Table Of ContentTECHNOLOGY, INNOVATION and POLICY 14
Series of the Fraunhofer Institute
for Systems and Innovation Research lSI
TECHNOLOGY, INNOVATION and POLICY
Series of the Fraunhofer Institute
for Systems and Innovation Research lSI
Volume 1: Volume 9:
Kerstin Cuhls, Terutaka Kuwahara Frieder Meyer-Krahmer (Ed.)
Outlook for Japanese and German Globalisation of R&D
Future Technology and Technology Markets
1994. ISBN 3-7908-0800-8 1999. ISBN 3-7908-1175-0
Volume 2: Volume 10:
Guido Reger, Stefan Kuhlmann
Klaus Menrad et al.
European Technology Policy Future Impacts of Biotechnology
in Germany on Agriculture, Food Production
1995. ISBN 3-7908-0826-1 and Food Processing
2000. ISBN 3-7908-1215-3
Volume 3:
Guido Reger, Ulrich Schrnoch (Eds.)
Volume 11:
Organisation of Science and Technology
Emmanuel Muller
at the Watershed
Innovation Interactions between
1996. ISBN 3-7908-0910-1
Knowledge-Intensive Business Services
Volume 4: and Small and Medium-Sized
Oliver Pfirrmann, Udo Wupperfeld and Enterprises
Joshua Lerner 2001. ISBN 3-7908-1362-1
Venture Capital and New Technology
Based Firms Volume 12:
1997. ISBN 3-7908-0968-3 Knut Koschatzky, Marianne Kulicke
and Andrea Zenker (Eds.)
Volume 5: Innovation Networks
Knut Koschatzky (Ed.) 2001. ISBN 3-7908-1382-6
Technology-Based Firms
in the Innovation Process Volume 13:
1997. ISBN 3-7908-1021-5 Kerstin Cuhls, Knut Blind
and Hariolf Grupp
Volume 6:
Innovations for our Future
Frieder Meyer-Krahmer (Ed.)
2002. ISBN 3-7908-1434-2
Innovation and Sustainable
Development
1998. ISBN 3-7908-1038-X
Volume 7:
Ulrike Bross, Annamaria Inzelt
and Thomas ReiB
Bio-Technology Audit in Hungary
1998. ISBN 3-7908-1092-4
Volume 8:
Gunter Lay, Philip Shapira
and Jiirgen Wengel (Eds.)
Innovation in Production
1999. ISBN 3-7908-1140-8
Oliver Pfirrmann . Gunter H. Walter
(Editors)
Small Firms
and Entrepreneurship
in Central
and Eastern Europe
A Socio-Economic Perspective
With 22 Figures and 42 Tables
Springer-Verlag Berlin Heidelberg GmbH
Dr. Oliver Pfirrmann
Free University of Berlin
Department of Political and Social Science
Center of Research on Policy and Technology
IhnestraBe 53
14195 Berlin
Germany
[email protected]
www.fu-berlin.de
Dr. Gunter H. Walter
Fraunhofer Institute for Systems
and Innovation Research lSI
Breslauer StraBe 48
76139 Karlsruhe
Germany
[email protected]
www.isi.fgh.de
ISSN 1431-9667
ISBN 978-3-7908-1467-5
Cataloging-in-Publication Data applied for
Die Deutsche Bibliothek - CIP-Einheitsaufnahme
Piirrmann. Oliver: Small firms and entrepreneurship in Central and Eastern Europe: a socio-eco
nomic perspective; with 42 tables / Oliver Pf1ITlllann; Giinter H. Walter. - Heidelberg; New
York: Physic a-VerI., 2002
(Technology, innovation and policy; 14)
ISBN 978-3-7908-1467-5 ISBN 978-3-642-57460-3 (eBook)
DOI10.1007/978-3-642-57460-3
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Preface and Acknowledgement
Since the collapse of communist governments in Central and Eastern European Countries
(CEECs), there has been a broad agreement among economists and policy makers regarding
the essential elements of an effective programme of transition towards a market economy.
