location, the evolution of the business in time, its influence on local development etc.

2. CASE STUDY: F ĂGET TOWN

The transition from a centralized economy to a market economy, characterized by concurrence and risk has been a difficult period in the evolution of all Romanian towns, these being forced to restructure their economic grounds and adapt to new demands. If the majority of big cities have found solution to exit the crisis by taking advantage of their multifunctional feature and the existence of a highly qualified labor force this was not the case of small towns (population under 25 000 inhabitants). The majorities of these were mono-industrial or agro- industrial and after 1990 entered a period of recession. A first element of decentralization of the planned economy was the apparition of SMEs as concrete manifestations of entrepreneurial initiatives. A major objective in the economic restructuring and local development policies became the gradual development of a strong entrepreneurial sector formed of small size enterprises, innovative, dynamic and continuously adapted to the requests of the market economy. In Banat, historic region situated in the west and south west part of , the entrepreneurial sector has known a very important development in the last decade, surpassing by far other historic regions of Romania. The development of the entrepreneurial sector in Banat was favored by several factors like its geographic position at the western border of Romania which favored the penetration of foreign investors and the gradual development of a network of SMEs, the high quality of the economy and of the population, the entrepreneurial spirit of the Banatian population and the high entrepreneurial education of the population. SMEs first appeared in major cities (Timi oara, Re iŃa, Caransebe ) from which they spread in cascade to medium size and small towns and then to neighboring villages, until they reached the most remote villages (I. Iano , 2000). The town F ăget, located in the north-east of Timi County is a small town situated on the upper stream of Bega River, in F ăget Depression, at approx. 100 km of Timi oara. Although it has only been declared town in 1994, F ăget had a strong polarizing position for the villages situated on the upper stream of Bega 114 ● Entrepreneurial initiatives and their role in the social-economic development

River and also on Mure Valley. Because it is situated at the crossroads of some major commercial roads connecting Banat and Transylvania, F ăget became, starting with the 18th century an important administrative, economic and cultural center. The various administrative functions held in time had an important role in the economic and social-cultural development of F ăget, contributing as well to the shaping of a vast area of influence in F ăget Basin and in the high surrounding area. Although in the communist era the town lost its administrative importance, being declared a commune, it has kept its vast area of influence because of the existing town-like structures.

2.1. Premises for the apparition of small and medium –sized enterprises The apparition, development and dynamics of small and medium size enterprises in F ăget have been influenced by a series of factors like the high economic and human potential, the favorable location, the attractive local economic environment, the entrepreneurial spirit of the population and the existence of a sustainable infrastructure for entrepreneurial activities. The most important factors for the consolidation of the influential position among the localities of F ăget Depression and the surrounding high area are its favorable geographic position and the administrative function the town had in the past. These features were also specific for all the small towns of Banat (e.g.Oravi Ńa, Jimbolia, Anina, Deta, Sânnicolau Mare etc) which gradually developed an important area of influence which at the present moment appears as a supportive network for their economic development and transformation in centers for local development. The majority of small and medium-sized enterprises formed after 1989 focused mainly on the optimal use of the various raw materials from the region. The main raw materials in Făget area are timber, building materials, agricultural products and tourist resources, especially ethnographic (traditions and crafts, folk art). The majority of the productive activities initiated had as major activity timber production due to the vicinity to Poiana Rusc ăi Mountains, region with a high forest potential. Another important factor for the development of the entrepreneurial sector in F ăget was the important human potential of the area. The existence of a numerous labor force at low costs was the main attraction factor for investors utilizing the lohn production system. The closure of some important economic activities after 1989 in F ăget and in the area, i.e. the glass factory at Tometi and the timber distillation factory of generated a very high number of unemployed persons in F ăget town and in the area because these two factories sustained economically and socially the population in the area. This phenomenon generated a redirection and reshaping of the labor fluxes towards F ăget, the only place in the region with a higher level of development and which by means of its status as a town has a series of facilities especially in the tertiary sector. In this context, the development of a dynamic entrepreneurial sector, based on flexible SME’s that would profit of local resources has become a priority for the economic revitalizing of the region. In all local and regional development policies small Ramona I FĂNESCU ● 115 towns are considered major cells of economic development for the surrounding villages. Entrepreneurial tradition represents another important factor which determined the apparition of several entrepreneurial initiatives in F ăget. Although in the communist era free initiative could not manifest, nevertheless through some small crafts production units (which belonged to the state and were integrated into major economic networks that offered them permanent functioning) a tradition was established in certain fields of activity which after 1989 represented the ground for SMEs. The tradition in certain raw material processing activities (timber, clay, leather etc.) together with the policies for the stimulation of free initiative had a major part in the development of SMEs in small towns of Banat. Among the main traditional crafts in F ăget area still preserved today we mention pottery, sheepskin manufacturing, timber manufacturing. The entrepreneurial culture of the population plays also an important part in the development of the entrepreneurial sector. It is a well known fact that, generally, the social and mental rigidity of the population manifested in a form of preference of traditional activities which triggers a reticence towards innovation in entrepreneurs, because this supposes finding new partners, re-conversion of labor force, the opening of new markets etc (Iano , I., Humeau, J., B., 2000). The population of F ăget and surrounding area is still very much attached to traditional activities which make the majority of SMEs to have a small level of competitively and rely only on local raw materials. In this context, a major priority for local authorities represented the development of an attractive working environment that would stimulate local entrepreneurial initiatives and would attract foreign investors. Local authorities support investors by according some facilities such as: granting land for the building of productive units, institutional support, rapid financial and banking transactions granted by the presence of some banks, low tax policies granted by the local Council etc. An agro-industrial park is under construction on a 20 ha surface known as the Gladna Road. (fig.2)

