Entrepreneurship and Small Business Development in Post-Socialist Economies

David Smallbone, Friederike Welter

• Publisher: Routledge
• Year: 2008
• Print ISBN: 9780415336536
• eBook ISBN: 9781134327492
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book examines entrepreneurship and small business in Russia and key countries of Eastern Europe, showing how far small businesses have developed, and discusses how far 'market reforms' and a market mentality have been taken up by ordinary people in the real everyday economy. For each of the countries examined - Russia, Ukraine, Belarus, Poland

1
Introduction

Aims of the book in context

Entrepreneurship and the development of small and medium enterprises is a key feature of market-based economies. This book is concerned with the nature and extent of entrepreneurship and small enterprise development in economies that were operating under the rules of central planning until less than 20 years ago. The second decade after the commencement of the process of market reform in these former socialist economies is an appropriate time to consider what has been achieved in terms of the development of entrepreneurship. A key question in this regard is the extent to which the forms of entrepreneurship that have occurred may be considered a distinct response to the specific external conditions that have existed. The answer has potentially important theoretical implications, in terms of the social embeddedness of entrepreneurship.

The book seeks to provide insight into the nature of the processes of entrepreneurship development in countries selected to represent economies at different stages of market reform. As well as providing empirically grounded analysis of the processes of entrepreneurship and small business development in specific countries, the authors also provide conceptualisation of the distinctiveness of entrepreneurship in transition conditions and the implications for entrepreneurship theory.

The decision to write this book was influenced by a desire to address what the authors perceived to be a gap in the existing literature. On the one hand, it can be argued that entrepreneurship in economies in transition has received less attention than is justified by the nature and extent of the changes that have occurred in former command economies; and on the other hand, by the fact that most existing books on the topic of entrepreneurship in transition economies consist either of edited collections of conference papers or are concerned with particular countries or regional groupings. At the same time, there was also a strong personal desire to attempt to synthesise some of the results emerging from more than a decade of working in the field, both individually, and together, on a variety of projects that have embraced a wide range of Central and East European countries and former Soviet republics.

The research approach

The research approach used in the book reflects the approach used in the individual projects, which provide the raw material for the book. Key characteristics include a strong empirical grounding; policy orientation; and an approach based on a high level of international collaboration. Detailed information about these projects, including participating international partners and funding bodies is provided in the Appendix. However, they include studies of: the development of SMEs in Poland, Hungary, the Czech and Slovak Republics (1993–1994); the survival and growth of SMEs in Poland and the Baltic States (1995–1996); internationalisation, inter-firm linkages and SME development in Poland, Bulgaria and the Baltic States (1997); the conditions for SME development in Poland in comparison with those in EU countries (1998–1999); the implications of Poland’s accession to the EU on Polish SMEs (1999); identifying the support needs of small enterprises in Ukraine, Moldova and Belarus (1996–1998); the contribution of small firms to regional development in Ukraine, Belarus and Moldova (1997–1999); innovation in SMEs in Ukraine and Belarus (2000–2002); female entrepreneurship in Ukraine, Moldova and Uzbekistan (2001–2003); entrepreneurial strategies in high-trust and low-trust environments: Russia, Estonia, Germany, UK and Italy (2001–2003).

Not surprisingly perhaps, the trend in these projects was from general topics (e.g. factors influencing the survival and growth of manufacturing SMEs) to more specialised research issues (e.g. female entrepreneurship). Some involved an element of primary research in mature market economies, while others focused solely on transition countries, in which the role of western partners was mainly focused on research design, project management and co-ordination.

Although the number of empirical studies of entrepreneurship and small business development in transition countries has grown over the years (e.g. Aidis 2003, Bilsen and Mitina 1999, Clarke and Kabalina 2000, Gray and Whiston 1999, Kalantaridis and Labrianidis 2004), in the early 1990s such studies were thin on the ground. This was partly due to the difficulties of undertaking empirically based entrepreneurship and business research under transition conditions, but it also reflected certain characteristics of the research community in these countries, whose skills and orientation at the start of the transformation period had been shaped by the needs and priorities of the command economy. However, the emergence of new topics during the transformation period, including entrepreneurship, contributed to the emergence of a new scientific agenda, which included methodological and conceptual challenges for local scientists, who had little access to the resources needed to respond to them. This meant that empirical studies of entrepreneurship, undertaken by local researchers were few in the initial stages of the transition period.

