1/98 - Rainer Hampp Verlag

Journal for East European Management Studies (JEEMS)
Editor-in-Chief/Herausgeber: R. Lang, TU Chemnitz
Editorial Board/Herausgeberrat: E. Dittrich, Universität Magdeburg
M. Dobák, Budapest Univ. of Econ. Sciences
U. Gehmann, Universität-GH Wuppertal
G. Hollinshead, Bristol Business School
C. Morgenstern, TEQ GmbH Chemnitz
I. Novy, University of Economics Prague
S.A. Sackmann, UdB München
D. Wagner, Universität Potsdam
Coordinator/Koordinator: F. Rudolf, TU Chemnitz
Corresponding members/Mitarbeiterkreis:
G. Bagijev, University of Econ. & Fin. St. Petersburg
C. Baitsch, TU Chemnitz
M. Becker, Universität Halle-Wittenberg
J. Belak, University of Maribor
M. Buble, University of Split
E. Dülfer, Universität Marburg
S.G. Echevarria, Universidad de Alcala Madrid
V. Edwards, Buckinghamshire College
J. Erpenbeck, Max-Planck-Institut Berlin
F. Ettrich, Päd. HS Erfurt/Mühlhausen
M. Gaitanides, UdB Hamburg
B. Grancelli, Universitá di Trento
J. Hentze, TU Braunschweig
D. Holtbrügge, Universität Dortmund
M. Ignatov, Bulgarian Academy of Science
Z. Ilmete, University of Riga
G. Ionescu, Western University Timisoara
D. Ivanov, Berlin
J. Jezak, University of Lodz
N. Kailer, Ruhr-Universität Bochum
K. Lindert, TU Braunschweig
J. Liouville, Université R.S. Strasbourg
S. Llaci, University of Tirana
F. Luthans, University of Nebraska Lincoln
C. Mako, Hungarian Academy of Science Budapest
M. Maly, University of Economics Prague
W. Maslow, Lomonossov University Moscow
M. Mathiopoulos, Hannover
W. Mayrhofer, Wirtschaftsuniversität Wien
S. Michailova, Copenhagen Business School
D. Nesterova, Gorky State University of Ekaterinburg
R. Nurmi, Turku School of Economics
P. Pawlowsky, TU Chemnitz
D. Pucko, University of Ljubljana
R. Schmidt, Universität Jena
G. Schreyögg, FU Berlin
W. Schüler, Universität Magdeburg
L. Sekelj, University of Beograd
T. Steger, TU Chemnitz
B. Stieler-Lorenz, a&o research Berlin
C. Stojanov, Universität Saarbrücken
L. Suchodojeva, University of Nishnij Novgorod
R. Üksvärav, University of Tallinn
H. Wächter, Universität Trier
R. Whitley, Manchester Business School
G. Zaitsev, University of Econ. & Fin. St. Petersburg
K. Zalai, University of Economics Bratislava
Address:
JEEMS, Postfach 964, 09107 Chemnitz
Tel.: +49 371 531 4156, Fax: +49 371 531 3987, E-Mail: f.rudolf@wirtschaft.tu-chemnitz.de

Journal for East European Management Studies (ISSN 0949-6181)
The Journal for East European Management Journal (JEEMS) is published four
times a year. The subscription rate is DM 78 for one year (including value added
tax). Subscription for students is reduced and available for DM 39 (including
value added tax). The annual delivery charges are DM 6. Cancellation is only
possible six weeks before the end of each year.
The contributions published in JEEMS are protected by copyright. No part of
this publication may be translated into other languages, reproduced, stored in a
retrieval system or transmitted in any form or by any means, electronic,
magnetic tape, photocopying, recording or otherwise without permission in
writing from the publisher. That includes the use in lectures, radio, TV or other
forms.
Copies are only permitted for personal purposes and use and only from single
contributions or parts of them.
For any copy produced or used in a private corporation serving private purposes
(due to §54(2) UrhG) one is obliged to pay a fee to VG Wort, Abteilung Wissenschaft,
Goethestraße 49, 80336 München, where one can ask for details.
Das Journal for East European Management Studies (JEEMS) erscheint 4x im
Jahr. Der jährliche Abonnementpreis beträgt DM 78,- inkl. MWSt.
Abonnements für Studenten sind ermäßigt und kosten DM 39,- inkl. MWSt. Die
Versandkosten betragen DM 6,- pro Jahr. Kündigungsmöglichkeit: 6 Wochen
vor Jahresende.
Die in der Zeitschrift JEEMS veröffentlichten Beiträge sind urheberrechtlich geschützt.
Alle Rechte, insbesondere das der Übersetzung in fremde Sprachen,
vorbehalten. Kein Teil darf ohne schriftliche Genehmigung des Verlages in
irgendeiner Form - durch Fotokopie, Mikrofilm oder andere Verfahren -
reproduziert oder in eine von Maschinen, insbesondere von
Datenverarbeitungsanlagen, verwendete Sprache übertragen werden. Auch die
Rechte der Weitergabe durch Vortrag, Funk- und Fernsehsendung, im
Magnettonverfahren oder ähnlichem Wege bleiben vorbehalten. Fotokopien für
den persönlichen und sonstigen eigenen Gebrauch dürfen nur von einzelnen
Beiträgen oder Teilen daraus als Einzelkopien hergestellt werden.
Jede im Bereich eines gewerblichen Unternehmens hergestellte oder benützte
Kopie dient gewerblichen Zwecken gemäß § 54(2) UrhG und verpflichtet zur
Gebührenzahlung an die VG Wort, Abteilung Wissenschaft, Goethestraße 49,
80336 München, von der die einzelnen Zahlungsmodalitäten zu erfragen sind.

JEEMS • Volume 3 • Number 1 • 1998
Editorial
Rainhart Lang 5
Articles
Roger Bennett
First insights into the transfer of marketing know-how from
Western firms to enterprises in Central and East Europe: A
qualitative study 7
Boštjan Zalar
The transformation of companies from the standpoint of
participation rights: The case of Slovenia 26
Ed Clark
Czech enterprises and the multidivisional form: Legitimation,
legacies and structural choice 46
Robin Matthews / Ara Yeghaizarian
Russian Management Style: A Game Theory Approach to
Evaluating Decision Making 64
Book Reviews
Winfried Liedtke
über Heribert Warken: Unternehmenskontrolle und
Finanzmärkte im Transformationsprozeß Osteuropas aus Sicht
der Principal-Agent-Theorie 76
László Lázár
über Mariano R. Viola: Reputationsbildung und Auslandskapital:
Entwicklung der Transformationsländer Ungarn und
Polen 78
Contents
News / Information
Cornelia Kunze 82
Column
Claus Morgenstern
Qualität managen – eine erstrangige Führungsaufgabe 91

JEEMS 1/ 1998

Editorial Mission of JEEMS
Objectives
The Journal for East European Management Studies (JEEMS) is designed to
promote a dialogue between East and West over issues emerging from
management practice, theory and related research in the transforming societies
of Central and Eastern Europe.
It is devoted to the promotion of an exchange of ideas between the academic
community and management. This will contribute towards the development of
management knowledge in Central and East European countries as well as a
more sophisticated understanding of new and unique trends, tendencies and
problems within these countries. Management issues will be defined in their
broadest sense, to include consideration of the steering of the political-economic
process, as well as the management of all types of enterprise, including profitmaking
and non profit-making organisations.
The potential readership comprises academics and practitioners in Central and
Eastern Europe, Western Europe and North America, who are involved or
interested in the management of change in Central and Eastern Europe.
Editorial Policy
JEEMS is a refereed journal which aims to promote the development,
advancement and dissemination of knowledge about management issues in
Central and East European countries. Articles are invited in the areas of
Strategic Management and Business Policy, the Management of Change (to
include cultural change and restructuring), Human Resources Management,
Industrial Relations and related fields. All forms of indigenous enterprise within
Central and Eastern European will be covered, as well as Western Corporations
which are active in this region, through, for example, joint ventures. Reports on
the results of empirical research, or theoretical contributions into recent
developments in these areas will be welcome.
JEEMS will publish articles and papers for discussion on actual research
questions, as well as book reviews, reports on conferences and institutional
developments with respect to management questions in East Germany and
Eastern Europe. In order to promote a real dialogue, papers from East European
contributors will be especially welcomed, and all contributions are subject to
review by a team of Eastern and Western academics.
JEEMS will aim, independently, to enhance management knowledge. It is
anticipated that the dissemination of the journal to Central and Eastern Europe
will be aided through sponsoring.

Editorial
Editorial
Two years of JEEMS: A Success story?
JEEMS is now in its third year. Summing up the past two years, one can observe
that the first step in establishing a dialogue between East and West has been
achieved. Thirty six authors from twelve countries have written twenty five
articles for our Journal. A wide range of topics, including market entry strategies
and decision making processes in Central and Eastern European countries, HRM
in joint ventures, comparative management styles in East and West, and cultural
and structural problems of change is represented in the articles.
Country studies include management and transformation in Albania, Bulgaria,
Russia, Hungary, Estonia, Poland, the Czech Republic, Slovenia, Slovakia and
the Ukraine. In the Forum section, interviews have been reported with Peter
Drucker and with young managers from Eastern European countries, as well as
case studies on transformation drawn up by authors from East and West,
accompanied by insider comments.
At the starting point, two years ago, it was difficult to obtain articles for
publication, especially from Central and Eastern European authors. Now it
seems to me that many authors in East and West have recognised that JEEMS is
an interesting medium in which to publish results from empirical studies into
transformation.The review process has guaranteed the increasing quality of the
articles, and I am grateful for the work done by our international review board.
This issue also presents four very interesting articles. Roger Bennet reports on
the results of a qualitative study on the transfer of marketing know- how from
twelve UK firms to enterprises in CEE countries. Bostjan Zalar's analysis
concerns the problems of institutionalising participation rights in Slovenia. Ed
Clark's article is on multidivisional forms and, based on longitudinal case
studies, the author deals with the legitimation, legacies and structural choices in
former state enterprises in the Czech Republic. Last, but not least, Robin
Matthews and Ara Yeghiazarian's informative paper presents possibilities to
evaluate and enhance the quality of leadership by the use of simulation games in
management training. The empirical sample used in the study is from Russia.
JEEMS is in its third year, and I believe the start has been quite successful!
What has to be done now? We think that we could all gain from further
discussion, comments about articles and findings,as well as reports of managers'
experiences in the East. The editorial board will encourage all these forms, and
all our contributors, corresponding members, readers and authors should feel
free to send us comments, messages, informative statements and book reviews,
as well as books in CEE languages, practitioner reports and so on. Another area
JEEMS 1/ 1998 5

Editorial
for activity relates to subscriptions, which remains a problem. I ask all our
partners to help in this regard.
Let us make JEEMS a success story!
Rainhart Lang, (Editor-in chief)
A further change is to be reported.
Frank Rudolf is to replace Thomas Steger as our co-ordinator. The board
extends its sincerest thanks to Thomas for his creative and inspiring work over
the past two years. He did a very good job. We wish him all the best with hid
Ph.D and hope for future co-operation with him.
Welcome now to Frank Rudolf, who will continue the work!
Rainhart Lang
6
JEEMS 1/ 1998

Roger Bennett
First insights into the transfer of marketing know-how
from Western firms to enterprises in Central and Eastern
Europe: A qualitative study *
Roger Bennett **
This paper reports the results of case study research into the methods employed
by 12 large UK-based companies when transferring marketing know-how to
Central and East European (CEE) joint venture partner firms. Propositions
derived from transactions cost analysis and theories concerning the optimal
means for transmitting technical information between organisations are applied
to the data, and the usefulness of a number of collateral hypotheses are
assessed. It is concluded that certain elements of transactions cost theory stand
up well in the CEE business context, but that the practical devices adopted by
Western enterprises when transferring marketing know-how to foreign CEE
partners need to be improved.
Dieser Artikel faßt die Ergebnisse von Fallstudienuntersuchungen bezüglich der
Methodik des Marketing-know-how-Transfers nach Mittel- und Osteuropa
zusammen. Dazu wurden 12 große britische Unternehmungen und deren Joint-
Venture-Partner in Mittel- und Osteuropa untersucht. Es wurden Ansätze auf
der Basis der Transaktionskostenanalyse und Theorien zur optimalen
Übertragung technischer Informationen auf die Daten angewandt und eine
Reihe weiterer Hypothesen geprüft. Einige Elemente der
Transaktionskostenanalyse erwiesen sich im gegebenen Kontext als sehr
geeignet. Die praktische Umsetzung des Know-how-Transfers bedarf aber noch
erheblicher Verbesserungen.
*
Manuscript received: 26.5.97, accepted: 16.6.97
** Roger Bennett, born 1948, PhD, Reader in the Department of Business Studies, London
Guildhall University, UK. Major areas of research: marketing communications,
international business, technology transfer, management of joint ventures.
Mail address: Department of Business Studies, London Guildhall University, 84 Moorgate,
London EC2M 6SQ
Tel: (44) 0171 320 1577
Email: rbennett@lgu.ac.uk
JEEMS 1/ 1998 7

First insights into the transfer of marketing know-how
Introduction
Although a voluminous research literature exists concerning the transfer of
technical information, methods and equipment between West and East European
nations (see for example Gibson et al. 1990; Kerssens-Van Drongelen et al.
1996 for details of recent articles); the same cannot be said for the transmission
of the knowledge and know-how needed to market successfully the outputs
created by the technologies passed among firms. This is an important matter in
the context of Central and East European (CEE) business, however, in view of
the large number of Western companies that have recently set up technology
transfer (TT) related joint ventures (JVs) with CEE enterprises (CEC 1995) in
conjunction with the inadequate marketing infrastructures and low levels of
marketing skill allegedly characteristic of firms within many (if not most) CEE
states (see Hooley et al. 1996). Several a priori considerations suggest that
Western companies might wish to transfer marketing know-how (MKH) to CEE
enterprises with which they have TT arrangements. Patent licensing, franchising,
profit sharing JVs and certain other TT mechanisms typically entail the owner of
the intellectual property transferred (the ‘transferor’ company) taking a share of
the profits ensuing from the activities of the recipient organisation (the
‘transferee’), e.g. through royalties on the sales of the resulting output. And even
if a TT agreement provides for lump sum payments not related to sales revenues
the transferee’s ability to meet its financial obligations often depends in reality
on the level of sales achieved, hence creating incentives for transferors to want
to ensure that final outputs are marketed effectively. It follows that Western
firms may wish to offer advice and assistance to their CEE partners in order to
improve the latter’s marketing efforts. Such help could range from the provision
of ad hoc contributions to specific marketing functions though to the transferor
virtually taking over the transferee’s marketing department.
In 1997 the author completed a survey of 209 UK-based businesses known to
have recently engaged in West-East joint venture TT arrangements (Bennett
1997), from which it emerged that 65% of respondent companies had made at
least some contribution to their CEE partner’s marketing of the output resulting
from a transferred technology. Fifteen per cent of the 209 firms assumed total
responsibility for marketing the end product; 31% described the extent of the
help they provided as either ‘very extensive’ or ‘substantial’, 19% as ‘moderate’.
The main reasons that respondents cited for intervening in transferees’
marketing activities were the need to safeguard investments already sunk in
West-East collaborative arrangements, uncertainty and turbulence in local CEE
markets, and (overwhelmingly) lack of confidence in the marketing competence
and capabilities of the foreign partner (50% of respondents assessed the latter as
either ‘poor’ or ‘very poor’, with just 12% regarding their partner’s marketing as
‘excellent’). These low opinions of CEE enterprises’ marketing abilities held by
respondents in the author’s study matched those found by other researchers in
8
JEEMS 1/ 1998

Roger Bennett
the field (e.g., Roos et al. 1992; Benito and Welch 1994; Welch 1996). Such
investigations generally concluded that very many CEE business practices and
networks continued to rely on systems, contacts and protocols developed during
the communist era and that these had proven woefully inadequate for satisfying
the marketing needs of competing privatised firms. Hooley et al’s (1996) survey
of 2311 Hungarian, Polish and Bulgarian enterprises’ approaches to marketing
(including marketing strategies and how they organised their marketing activities)
found, moreover, that marketing was undertaken at an extremely
rudimentary level in these countries, focusing almost exclusively on the
immediate short term. Barely a fifth of respondents believed that marketing
played a significant role within their firms; implementation skills were limited,
and there was ‘poor understanding of what marketing is about’ (p.80). Further
problems highlighted by empirical studies into CEE marketing environments
include attitudinal barriers to the adoption of marketing philosophies, lack of
marketing education, the casual assignment of marketing responsibilities to nonspecialist
staff, absence of market research data and facilities, widespread
ignorance of the benefits of marketing orientation, confusion of ‘marketing’
with ‘selling’, scant regard for product quality, widespread ignorance of the
importance of pricing policy, and poor commercial infrastructure (Ennew et al.
1993; Lascu et al. 1993; Bennett 1994; Welch 1996).
The present research sought to explore these and related matters, in depth, via an
examination of the situations pertaining within specific examples of West-East
technology transfers known to involve the provision by the Western partner of
assistance with the marketing of the end product emerging from the
arrangement. Although the assumption by one company of partial (or even full)
responsibility for another firm’s marketing efforts commonly occurs within
domestic collaborative business arrangements (e.g. if one firm has superior
distribution systems for carrying the partner’s product, or through the setting up
of a joint marketing subsidiary - see Anderson/ Narus 1990; Bucklin/ Sengupta
1993); little is known about the precise mechanisms whereby enterprises
actually transmit marketing know-how from one organisation to another,
particularly in the international context. Hence the current investigation
attempted to pinpoint relevant issues and to present some initial evidence on
how MKH was undertaken by companies engaged in West-East technology
transfer and where the Western partner contributed to the marketing of a CEE
firm’s goods. The study aimed to identify the problems involved and to
recommend an agenda for future research into this important but unexplored
field.
Theory
Theoretical propositions from a number of areas can be drawn upon to generate
relevant questions concerning MKH transfer and a specification of how MKH
JEEMS 1/ 1998 9