Macroeconomic issues had been given highest priority on the agenda. These were: how to
control inflation, to maintain reasonable balance in the government's budget and the trading
account, to relax control over prices and international transactions, as well as the aspects of
privatisation, de-monopolisation, and restructuring. However, the cardinal social and eco
nomic transformations that appeared in the context of this agenda have left many hopes and
expectations unfulfilled. While the general aim of these transformations, to create economi
cally developed democratic societies, has become visible in several, but not all, CEECs
more and more structural and innovation problems have come into view. As a consequence,
so-called 'top-down transformation' has been complemented by 'bottom-up transformation',
i.e. by the generation and support of new enterprises.
In CEECs much hope is pinned on the emerging entrepreneurial small firm sector to carry
these economies out of their current economic position, e.g. either to a comparable level,
adequate to meet the standards of a reunifying Europe, or at least to an improved level, first
and foremost out of their specific transformation crisis. Now that bottom-up transformation
has been practised for several years, it is time to examine progress in the development of the
small and medium sized enterprises (SMEs) sector on the CEECs so far.
With the support of the German Ministry of Education and Research and the Volkswagen
Foundation, a conference was held on November 17/18, 1999 in Karlsruhe. The conference,
launched by Fraunhofer Institute for Systems and Innovation Research (Karlsruhe) and the
Center of Research on Policy and Technology at Free University Berlin was organised as a
forum for dissemination and discussion of the results of recently completed and ongoing re
search on SME and entrepreneurship in CEECs and related subjects. These are, for example:
the factors supporting and hindering SME development, small-scale privatisation and 'spin
offs', the transfer of technology to small firms, research and development (R&D) and innova
tion in manufacturing, the elaboration of industry-related policies. The conference presented
recent results of techno-economic research and practical experiences relating to small and
entrepreneurial firms in East and West, and especially their role in the generating of neces
sary market turbulences, economic regeneration and restructuring in transformation count
ries. The majority of the following contributions stem from this conference, some of them
were written especially for this volume. The editors would like to thank all contributors for
their engagement in providing information either on their country or on specific aspects of
small finns and entrepreneurship in CEECs.
This volume would not have been completed without the assistance of Mrs. Gabriele
Kiichlin and Mrs. Anne Ray, who helped the editors with the layout of the contributions
and eliminated several errors both with regard to meaning and from a grammatical view
point. Their work was of the highest quality. The remaining errors, however, are within our
responsibility. Besides this, we hope that some of the theses presented in the book can
contribute to the discussion on the socio-economics of the transformation process in Central
and Eastern Europe.
BerlinlKarlsruhe, October 2001
Oliver Pfirrmann Giinter H. Walter
Contents Page
Introduction
Oliver Pfirrmann, Gunter H. Walter .......................................................................... 1
WESTERN EXPERIENCE AND GENERAL QUESTIONS
Small Firms and Entrepreneurship: The Western Experience
David B. Audretsch ................................................................................................... 15
Private Ownership and Markets: Limits to Privatisation in the
Transition Process
Walter Heering, Oliver Pfirrmann ........................................................................... 47
Industrial Modernisation in Post-Socialist Economies: Primary
Endogenous and Elites Oriented Modernisation as a Socio-Economically
Oriented Strategic Concept
Fuad Kandil, Gunter H. Walter ................................................................................ 73
CENTRAL AND EASTERN EUROPE: COUNTRY STUDIES
Entrepreneurship and Innovativeness of Small and Medium-Sized
Enterprises (SMEs) in Poland
Krzysztof B. Matusiak ............................................................................................... 97
Small Businesses in Russia
Natalia Kovaleva .................................................................................................... 123
Small and Medium Sized Enterprises in Hungary
Friederike Welter .................................................................................................... 139
Small and Medium Sized Enterprises in Yugoslavia: A Driving Force
in the Catching-Up Process
Djuro Kutlaca ......................................................................................................... 157
VIII
SME Development in the Republic of Slovenia
Viljenka Godina ...................................................................................................... 179
Small Business and Entrepreneurship in Romania
loan Piturescu ......................................................................................................... 193
SELECTED ASPECTS OF SMALL FIRMS ENVIRONMENT AND POLICY
Supporting Innovation Through Institution Building in Central and
Eastern Europe: Between Visions and Realities
Slavo Radosevic, Gunter H. Walter ........................................................................ 213
Entrepreneurship, Innovation and Small Firms: A Case for Technology
Centres and Science Parks in the Transition Process?