At the same time, the collapse of the Berlin Wall, and the events associated with it, created new opportunities for East–West collaboration between scientists, facilitated by the emergence of new international funding opportunities, from the European Union in particular. Noteworthy amongst these were the Phare¹ (ACE²) and Tacis (ACE) programmes, targeted at economic researchers in Central and East European countries (CEECs) in the case of Phare; and former Soviet republics, in the case of Tacis.³ There was also INTAS,⁴ which was a funding programme for collaboration between scientists in the former Soviet Union and their western counterparts, which was open to a wide range of academic disciplines, until its closure in 2007. All three of these funding sources have been used by the authors for research contributing to this book, working in close association with Eastern partners.

Most of the research reported in subsequent chapters is the result of teamwork. One of the authors of this book has typically had overall responsibility for project management, research co-ordination and overall research design. However, in all cases local partners have been responsible for organising the collection and preliminary analysis of data in their respective countries and, in most projects, for the production of national reports also. The positive nature of the collaborations over the years is illustrated by the lasting nature of most of the partnerships, as the Appendix illustrates.

Lasting co-operation depends on mutual benefits accruing to the various partners, as well as to the presence of developmental aspects in the partnerships. The starting point in the case of the research collaborations, on which much of the content of this book is based, was a strong mutual interest in small business development in a transition context, combined with the complementarity that stemmed from the respective partners bringing different previous experience to the table. On the one hand, western partners were able to help Eastern colleagues to access what was a rapidly expanding base of scientific knowledge and practical research experience, in the field of entrepreneurship and small business. On the other hand, Eastern colleagues provided knowledge of local conditions, which was essential, both in shaping the research approach and also in contributing to the interpretation of research results. In addition, the lasting nature of these partnerships has meant that the relationship between partners has evolved over time, as Eastern colleagues have become more familiar with the international entrepreneurship literature and western partners have built up their knowledge of local conditions. This in itself demonstrates the extent of the learning experience for all participants, which in the case of the authors of this book, has been one of the most rewarding aspects of the work.

Although space does not permit a complete listing of all research collaborators who have contributed to this book in some way, there are certain people whose contribution must be acknowledged, because of the extent and lasting nature of their contribution. They include Professors Bogdan Piasecki and Anna Rogut, from the University of Lodz in Poland; Professor Kiril Todorov, from the University of National and World Economy in Sofia, Bulgaria; Dr Urve Venesaar, from Tallinn University of Technology, Estonia; Dr Nina Isakova, from the STEPS group, Ukrainian Academy of Sciences, Kiev; Dr Anton Slonimski, from the Economic Research Institute of the Ministry of Economy of the Republic of Belarus; Dr Elena Aculai, from the National Institute for Economy and Information, Chisinau, Moldova; and Professor Alexander Chepurenko, from the Moscow Higher School of Economics, Russia.

It must also be stressed that all of the colleagues listed above are leaders of research teams, which have included some extremely able young researchers, who have diligently applied data-collection methods and contributed to data analysis. Without the various contributions of Eastern partners, the empirical data and analysis which underpin this book would not have been produced. Moreover, the collaborative nature of all the projects drawn upon in this book has contributed to the research reported being very enjoyable to undertake, as well as being a stimulating learning experience.

Another recurrent theme is policy orientation, which in turn reflects a focus of many of the projects on which the book is based. This partly mirrors the research interests of the authors, and the orientation of some of the funding regimes that were used to provide resources to undertake the research, but more fundamentally it reflects the policy vacuum that existed in many transition countries in the 1990s, with respect to the development of entrepreneurship and small business. At the same time, it was left to research teams to develop an appropriate strategy for achieving this, as part of their research proposals, although effective dissemination of findings to policy makers and practitioners, as well as to the scientific community, was expected. As a result, a key element in our research approach in most projects was to seek to engage policy makers and practitioners in the research process itself. It is felt that this type of approach is more likely to lead to research being relevant to, and influencing, policy, rather than an approach where the development of links with policy makers and practitioners are left until the research has been completed.