First insights into the transfer of marketing know-how
ought in principle to be transmitted. The most apposite pre-existing constructs in
this regard are perhaps transactions cost analysis (TCA) and theories derived
from the study of techniques for the effective transfer of technical information.
According to the academic literature concerning the latter (see Kerssens-Van
Drongelen et al. 1996 for a review of recent contributions) an organisation
possesses a ‘knowledge base’ wherein knowledge is stored prior to its transformation
and hence implementation via useful activities. This knowledge base
comprises brainware, hardware, groupware, and documentware (Zeleny et al.
1990). Brainware consists of experience, personal skill and acquired knowledge;
hardware is the processes, equipment and other touchable items that incorporate
knowledge. At the next level there exists groupware, which encompasses
informal procedures, rules of thumb, stories and unwritten protocols; and above
this documentware made up of databases, written reports, handbooks, patents,
and formally documented knowledge held within information systems. A
company’s knowledge base, moreover, has several layers: personal,
departmental, divisional, strategic business unit, and organisational. (This
creates problems for technology transfer in that, very often, a large amount of a
firm’s knowledge is stored in brainware, i.e. the least traceable and accessible
medium and hence the most difficult to transmit and then deploy in an optimal
manner.) The effective transfer of know-how involves the transformation of
knowledge stored in brainware in one company (and thus only available to one
or a few individuals) into forms (groupware, documentware and hardware) that
can be shared by many people at the organisational level. Useful devices for
transferring technical knowledge identified by the (technical) TT literature
include the temporary or permanent transfer of staff (brainware) to TT recipient
firms, the establishment of joint subsidiaries to bring together owners and
seekers of knowledge, and the creation of formal procedures for the application
of specific techniques (Jain/ Triandis 1990). Brown and Eisenhardt (1995)
argued that the efficacy of communications between the partners to a TT
agreement crucially determined its likelihood of success. Oral communication,
they concluded, was obviously important, but not necessarily the most efficient
form. Rather, the sharing of tasks led to superior information flow and hence to
improved performance. This could be achieved by setting up task-fulfilling
project teams, especially if the teams engaged in periodic brainstorming.
Interestingly, the frequency of communication between partners was not found
to facilitate information transmission. Instead the ‘kinds of person’ involved and
the quality of their relationships were more important. Doz (1988) concluded
that differences in the level at which particular issues were discussed within
partners of technology alliances could create significant communication
difficulties. A study completed by Moenaert et al. (1992) similarly revealed that
the organisational climate within a transferee’s business critically influenced
how readily information was received and acted upon. Other relevant factors
10
JEEMS 1/ 1998

Roger Bennett
were the status of the information source and the perceived relevance, reliability
and credibility of the information transmitted.
Transactions cost analysis (TCA)
This is a theory which predicts that a business will perform within the firm
whichever activities it can undertake at lower cost, while relying on outsiders
(agents, distributors, consultancies, etc.) for activities in which the latter have a
cost advantage (Williamson, 1985). External ‘transactions costs’ such as the
costs of searching for suitable intermediaries, monitoring the latter’s
performances and enforcing contractual obligations would, according to
Williamson (1985) be low if the market for external services was highly
competitive. This was because intense competition implied a large number of
service providers from which the firm could choose (so that unsatisfactory
outsiders could be replaced quickly and easily), and ensured fair prices for
external services. Also the threat of replacement could compel suppliers
constantly to attempt to improve their levels of service quality. A major
proposition of TCA is that firms are more inclined to do things for themselves
(distribution, advertising management or market research for example)
whenever ‘transaction specific’ assets accumulate. Examples of transaction
specific assets are specialised knowledge, experience, and working relationships
built up over time and which are unique to marketing the product(s) in question.
An independent outsider gaining such knowledge, experience, etc., is difficult to
replace, even if it performs badly or otherwise abuses its position. It follows that
the presence of transaction specific assets (‘asset specificity’, as it is known)
should, ceteris paribus, create an incentive to internalise a function rather than
rely on outsiders (Williamson 1985; Klein et al. 1990).
Further transactions costs were said to arise from the existence of ‘uncertainty’
in local markets. Uncertainty could relate either to unpredictability in the
decision-making environment or to ambiguities vis à vis the monitoring of
outsiders’ performances and ascertaining whether they were complying with
their contractual obligations. These considerations give rise to the following
propositions in relation to Western companies’ desires to become involved in
their CEE partners’ marketing efforts.
P1. Intervention will be greater the higher the degree of asset specificity in
relation to the engagement of external marketing services. Arguably, substantial
asset specificity (i.e. the situation prevailing when extensive training, time,
nurturing of business contacts, knowledge accumulation, etc, are necessary to
market the end product successfully) results in Western firms wanting to manage
the marketing of the end product rather than leaving this to the foreign partner.
In other words the transferor will want to exercise significant control over the
transferee’s marketing if it believes that the development of specialised
marketing skills and relationships are necessary. Transferees might not be
JEEMS 1/ 1998 11

First insights into the transfer of marketing know-how
deemed capable of coping with such a situation; while the transferor may be
fearful of the adverse consequences of anyone in the (foreign) local market
acquiring information about the end product and how it is best sold that might
eventually be used against the JV’s interests.
P2. Intervention will be greater the higher the level of uncertainty. As in P1,
the transferor may prefer to control foreign marketing if the environment is very
uncertain (i) for fear of the transferee not possessing the marketing competence
to handle volatile markets, and (ii) because it wishes to safeguard the return on
its investment in the joint venture.
P3. The more competitive the local foreign market for the supply of external
services the higher the probability that a Western firm will be content to leave
the marketing of the end product to the CEE partner. The justification here is
that a competitive local market should in principle enable the transferee to utilise
reliable and efficient distributors, direct marketing firms, advertising agencies
and other marketing services providers to help market its output.
Further possible influences
Empirical studies into (i) the management of marketing channels generally, and
(ii) the choice of mode of entry to unfamiliar (domestic) markets (see
McNaughton 1996 for details of the major investigations) suggest a number of
other factors that could affect the degree of transferor intervention in West-East
TT, as follows.
P4. Intervention will be greater (i) the more after-sales service is required, (ii)
the more complex the end product (a simple, mundane and familiar item is
easier to market than something that is specialised and complicated), (iii) the
closer the transferee’s end product to products already supplied by the
transferor, and (iv) the greater the extent to which the Western company already
possesses well-established distribution facilities in the CEE country concerned
(since a new product can be inexpensively added to lines carried by an existing
channel).
Research questions
Apart from assessing the applicability of the above-mentioned propositions the
research sought to obtain tentative answers to various questions concerning the
degrees to which MKH transfer methods in practice corresponded to those
recommended by the academic literature on the effective transmission of
technical information, as previously outlined. Additionally, respondents were
questioned about how they organised MKH transfer in general terms, about the
communication techniques they applied, their objectives and expectations, and
the nature and quality of relationships with recipient enterprises.
12
JEEMS 1/ 1998

Methodology
Roger Bennett
An exploratory research design was adopted in view of the absence of prior
empirical investigation in the MKH transfer field and because so little is known
about the natures of relevant issues. Thus the aim of the work was to discover
significant variables and key relationships among them and hence lay a
groundwork for subsequent more rigorous quantitative testing of hypotheses
(Kerlinger 1964; Churchill 1991). Accordingly, 12 examples of Western
companies known to have recently undertaken technology transfers to CEE
enterprises were studied in depth, using the key informant method (see Seidler
1974; Phillips 1981). The latter necessitated the holding of interviews with
executives concerned with their companies’ CEE marketing operations; a
methodology known to facilitate the study of decisions within their natural
context (Yin 1994) and to be especially suitable for evaluating the motives
behind important decisions (Robson/ Foster 1989). A further justification for the
use of a case study approach is that a major reason for the lack of previous
research in this area is likely to be the sensitivity and confidential nature of the
legal agreements underlying technology transfers and hence the problem of
finding businesses willing to divulge their cross-border TT arrangements via
responses to a mail questionnaire. Face-to-face interviews stand a better chance
of eliciting relevant information in these circumstances. Firms in various
industry sectors were examined in order to identify relevant factors and nascent
similarities and differences across industry groupings; to assess the applicability
of various propositions to a selection of diverse organisations; and to suggest
explanatory variables for key decisions. The comparative case study method,
moreover, creates more opportunities for the triangulation of data than does the
study of an individual company (i.e., evidence can be gathered from multiple
sources all pointing to the same patterns and consistencies (see Bonoma 1985;
Yin 1994), thus enhancing the generalisability of findings.
The sample
In 1997 the author completed a mail survey of a sampling frame of 547 UKbased
companies known to have engaged in West-East TT during the previous
few years. The sampling frame consisted of (i) 126 company names kindly
provided by an Anglo-Hungarian trade association which had been approached
by these companies for help and advice when setting up TT-related JVs in
Hungary, and (ii) 421 company names obtained from the technology transfer
pages of the World Wide Web and from business directory sources. The survey
covered (in outline) various features of the JVs in which the Western firms had
an interest, and asked whether the latter had become involved in their CEE
partners’ marketing of the end products resulting from technology transfers.
Two hundred and nine replies were received (37%), of which 136 stated that
they had helped their foreign partners with the marketing of end products.
JEEMS 1/ 1998 13

First insights into the transfer of marketing know-how
Respondent companies were spread across 12 main industry sectors, plus a
‘miscellaneous’ category. A stratified random sample of 26 businesses was
drawn from these 136 firms (the strata being the various industry sectors), and
each randomly selected company then invited to participate in the investigation.
Respondents in 12 companies agreed to be interviewed. The random selection of
multiple firms both within and across sectors follows the procedure suggested
by Yin (1994), who argued that such a procedure is likely to yield information
suggesting either (i) similar conclusions (‘literal’ replication), or (ii)
contradictory conclusions but for predictable reasons (‘theoretical’ replication).
Thus, the drawing of cases at random from various industry sectors ought in
principle to produce (by chance) a few literal replications plus a number of
theoretical replications which, if they all point in the same direction, should
provide substantive support for or refutations of the initial set of propositions.
Figure 1: The interview plan
General characteristics:
- Company features
- International experience
- Product markets
- Services markets
- Reasons for intervention
Type of arrangement
- JV, licensing agreement
etc.
- Organisation and
management of transfers
- Nature and extent of
intervention
- Pre-existing marketing
facilities in the CEE
country
MKH transfer methods
- Objectives and expectations
- Practical techniques
- Training provided
- Areas of intervention
- Communication methods
- Effects of power imbalances
Factors influencing
decisions
- Asset specificity
- Uncertainty
- Perceptions of the
transferee's marketing
ability
- Need for after-sales
service
Outcomes
- Relationships
- Perceived success of
the transfer
- Conflicts/disagreements
- Implementation of
advice
14
JEEMS 1/ 1998

Table 1: Characteristics of respondent companies
Company 1 2 3 4 5 6 7 8 9 10 11 12
Employees 21500 12200 8300 5400 7000 2500 900 690 727 800 1620 530
Annual turnover £3.8
billion
£2.1
billion
£1.4
billion
£780
million
£470
million
£270
million
£109
million
£83
million
£46
million
£32
million
£28
million
£22
million
Industry sector Pharmaceuticals
Chemicals Engineering
Plastics Clothing
manufacture
Chemicals Electrical
equipment
Rubber Plastics Leather Agroalimentaries
Agroalimentaries
Locations of foreign
business operations
Mainly
Europe
and Asia
Europe
and USA
Europe
and USA
Worldwide
Worldwide
Worldwide
Worldwide
Worldwide
Worldwide
Worldwide
Europe
Europe
and Asia
Extent of international
More than More than 15 years 18 years More than More than 10 years 14 years 15 years More than 10 years 10 years
experience 20 years 20 years
20 years 20 years
20 years
Extent of CEE More than More than 15 years 8 years 10 years 15 years 6 years 5 years 6 years 8 years 5 years 10 years
experience
20 years 20 years
Past involvement with No Yes Yes No No Yes Yes Yes No Yes No No
the CEE partner
CEE partner’s location Hungary Bulgaria Russia Hungary Czech Romania Czech Poland Romania Slovakia Hungary Poland
Republic
Republic
Nature of the collaborative
arrangement
Contract
Contract
Contract
Contract
Did the Western firm
already have a branch
or subsidiary in the
transferee’s country?
Respondent’s estimate
of the number of
employees in the CEE
partner
Contract
with
licensing
Equity JV Equity JV
with majority
share-
majority
with
Contract
with
licensing
Equity JV
with minority
shareholding
Contract
with
licensing
Contract
with
licensing
Equity JV
with
minority
agreement holding shareholding
agreement
agreement agreement
share-
and a
and a
holding
licensing
licensing
agreement
agreement
Yes Yes Yes No Yes Yes Yes No Yes No Yes No
1200 850 700 60 250 2500 100 75 150 80 3000 200

First insights into the transfer of marketing know-how
A total of 14 interviews were conducted in the 12 firms either with a person
closely connected with his or her company’s Central and East European
marketing operations, or with other senior managers (e.g. export director,
licensing manager). In 2 companies a second interview took place with a second
person because the first interviewee suggested that a colleague might be able to
provide additional information. This is consistent with the key informant
approach as recommended by the academic literature on the subject (e.g.
Trembley 1982; Miles/ Huberman 1994). These key informants were able to
draw on their personal experiences and specialised knowledge in order to define
the essential characteristics of the problems considered. The sample was small,
but reasonable considering the preliminary nature of the investigation. A brief
summary of the essential characteristics of the 12 companies is shown in Table
1.
The interview procedure applied followed that recommended by Eisenhardt
(1989), i.e. a semi-structured approach based on questions of a general nature
derived from a comprehensive review of academic literature in relevant areas. In
line with this approach, respondents were themselves allowed to determine the
emphasis given to various questions, detailing the factors they believed most
relevant to their firms’ intervention decisions and omitting or explaining the
perceived irrelevance of other variables. Unfortunately respondents’ comments
could not be verified (via press coverage or market research reports for
example), although there were no a priori reasons for supposing that interviewees
would wish to provide misleading information. A schematic overview
of the issues and linkages explored in the interviews is presented in Figure 1.
This was used as a general guide for the progression of interviews, although care
was taken not to presuppose that the dimensions outlined were all-embracing.
Responses were coded under headings relating to the main propositions of the
study. Verbatim quotes were also recorded where these were likely to enhance
the quality of the outcomes to the investigation. Respondents’ comments were
analysed using a two-stage strategy beginning with a within-case study of the
characteristics and behaviour of each company followed by a cross-case
integration of information. The former generated a list of issues that respondents
believed to be important; the latter an overall pattern of similarities and
differences across companies.
Findings
Two of the Western companies (firms 2 and 3) were involved in JVs in which
they held most of the equity; 2 in JV arrangements whereby the CEE partner had
a majority shareholding (firms 6 and 11); and the remainder in agreements
governed by contracts which specified the rights and duties of each party but
without the formation of a subsidiary. Half the deals incorporated a formal
licensing contract (firms 1, 2, 5, 6,8, 9). Two of the TTs could reasonably be
16
JEEMS 1/ 1998

Roger Bennett
described as turnkey arrangements (i.e., firms 4 and 11 had installed equipment
and/or systems, and then trained local personnel to whom they handed over
control of the installation). MKH transfer was organised in a variety of ways
within respondent companies, as indicated in Figure 2 which shows also a
summary of the firms’ MKH transfer methods and areas of intervention. In 7
firms MKH transfer was the responsibility of either (i) and export or
international division which looked after all the company’s cross-border
marketing activities, or (ii) a general marketing department that dealt with both
domestic and foreign sales (see Figure 2.C). Four firms completed these tasks
through pre-existing foreign branches or subsidiaries; one had set up a joint
marketing subsidiary with the CEE partner specifically to manage the sale of the
output emerging from a JV. By far the commonest method of assisting CEE
firms with their marketing was through personal visits to transferees by
marketing executives of the transferor company in order to help with particular
marketing problems (only firms 10 and 12 did not regard this as one of their
primary transfer mechanisms). The situation prevailing in firm 3 was explained
as follows. ‘We have a global marketing system with 2 or 3 of our senior people
constantly moving around the world to pick up on problems as they arise. These
guys are truly international in outlook and soon put things right. They regularly
visit our contacts in East Europe to sort things out.’ Otherwise, the visits were
from marketing personnel in the transferor’s local regional branch or subsidiary
(firms 1, 5, 6, 7, 11) or from the Western firm’s headquarters (3, 4, 8, 9, 11).
Such visits were seen as a fast, convenient and reliable means of transmitting
information. Two companies (2 and 5) had transferred marketing staff for short
periods (described as ‘a couple of weeks’ in both cases). Interestingly this was
not the case for either of the firms undertaking turnkey contracts.) The main
functional areas in which respondents stated their companies helped their CEE
partners with their marketing (see Figure 2.D) were pricing, (marketing planning
and distribution). Two of the companies (2 and 6) actually distributed the
transferee’s outputs via their own facilities, and 4 more proffered advice on how
to distribute products.
JEEMS 1/ 1998 17