Walter Heering ....................................................................................................... 237
Regional Innovation Capacities and Economic Transition: The Example
of West Transdanubia
Emmanuel Muller, Andrea Zenker, Tibor Dory ..................................................... 251
From Old to New, from Big to Small? - Transformation of Firm
Behaviour in Declining Regions in West and East
Michael Steiner ....................................................................................................... 273
Possible Strategies and Policy Steps for an Innovation Oriented
Modernisation
Gunter H. Walter .................................................................................................... 287
SUMMARY AND ISSUES FOR FUTURE RESEARCH
Summary and Outlook
Oliver Pfirrmann .................................................................................................... 301
Contributors .......................................................................................................... 319
Introduction
Oliver Pfirrmann, Giinter H. Walter
1 Background and Objectives
Interest in small firms and entrepreneurship has spread over the last two decades
from the US and England to the rest of Europe, first Western and then Eastern
Europe, as well as to the former Soviet Union. In CEECs much hope was and still is
pinned on the emerging entrepreneurial small firm sector to carry these economies
out of their current economic position, e.g. either to a comparable level, adequate to
meet the standards of a reunifying Europe, or at least to an improved level, first and
foremost out of theit specific transformation crisis.!
One of the central tasks for the revitalisation of Eastern European economies today
is still the development of the manufacturing sector. Improving the performance of
the manufacturing sector implies improving the myriad firms and economic agents
within it. In both developing and developed economies, the SME sector is seen as
an essential component of manufacturing.2 While large firms have played an essen
tial role in developing the frontiers of processes and technology and account for a
major share of employment and value added, SMEs constitute the majority of firms,
and account for a significantly large share of employment and value added. Ac
cording to several analyses, SMEs in the manufacturing sector are also an important
part of the system of technology production and assimilation (Acs/Audretsch 1990;
Brock/Adams 1996; Harhoff et al. 1996; Piore/SabeI1984).
During the last twenty years, Western countries have faced the difficult task of re
structuring their economies. Realising at the same time that SMEs generate employ-
Here we follow the European Bank of Reconstruction and Development (EBRD) definition pro
vided by DykerlRadosevic (1999) in using the term CEEC to refer to Poland, The Czech Repub
lic, Slovakia, Hungary, the Yugoslav successor states, Romania, Bulgaria and Albania. For our
purposes it also includes the former Soviet Union as the Commonwealth of Independent States
(CIS) and the Baltic countries. However, due to limitations of the conference this volume is not
able to cover all of them; some are presented in detailed country studies, another group of coun
tries is discussed in the overview articles.
2 For pragmatic reasons we treat the terms "small firms" and "SMEs" as synonymous.
2
ment and are at least able to cope with an inherent size disadvantage, these countries
endeavoured to use SMEs as a vehicle to diminish the negative consequences of the
process of structural change, resulting in a variety of policy measures to support SMEs
(DECD 1996). Small firms have been seen and treated as part of, and integrated
into, the domestic manufacturing system - a system which itself is then linked to
similar systems in other nations. Examples have shown that in many instances
SMEs are productively linked to the large-firm sector. The empirical evidence sug
gests that at times large and SMEs may complement each other, at other times and
in certain sectors they may substitute for each other (Meyer-Krahmer 1989; Kinch
1987; RothwelllDodgson 1993). Consequently, from a policy-maker's viewpoint,
SMEs need to be supported in fulfilling their role as suppliers, providers of jobs,
innovators, and in their general role of agents of economic change.