Policy workshops were typically organised at different stages in the development of the research projects. In the early stages, the aim was to inform policy makers of the objectives of the research; how it was to be conducted; to discuss with them how the research might contribute to meeting their needs; and to seek to involve them in the research as much as possible. At later stages of projects, policy workshops were arranged to disseminate research results and to discuss the potential implications of the findings for the development and implementation of policy. It must be emphasised that this was at a time (i.e. the mid-1990s) when the concept of evidence-based policy was much less familiar in EU countries than it is now and it also presented many challenges when applied in transition conditions pertaining at that time.

One of the challenges faced was that the potential contribution of entrepreneurship and SMEs to economic development was not well understood by policy makers. Moreover, the ‘explosion’ in the number of small firms that occurred in many transition economies at the start of the transformation period was often referred to by policy makers as evidence that entrepreneurship would develop without stimulus or intervention from government. More fundamentally perhaps, policy makers found it difficult to define the role of the state in the emerging market economies of the 1990s, tending to adopt either a minimalist position or asked for advice on the optimum number of small firms in a market economy. Another problem was that local researchers had little experience of the critical and evaluative approach to policy, which was a typical stance for academic researchers to adopt in western countries.

Not surprisingly perhaps, there was often a greater degree of success in establishing dialogue with practitioners, representatives of donor organisations and local policy makers, than with policy makers at a national level, although the specific experience varied between projects and between countries. Nevertheless, the experience overall was valuable for all parties, contributing to more practical policy oriented research and to building local research capacity, on the one hand, while also contributing to some policy makers becoming better informed about the needs of entrepreneurs on the other.

Methodological perspectives

All of the projects listed in the previous section were empirically based. Although the detailed methodologies employed varied between projects, most included a survey component. However, in the more recent projects, a survey approach was typically complemented by a programme of case studies, to enable more qualitative insights to be gained into the processes of entrepreneurship and small business development. Surveys typically involved 500–600 interviews, which were undertaken face to face, facilitated by cheap labour costs, although this latter aspect varied between countries, as well as over time. The initial reliance on survey-based approaches was also influenced by the dominant research paradigms at the time in the countries under study, as well as by the previous experience of participating researchers. However, as the research partnerships matured, more ambitious, qualitative methods were attempted, supported by training workshops in methods of data collection and analysis. In addition, this also reflected a changing attitude of both authors, who came to appreciate the deeper understanding of entrepreneurship in a transition context originating from qualitative approaches.

In the early years, training workshops had focused on Eastern research colleagues acquiring the skills to use software packages for quantitative data analysis, such as SPSS, but in latter years, the focus has increasingly been on aspects of qualitative data collection and analysis, which few Eastern colleagues had any previous experience of. As a result, methodological development has occurred over time, facilitated by a high degree of stability in the composition of research partnerships and a willingness on the part of Eastern research colleagues to learn new skills. The preferred empirical approach that has emerged typically involves duality, with the use of case studies combined with a survey approach. An example of a project using a dual methodology is the study of innovation in SMEs in Belarus and Ukraine, which provides empirical data, used in Chapters 5 and 6.

One of the challenges facing researchers seeking to undertake empirical research of small firms and entrepreneurs, concerns the availability and adequacy of business databases, from which samples of small firms to be contacted for interviews, may be extracted. Of course, the problem of inadequate databases from which samples can be identified is not unique to transition economies. However, a combination of inadequate official data, and a lack of commercially produced databases by firms such as Dun and Bradstreet, means that it has typically not been possible to start with a reliable sampling frame that includes contact details of small firms.

One specific problem concerns the tendency for business registers to include large numbers of firms that are no longer trading. Another common problem, in the early years of transition in particular, was a tendency for the activities registered to be inaccurate, making sector classifications unreliable. Although such issues have much improved in the new member states of the EU, such as Poland and Estonia, as the process of accession has encouraged greater attention to be paid to the quality of data on SMEs, in the mid-1990s there, as well as in the other...

Table of contents

• Routledge studies in small business
• Contents
• Illustrations
• 1 Introduction
• Part I Setting the scene
• Part II Entrepreneurship and small business development in former Soviet republics
• Part III Entrepreneurship and small business development in Central and Eastern Europe
• Part IV The way forward
• Notes
• Bibliography
• Index