First insights into the transfer of marketing know-how
Figure 2: Responses concerning areas and methods of mkh transfer
A. How assistance was provided
- Informal sharing of information
(2,4,5,7,8,9,10,12)
- Written documents
(1,2,3,5,6,8,9,11,12)
- Specification of standard
procedures (2,3,7,11)
- Systematic training
(2,6)
- Ad hoc training
(1,2,3,4,5,6,8,11)
B. Communication methods
- Visits
(all except 10 and 12)
- Staff transfers
(2,5)
- Teamwork
(2,5,7,9)
- Brainstorming sessions
(2,9)
- Task sharing
(2,5)
MKH transfer
C. Organisation mode
- Export department/division
(7,8,11,12)
- General marketing department
(4,5,10)
- Pre-existing branch or subsidiary
(1,3,6,9)
- Joint marketing subsidiary
( 2)
Note:
Numbers in parentheses indicate companies
D. Areas of intervention
- Advertising and promotion
(3,5,7,9,12)
- Marketing planning
(3,4,6,7,8,10,11)
- Market research
(1,3,6,11)
- Distribution
(2,3,4,6,7,9,12)
- Pricing policy
(1,3,5,6,8,9,10,12)
- After-sales service
(1,2,3,9)
Effectiveness of communications
The communications methods adopted by Western companies when transmitting
marketing know-how did not appear to correspond to those recommended by the
academic literature on technology transfer. Most respondents stated (see Figure
2.A) that information was transmitted predominantly on an informal basis. Many
companies transferred written documents regarding marketing techniques, e.g.,
sales manuals (firms 1, 3, 6, 11), standard distributor and other contracts used by
the transferor for its general marketing operations (2, 3, 5, 7, 11), and examples
of mailshot and other promotional literature (3, 5, 9, 12). Some transferors made
available to their CEE partners various systems and procedures employed within
their own firms; such as customer database management systems (firms 2 and
11), credit control procedures (firm 2), market research templates (firm 11), and
18
JEEMS 1/ 1998

Roger Bennett
order processing systems (firms 2 and 11). It seemed however that a substantial
amount of the documentation transferred related in some way or other to the
Western companies’ own in-house training programmes. Eight transferors stated
that they offered training in marketing methods to their CEE partners, but only
two companies described this as being rigorous and systematic (see Figure 2.A).
The rest of the training offered was ad hoc in nature; variously described as
‘showing the ropes’ (firm 6), ‘giving the tools to complete the job’ (firm 3),
‘giving an insight into what it’s all about (firm 5), and similar perfunctory
characterisations. Although all the respondents claimed that teamwork applied
within their collaborative arrangements as a whole, only those in firms 2, 5, 7
and 9 mentioned this as a distinct feature of the transfer of marketing know-how.
No respondent talked about brainstorming without a prompt; although when
asked this specific question two (firms 2 and 9) said that brainstorming sessions
had in fact occurred. Evidence of the deliberate sharing between personnel in
transferor and recipient companies of tasks relating to the marketing function (as
opposed to ‘joint decision-making’) emerged in just 2 cases (firms 2 and 5).
Rather, transferees were usually presented with information, a set of operating
procedures, documentation and so on, and then expected themselves to utilise
the materials received. Where task sharing did occur it related to marketing
planning, finding distributors, market research and the implementation of database
systems.
Transactions cost analysis
Several respondents mentioned the existence of significant asset specificity in
relation to CEE operations (see Figure 3.B). Following previous empirical
research in this area (notably that of Anderson/ Coughlan 1987; Klein et al.
1990; McNaughton 1996) the presence of asset specificity was assessed via
questions regarding whether the marketing of the end product required
specialised facilities, substantial employee training, the development of
specialist inside knowledge; whether it took a long time to get to know the
customer and how difficult it would be for outsiders to learn how to market the
product. Particular examples of asset specificity cited by interviewees included
the need to develop specialised databases (firm 5), the effort involved in
‘acquiring contacts and avenues for gathering intelligence’ (firm 3), ‘network
development’ (firm 7), and the dangers that would result if competitors obtained
detailed information about the techniques and know-how used to market the
item (firms 2, 5, 6, 7 and 11). The marketing director of company 2 pointed out
that the staff involved in MKH transfer had to become familiar with business
methods in the transferee’s country, and this itself had a cost. He also
commented upon the extra workloads falling on key marketing staff and the
consequent increased complexity of their duties.
JEEMS 1/ 1998 19

First insights into the transfer of marketing know-how
Figure 3: Influences on intervention decisions
A. The product and the market
- Simple end product
(2,3,4,7,9,12)
- End product closely related to
transferor's core business
(2,3,4,6,7,9)
- Market for the end product is
highly competitive (5,7,12)
- Market for providers of
marketing services is highly
competitive (4,5,9,12)
- Substantial after-sales service
required (2,3,5,7,8)
Influences
on decisions
B. TCA and other factors
- Substantial asset specificity
(2,3,5,6,7,9,11,12)
- Local environment seen as
very uncertain
(1,4,5,7,8,9,11,12)
- CEE regarded as having low
marketing competence
(2,3,4,5,6,9,10,11,12)
- Already operated distribution
systems in the CEE country
(2,3,4,5,6,9,11)
Note:
Numbers in parentheses indicate companies
In line with pre-existing literature in the TCA area, respondents’ perceptions of
‘uncertainty’ were tapped by asking whether they were ‘frequently surprised’ by
the actions of competing businesses; outside distributors, retailers, agencies and
other providers of marketing services; and by customer reactions to the product.
Many respondents regarded CEE environments as highly uncertain (Figure 3.B),
and this seemingly encouraged Western companies to want to intervene. As the
international marketing director of Firm 9 commented, ‘becoming involved (in
the transferee’s marketing) is vital to protect our interests in so erratic a market’.
Uncertainty was perceived by this respondent as ‘a state of flux in which you
don’t know who you can trust’. Apart from viewing CEE markets as uncertain,
the great majority of respondents saw them as uncompetitive in relation both to
the markets for end products and for the external provision of marketing services
(Figure 3.A). Typical comments in these connections were that in many CEE
countries, local distributors ‘are few and far between and most of them are
incompetent’ (firm 2), that ‘it is almost impossible to find out whether local
market research firms, distributors, etc. are actually doing what they are
supposed to do’ (firm 3), and that ‘if a local (marketing services) firm lets you
down you haven’t a hope of getting any compensation’ (firm 8). The end
product marketed in consequence of technology transfers was described as
‘simple’ (i.e. well-established or similar to local competing products) in 6 cases,
and as being closely related to the transferor’s core traditional or desired
activities in 6 firms (Figure 3.A). Seven transferor companies already operated
some form of distribution system within the transferee’s country (see Figure
3.B).
Relations with transferees
Respondents generally held extremely low opinions of their CEE partners’
marketing competencies (Figure 3.B), although this apparently did not worsen
20
JEEMS 1/ 1998

Roger Bennett
the quality of relationships between Western and CEE firms. All interviewees
reported that inter-company relationships were (at least) satisfactory; 5 stated
that transferees had eagerly taken up the help and advice the transferor had been
able to provide (firms 2, 3, 7, 9, 10). No substantial conflicts or disagreements
with CEE partners were mentioned regarding how exactly the end product
should be marketed. When asked to justify their poor ratings of CEE enterprises’
marketing abilities, respondents complained (inter alia) that ‘the questions about
marketing put forward by CEE executives were very basic and naive’ (firm 4),
that people in partner companies ‘don’t have a clue’ where marketing is
concerned (firm 3), and that there was ‘no history of marketing’ in CEE
enterprises (firm 6). Several respondents commented on the differences between
Western and CEE executives that existed vis à vis individual perceptions of
what the term ‘marketing’ actually meant (firms 2, 3, 5, 6, 8, 11). Often
‘marketing’ was viewed by CEE managers as little more than selling and
advertising (as reported by, for example, the respondents in firms 1, 3, 6 and 8),
as opposed to an integrated package of activities that includes pricing policy,
distribution, customer care, marketing planning, and so on.
Apart from the perceived lack of marketing acumen, no major problems relating
to national cultural differences were reported that might hinder the effective
transfer of marketing know-how to CEE firms, although a number of
organisational barriers were mentioned. In particular, it was sometimes felt that
decisions about marketing methods were delegated to too low a level within
CEE partner enterprises (firms 2, 3, 5, 6), that insufficient managerial resources
were devoted to marketing (firms 3, 6, 8, 11) and that too few of the transferee’s
employees were assigned to marketing activities (firms 2, 6, 8, 11). Hence, there
appeared to be a ‘managerial imbalance’ in relation to approaches to the
marketing function within Western and CEE firms. Two transferors (6 and 11)
specifically mentioned problems within the organisational climates of recipient
enterprises that might interfere with the practical implementation of the
marketing know-how transferred. These complaints focused on apathy among
the CEE partner’s workforce, bureaucratic management structures, anticommercial
philosophies held by certain individuals within partner enterprises,
and poor management communication skills.
Summary and discussion
The picture that emerges from the present study is one wherein large Western
companies are seemingly very keen to transmit MKH to CEE businesses, and
the latter are anxious to receive the knowledge transferred. Respondents lacked
confidence in their foreign partners’ marketing competence, although this did
not lead to bad intercompany relations. Two main groupings of companies
within which similar characteristics and respondent attitudes could be identified
emerge from the investigation, as follows.
JEEMS 1/ 1998 21

First insights into the transfer of marketing know-how
1. Large firms. Half of the six largest companies in the sample (firms 1 to 6)
were involved in equity JVs, compared to just one in the remaining half dozen.
Five out of six of these larger enterprises already operated branches or
subsidiaries in transferees’ countries and had extensive experience of Central
and East Europe and of general international trade. Five of the companies had
pre-existing distribution systems in the relevant CEE nation. All these large
firms provided some form of marketing training to partners, and were more
likely to furnish formal documentation.
2. Companies with CEE partners producing ‘simple’ end products. Firms in
this category (see Figure 3.A) tended to have pre-existing distribution systems in
their partners’ countries, and respondents within them reported that substantial
after-sales service was required. They contributed extensive assistance with
foreign distribution (figure 2.D), and overall provided more help in other areas.
Also they appeared to rely more on informal communications with CEE partners
than did other companies. There was a considerable overlap between this group
and companies reporting that transferees’ end products had a close relation to
their core businesses.
Assessment of the initial propositions
Two-thirds of respondents indicated the presence of significant asset specificity
in relation to the marketing of end products (Figure 3.B). Three out of 4
interviewees in companies that intervened in the provision of after-sales service
commented on the existence of asset specificity. Substantial overlaps were
evident between companies with respondents who noted asset specificity and
those intervening in transferees’ distribution and advertising and promotion
activities (Figure 2.D) Additionally, all companies that engaged in marketing
teamwork and task sharing with CEE partners reported asset specificity,
arguably because the presence of the latter encouraged the application of
teamwork and task sharing methods. It was also the case that 5 out of 8 of the
respondents who mentioned asset specificity also regarded local CEE markets as
being highly uncertain. Examination of Figure 2.A reveals that these perceptions
of asset specificity and uncertainty relate closely to (i) the use of written
documents when furnishing assistance, and (ii) the provision of training to CEE
firms. Uncertainty in local markets again appears to be positively associated
with intervention vis à vis distribution and advertising and promotion. Overall,
therefore, the results offer considerable support to the transactions cost hypothesis
as outlined in Propositions 1 and 2. The majority of respondents viewed
the markets both for end products and for service providers as fundamentally
uncompetitive in CEE countries. Interestingly, firms with respondents who saw
CEE markets as highly competitive (see Figure 3.A) were less likely to be
involved in their foreign partners’ marketing planning and market research
activities than were the rest, lending tentative (albeit limited) support to
22
JEEMS 1/ 1998

Roger Bennett
Proposition 3. The fourth Proposition is also broadly supported, as previously
discussed.
Communications methods
In general, respondent companies did not utilise the communication techniques
recommended by the academic literature on technology transfer. Information
transmission was essentially informal and ad hoc, typically involving occasional
visits to transferee companies and the passing across of written documents used
by transferors for their own domestic marketing. There was little evidence of
staff transfers or task sharing teams made up of members from both enterprises,
thus limiting the scope for converting brainware into groupware and meaningful
documentware. Information flow was based more on shared informal
understandings than on systematic procedures which spelt out in detail the
activities, schedules and tasks that were required and which were likely to
become permanently embedded in a transferee’s knowledge base. Another
problem was that whereas marketing was invariably seen as a senior
management responsibility in Western companies, it was often regarded as a
mundane operational matter in CEE firms. Another disturbing result was the
obvious difference in Western and CEE executives’ definitions of what the word
‘marketing’ actually meant. Such differences in interpretation could seriously
damage the effectiveness of communications between partners concerning the
implementation of marketing programmes. The specification of marketing
objectives becomes difficult in such circumstances, and the criteria to be applied
when managing various marketing functions may be unclear. Crucially
interpretation differences could improperly influence transferees’ expectations
of the sorts of MKH that they require.
Although the results of the present study are highly provisional in nature, they
do suggest that Western businesses wishing to transmit MKH to CEE nations
should establish more formal and systematic procedures for communicating
information than currently seem to apply. Also, greater consideration needs to be
given to the issue of training the marketing employees of CEE firms. Some of
these problems could be overcome, perhaps through Western companies getting
together and collaboratively transferring MKH to groups of CEE enterprises.
Alternatively it might be appropriate for external agencies (specialist training
firms for instance) to take over Western companies’ MKH transfer activities in
their entirety. Further research is necessary in relation to this and a number of
collateral matters. In particular, it would be useful to discover the factors which
cause CEE firms to regard specific aspects of MKH as credible, reliable, and
especially relevant to their needs. How in reality do CEE organisations learn
about marketing? How permanent is the impact on CEE enterprises of the MKH
information supplied by Western firms, and do they continue to apply the
marketing methods they pick up from their Western partners to their own purely
domestic operations in the longer term?
JEEMS 1/ 1998 23

First insights into the transfer of marketing know-how
Acknowledgement
The research assistance of Diane Hutchinson is gratefully acknowledged.
References
Anderson, E./ Coughlan, A. (1987): International Market Entry and Expansion via
Independent or Integrated Channels of Distribution, in: Journal of Marketing, Vol. 51,
pp. 71-82.
Anderson, J.C./ Narus, J.A. (1990): A Model of Distributor Firm and Manufacturer Firm
Working Partnership, in: Journal of Marketing, Vol. 54, pp. 42-58.
Benito, G.R.G./ Welch, L.S. (1994): Foreign Market Servicing: Beyond Choice of Entry
Mode, in: Journal of International Marketing, Vol. 22, pp. 7-27.
Bennett, R. (1994): Prospects for Business in the European Union. London.
Bennett, R. (1997): Foreign Marketing Control Decisions of Firms Engaged in West-East
Technology Transfer: A Test of the Transactions Cost Hypothesis, In review.
Bonoma, T. (1985): Case Research in Marketing Opportunities: Problems and a Process, in:
Journal of Marketing Research, Vol. 12, pp. 199-208.
Brown, S.L./ Eisenhardt, K.M. (1995): Product Development: Past Research, Present
Findings, and Future Directions, in: Academy of Management Review, Vol. 20, pp.
343-378.
Bucklin, L.P./ Sengupta, S. (1993): Organising Successful Co-marketing Alliances, in:
Journal of Marketing, Vol. 57, pp. 32-46.
CEC (Commission of the European Communities) (1995): Panorama of EU Industry, pp. 41-
53. Luxembourg: Office for Official Publications of the European Communities.
Churchill, G.A. (1991): Marketing Research: Methodological Foundations, 5th Edition,
Orlando FL: Dryden Press.
Doz, Y.L. (1988): Technology Partnerships Between Larger and Smaller Firms: Some Critical
Issues, in: International Studies of Management and Organisation, Vol. 17, pp. 31-57.
Eisenhardt, K.M. (1989): Building Theories from Case Study Research, in: Academy of
Management Review, Vol. 14, pp. 532-550.
Ennew, C.T./ Filatotchev, I./ Wright, M./ Buck, T.W. (1993): Constraints on the Adoption of
the Marketing Concept: The Case of the Former Soviet Union. In: European Journal of
Marketing, Vol. 27, No. 11/12, pp. 21-34.
Gibson, D.V./ Williams, F./ Wohlert, K.L. (1990): The State of the Field: A Bibliographic
View of Technology Transfer, in: Williams, F./ Gibson, D.V. (eds.): Technology
Transfer: A Communications Perspective, London: Sage, pp.272-292.
Harrigan, K. (1983): Research Methodologies for Contingency Approaches to Business
Strategy, in: Academy of Management Review, Vol. 8, pp. 398-405.
Hooley, G./ Cox, T./ Shipley, D./ Beracs, J./ Kolos, K./ Fonfara, K./ Marinov, M. (1996):
Marketing Planning in Central and Eastern Europe, in: Journal of Marketing
Management, Vol. 12, pp. 69-82.
24
JEEMS 1/ 1998