2.1. Particularities of the development of the entrepreneurial sector in F ăget The case study undergone in F ăget reveals the fact that the SME’s activities dynamics is highly connected on the one hand to the capacity to integrate in local economy and, on the other, to legislative and tax facilities. By comparing the number of enterprises to the total number of population of F ăget we notice that it has a much higher value (21.4 entreprises/1000 inhabitants) than other small towns of Banat (Buzia 8.4, Jimbolia 17.6, Moldova Nou ă 17.9, Anina, 8.4, Oravi Ńa 14.3 etc).

116 ● Entrepreneurial initiatives and their role in the social-economic development

Fig. 2 The industrial area of F ăget on Gladna Road In F ăget the vast majority of entrepreneurs initiated their activity with commercial activities which require small financial resources and the assumed risks are very low (fig. 3). These enterprises have a low income highly influenced by the purchasing power of the population in F ăget ant the surrounding villages. The commercial sector was underdeveloped prior to 1989. This also influenced the apparition of a high number of commercial SMEs after 1990 when the demand for products determined an explosion of commercial activities. The new “Boutiques” were a source of risk-free profit without making major investments. Many of the investors had prior knowledge in the field as they were ex-employees of the old Commerce Cooperative. Although SME’s activating in the commercial area held more than 50% of the total, this sector was the most dynamic after 1991. Image of a general state of equilibrium, it was determined by the fact that, although with a high bankruptcy level, this was compensated by the number of newly emerged enterprises. Besides commercial activities, local entrepreneurs were also interested in other tertiary activities. Thus auto-garages, barber shops, beauty parlors, tailor shops, carpenter shops etc. were formed. These were formed either from the privatization of old existing service-centers, or were the result of new initiatives as a market demand. Făget has always been a town which played the part of “central point” attracting population from the neighboring villages due to its social-cultural facilities similar to a town 1 thus the explosion of commercial and service activities after 1989 was a natural phenomenon. Traditional activities were also supported by the preservation of the weekly 2 agricultural and animal market which, at the moment of the development of the private sector, enabled the apparition of the first SME’s. The agricultural products market which used to be reserved strictly to the exchange of agricultural

1 Făget was declared town in 1994 2 This tradition is preserved since 1834 Ramona I FĂNESCU ● 117 products among the producers from neighboring villages has turned into a place in which various products are sold by merchants. From the old crafts still present in Făget area we mention pottery, sheepskin confections, timber manufacturing, these being the grounds for the apparition of crafts enterprises.

agriculture 4,7% construction trade 4,2% 43,6% transport 5,2% tourism 5,2% other activities 8,2% industry 28,9%

Fig. 3 The structure of the SMEs, according to the fields of activity (2005)

Entrepreneurial activities in the productive field are highly connected to the economic potential of the region. Small and medium-sized enterprises are using raw materials from the region (timber, building materials, agricultural products etc). The resulting products are sold more or less on the local market. By analyzing the productive SME’s in F ăget we notice that more than 70% are timber manufacturing units. This underlines the tight connection between entrepreneurial initiatives and local raw materials. Low cost labor force and the existence of raw material also attracted numerous foreign investors, the most important being: Lina Prod ltd, Company Duzotti ltd, FMP F ăget ltd, the majority being German investments. The presence in the past in the area of an important German community facilitated very much the establishment of economic connections with the German investors. Local and foreign investors had many joint activities, and thus networks appeared between SMEs. In this network local investors deal with primary timber production and foreign investors which bring the technology and know-how in the region with the processing and manufacture of timber and the production of high value-added products sold on foreign markets. Together with timber production units, numerous food processing units appeared. These use agricultural and animal products from producers from the neighboring area. Together with these SME’s there are several major investments which have an important part in the economic development of the town. Rifaget ltd, 118 ● Entrepreneurial initiatives and their role in the social-economic development belonging to the Austrian trust Rieker Europa, is a shue production unit with more than 300 employees. It is building a production unit that would give labor to another 800 persons. Comtim ltd with Romanian - Swiss capital which produces leather products utilizing materials form the region, and Bega Minerale Industriale Group ltd which used to be a production unit of Extraceram – Timi oara, with initial working units at Jupâne ti, Br ăne ti and Gladna Român ă, the last functioning quarry being that of Gladna Român ă with more than 100 employees. These units take over the labor force both from F ăget and from the neighboring villages with less important working opportunities. All industrial activities are clustered in the industrial area on Gladna Road. Entrepreneurial initiatives in tourism are still underdeveloped, although Făget area has many important natural and human resources. Tourism represents a possible instrument for local economic development because it generates new local firms with new work places. Small tourist enterprises together with traditional activities 3 would determine the inclusion of many private properties in the economic circuit.