The problems confronting Eastern Europe now are even greater than the obstacles
existing during structural change in the past in Western countries, because many East
ern European nations systematically eliminated most of their small firms, and with
them their entrepreneurial potential. Small firms and entrepreneurship were simply not
compatible with state ownership and control. In contrast, large units and combines, for
example in production, were much more compatible with centralised planning. The
existence of large firms (influenced obliquely by the Western law of "economies of
scale") derived as a generalisation of the politically forced concentration of production
processes in countries like former East Germany, Czechoslovakia, Poland, Hungary
and Russia. The virtual obliteration of small firms and entrepreneurship deprived
CEECs of a key element for facilitating industrial restructuring and technological
change (Acs/Audretsch 1993). However, with the beginning of the 1990s more or less
all countries in the East experienced the decline of the "large is better" attitude, which
shaped socialist and Western economies as well over many years of the twentieth
century. The restructuring of the manufacturing sector in Eastern Europe was now
strongly connected with the generation of technological entrepreneurship and small
firms.
Indeed, from a late Schumpeterian perspective large enterprises were seen for a
long time as the central engines of growth even by their ability to create more com
plex innovations. SMEs, in contrast, were regarded as lagging behind. At the least,
because of their limited resources, their capacities tended to produce incremental
innovation only or act as qualified suppliers for larger companies. However, as the
following examples from Western industrialised countries demonstrate, SMEs are
often forced to react flexibly to basic technological breakthroughs, for example in
microelectronics or biotechnology (Walter 1998).
Firstly, at the appearance of basic innovations, SMEs undertake a wide range of
further developments and adaptations in order to meet the concrete needs of their
specific customers. Here, SMEs act as "spearheads" of technological change. The
modification of complex innovations adapted to their resources is beneficial. From
3
this point of view, application-oriented scientific and technological know-how is
becoming increasingly significant for small enterprises. The more SMEs are able to
take up and implement technological information with their in-house resources, the
more they will be capable of picking up and further developing basic innovations as
soon as they appear, and accelerating the diffusion of innovations as a whole.
Secondly, SMEs can take on, in some respects, a complementary function for large
enterprises. Particularly in some fields of bio- or information and communication
technologies they often have to co-operate with external partners. Within the
framework of such innovation projects, SMEs are, however, frequently unable to
scale up. For this purpose they require capacities of both staff and apparatus on a
high scientific level, a qualitatively superior production of large quantities and ade
quate financial resources. Usually in fields of a new technology such preconditions
are only available in large enterprises whose strength is to be found in process engi
neering and world-wide marketing. New products for large enterprises may there
fore be generated if such companies take up and correspondingly further develop
product innovations by SMEs. Large enterprises transfer new developments from
the laboratory to the production scale and establishment on the market (Meyer
Krahmer 1989).
Thirdly, a collaboration of independent small and medium sized manufacturing
companies using a highly developed infrastructure also opens up the opportunity of
coping with innovative tasks, by substituting innovations of large enterprises (Kinch
1987). Thus manufacturers can rely for their production on considerable innovative
resources, placed at their disposal by co-operating with a large number of such
SMEs. With these resources coupled in an industrial network and distributed among
many SMEs, they can be in a position to compete with, for example, the cash-rich
automobile industries of other countries, which maintain subsidiary plants in the
most varied branches for prefabrication and subsequent sectors. This specific "re
source strength" usually also enables the companies to compete successfully on the
international market and establish a strong position in the cost-effective procure
ment of (foreign) supplied parts if necessary.
While Western experience argues towards an innovative potential of SMEs, the
question arises whether this also applies to SMEs in Central and Eastern Europe?
Theories as well as empirical research on structural change have shown that new
industrial sectors based on information and communication technology, new materials
or biotechnology, mainly driven by the entrepreneurial spirit, force economic restruc
turing, which will possibly lead to a disappearance of outdated industries (Audretsch
1995; FloridalKenney 1990; Welfens/Grack 1999). There is a small but growing body
of evidence that beyond this process new industries emerge in the countries of Eastern
Europe (Brezinski et al. 1998; Bitzer 1997; v. Hirschhausen 1996; Rabkin 1997).
Whereas at the beginning of the transformation process the numerous publications
provided less information on size-related and structural developments, compared to