Roger Bennett
Jain, R.K./ Triandis, H.C. (1990): Management of Research and Development Organisations:
Managing the Unmanageable, New York: Wiley and Sons.
Kerlinger, F.N. (1964): Foundations of Behavioural Research, London: Holt, Rinehart and
Winston.
Kerssens-Van Drongelen, I.C./ Weerd-Nederhof, P.C./ Fisscher, O.A.M. (1996): Describing
the Issues of Knowledge Management in R&D: Towards a Communication and
Knowledge Tool, in: R&D Management, Vol. 26, pp. 213-230.
Klein, S./ Frazier, G.L./ Roth, V.J. (1990): A Transaction Cost Analysis Model of Channel
Integration in International Markets, in: Journal of Marketing Research, Vol. 27, pp.
196-208.
Lascu, D.N./ Manrai, L.A./ Manrai, A.K. (1993): Marketing in Romania: The Challenges of
the Transition from a Centrally-Planned Economy to a Consumer-Oriented Economy,
in: European Journal of Marketing, Vol. 27, No. 11/12, pp. 102-124
McNaughton, R.B. (1996): Foreign Market Channel Integration Decisions of Canadian
Computer Software Firms, in: International Business Review, Vol. 5, pp. 23-52.
Miles, M.B./ Huberman, A.M. (1994): Qualitative Data Analysis: An Expanded Sourcebook,
2nd Edition, London: Sage.
Moenaert, R.K./ Deschoolmeester, D./ De Meyer, A./ Souder, W.E. (1992): Information
Styles of Marketing and R&D Personnel During Technological Product Innovation
Projects, in: R&D Management, Vol. 22, pp. 1-23.
Phillips, L.W. (1981): Assessing Measurement Error in Key Informant Reports: A
Methodological Note on Organisational Analysis in Marketing, in: Journal of
Marketing Research, Vol. 28, pp. 395-415.
Robson, S./ Foster, A. (1989): Qualitative Research in Action, London: Edward Arnold.
Roos, J./ Veie, E./ Welch, L.S. (1992): A Case Study of Equipment Purchasing in
Czechoslovakia, in: Industrial Marketing Management, Vol. 21, pp. 257-263.
Seidler, J. (1974): On Using Informants: A Technique for Collecting Quantitative Data and
Controlling Measurement Error in Organisation Analysis, in: American Sociological
Review, Vol. 39, pp. 816-831.
Stake, R. (1995): The Art of Case Study Research, Thousand Oaks, CA: Sage.
Tremblay, M.A. (1982): The Key Informant Technique: A Non-Ethnographic Application, in:
Burgess, R. (ed.): Field Research: A Sourcebook and Field Manual, London: Allen
and Unwin.
Welch, L.S. (1996): Information Behaviour and Internationalisation, in: International Journal
of Technology Management, Vol. 11, No. 1/2, pp. 179-191.
Williamson, O. (1985): The Economic Institutions of Capitalism, New York: The Free Press.
Yin, R. (1994): Case Study Research: Design and Methods, London: Sage.
Zeleny, M./ Cornet, R.J./ Stoner, J.A.F. (1990): Moving from the Age of Specialisation to the
Era of Integration, in: Human Systems Management, Vol. 9, pp. 153-157.
JEEMS 1/ 1998 25

The transformation of companies from the standpoint of participation rights: The case of slovenia
The transformation of companies from the standpoint of
participation rights: The case of Slovenia *
Boštjan Zalar **
Analysis of the legislation from the transitional period shows that, despite some
uncertainties regarding the formal state of the protection of the rights of
industrial democracy, this aspect of democratic development together with the
right to join trade-unions seems to have enough guarantees for an adequate
standard of protection in practice. This is not the case, however, when speaking
of the rights of economic democracy, as these were only temporarily
institutionalised. Although the constitutional concept of human rights in
Slovenia is based on the triple principle of freedom, equality and justice, the
author finds the exclusion of the participation rights of economic democracy
from the system of legally enforceable rights to be the major deficiency in the
legislature on participation rights.
Eine Analyse der Gesetzgebung während der Transformationsperiode läßt
vermuten, daß (trotz einiger Unsicherheiten ihres formalen Status) der Schutz
der Mitbestimmungsrechte im Zusammenhang mit dem Recht zur Bildung von
Gewerkschaften auch in der Praxis ausreichend sei. Dies ist jedoch nicht der
Fall, da sich Mitbestimmungsrechte gerade erst herausbilden und nur teilweise
institutionalisiert sind. Obwohl das Grundkonzept der Menschenrechte in
Slowenien auf den Prinzipien der Freiheit, Gleichheit und Gerechtigkeit basiert,
stellt der Autor den Ausschluß des Rechtes auf Partizipation im ökonomischen
Bereich aus dem Rechtssystem fest. Dies kennzeichnet den wesentlichen
Unterschied in der Gesetzgebung bezüglich der Partizipationsrechte in
Slowenien.
*
Manuscript received: 2.6.97, accepted: 21.10.97
** Boštjan Zalar, born 1965, Doctoral candidate and research fellow, University of Ljubljana,
Faculty of Social Sciences; Main research topics: privatization from the human rights law
point of view.
Mail address: Faculty of Social Sciences, Institut of Social Sciences, Center for
Evaluations and Strategic Studies Kardeljeva pl. 1, 1000 Ljubljana, Slovenia
Tel.: +386-61-1683118
26
JEEMS 1/ 1998

1. Introduction
Boštjan Zalar
The model of (ownership) transformation of commercial companies in the
Republic of Slovenia was adopted on December 5th, 1992 with the Law on
Transformation of Company Ownership (herein after LTCO). It shows some
similarities to the models in Central and Eastern Europe. The following
procedures are most typical in this regard:
the sale of shares at reduced prices (50 % discount) to employees (including
managers);
the free distribution of vouchers among the citizens;
the allocation of 40 % of the shares of each company to the pension,
compensation and development funds;
public sale of company shares (LTCO 1992).
On the basis of this law, the citizens of Slovenia and employees should become
owners of a given amount of company shares or of some assets that were
previously socially owned. 1
However, to understand the importance of the LTCO in the transformation
process of companies in Slovenia from the participation rights point of view, it
is necessary to establish a thesis of interdependency and indivisibility of the
rights of industrial, economic and trade union democracy.
The right of trade union democracy means the right for everyone to form and
join trade unions for the protection of his/her interests as defined in Art. 22 of
the International Covenant on Civil and Political Rights (1988) or in Art. 11 of
the Convention for the Protection of Human Rights and Fundamental Freedoms
(1995).
The rights of industrial democracy mentioned in this paper are related to all
kinds of existing participation models in Europe, which regulate the involvement
of employees in the decision making processes and supervision at all levels of
the company, for example: the right to self-regulation of the working
environment, the right to be informed about particular decisions or to be
consulted before implementation of decisions in certain defined cases, or even
the right to veto decisions which have important social consequences for
employees.
The rights of economic democracy have to be understood as the employee right
to share profits together with managers and owners and (or) the right to
1
Before the adoption of the LTCO the capital of companies was legally considered as social
property. It was neither in the ownership of employees nor in that of the companies as legal
entities. The prevailing supposition was that it was in the ownership of all citizens of the
Socialist Federal Republic of Yugoslavia.
JEEMS 1/ 1998 27

The transformation of companies from the standpoint of participation rights: The case of slovenia
employee share-ownership (Proposal for a Council Recommendation concerning
the promotion of employee participation in profits and enterprise results
including equity participation 1991). These two rights might also be considered
as the means for the gradual realisation and protection of the right to fair
remuneration, which is, to an extent, already taken into account in Art. 4 of the
European Social Charter (1992).
I will use the notion ”right” in relation to economic, industrial and trade union
democracy, because this paper is based on the idea that political, civil,
economic, social and cultural rights should be more integrated and treated as
interdependent. This was actually the idea at the very beginning of the United
Nations human rights charters (Universal Declaration of Human Rights 1988)
and it is still on the agenda for some international policy makers (Vienna
Declaration 1993), UN officials (Lasso 1994/95) and commentators as well
(Sudre 1990; K?nnemann 1995).
Since this paper will concentrate on the problems of the transformation of
companies in relation to the legislation on employee participation rights, it is
necessary that the entire legal framework regulating this field is examined.
But, in order to gain a better understanding of the approaches to privatisation,
we need to go back in time (before the adoption of the new Constitution) when
the first laws regulating the status and ownership transformation of companies
were passed in Slovenia.
2. The legal framework for the transformation of companies
before the adoption of the new constitution
The transformation of the status of Slovenian companies had already begun in
January 1989. It occured at the time of the adoption of the Law on Companies
(herein after LC), but still within the legal order of the Socialist Federal
Republic of Yugoslavia.
The major scope of the LC was to initiate the transformation process of
company status and the gradual adaptation to proven forms of the developed
market economy. According to this law, some companies were transformed from
the so called social companies into joint-stock companies and into limited
liability companies. The capital of these companies was legally still considered
as social property, but it had formally been divided into shares.
According to similar laws in Western European countries, the LC should
regulate all aspects of commercial companies from the question of the company
title, registered office, business literature and annual reports, to the definitions of
different types of companies and their bodies, including mergers, acquisitions
and transformation of companies. Instead of this, the LC consisted of only about
200 articles. From an industrial democracy point of view, it is interesting, that
28
JEEMS 1/ 1998

Boštjan Zalar
the LC has completely overruled the old industrial democracy legislation and
has simply introduced nothing in its place. So, the LC initiated a system which
was the direct converse to previous legislation in Yugoslavia. Legislation until
then, as a response to capitalism, was based on the principle of the complete
domination of labour over capital, by binding all participation rights (including
management) to labour and thereby formally abolishing capital. 2
Because the LC has had absolutely no implication of the rights of industrial
democracy being a civilisation standard within the process of democratisation
and humanisation of work, this law has also failed in the approach to the
proposed legal standards of the European Union in this field (Amended proposal
for a Fifth Directive founded on Article 54 (3) (g) of the EEC 1983; Proposal for
a Council Directive complementing the Statute for a European company with
regard to the involvement of employees in the European company 1989).
The first law supporting economic democracy in this transitional period was the
Law on Social Capital (December 1989), which ceased the prohibition on the
disposal (”ius disponendi”) of social assets. According to this law, companies
were able to convert their debt into stock and to sell socially-owned assets to
Yugoslavian and foreign legal entities. The amendment to this law in August
1990 gave companies the possibility to issue employee shares for the purpose of
internal buy-outs or in order to raise additional equity capital.
The period from 1989 to 1992, when these legal reforms were introduced, which
transformed the system from socialist self-government into a system of private
ownership, was characterised by a high degree of entropy. The situation in
Slovenia compared to other Eastern and Central European countries was specific
in so far as there was not only a transformation of the social and economic
system, but also a process of forming a new, internationally acknowledged state.
Numerous unexpected changes in the socio-economic and political field, as well
as in the sphere of social values, have culminated into conflict with the
Yugoslav People’s Army during the brief war period. Due to the war in the
Balkans, Slovenian companies had to find new markets in the more demanding
Western markets or the remaining Central or Eastern European markets.
Under the circumstances it is impossible to isolate the concrete and direct
consequences of the new laws on industrial, economic and trade union
democracy. However, there is a sufficient evidence which suggests a general
deterioration of employee rights during this period. The evidence is provided by
2
The exclusive right of labour to determine the fortunes of companies was amended in 1988
when the Constitution of SFRY was changed in order to also recognise the right of
(socially owned) capital to play a legitimate role in the decision-making processes in
companies and in economic system in general.
JEEMS 1/ 1998 29

The transformation of companies from the standpoint of participation rights: The case of slovenia
the reports of three different institutions which were - each in its own way -
monitors over the protection of (not just) employee participation rights. 3
The number of reports of violations which were received by these three
institutions increased steadily. In 1992 the number of complaints to the Council
for the Protection of Human Rights and Fundamental Freedoms was twice as
high as in 1991, and from 1990 to 1991 the Labour Court had a 100 % increase
in cases.
The reports clearly show that the most arbitrary and massive violations (of all
human rights) were made in the field of the protection of employee participation
rights. Most disputes were in connection with the ceasing of employment within
programmes of redundancies and transfer to other workplaces.
There were also numerous disputes and violations of collective agreements
issues which broadly could be classified as violations of economic democracy.
These violations are:
disrespect of the obligations from wage agreements of collective bargaining;
controversies in connection with the classification into grades and salary
bands;
problems regarding the evaluation of work places and personal incomes;
intolerable delays with the payment of salaries;
illegal proceedings on the payment of money compensation in the case of
unemployment or illness.
Concerning the field of industrial democracy, I can only point to some cases of
restriction of the workers right to solve the disputes before neutral bodies in the
company. The report of the Labour Court emphasised the standpoint that the
management of some companies have handled disciplinary proceedings without
authorisation. This is especially true in the case of companies which were
transformed into limited liability companies.
Regarding the field of trade union democracy the reports make it clear that most
problems were caused because procedures for the authorisation and naming of
trade union representatives in companies were not defined in law. A special
problem was the general trade union disorganisation in the sense that trade
3
These are three reports and a memorandum from the Council for the Protection of Human
Rights and Fundamental Freedoms which was, as an institution of civil society, the
predecessor of the present Ombudsman. A part from this, I have used reports from two
state bodies, namely of the Social Attorney of Self-Management who was a general
attorney of socially-owned capital from the beginning of the socialist system and a report
from the Labour Court - specialized for cases falling under the legislation of labour.
30
JEEMS 1/ 1998

Boštjan Zalar
unions were not effective in protecting and representing employee rights and
their interests.
During this period all three institutions have put pressure on the government and
parliament to prepare as soon as possible a legislation which will:
reorganise the special courts for labour and social disputes;
set a framework for the organisation of trade unions;
set a framework for employee participation rights;
implement a network of inspectors of working conditions so that employee
need not always seek help in court (Council for the Protection of Human
Rights and Fundamental Freedoms 1991, 1992, 1993a, 1993b; Social
Attorney of Self-Management 1992, 1993; Labour Court 1993).
The above described violations of employee participation rights were probably
also caused by the fact that during the last 40 years in SFRY, the notion of
”human rights” was linked essentially to labour law and employment. With the
beginning of the economic reforms and a new wave of liberal values the old
belief in labour rights has been undermined in legislature and even further in
practice. Furthermore, the overburdened labour courts in fact represented a
guarantee for the potential violators that they would not be appropriately
sanctioned.
3. The period after the adoption of the new constitution
In order to understand the present legal status and protection of employee
participation rights in the new Slovenian legislation on commercial companies, I
need to explain three areas of legislation:
the Constitution which provides the basic framework of human rights;
the Law on Commercial Companies which among other things deals with the
composition of bodies in commercial companies and the rights of
shareholders;
the Participation of Employees in the Management Act which most directly
deals with the labour side in the sense of employee participation in decision
making processes and supervision of business operations.
Each of these will be considered in turn. In the third part of the chapter 3, I will
present the report regarding the level of the protection for employee
participation rights during this period.
The status of employee right to shareholdership and profit-sharing will be
discussed in a (separate) chapter 4.
JEEMS 1/ 1998 31

The transformation of companies from the standpoint of participation rights: The case of slovenia
3.1. The constitution of slovenia
The Slovenian Parliament adopted a new Constitution in December 1991.
The constitutional concept of human rights in Slovenia differentiates between
the basic political and civil rights on the one hand (II. Chapter of the
Constitution), which are enforceable in court and have the so called ”negative”
status, and on the other hand the economic and social rights (III. Chapter of the
Constitution), which have a ”positive” status. 4 According to the Commission for
Constitutional Questions, which prepared the new Constitution, the economic
and social rights are not adequately developed to guarantee an effective legal
protection. If they were incorporated among the classic human rights, it would
lower the level of protection guaranteed by law. The Commission for
Constitutional Questions (1991) declared them as ”programmatic” and
”ideological”, and understands them as an obligation of the state to establish the
circumstances for their future legal protection. 5 However, from the classical
liberal doctrine point of view, this legal separation of civil and political rights
from the economic and social rights in the Constitution of the Republic of
Slovenia was not consistently followed. Namely, the right to health care and the
right to social security were included among the classical liberal rights that are
legally enforceable. However,
the problem is that the constitutional basis for the rights of industrial and trade
union democracy - the right to participate in decision making processes and
supervision of business operations, the right to join trade unions, together with
the right to strike - has been also placed under Chapter III. of the Constitution,
under the so called ”programmatic” or ”ideological” rights. 6
4
5
6
We have thus adopted a concept which is also valid at the level of international law on
human rights. On one side we have the International Covenant on Civil and Political
Rights and on the other the International Covenant on Economic, Social and Cultural
Rights (1988) where the Article 2. represents the foundation for the positive status of the
rights from this covenant. At the level of the European human rights law the demarcation
was set with the Convention for the Protection of Human Rights and Fundamental
Freedoms and the European Social Charter.
Among these so called ”programatic” rights the Constitution mentions the right to
adequate housing, the right to work, the right to a healthy environment etc. (The
Constitution of the Republic of Slovenia 1991).
The formal position of the right of trade union freedom in the Constitution of Slovenia is
not in accordance with the regulation of this right in the Convention for the Protection of
Human Rights and Fundamental Freedoms, where it has a negative status (1995: Article
11. and Art. 13.).
32
JEEMS 1/ 1998