2.3. The benefits of the entrepreneurial initiatives on the local urban population and the neighboring rural communities The first part of the paper focused to show the relations that appear between entrepreneurial initiatives and economic development. By direct analysis of these methods in F ăget, it is revealed that the impact of the entrepreneurial sector on the development of the social economic life of the town is obvious. First, the new activities determine the optimal capitalization of the raw material resources and of the available labor force. Following the downfall of the old state factories in the F ăget area, the unemployment rate is much above the average value of Timi County. Consequently new enterprises generate new working places and new sources of income. Nevertheless, there is a paradox situation. Although the unemployment rate of the active population in F ăget area is above 50 %, some entrepreneurs are challenged with a lack of labor force. These are mainly foreign investors activating in footwear manufacture. Which are the factors determining this phenomenon? First of all, employees state that the payment level is very low and labor conditions are very poor, so they prefer to work in agriculture as long as they have the financial supports received from their old state employer. Second, the vast majority of work places are for women and in this area the traditional image of family in which the woman takes care of the household is still in place. Regarding the number of employees on fields of activity (fig.4) the majority of work places are in the productive area (76.5%). Consequently, local authorities are interested in the attraction of new investors from the productive area and in the support of the existing investors. The development of the entrepreneurial sector determined major changes

3 I. Iano , Poten Ńialul economic al teritoriului i dezvoltarea sectorului antreprenorial în România, in „Terrra”, 2, 2000, p. 68. Ramona I FĂNESCU ● 119 in the internal structure of the town by the modernization of the transport infrastructure, building constructions, the development of services, all these contributing to the local economic development. The most obvious is the construction of buildings which determine an increase of community welfare the entrepreneurial support being important.

industry 76,5%

other activities 8,2%

trade tourism 12,1% agriculture 1,1% transport 4% 1,9% construction 1,3% Fig. 4 The distribution of number of employees in SMEs according to activity domain (2005)

New buildings were built to house banks, a new school, a social service canteen, a sports theatre, a new town hall and a series of degraded buildings were rebuilt (fig. 5) In the southern part of the town a new residential area started to emerge. Two blocks of flats were built by the National Association for Houses, with 40 flats each, revealing a high economic dynamism. Important roles in the changing of the urban landscape of the town are marked by the transformations in the purpose of the terrains in the old industrial area and the building of the new agro-industrial park which will be situated in the south western part of the town, in the old industrial area. The evolution of these areas is still at the beginning but such initiatives exist in every Banatian town. Another performance factor that highlights the importance of the entrepreneurial sector in the economic development of the town is the value of turnover. In F ăget the value of turnover in 2002 was of 1211 USD/1000 inhabitants, under the value in other towns in Timi county: Sânnicolau Mare, Jimbolia and Deta. The diversification of economic activities and the development of the entrepreneurial sector will influence the dynamics of the demographic factors and the social economic structure of the population. F ăget area is well known for undergoing an aging process of the population and of village depopulation.

120 ● Entrepreneurial initiatives and their role in the social-economic development

a. b. Fig. 5- Some testimonies of the economic growth a. The new Town Hall; b. The Romanian Commercial Bank

The development of SMEs will form important factors in the process of demographic revitalization and economic development.

CONCLUSIONS

The paper illustrates the fact that local initiatives in small towns are highly connected to the characteristics of the natural habitat in which they appear and that they are predominantly commercial. The income level of the population, together with predominance of elderly population was restrictive factors for the development of enterprises in the service domain. The repartition of SMEs on fields of activities underlines the fact that SMEs activating in production decreased their number in favor of commerce. The development of the entrepreneurial sector will have a major influence on local development; this manifesting itself especially by means of local development centers formed from the spatial joining of SME’s small towns can thus be transformed into small local development centers with an important role in the social and economic development of the rural areas they influence. In this context, the development of the entrepreneurial sector represents a priority for local development policies.

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