Boštjan Zalar
The field of economic democracy in the Constitution is regulated merely by a
classic provision ensuring the right to own property (Article 33, Chapter II.).
With regard to Article 67. of the Constitution (Chapter III.), a special law should
regulate the possible ways of acquiring possessions, also in order to ensure
economic, social and ecological function of property.
In a case which was in no way related to the economic, industrial or trade-union
democracy, the Constitutional Court of Slovenia gave an explanation for the
differentiation between human rights from the second Chapter and human rights
from the third Chapter of the Constitution. The Constitutional Court supported
the argumentation for the legal differentiation between the civil and political
rights on the one side and the economic, social and cultural rights on the other in
the same way as it was defended by the Commission for Constitutional
Questions Yet a concrete decision of the Constitutional Court shows a more
appealing, and to my opinion, a more progressive (but separated) position of the
Constitutional Judge M. Krivic. Judge Krivic expressed the idea that the
Constitutional Court should recognise as a basic human rights, some other ones
as well, for example one from international charters that are valid in Slovenian
legislature (for example: from the Convention for the Protection of Human
Rights and Fundamental Freedoms), or the rights which already are in the
Constitution, but in Chapter III. instead of Chapter II. (The Constitutional Court
1992, 39/I, separate opinion of Judge Krivic).
I have the pleasure in establishing that judge Krivic’s position had proved to be
right. Nine months after the passing of this rigid decision of the Constitutional
Court regarding the status of the rights from Chapter III. of the Constitution, the
same institution accepted the decision, which recognised the negative status to
the right of free economic initiative, otherwise being in Chapter III. (The
Constitutional Court 1993, 18/II).
Other decisions of the Constitutional Court also strengthened the trend of
transcending the paradigm of the disintegration and independence of rights from
Chapter II of the Constitution with those rights from Chapter III of the
Constitution. From the arguments of the Constitutional Court it may also be
understood that the right to participate in the management of (non)commercial
companies is recognised the status of enforceability (The Constitutional Court
1994: 86/III). The same applies for the right to strike (The Constitutional Court
1994: 38/III), as well as the right to freedom of association, operation and the
formation of trade unions (The Constitutional Court 1994: 85/III).
The Constitutional court also gives equal legal protection to classical civil and
political rights as well as to the provision of Chapter III of the Constitution,
which regulates ownership rights (The Constitutional Court 1992: 35/I, 56/I;
The Constitutional Court 1993: 52/II, 117/II, 121/II; The Constitutional Court
1994: 39/III, 50/III, 99/III). This provision (Article 67) stipulates that the law
should regulate the acquisition and enjoyment of ownership rights in a manner
JEEMS 1/ 1998 33

The transformation of companies from the standpoint of participation rights: The case of slovenia
ensuring its economic, social and ecological functions. It is also relevant that the
Constitutional Court make reference to the general provision of Article 2 of the
Constitution, which stipulates that Slovenia is a welfare state (The Constitutional
Court 1992: 23/I; The Constitutional Court 1995: 147/IV, Vol. 2) and that the
notion of welfare state actually represents the principle of justice (The
Constitutional Court 1995: 42/IV, Vol. 1).
From the above-mentioned I may conclude that the Constitutional Court has not
only mitigated, but to a significant degree corrected the initial legal separation of
civil and political rights on the one side from economic, social and cultural
rights on the other. This has clarified and strengthened the legal status of rights
of industrial and trade union democracy as enforceable participation rights. One
area that has remained insufficiently protected is the field of economic
democracy rights. For this reason I have devoted a special section - Chapter 4 of
this contribution - to the problem of economic democracy rights.
3.2. The law on commercial companies and participation of employees in
management act
The Law on Commercial Companies (herein after LCC) was adopted in July
1993. It annulled a non-satisfactory regulation on the status of commercial
companies, which was since January 1st, 1989 regulated by the LC. The
solutions in the LCC were adjusted with reference to directives and
recommendations of the European Union. The trends of the European legislation
on corporations were considered, too, so that all conditions for the compatibility
of the Slovenian economic system with the European Union jurisdiction were
fulfilled.
However, in comparison to similar laws of other European countries it is
considerably less detailed regarding the regulation of:
cases of exclusive competence of the assembly of a corporation (opening of
branch offices, mergers, sales and buying of real estate and other cases of
risky business);
rights of minority share-holders (nomination of a representative to the
supervisory board; nomination of an expert for the inspection of business
operations; dealing with accusations of negligence against a member of the
executive or supervisory board);
rights of privileged share-holders (the possibility of the shareholders to
convene a special assembly of privileged shareholders at the issue of
additional preferred shares and when distributing profit; the right to ask
questions and make suggestions etc.).
The LCC does not regulate the participation rights of employees. This is the
mission of the Participation of Employees in the Management Act (herein after
PEMA), which explicitly deals with the issue of industrial democracy models
34
JEEMS 1/ 1998

Boštjan Zalar
and thus overcomes the negative inheritance of the 1989 LC. The PEMA is in
accordance with the proposed documents of the European Union. The basic
concept is that employee right to take an active part in business decisions at the
highest company level are restricted in their right to information and
consultation through employee representatives, which are, of course, not
necessarily members of trade-unions. Regarding the decisions at company level
that have important social consequences, the employee representatives have the
right of veto. The right of supervision over the business operations is divided
between capital owners and employees in the following way, that the employees
in companies with more than 1000 employed hold at least one half of the seats
of the supervisory board; elsewhere (where supervisory boards are installed)
they hold at least one third of the seats on the supervisory board (PEMA 1993).
Such a legal approach to the regulation of industrial democracy is in my opinion
the right way, but there are still some deficiencies. The first would be that the
PEMA pays too little attention to the (self)regulation of the working
environment. The right to participate in the regulation of the working
environment should be guaranteed as a basic participation right in companies. It
is substantially connected with the constitutional rights, for example the right to
personal dignity and safety and the right to freedom of expression. The field of
self-regulation of the working environment is not only connected with the notion
of human rights, but also with the conception of competition. The legalisation of
participation rights at the level of the workplace, as it was adopted in some
Northern European countries, would establish the necessary basis for the
development of various forms of democracy at the workplace, such as quality
circles, autonomous working groups, etc. In American companies employee
participation at the level of workplace was reached in a different way.
Successful companies are aware that those who do a job know more about it
than anybody else. Therefore, the employees are given more power, direct
control and responsibility (Drucker 1993). Without such direct participation at
the level of the workplace, without the so called ”early diagnosis”, it is
impossible for the company to be successful in realising what Drucker calls ”the
theory of the business” (Drucker 1994).
The second important issue in connection with the basic concept of the PEMA is
the danger of getting satisfied with the regulation this act comprises. The law
has to provide merely a general framework; it has to be the general means for
the realisation of the participation rights in the company. With such an umbrella
act, only the minimum level of rights is set, anything more detailed and adjusted
to concrete circumstances has to be a matter of negotiations between the
employers and employees, various autonomous associations, the management, at
individual and collective levels.
With regard to the connection between industrial and trade-union democracy it
should be emphasised that the organised networks of trade union representatives
JEEMS 1/ 1998 35

The transformation of companies from the standpoint of participation rights: The case of slovenia
have to struggle for the rights of employees in the companies and especially for
a fair reward system. The trade unions have to negotiate for an improvement in
working conditions and to represent the employees in disputes within the
company or in the proceedings before arbitrators or courts. However, from the
standpoint of the legislation on employee participation rights, it is not acceptable
that the trade unions are holders of these rights. The participation rights belongs
to employees as individuals, but their interests and rights may be represented by
(trade-union) representatives. This should be valid at the company level, where
the employees realise their right to participate in the decision making process
and in supervision through their representatives, as well as at the level of their
workplace, where the individual character of participation rights should be of
special importance, although they can be also realised collectively within
working groups.
However, it has to be emphasised that the link between industrial and tradeunion
democracy is today challenged by the fact that trade unions in more highly
developed countries (Italy, France, Great Britain, USA, Japan, Austria,
Netherlands, Switzerland, Germany) are losing their power and membership
(Kapstein 1996). In connection to this assertion, a study can be cited wich
resulted in the conclusion that in American companies a higher level of rights is
ascertained to the employees, if they are members of a trade union and this
specific fact has the effect of a higher degree of productivity (Freeman, Medoff
1984). This is not unusual for the USA, where legal protection of employee
rights is lower than in Western Europe and where more things fall under the
negotiated power of employers and employees.
Generally speaking, it is reasonable to expect that the level of realisation and the
protection of participation rights will be higher in Europe as well, if trade unions
will negotiate for the employee rights, so that the individual will not stand alone
in opposition to a company or an association of employers.
3.3. Evaluation of the level of the protection for participation rights
From the reports of the earlier mentioned institutions, which have worked in the
field of the protection of human rights (during the period after the adoption of
the new Constitution, the Law on Commercial Companies, the Participation of
Employees in the Management Act and the Law on the Transformation of
Company Ownership) the following facts become apparent.
The general evaluation is that the level of respect for human rights (in general) is
similar to those in other countries of the Council of Europe. However, the lack
of the real enforcement of employee rights which are (only) formally protected,
continues to be a problem and has also resulted in the overburdening of the
labour courts. The disregard of employee rights has to be understood in a sense
that (most) managers do not have enough respect for the laws and collective
agreements. They refuse to provide sufficient places on the supervisory board to
36
JEEMS 1/ 1998

Boštjan Zalar
employee representatives in the joint-stock companies or they try to prevent
participation in the decision making of socially-owned capital. Furthermore,
there are also frequent problems in relation to the late payment of wages and
salaries, or the refusal by employers to pay compensation for illness (Social
Attorney of Self-Management 1994, 1995).
On the other hand, I agree with the standpoint of those labour market experts,
who reproach the Slovene legislation for having a too protective a role,
especially regarding the generous insurance payments in cases of
unemployment, the bountiful subvention of early retirement and high
compensation used by companies to solve the problem of overemployment
(Vodopivec 1995).
Perhaps, it is necessary to say that during this period there was no mention in
political discussions of the importance of the realisation and protection of the
rights of the industrial, economic and trade union democracy, and even less
about their interdependency or indivisibility. These rights were not perceived as
a measure for the legitimate or functional passing of the privatisation law and
other legislation. Though there were clearly cases of illegal bankruptcy, which
have in the most radical way led to concrete and massive violations of employee
rights, this issue was ignored by the mass media. Instead all attention was,
concentrated on the problem of fraudulent appropriation of socially-owned
assets - which directors or executive officers were ”stealing” socially-owned
assets and how much of it was stolen? This is being used in political
confrontations in order to convene extraordinary sessions of the parliament and
in some other ways, the useless waste of energy.
4. The status of the economic democracy
So far, I have emphasised the interdependency and indivisibility of economic,
industrial and trade union democracy. However, I have not mentioned the
estimation that in general, legal regulations are the least modern and progressive
(not only in Slovenia) in the field of economic democracy. This is the reason for
giving special attention to economic democracy in the following chapter.
It is a fact that the system of private property in its commencement connects the
basic participation rights in a company i.e., the right of management, control and
profit-sharing, exclusively to (financial) capital. However, labour too, has
gradually become a foundation for the right to participate in the decision making
and supervision of business operations within the system of private property.
This is not only a merit of the legislation on human rights and of the processes
of democratisation in higher developed countries, but also one of the
evolutionary changes in the field of management, looking for ways to be a more
competitive company with higher productivity. It is a characteristic of the
JEEMS 1/ 1998 37

The transformation of companies from the standpoint of participation rights: The case of slovenia
legislation of the European countries and the proposed legal documents of the
European Union that today these rights are regulated by law.
Yet, the liberal doctrine does not allow the legal institutionalisation of the
employee right to share ownership or profits in companies, which would
actually mean that employees also take part in decision making processes about
distribution of financial benefits. Instead, the right to share ownership and profit
stays only with the financial capital. Nevertheless, the more highly developed
world knows rather more wide-spread forms of economic democracy, for
example: employee share ownership, internal buy-outs, profit-sharing, gain
sharing, individual incentives plan, group incentives plan etc.
According to some estimation, in the USA with 10.8 million employee
shareholders, 25 % of big American corporations should by the end of the
millennium have a substantial employee ownership plan (Owen 1995). By the
end of the eighties 90 % of Japanese companies, have listed their ESOP on the
stock exchange including about 50 % of all employees in these companies
(Jones, Kato 1993). France, having among the states of the European Union the
most developed economic democracy, had in 1991 about 17.000 valid contracts
on various kinds of financial employee participation. In Germany financial
participation was organised in approximately 5.000 companies. The
Commission of the European Union has for some time emphasised the
importance of employee participation in ownership of the company and views it
as a mean to reach a more just distribution of wealth, a possibility to secure
appropriate economic growth without the effects of inflation, to achieve
employee motivation, and hence a higher productivity and a better competitive
position in the market. However, the result of the work of the Commission is for
now, a special proposition still in the phase of examination in the European
Parliament and the Economic and Social Committee (Proposal for Council
Recommendation concerning the promotion of employee participation in profits
and enterprise results including equity participation 1991).
Nevertheless, economic democracy is still an issue for business decisions of
company management wanting to prevent hostile take-over or seeing in an
economic democracy stimulation for the employees to work better and for a
more effective use of working time. Economic democracy is, therefore,
negotiable but is far from being a part of the legislation on participation rights
in companies.
Evidently the protectors of the liberal institutional system are neglecting the
standpoint of the founders of liberalism, who based capitalism on the idea that
an individual, who has contributed his labour to something productive, has the
right to obtain the fruits of his work (Locke 1992). Through this postulate, the
constitution of the so called conception of ”self-ownership” is protected (Mill
1995), which is right at the basis of the liberal doctrine and human rights law.
38
JEEMS 1/ 1998

Boštjan Zalar
This rather philosophical position is not irrelevant because of the timely
distance, but has to be explored within the modern challenges of the market
economy. Namely, from the conclusions of Robert Solow, Nobel Prize winner
for economics, we learn that the key factor for economic growth is technology,
knowledge, innovation and not capital or the growth of labour force (Marshall
1989). His thesis had been proved by calculations and findings confirming that
the level of productive use of knowledge is the factor determining the level of
economic growth (Romer 1990; Pfeffer 1994; Becker et al. 1990). These
findings are also accepted by sociologists talking about the economy of goods
changing into a knowledge economy (Drucker 1993), with the intelligentsia
becoming the largest class and the source of economic and social progress
(Gouldner 1979). The consequence is that financial capital as a factor of
production has become subordinate to intellectual capital (where the quality of
social networks belongs ) and what was once called the labour as investment
into the company, today means knowledge - the intellectual capital.
By exchanging the classic, repetitive, physical work with intellectual work,
which has taken over the role of the main production factor, it becomes obvious
that profit is created by labour (intellectual capital), as well as by financial
capital.
Does the new legislation in Slovenia really mean a step towards the expansion,
realisation and protection of the rights of economic democracy?
The Constitution, the Law on Commercial Companies and the Participation of
Employees in the Management Act, which we have already discussed, do not
mention the right of the employee to shareownership or profit-sharing (or the
right to fair remuneration) within commercial companies.
At first sight, it seems that this great and important step will be taken by the
LTCO, for it establishes the internal buy-out strategy as the most attractive
option of privatisation. But this appearance is deceptive. The law grants the
companies, having also been established by Constitutional Judge Krivic, a high
degree of autonomy and brings them together in a legally regulated way in a
position to look for appropriate owners (The Constitutional Court 1993, 127/II,
separate opinion of Judge Krivic). It is true that the law has, through financial
discounts and incentives, given an important advantage to the employees of
companies, but the legal power of the LTCO is limited only within the
transitional period. What will happen after the transformation is completed, is a
completely open question.
If it really was the aim to maintain an ownership structure characterised by a
significant part of employee ownership, then a number of additional regulations
would be required.
It would be necessary, officially and at state level, to recognise the right of
employees to shareownership or the right to share profit (and loss). An
JEEMS 1/ 1998 39

The transformation of companies from the standpoint of participation rights: The case of slovenia
appropriate tax policy should be adopted, encouraging the employees to invest
in their companies. The state should find appropriate solutions in the pension
system and low taxation for the sale of these shares among employees (Blasi
1992). An appropriate way to attract banks into this project should be found,
although banks are momentarily expecting rehabilitation and have a low
creditworthiness. Appropriate legislation for the employee shares should be
adopted and financial and legal experts to advise the managers of the employee
funds should be given training. We would need independent institutions for the
evaluation of employee shares, if these were not listed on the stock exchange. If
we fail to grant a protective mechanisms against the massive sale of vouchers for
money, when the trade on the open markets will be released, it will lead to a
breakdown in the stock exchange.
An important achievement speaking in favour of economic democracy (a right to
fair remuneration) in Slovenia are discussions between the representatives of the
employers, the representative trade unions and the government. The result, for
example, was the adoption of the Social Agreement for 1995 together with the
agreement on the policy on wages and other incomes of the employees in
commercial business. 7
In my conviction, this is a very important and welcome form of co-operation and
legal regulation setting among other things the ratio between the highest and the
lowest salary as 1:15. Here it is not the most important factor that Plato already
taught Aristotle that within an organisation, the highest paid man should not get
rewarded more than five times higher than the one with the lowest pay. For the
time being, the findings that a very obvious inequality in incomes is negative for
the economic growth are most relevant. T. Persson and G. Tabellini studied 56
countries and established a strong negative correlation between unequal incomes
and the growth of the gross income per capita. The Institute for Public Policy
Research found the same results published in Paying for Inequality. The USA
and Switzerland having the biggest differences in incomes within their citizens
had in the eighties, a significantly slower increase in productivity than more
egalitarian countries like Japan, Germany, Sweden (The Economist 1994).
Morton Deutsch established through forty years of study on the relationship
between egalitarianism and productivity that small differences in salaries
increase the cohesion between people and this stimulates an effective cooperation
and increases productivity (Levine 1990).
7
It is mentioned in the Social Agreement that the Government of Slovenia will in 1995
propose legal solutions to regulate the participation of the employees and the management
in the net profit of commercial companies (Social Agreemnet for the Year 1995). This
promise was not fulfilled. However, a spacial law on the regulation of profit sharing in
commercial companies is being drafted by the government in the year 1997.
40
JEEMS 1/ 1998

Boštjan Zalar
The connection between Plato’s thesis and modern research may be found in the
fact that it is (simply) unjust that the differences among the salaries are too
extreme and that justice too, should be the basic regulatory principle within
human rights law and not just the principles of freedom and equality.
5. Conclusion
Despite the fact that during the transitional period in Slovenia we have
experienced, because of the LC, quite a drastic deterioration in industrial
democracy, I could conclude that the present legislation, in the event that it will
be supported by trade-unions, guarantees an appropriate model of industrial
democracy and a sufficient level of protection of these rights. Trade-union
democracy is well protected because the right to freedom of association is
commonly accepted as the basic (liberal) right. However, the relation between
trade-union and economic democracy seems to be more problematic. Trade
unions have to struggle for the rights of the employees. If employees increase
their share in the ownership structure of the company, it means that one person
joins both sides i.e., of the worker and the owner. Parallel to this development,
the protective function of trade unions becomes obsolete. However, are the trade
union lobbies prepared to abolish themselves gradually? 8
Within this paper I wanted to emphasise the strong connection between the
contents of economic, industrial and trade-union democracy and I have given
special attention to economic democracy which is, in my opinion,
underdeveloped and not sufficiently protected. I have only come across one
Slovenian publication that deals with the existence of a connection between
economic, industrial and trade-union democracy. The title of the book is
”Between Anti-Communism and Post-Socialism” (Rus 1992). Among the
relevant actors responsible for running the state, I have found no echo of this
book. Seen from the angle of promoting economic democracy the book The
Slovene Company in the Future (Èibej et al. 1992) will probably have a more
significant influence. Some authors from the Faculty of Economics in Ljubljana
are suggesting (by explaining all positive and negative aspects) to the companies
in Slovenia to choose one of the forms of profit-sharing and to include it into
their organisational culture.
My major argument is that the rights of economic democracy should become
part of the legislation on participation rights in companies. Not only because of
functional needs such as the connection of the contents of trade union, economic
and industrial democracy, micro- and macro-economic reasons, but above all
because of justice. It is undoubtedly true that profit is made from financial, as
8
Here it is worth mentioning that in the USA 10.8 million employees are included in the
ESOP, but they are not members of any trade union (Blasi, Kruse 1990).
JEEMS 1/ 1998 41

The transformation of companies from the standpoint of participation rights: The case of slovenia
well as from intellectual capital. The legalisation of economic democracy would
establish a more balanced relation between labour and capital. A stronger
connection between these two elements of industrial civilisation would establish
a better link between freedom and responsibility and a possibility for the social
emancipation of a wider population. Without economic democracy it is also
impossible to talk about the principle of democratic order, which has been
included into Article 1. of the Slovene Constitution. The democratic principle of
the social system demands a certain distribution of power and wealth.
Consequently the democratic principle is not established by merely having a
party system with a parliamentary structure, free elections and non imperative
mandate of the elected representatives in the parliament. There is no democracy
without the active and functional participation of individuals in making
decisions at all levels, from the micro-regulation of the working environment in
commercial and non-commercial organisations, through participation in local
and public issues, up to (active) citizenship at the national level.
In my opinion, the institutionalisation of participation rights of economic
democracy is a necessary tool (but not a sufficient one) for realising the concept
of development proposed by the United Nations in the Declaration on the Right
to Development (1986). 9
From the point of view of justice, such a concept of development implicitly
suggests that a legal system of human rights should not only protect civil and
political rights and thus reward only those who are the most talented, advantaged
and have the most luck. The concept of human rights must also include the
protection of autonomous agents from risks which are out of their control. The
concept of human rights should therefore be based on the integrity of human
personality, needs, abilities and risks, such as: ignorance, disability, accidents,
disease, poverty, unemployment, criminality, etc., because they are constant
factors in our life and do by all means affect social, economic and cultural rights
as well.
It seems that this idea of social justice, which had already been advocated at the
very beginning of modern sociology (Durkheim 1957) and developed further by
J. Rawls (1971), has not been overlooked in the constitutional concept of human
rights in Slovenia, since this concept is based on the triple principles of equality,
freedom and justice (welfare state). However, speaking only with respect to the
legal transformation of companies in Slovenia, if the legislature doesl not protect
the participation rights of economic democracy as a basic human right, this will
only prove the thesis that the process of transition and, in particular,
9
”The right to development is an inalienable human right by virtue of which every human
person and all peoples are entitled to participate in, contribute to, and enjoy economic,
social and political development, in which all human rights and fundamental freedoms can
be fully realized” (Declaration on the Right to Development 1986: Art. 1)
42
JEEMS 1/ 1998

Boštjan Zalar
privatisation in Central and Eastern Europe has depended mostly on political
feasibility (Boycko et al., 1994). Some emphasis has also been placed on
expectations for the improvement of economic effectiveness, whereas justice has
been left aside.
References
Amended proposal for a Fifth Directive founded on Article 54 (3) (g) of the EEC, (1983), in:
Official Journal of European Communities, COM, No, C 240/2.
Becker, G. et al, (1990): Human Capital Fertility and Economic Growth, Journal of Political
Economy, Vol. 98, No, 5, pp 12-37.
Blasi, J./ Kruse, D. (1990): The New Owners, Harper & Business.
Blasi, J. (1992): Employee Ownership is not Socialism, Gospodarski vestnik, 4. 6. 1992,
Ljubljana, No. 22, pp 22-23.
Boycko, M. (1994): Voucher Privatisation, Journal of Financial Economics, Vol. 35, 249-266.
Convention for the Protection of Human Rights and Fundamental Freedoms, (1995):
Secretariat to the European Commission of Human Rights, Council of Europe,
Strasbourg.
Council for the Protection of Human Rights and Fundamental Freedoms, (1991): Annual
Report, in: Report of the National Assembly of the Republic of Slovenia, No. 27, pp
14-19.
Council for the Protection of Human Rights and Fundamental Freedoms, (1992): Annual
Report, in: Report of the National Assembly of the Republic of Slovenia, No. 2, pp 47-
54.
Council for the Protection of Human Rights and Fundamental Freedoms, (1993a):
Memorandum, in: Report of the National Assembly of the Republic of Slovenia, No. 2
pp 54-56.
Council for the Protection of Human Rights and Fundamental Freedoms, (1993b), Annual
Report, in: Report of the national Assembly of the Republic of Slovenia, No. 13, pp
92-95.
Èibej, J. et al. (1992): The Slovene Company in the Future, Cisef, Faculty of Economics,
Ljubljana,
Declaration on the Right to Development, (1986): in: Yearbook of the United Nations,
Department of Public Information, New York, 40, pp 717-721.
Drucker, P. (1993): The Postcapitalist Society, Butterworth - Heinemann.
Drucker, P. (1994): The Theory of the Business, Harvard Business Review,
September/October, pp 95-104.
Durkheim, Emile, (1957): The Professional Ethics and Civic Morals, Routledge and Kegan
Paul, London.
Freeman, R./ Medoff, J. (1984): What do Unions do? Basic Books, New York,.
Gouldner, A. (1979): The Future of Intelectuals and the Rise of New Class, Oxford University
Press, Oxford.
JEEMS 1/ 1998 43

The transformation of companies from the standpoint of participation rights: The case of slovenia
International Covenant on Civil and Political Rights, (1988): in: A Compilation of
International Instruments, United Nations, New York, pp 18-38.
International Covenant on Economic, Social and Cultural Rights, (1988): in: A Compilation
of International Instruments, United Nations, New York, pp 7-12.
Jones, D./ Kato, T. (1993): Employee Stock Ownership Plans and Productivity in Japanese
Manufacturing Firms, British Journal of Industrial Relations, Vol. 31, No. 3, pp 331-
346.
Kapstein, B. E. (1996): Workers and the World Economy, Foreign Affairs, May-June, pp 16-
37.
Künnemann, R. (1995): A Coherent Approach to Human Rights, Human Rights Quarterly,
Vol. 17, No. 2, pp 323-342.
Labour Court, (1993): Report on the Problems of Juridical Protection of the Rights from
Labour Relations, in: Report of the National Assembly of the Republic of Slovenia,
No. 2, pp 56-63.
Lasso, J. A. (1994/ 1995): Defining the Mandate, Harvard International Review, XVII, No. 1,
Winter, pp 38-41.
Law on Commercial Companies, (1993): Official Gazette of the Republic of Slovenia, 30/93.
Law on Companies, (1989): Official Gazette of the Socialist Federal Republic of Yugoslavia,
77/88.
Law on Social Capital, (1989): Official Gazette of the Socialist Federal Republic of
Yugoslavia, 84/89.
Law on Transformation of Company Ownership, (1992): Official Gazette of the Republic of
Slovenia, 55/92.
Levine, D. (1990): Participation, Productivity and the Firm’s Environment, California
Management Review, Vol. 32, No. 4, pp 86-100.
Locke, J. (1992): The Second Treatise of Government, Cambridge University Press,
Cambridge.
Marshall, E. (1989): Robert Solow: Nobel Prize Winner for Economics, Pregled Embassy of
the United States of America, Belgrade, No. 245, pp 8-9.
Mill, J. S. (1995): Principles of Political Economy, Intelex.
Owen, G. (1995): Employee Ownership in Polaroid Corporation, Employee Ownership -
seminar, 29. 3. - 30. 3. 1995, Bled - Slovenia.
Participation of Employees in the Management Act, (1993): Official Gazette of the Republic
of Slovenia, 42/93.
Pfeffer, J. (1994): Competitive Advantage Through People, California Management Review,
Vol. 36, No. 2, 9-28.
Proposal for a Council Directive complementing the Statute for a European Company with
regard to the involvement of employees in the European Company, (1989), Bulletin of
the European Communities, 5.
44
JEEMS 1/ 1998

Boštjan Zalar
Proposal for a Council Recommendation concerning the promotion of employee participation
in profits and enterprise results including equity participation, (1991), Commission of
the European Communities, COM, 259, Brussels.
Rawls, J. (1971): The Theory of Justice, Harvard University Press, Cambridge,
Massachusetts.
Romer, P. (1990): Endogenous Technological Change, Journal of Political Economy, II, No.
5, 71-102.
Rus, V. (1992): Between Anti-Communism and Post-Socialism, Faculty of Social Sciences,
Teorija in Praksa, Ljubljana.
Social Agreement for the Year 1995, (1995): Official Gazette of the Republic of Slovenia,
22/95.
Social Attorney of Self-Management, (1992): Bulletin, Ljubljana, No. 73.
Social Attorney of Self-Management, (1993): Report of the Social Attorney on the Positions
and Problems from the Field of Protection of Socially-Owned Capital and Protection
of the Employees Rights, in: Report of the National Assembly of the Republic of
Slovenia, No. 2, pp 33-38.
Social Attorney of Self-Management, (1994): Report of the Social Attorney of Self-
Management on the Position and Problems from the Field of Protection of Socially-
Owned Capital and Protection of the Employees Rights, in: Report of the National
Assembly of the Republic of Slovenia, No. 13, pp 96-102.
Social Attorney of Self-Management, (1995): Report of the Social Attorney of Self-
Management on the Positions and Problems from the Field of Protection of Socially
Owned Capital and the Protection of the Employees Rights, in: Report of the National
Assembly of the Republic of Slovenia, No. 9, pp 60-67.
Sudre, F. (1990): La premiere décision ”quart monde” de la Commission européene des droits
de l’homme: Une ”bavure” dans une jurisprudence dynamique, Revue universelle des
droits de l’homme, 2, No. 10, pp 349-353.
The Commission for Constitutional Questions, (1991): The Proposal for the Constitution, in:
Report of the National Assembly of the Republic of Slovenia, No. 30, pp 2-20.
The Constitutional Court, (1992): Decisions and Reports, 23/I, pp 54-58; 35/I, pp 86-95; 39/I,
pp 102-104; 56/I, 134-136, Nova revija, Ljubljana.
The Constitutional Court, (1993): Decisions and Reports, 18/II, pp 41-45; 52/II, pp 127-135;
117/II, pp 357-373; 121/II, pp 390-398; 127/II, pp 413-416, Nova revija, Ljubljana.
The Constitutional Court, (1994): Decisions and Reports, 38/III, pp 179-186; 39/III, pp 187-
190; 50/III, 220-223; 85/III, pp 368-372; 86/III, 372-376; 99/III, pp 470-476, Nova
revija, Ljubljana.
The Constitutional Court, (1995): Decisions and Reports, 42/IV, Vol. 1, pp 222-234; 147/IV,
Vol. 2, pp 566-569, Nova revija, Ljubljana.
The Constitution of the Republic of Slovenia, (1991): Official Gazette of the Republic of
Slovenia, 33/91-I.
The Economist, (1994): For Richer, for Poorer, November 5th - 11th, pp 19-21.
JEEMS 1/ 1998 45

The transformation of companies from the standpoint of participation rights: The case of slovenia
The European Social Charter, (1992): Council of Europe, The Directorate of Human Rights,
Strasbourg.
Universal Declaration of Human Rights, (1988): in: A Compilation of International
Instruments, United Nations, New York, pp 1-7.
Vienna Declaration, (1993): Council of Europe Summit, Vienna, 9. Oct. 1993.
Vodopivec, P. (1995): Elements of the Strategy for Labour Market Development, in: Rus, V.
(ed.), Slovenia after the Year 1995, Faculty of Social Sciences, Ljubljana, pp 281-297.
46
JEEMS 1/ 1998

Ed Clark
Czech enterprises and the multidivisional form:
Legitimation, legacies and structural choice *
Ed Clark **
This article examines the divisionalisation of organisational structures in three
former state enterprises in the Czech Republic. The research findings suggest
that this process has occurred in three broad phases and that structural change
in the three enterprises has exhibited both common and divergent patterns.
While considering the role of economic and institutional factors in the
explanation of these different pathways, the main argument focuses on
management motives behind the structural choices made, the socio-political
responses to those choices from other social actors, and the significance of pre-
1989 organisational legacies.
Der vorliegende Artikel untersucht die Divisionalisierung dreier früherer
Staatsbetriebe in der Tschechischen Republik. Die Untersuchungsergebnisse
zeigen drei wesentliche Phasen der Umstrukturierung. Der Prozeß der
Strukturveränderung in den drei Unternehmen weist sowohl Gemeinsamkeiten
als auch Unterschiede auf. Bei der Erklärung dieser unterschiedlichen
Transformationspfade werden ökonomische wie auch institutionelle Faktoren
berücksichtigt. Die wesentliche Argumentation konzentriert sich aber auf
entscheidungsbeeinflussende Motive des Managements, die Reaktion anderer
gesellschaftlicher Kräfte auf diese Entscheidungen und die Bedeutung
organisationaler Regelungen vor 1989.
*
Manuscript received: 10.9.97, accepted: 12.1.98
** Ed Clark, born 1949, Principal Lecturer in Organisational Behaviour at Nottingham
Business School, Nottingham Trent University. Major areas of research interest: changes
in management practices, organisational structures and work behaviour in central and
eastern Europe; changing nature of enterprise and community life in the same region.
Mail address: Department of Human Resource Management, Nottingham Trent
University, Burton Street, Nottingham, United Kingdom
Tel.: +44 (0) 115 941 8418
Email: ed.clark@ntu.ac.uk
JEEMS 1/ 1998 47

Czech enterprises and the multidivisional form: Legitimation, legacies and structural choice
Since 1990, the large state enterprises that used to dominate the socialist
economies of Central and Eastern Europe (CEE) have undertaken fundamental
processes of structural change. Organisational researchers have observed in
CEE during this period the rise and spread of the multi-divisional form (MDF),
which has been accepted by many practitioners as the antidote to the centralised
functional hierarchy that had been the institutional blueprint of the command
economy (see for example, Musil/Mares 1993; Bakacsi 1993; Cziria 1994;
Hradecká 1994; Thirkell et al. 1995). In the West - particularly in the United
States - evidence of the widespread adoption since the second world war of
divisional principles in large organisations has led to a prolonged search for
possible explanations. In general, the MDF has been seen to offer certain
technical advantages and efficiencies for the prevailing business conditions of
anti-monopolistic capitalism where large corporations are still expected to
pursue strategies of growth.
As is often the case when examining Central and Eastern Europe, the researcher
is left wondering how far the Western experience and Western accounts of that
experience can help in understanding the processes of transitional economies
and their constituent enterprises. Although the MDF has undoubtedly spread
rapidly throughout the former communist region, corporate growth and product
diversification within former state enterprises have not been the typical
experiences (but see Peng/ Heath 1996). Indeed, large CEE enterprises have
been subject to almost the opposite tendencies - decline in employment,
reduction of product range, greater focus on core activities, and the shedding of
many other activities that used to come under the enterprise umbrella (Soulsby/
Clark 1995). This paper, then, explores alternative explanations of the observed
divisionalisation of industrial enterprises as part of their internal transformation,
taking as its empirical basis findings from an in-depth study of three former
state enterprises in the Czech Republic.
The findings are drawn from a research project which has traced in detail the
progress of a number of mechanical engineering enterprises in Moravia. Since
1992, the author 10 has spent a period of two weeks in each enterprise, during
which over sixty senior and middle managers (as well as a few office and
manual workers) were interviewed in depth about the past and about the post-
1989 changes taking place in the enterprises. These initial field research periods
have been followed up with regular re-visits aimed at updating knowledge about
10 The research was conducted with my colleague Anna Soulsby, who has contributed to the
development of the following arguments in a variety of ways. The author is also grateful
to colleagues at the Faculty of Business and Management at the Technical University of
Brno, without whose help and support this research would not have been possible. In
particular, I thank Milos Kerkovsky, Milos Drdla, Hana Skyvarová, Mirka Cermáková,
Thaddeus Mallya, Jan Hobl, Ales Vladik and Alena Kerkovská.
48
JEEMS 1/ 1998

Ed Clark
the enterprises. The empirical materials have been further enhanced by work in
the same enterprises on other related research topics. Altogether, about ninety
managers have been interviewed and extensive formal and informal documents
have been collected.
The three enterprises in question are all involved in the mechanical engineering
industry of the Czech Republic, which had been of strategic economic
significance under state socialism. Vols 11 used to employ over 5,500 people in
the small rural town of Volna and manufactured metallurgical products and
heavy industrial machinery, 70-80% of which used to be exported to the former
Soviet bloc countries and their third world client states. Following 1989, Vols
has retained almost unchanged its product portfolio, but has reduced its
workforce to about 4,500 by 1996. Jesenické Strojírny also produces heavy
engineering machines and plants for industrial clients, and was primarily
oriented to the Soviet Union and the countries of the Council for Mutual
Economic Assistance (CMEA). It is one of four major manufacturers in the
medium-sized town of Jesenice, where its employment has diminished from
7,000 to 3,800 12 in the first seven years of the transition. Both enterprises were
privatised through the first wave of the mass voucher scheme, receiving private
status in the first half of 1993.
Agstroj was also an enormous enterprise, employing over 10,000 people in the
large industrial city of Stromesto, but it manufactures agricultural machinery
that before 1989 was sold across the world for hard currency. In recognition of
its economic contribution to the Czechoslovak command economy, Agstroj was
the recipient during the 1980s of massive investment in its productive capacity.
In 1993, the enterprise was ”privatised” through a merger with its engine
supplier, which had itself gone through the first mass privatisation wave. By
1996, it was still in majority held by the Consolidation Bank 13 , and employment
had declined to less than 6,000.
In what follows, it is argued that divisionalisation in the enterprises has not
merely been the technical adoption of a structural form, passively implemented
as an economically optimal mechanism for managing a corporate strategy.
Rather, it can be better understood as a structural choice enacted by senior
decision makers to serve personal, professional and corporate-strategic interests,
and as an ongoing process of social contestation involving other interested
actors. These socio-political processes of divisionalisation are driven by the
11 All names of places and enterprises have been anonymised in order to preserve the
confidentiality of respondents.
12 This includes the splitting-off as a separate entity of Jesenické Strojírny’s assembly plant.
13 Konsolidacní banka is a state-owned bank set up in 1991 to take on and consolidate the
bad debts and poorly performing ”assets” of the state sector.
JEEMS 1/ 1998 49

Czech enterprises and the multidivisional form: Legitimation, legacies and structural choice
motives, values and preferences of the parties in question, drawing on
contemporary and historical resources at their disposal. First the article
considers some of the theory underlying these propositions, before looking at
the evidence that can be adduced from the experiences of divisionalisation in
the three enterprises. The paper ends with a brief set of conclusions for the study
of the multidivisional form in Central and Eastern Europe.
Divisionalisation: Structural Change and Social Process
In his seminal work, supported by later refinements (e.g. Salter 1970; Channon
1973; Rumelt 1974; Wrigley 1974; Williamson 1975), Chandler (1962) argued
that the key factor in explaining the adoption of the MDF in Western capitalism
has been the technical superiority, and hence economic efficiencies, associated
with a multi-divisional structure under conditions of product or market
diversification. This has led to the famous dictum that structure always follows
strategy, in recognition of the management benefits attributed to the MDF in
relation to the problems created by manufacturing multiple, possibly unrelated,
products under the same organisational roof. In similar vein, contingency
arguments have pointed to the technical and economic problems created by
organisational size and market diversity, and suggested that these difficulties
may in principle be more efficiently and effectively managed through
divisionalised structures (see for example, Mintzberg 1979:393ff; Child
1984:94-95; Palmer et al. 1993:102-103).
More recent American research has questioned the technical-economic
argument as the sole or major explanation of the spread of the MDF, raising for
consideration factors linked with institutional-isomorphic pressures and internal
political, or strategic choice, processes (cf Fligstein 1985, 1991; Palmer et al.
1993). Following the theoretical leads of institutional theorists (cf. Meyer/
Rowan 1991; DiMaggio/ Powell 1991), various researchers of the Western
MDF have attempted to assess whether the adoption of structural mechanisms is
influenced by the need for organisations to operate in a socially legitimate
manner rather than by some externally imposed constraint to be economically
efficient. The organisational imperative for socially aware managers is thus to
select organisational forms which meet the expectations of the business and
management community and of wider groups of stakeholders (see Fligstein
1985, 1991; Palmer et al. 1993; and more generally Greenwood/ Hinings 1996),
and this is thought to create the further tendency to acquire the fads and fashions
of ”progressive” management (cf. Huczynski 1993; Abrahamson 1996).
Another theoretical view expressed in the literature focuses on the ways in
which important organisational decision makers exercise their power and
declare their preferences in the processes which lead to the choice of a structural
form such as the MDF. Both Fligstein (1985) and Palmer et al (1993) argue for
the relevance of these essentially political factors, thereby building on the
50
JEEMS 1/ 1998

Ed Clark
insights of Child (1972, 1997) into the role of strategic choice in organisational
structuring and change. It is this view that is explored in more detail both
theoretically, here, and empirically, below.
In conventional accounts, the adoption of the multi-divisional form is often
described and analysed as an apparently unproblematic reorganisation of a
company, a movement from an established, but technically sub-optimal,
structural arrangement to another more efficient one 14 . The classical formulation
that "structure follows strategy" implies that the rationales for choice of both
strategy and structure are essentially driven by rational economic-technical
considerations - e.g. the strategy of diversification is selected because of legal
constraints on existing corporate growth in a single product/market; the MDF is
then chosen as a technically efficient response to managing multiple products or
markets. In this way, the motives of decision makers are narrowed by fiat to
some technical concern with corporate profitability, market share or similar
organisational goal. Moreover, in spite of the fact that structural changes may
have major implications for the working environment of managers, employees
and other stakeholders, the possible responses of such other social actors tend to
be ignored as irrelevant, or treated as if they were unproblematic. With these
implicit assumptions, it is easy to give the impression that structural change
such as the introduction of the MDF is accepted as a shared organisational goal.
However, there are benefits to seeing the transformation of formal structures as,
first, a social process which, second, takes place over a prolonged period of
time, two issues which are more commonly raised in approaches to change
management. From such a perspective, structural change involves questions not
only of the selection of a relevant structural form, but also of the appropriate
strategies of implementation to overcome resistance or conflict. Transformation,
second-order change, quantum change, reorientation - or however the radical
change is conceptualised (see, for example, Miller/ Friesen 1984; Tushman/
Romanelli 1985; Levy 1986) - necessarily demand a notion of change over time,
including various possible "pathways" or "tracks", which may or may not end
up with the desired structure being adequately installed (cf. Greenwood/
Hinings 1988; Laughlin 1991; Clark/ Soulsby 1995). In developing this
perspective, structural change is understood less as a mechanistic response to
inescapable economic or institutional demands in the external environment, and
more as the social construction of actors with preferences, interests and the
power to influence the structural outcome. In the words of two recent
commentators:
14 This mechanistic process in many respects mimics the conventional economists’ view of
the macro-economic transition from hierarchical state socialism to a liberal market
economy.
JEEMS 1/ 1998 51

Czech enterprises and the multidivisional form: Legitimation, legacies and structural choice
”... the understanding of radical change requires more than an analysis of the
institutional arena or sector. There must be a concern with the patterns of value
commitments, power dependencies, interests and capacity for action within the
organization.” (Greenwood/ Hinings 1996: 1042; see also, for example, Wood
1979)
In this respect, the adoption of the MDF is an ongoing socio-political process,
not the introduction of a technical object, a drawing or chart. The MDF is
perceived in different ways by different social actors according to how it affects
their stake in the organisation. These differential perceptions of and interests in
the MDF lead to the exercise of power and authority in its promulgation by
those managers whose interests and values are served by its institution; to social
conflict over its implications for divisional or departmental life, such as the
allocation of resources, rewards and work obligations; and to patterns of active
and passive resistance to the design and meaning of the MDF when it does not
fulfil the perceived needs of those without effective authority. These social
processes, which create conditions for deviations from the planned structure and
from its implementation, may be complemented and exacerbated by technical
problems, such as the failure to provide the systems and procedures (e.g.
information, costing and pricing systems) necessary to support the changes in
question.
In responding to the new internal environments created by strategic and
structural changes, managers and other employees make sense of the new
conditions by drawing on various resources that are available to them by virtue
of their experiences as organisational participants. Of particular importance,
especially in circumstances that are changing rapidly and radically, are
historical resources, which provide an anchor and reference point for
individuals. In the words of an Agstroj director, ”... the past is an iron shirt...”,
and the legacies of management and of organisation define in part the prevailing
patterns of preferences, values, motives and ways of perceiving and evaluating
the organisational world.
All organisations have their own histories which influence in a variety of ways
their later development. For post-communist managers, it is necessary to work
not only in the context of the emergent market-economic world, but also within
a commonly accepted organisational and managerial framework inherited from
communist days - sets of traditions and values, physical and technological
legacies, enterprise reputations etc. Enterprise managers have accumulated
experiences of their enterprises and a stock of knowledge and recipes about the
”proper ways” of handling recurrent problems. These organisational legacies are
sedimentations of years of experience of everyday management life in particular
enterprises which offer both constraints on what is seen to be possible, and
resources that can be enacted to help accomplish new managerial tasks
(Soulsby/ Clark 1996). This argument affirms that processes of structural choice
52
JEEMS 1/ 1998

Ed Clark
and change - such as the adoption of the MDF - do not come out of the blue.
Rather, they are, at least in part, constructed from historically available
ingredients of management and organisation which continue to affect strategic
decision making and implementation via the taken-for-granted knowledge and
practices of key powerful social actors. This thesis is strongly reminiscent of
certain features of Stark’s (1992) ”path dependence” proposition.
”Actors who seek to move in new directions find that their choices are
constrained by the existing set of institutional resources. Institutions limit the
field of action, they preclude some directions, they constrain certain courses.
But institutions also favor the perception and selection of some strategies over
others.” (Stark 1992:21).
Empirical Patterns of Divisionalisation in the Czech Republic,
1990-1996
In the following sub-sections, empirical case materials are drawn upon in order
to explore the above issues in greater depth. Over the period from 1990-1996,
none of the three enterprises took an easy and straightforward route to its
preferred MDF, and I argue below that the actual pathways of divisionalisation
can be understood in large part as products of the socio-political processes
which occurred within the historical contexts of the particular enterprises. The
general processes may be described in three stages. The first two stages
correspond loosely with the period leading up to privatisation, 1990-1993, when
the enterprises underwent very similar experiences of rapid decentralisation,
followed by some degree of recentralisation. In the third stage, which occurred
mostly after privatisation and leading up to 1996, the enterprises began to go
down their own distinct paths.
Decentralisation: the politics of strategic and structural choice
In 1990, all three enterprises experienced rapid changes in their management
and organisation. As the new senior management bodies took shape, small
management teams were established to undertake strategic planning. In spite of
espoused government policy, most senior managers believed that it was crucial
to reorganise and restructure their enterprises before privatisation, and a high
degree of pre-privatisation restructuring was uniform across all three
enterprises. In each enterprise, strategic managers advocated and introduced a
radical structural form, with more decentralised elements of the MDF. By
designing structural units as cost-centres and profit-centres with greater degrees
of autonomy and self-responsibility, senior managers eagerly embraced the
Western model of the large corporation. The enthusiasm shown for the MDF in
JEEMS 1/ 1998 53

Czech enterprises and the multidivisional form: Legitimation, legacies and structural choice
particular, and for Western models in general 15 , was almost unbounded, and
seemed to bear little relation to the technical relevance of the MDF for the
enterprises. In fact, its adoption created technical problems, since the structure
rapidly became too decentralised for the businesses and their environments (see
below).
The question at this stage is why the senior managers in the three enterprises
adopted the MDF with such enthusiasm, when its technical advantages in the
prevailing circumstances were far from self-evident. To answer this question, it
is necessary to consider the values, objectives and motives of senior managers
and the nature of the problems they faced in 1990, when the first strategic and
structural choices were made. The story of these managers and of enterprise
management is one of both change and continuity. In the sample, only 19% of
the ”old guard” retained their directorate positions in the three enterprises. Yet
81% of those in post-1989 senior positions had been promoted from just the
level below, and in 1989 had obviously been in the process of being groomed
for the most senior levels (see Clark/ Soulsby 1996). Being either nomenklatura
or aspiring nomenklatura managers, these men (there were no women) had
joined the Communist Party and its organs and many had managed the
enterprises through the socially and normatively difficult period of
normalisation 16 , which followed the suppression of the Prague Spring.
Being associated with the repressive communist state had personal and
professional consequences. At a personal level, these individuals were seen as
blemished, and they suffered from a deficit of social legitimacy inside the
enterprise and within the larger local community, where typically employees
and citizens paid mere lip-service to the regime and to its institutional
representatives (Holy 1996: 27ff). Following the Velvet Revolution, local Civic
Forum 17 groups were rapidly established in the enterprises and they began to
take strong actions against a number of senior managers, thus creating intense
personal insecurity for the existing management cadres. Their professional
careers were further thrown into doubt by public debates about how to deal with
the former Party officials, and the subsequent passing of the Screening
(lustrace) Act (1991). This legislation prohibited former senior communists
from holding important public office, which included directorships of state-
15 One strategic manager was so keen that after being interviewed he asked the researchers to
send him information on matrix structures, a topic which had spontaneously become part
of the interview discussion.
16 Normalisation here refers to the period following the Warsaw Pact invasion of 1968, when
neo-Stalinist political and economic structures were reimposed on Czechoslovakia. The
recentralising of political and economic control and the harsh punishments for
disobedience led to strong popular dislike for the regime.
17 Civic Forum was the main anti-communist coalition during the Velvet Revolution of 1989.
54
JEEMS 1/ 1998

Ed Clark
owned enterprises (see Wheaton/ Kavan 1992; Jeffries 1993). Given these local
and national, social and legal processes, the legitimacy of state socialist
managers was in serious dispute, both as individual citizens and, more
especially, as career professional managers. It is contended here that within the
three enterprises, which were in the main still directed by surviving former
(aspiring) nomenklatura managers, the political process was substantively
affected by their motives, including the felt need to transform their hitherto state
socialist management credentials to those of bona fide market-economic
managers.
In the immediate post-1989 context, the senior managers of the three enterprises
made strategic and structural choices which they believed would enhance their
chances of professional transformation and survival. While their main aim was
to prepare the enterprises for the expected process of privatisation, in each case
their strategic priority was to secure the interim survival of the enterprise. This
strategy chimed well with their own personal goals of staking a legitimate claim
to enterprise management. Given the wider talk in the communities about what
to do with the ex-communists, the former nomenklatura realised that the main
evidence of their own transformation to capitalist managers would come from
their ability to demonstrate the health of the enterprise.
Drawing on the knowledge they had of existing large Western businesses,
senior managers exhibited an implicit belief in the MDF as the appropriate
model for large corporations, which would in turn, improve the chances of
survival of their own enterprises. Some senior managers were unable to
contemplate the possible failure of the MDF, and the degree of faith shown is
illustrated by one director in Vols, who opined that the new structures would
work because they ”... had to work”. In as much as they believed that the MDF
offered a strategy for enterprise survival, their own hopes of managerial survival
were also boosted.
The strong appeal of the MDF can be understood as part of an overall
management strategy of re-legitimation. The MDF offered structures, systems
and mechanisms that were not only directly related to known institutional
models from the West - the ultimate source of values and validation for the new
post-communist era; they were also a direct, explicit and clear refutation of the
structures, systems and mechanisms upon which the now-discredited past had
been constructed. By associating themselves with the market-economic MDF,
and distancing themselves from command-economic functional form, the
managers were allying themselves culturally and symbolically with the general
prevailing expectations and values of marketisation, decentralisation, strategic
autonomy, freedom, personal responsibility etc. (cf Child 1993). The MDF
resonated with Western capitalist values and institutional concepts of
modernness, which in turn brimmed with the one thing they perceived
themselves as lacking in the post-1989 world - social legitimacy.
JEEMS 1/ 1998 55

Czech enterprises and the multidivisional form: Legitimation, legacies and structural choice
In the first year or so after 1989, the structural choices of these professionally
vulnerable managers showed all the hallmarks of a social group seeking wider
social acceptance and legitimation. The early, enthusiastic adoption of the MDF
supports this socio-political explanation of post-communist management
behaviour. However, in spite of senior management faith in the structures,
technical and social problems soon arose.
Recentralisation: Technical problems and social resistance
Introducing a new head office for strategic matters, each enterprise redefined a
multitude of structural units as ”divisions”, implemented more delegated
patterns of authority and responsibility between the centre and the units, and
created more autonomy in the divisions and more competition between them.
The radical divisionalisation that took place after 1989 led to two related kinds
of control problem: technical control and social control.
Agstroj is essentially a single product business, yet in 1990 the strategic team
devised a structure with ten divisions each operating as cost centres, with an
intention of moving later to a profit-centred model. The substantially devolved
responsibilities led to severe technical problems for the enterprise. In the words
of one director:
... there were too many divisions and the span of control [of the General
Director] was too great.
Jesenické Strojírny went much the same way, introducing sixteen units with
divisional status and profit-centred responsibilities, far too many for the existing
technical systems to cope with. Once again, having so many operating units
reporting directly to him, the new General Director suffered serious problems of
control. Furthermore, the accounting and general information support systems
were slow, old fashioned, and poorly designed for controlling the MDF. In these
conditions, the strategic head office could neither monitor divisions accurately
nor have confidence in the reported performance of the decentralised units.
Although Vols was more conservative in its restructuring, it too instigated a
cost-centred multi-divisional structure which its management anticipated would
move towards a profit-centred arrangement. Again, the management
information systems provided inadequate assistance, leaving the centre
structurally isolated from divisional decision making, and conceding to
divisional and middle managers far more discretion than the senior managers
had foreseen.
These technical weaknesses, the severity of which had been unforeseen by
senior managers in their rush to divisionalise, were further revealed in and
exacerbated through the diverse patterns of social response which the new
structures elicited. The structures of the MDF generated an unfamiliar socioeconomic
environment for both managers and employees. Senior and middle
56
JEEMS 1/ 1998

Ed Clark
managers faced new expectations for their work and for their roles in the
organisation, and the very basis of their relationships with other managers and
other departments were altered. There is no doubt that some middle managers
were simply afraid of the new demands:
The problem with the central plan was that everything was written and there
was no place for ”activity”... Sometimes [now], when I need to take a decision,
I just feel confused... [Many managers] are unable to take decisions without
getting confirmation from above. I worry so much about my responsibility that
sometimes I cannot sleep. (Vols middle manager)
Such confusion and lack of confidence also led to conscious action against the
new structures. In the past, middle managers had grown accustomed to an
atmosphere of fear and mistrust, so that when asked for cost or other financial
information, they used to conceal, withhold, bias or otherwise distort data to
cast themselves and their colleagues in the best light. This routine fear of
punishment continued to be reproduced in the early days of the MDF, thereby
completely undermining the control processes necessary for a decentralised
system.
The effects were cumulative. The centre could only inadequately monitor
divisional performance by using informed guesswork to correct for inaccurate
information coming through the formal systems, and the gap between centre and
division in turn made it possible for divisional managers to exercise discretion
in their own plants. A director at Jesenické Strojírny noted how
... each factory [using its new autonomy] effectively employed too many people.
They protected people and services [and] overall it was inefficient.
In this respect, management decisions at divisional level were often expressions,
not of the new hard-nosed market-economic rationality, but of a logic grounded
in pre-1989 management values. A senior Agstroj director reflected upon this
tendency:
Agstroj is soft on the individual [employee], which is typical... We are not used
to saying ”we don’t want you from the 1st January”... There is still a lot of
social thinking... [Hardness]... is not in the Czech culture.
While there is some evidence to locate such social thinking in the Czech value
system, other managers saw the divisional protection of staff as a communist
legacy:
[These managers]... are not red, but pink. (Another Agstroj director)
At Vols, there was a general agreement between senior managers, even at the
level of head office, that the most important goal in the short to medium term
was to defend the rights of employees and to look after their families, and they
took strategic and operational decisions on social as well as market-economic
grounds. A strategy manager at Jesenické Strojírny echoed these sentiments:
JEEMS 1/ 1998 57

Czech enterprises and the multidivisional form: Legitimation, legacies and structural choice
[In the past, there was]... a certain pride, a loyalty and a sense of social
responsibility; [these were reflected in]... the enterprise’s social policy, [which]
was in substance good.
However, the MDF did not induce an identical response from all managers in
the enterprises. In spite of the general sharing of the social values referred to
above, the MDF actually benefited some divisions and some operations rather
than others, and the rule of expedience meant that the ”winners” were more
likely to support the new arrangements than the ”losers”. The more internally
competitive and marketised the structure, the more it exposed some newly
created divisions, whose poor economic performance had been concealed in
aggregated enterprise information, as potential drags on the whole-enterprise
performance. Hence, in 1990-1991, Vols’ metallurgy division was a huge lossmaker,
and the divisional head was among the most vociferous opponents of
advancing the MDF to a fully-fledged profit-centred structure.
Meanwhile, the profit-centred MDF at Jesenické Strojírny served to aggravate
and re-kindle inter-divisional conflicts that had smouldered for years under state
socialism. Its most profitable turnkey business, requiring the coordination of the
production schedules of the operating plants in order to ensure the construction
of, say, a cement factory, was put in the hands of the Commercial Division.
While the Production Divisions had to supply their products to Commercial for
these integrated projects, they could only make profits from the production and
delivery of less profitable single machines. The Production Divisions therefore
felt not only that Commercial was able to put on excellent divisional
performances on the back of their (i.e. Production’s) hard work; but further that
they were at the beck and call of Commercial, which had the full support of the
General Director. Tense relations had always existed between these functions,
but the marketised MDF exacerbated this structural conflict, led to passive
resistance and a withholding of goodwill between the divisional managers.
In short, at most levels of management, the MDF was accepted as the right and
proper structure for the transforming enterprises. However, in practice, the
chosen form of divisionalisation created technical problems of head office
control, threatened the confidence and the inherited social values of many
managers, exposed latent unit weaknesses, revealed deep interdivisional
conflicts through the use of competitive monitoring, and led to a good deal of
resistance to the full force of divisional mechanisms and practices. By 1992, all
three enterprises had stepped back from their initial attempts at the MDF,
retrenching around more centralised, less competitive structures which
conformed more closely to the capabilities of the information systems in place
and to the values of the managers whose goodwill was necessary to make the
structures work. Nevertheless, even in this process of retrenchment, the senior
managers of all three enterprises remained faithful to their ideal of
divisionalisation - the full holding company form, in which each division would
58
JEEMS 1/ 1998

Ed Clark
become its own legal corporate entity within a looser umbrella of the parent
company.
Taking different paths: organisational legacies and the diversity of
divisionalisation
By the time they took on private status in the first half of 1993, each enterprise
had undergone a very similar process, namely, the enthusiastic adoption of
decentralised, divisionalised structures, which, for technical and social reasons,
had been unsustainable in their initial forms. In the post-privatisation period,
however, the three enterprises began to take divergent roads to divisionalisation.
While Agstroj management was eventually forced to abandon its decentralising
ambitions in favour of a recentralised functional form, Jesenické Strojírny
proceeded rapidly - in spite of mentioned technical and social problems - to the
full holding company form, and Vols remained broadly in a mixed cost-centre
and profit-centre arrangement. Only Jesenické Strojírny achieved the common
goal of installing a holding company structure, but the other two managements
remained committed, formally or informally, to its realisation in the longer term.
Having explained the pre-privatisation processes of divisionalisation in terms of
managers’ needs to reclaim legitimacy for their careers and the technical and
social problems that arose within the three enterprises, it is now necessary to
account for the diverse pathways followed by the enterprises. It will be argued
that each enterprise was in some way a prisoner of its own historical legacies -
whereas these worked more or less as positive resources for the managers of
Vols and Jesenické Strojírny, Agstroj managers’ choices have been severely
constricted by its state socialist past.
A huge injection of state investment during the 1980s had not only boosted
Agstroj’s strong industrial reputation within the Soviet world and beyond, but
also increased its productive capacity in order to enhance its potential to earn
hard currency. It is a strange irony that within years of acquiring this capacity,
the demise of the command economy completely altered the enterprise’s
prospects within the ailing global agricultural industry of the 1990s. In the new
circumstances, Agstroj has never been able to sell enough machines to reach the
high break-even point determined by its new plant. In spite of formal
privatisation through merger with its (privatised) engine supplier, Agstroj
remained essentially a loss-maker, 70% owned by the National Property Fund.
In 1994, its assets and liabilities were ”sold” to the state-owned Consolidation
Bank to manage and billions of crowns of debt were effectively wiped out.
Agstroj’s experimentation with delegated authority and responsibility had been
disastrous given the central need to minimise costs, and in 1995, Consolidation
Bank insisted on appointing a new Production Director to whom all divisions
were directly responsible:
JEEMS 1/ 1998 59

Czech enterprises and the multidivisional form: Legitimation, legacies and structural choice
[The divisions]... had been decentralised following the pursuit of a holding
company structure, [and it]... was not working. The organisation was felt to
have become too decentralised - with duplication of resources and activities
[and poor communication]. Agstroj had to be reorganised from scratch... They
also needed tighter financial controls, so there had to be re-centralisation, a
kind of tougher centralisation... (Agstroj Director)
The legacy of its high production capacity - its ultimate Achilles’ heel - and the
consequent inability to make profits have created a permanent financial crisis in
the enterprise, which has effectively defined the economic limits of structural
choice open to Agstroj managers. Its structural units may still be called
divisions, but by 1996 they acted more like traditional plants.
While Agstroj serves to illustrate that technical-economic factors have an
important role in determining the boundaries within which structural choice
may operate, Jesenické Strojírny, which advanced rapidly to the holding
company form, demonstrates the way in which powerful managers can enforce
their structural preferences in spite of the existence of opposition. Technically
the activities of Jesenické Strojírny called for structures which emphasised
cooperation and coordination between plants, rather than interdivisional
competition and rivalry, yet the senior managers persisted with their espousal of
an internal market model. It is possible to trace this senior management fervour
for the holding company structure back to the enterprise’s history.
Jesenické Strojírny has a progressive reputation, deriving in large part,
according to respondents, from the open attitudes and behaviour of the pre-1989
General Director who had ruled the enterprise for more than 20 years. In line
with politico-economic reforms during the late 1960s, the enterprise had
experimented with decentralised MDF-style structures, but had had to abandon
such "modernising" concepts in the early 1970s, when normalisation began to
take hold in the economic sphere. When the new General Director, who had
himself been a reforming middle manager during the late 1980s, appointed as
his Strategy Director the very person who had been responsible for the
structural experiments of the 1960s, it came as little surprise to find the senior
management team advocating the adoption of the MDF with the goal of moving
as rapidly as possible to a holding company structure. The opposition by key
divisional managers had restrained the divisionalisation process before
privatisation, but once the senior managers had gained the confidence and
support of the new owners in 1993, the strong emotional commitment of key
managers to the holding company was enough to drive forward its realisation. In
January 1995, when the new legal form was officially implemented, it was as if
some inevitable historical process had eventually unfolded within the enterprise.
The case of Vols falls between the other two enterprises, as during the 1990s it
has maintained a commitment to a moderately decentralised MDF, steering a
steady line between the felt need to become more modern, more Western and
60
JEEMS 1/ 1998

Ed Clark
more market-oriented in its structures, and the maintenance of its social
legacies. Vols was established and built up during the 1950s as a conscious part
of Czechoslovakia’s social and economic policies. The enterprise and the local
community of Volna gained hugely because of their roots in communist policies
and the strength of their links with the National Communist Party. Managers
who joined Vols had been strongly committed to the social role of the enterprise
- as shown above - and these commitments and values have continued to
circumscribe the structural decision making in the enterprise. Social thinking
has tempered the willingness of managers to introduce any changes into the
enterprise that might damage its social and economic relationship with Volna.
Like Jesenické Strojírny, after privatisation and with the support of the new
owners, Vols’ senior managers continued to operate within decision making
boundaries set by their own motives and values, but the traditions of Vols
predisposed its management towards a more gradualist approach to
divisionalisation.
Conclusions
By examining the actual processes of divisionalisation within three enterprises
in the Czech Republic, it has been possible to explore a number of explanations
for the paths adopted. The nature of the argument has been shaped by
consideration of the three factors which have emerged in the literature that has
extended the pioneering work of Chandler (1962): viz. technical-economic
factors, institutional factors and political (strategic choice) factors. However, the
theoretical presumption has been that all structural changes are ultimately the
choices of senior managers in the enterprises, and this stance has informed the
types of explanation proposed. The research findings have highlighted the role
of personal and professional motives in the structural choices of the powerful
social actors in the enterprises and have pointed to the need to consider
divisionalisation as a socially contested process circumscribed by external
economic and institutional factors and by historical legacies. The evidence from
the enterprises suggests that divisionalisation has passed through three stages.
The first two stages emphasise similarities in organisational experience, which,
it is contended, relates to the initial motives and anxieties of the post-communist
managers, many of whom had been deeply implicated in enterprise management
under the communist regime. Concerned with their personal and professional
legitimacy, senior managers made structural choices which they estimated
would optimise the chances of enterprise survival, and thus improve their own
claims to being bona fide market-economic managers. The MDF was not only
based on highly credible Western models, but it also embodied and symbolised
the critical values of the emergent society - freedom, devolved responsibility,
private accountability, decentralisation etc. The enthusiastic advocacy of these
principles thus served to enhance managers’ credentials in the eyes of
JEEMS 1/ 1998 61

Czech enterprises and the multidivisional form: Legitimation, legacies and structural choice
organisational stakeholders, who included not only the employees and the
liberal-economic government, but also would-be shareholders and owners. The
strength of support for the holding company concept, even where it was a
technical mismatch with product-market or financial realities, may be a direct
indicator of the severity of the problem of managerial legitimacy faced in the
early post-1989 period.
Following implementation of some variant of the MDF, each enterprise faced
technical and social problems of control. The latter were particularly important,
and the MDF could be seen to create or make manifest personal anxieties and
inter-unit conflicts. During this second stage of contestation, each enterprise
withdrew to some degree from the decentralised model it had initially adopted.
During the final stage, which followed privatisation, the enterprises began to
follow their own distinctive pathways to divisionalised, decentralised forms.
The discussion of these findings dwelled particularly on continuing influence of
specific enterprise histories and legacies.
To conclude, it is possible to make a judgement about the relative importance
of, or the respective roles played by, technical-economic factors, institutional
factors and strategic choice processes in the adoption of the multi-divisional
form. The evidence and interpretation offered here suggests that external
economic factors are best understood as playing a significant role in defining
the limits of management choice. Technical-economic factors seemed to
establish the boundaries beyond which structures had to become more
centralised in order to assert firm control over organisational activities, but
within which managers could enjoy a broad degree of discretion to be able to
pursue their own preferences with respect to organisational design. Institutional
pressures emanated from society at large with its general normative expectations
about decentralisation, private responsibility and autonomy; and, more
concretely, from the business environment of internationally available and
socially acceptable patterns or blueprints regarding appropriate structural forms
for a post-communist, market-economic organisation. The MDF provided
enterprise managers with a socially legitimate design that fulfilled these general
and specific institutional expectations. However, from the detailed cases of
divisionalisation reported here, it is argued that the influence of both technicaleconomic
and institutional contextual factors has been crucially mediated by the
intervention of human agency. Divisionalisation can therefore be understood as
a process which is socially constructed by significant organisational actors, who
exercise power within a set of constraints and opportunities afforded by
contemporary and historical circumstances.
References
Abrahamson, E. (1996): Management fashion, in: Academy of Management Review 21(3),
254-285.
62
JEEMS 1/ 1998

Ed Clark
Bakacsi, G. (1994): Organisational transition - management legacy, in: Makó, C./ Novoszát,
P. (Eds.), Convergence versus Divergence: The Case of the Corporate Culture,
Budapest: Communication and Consultation Co, Ltd, 37-45.
Chandler, A. D. (1962): Strategy and Structure: Chapters in the History of the Industrial
Enterprise, Cambridge, Massachusetts: MIT Press.
Channon, D. F. (1973): The Strategy and Structure of British Enterprise, London:
MacMillan.
Child, J. (1972): Organizational structure, environment and performance: the role of strategic
choice, in: Sociology 6(1), 1-22.
Child, J. (1984): Organization: a Guide to Problems and Practice (2nd edn), London: Paul
Chapman.
Child, J. (1993): Society and enterprise between hierarchy and market, in: Child, J./ Crozier,
M./ Mayntz, R./ et al., Societal Change Between Market and Organization, Aldershot:
Avebury, 203-226.
Child, J. (1997): Strategic choice in the analysis of action, structure, organizations and
environment: retrospect and prospect, in: Organization Studies, 18(1), 43-76.
Clark, E./ Soulsby, A. (1995): Transforming former state enterprises in the Czech Republic,
in: Organization Studies 16(2), 215-242.
Clark, E./ Soulsby, A. (1996): The Re-formation of the managerial elite in the Czech
Republic, in: Europe-Asia Studies 48(2), 285-303
Clark, E./ Soulsby, A. (1998): Organization, Management and Transformation: institutional
Change in the Czech Republic, London: Mansell (in press).
Cziria, L. (1995): The Czech and Slovak Republics, in: Thirkell, J./ Scase, R./ Vickerstaff, S.
(Eds.), Labour Relations and Political Change in Eastern Europe, London: UCL Press,
61-80.
DiMaggio, P./ Powell, W. (1991): The iron cage revisited: institutional isomorphism and
collective rationality, in: Powell, W./ DiMaggio, P. (Eds.), The New institutionalism
in Organizational Analysis, Chicago: University of Chicago Press, 63-82.
Fligstein, N. (1985): The spread of the multidivisional form among large firms, 1919-1979,
in: American Sociological Review 50 June, 377-91.
Fligstein, N. (1991): The structural transformation of American industry: an institutional
account of the causes of diversification in the largest firms, 1919-1979, in: Powell,
W./ DiMaggio, P. (Eds.), The New Institutionalism in Organizational Analysis,
Chicago: University of Chicago Press, 311-336.
Greenwood, R./ Hinings, C. R. (1988): Organizational design types, tracks and the dynamics
of strategic change, in: Organization Studies 9(3), 293-316.
Greenwood, R./ Hinings, C. R. (1996): Understanding radical organizational change:
bringing together the old and the new institutionalism, in: Academy of Management
Review, 21(4), 1022-1054.
Holy, L. (1996): The Little Czech and the Great Czech Nation: National Identity and the
Post-Communist Social Transformation, Cambridge: Cambridge University Press.
JEEMS 1/ 1998 63

Czech enterprises and the multidivisional form: Legitimation, legacies and structural choice
Hradecká, I. (1994): Special features of Czech privatized enterprises with foreign capital
participation, in: Vlácil, J./ Hradecká, I./ Mazálková, I., Large-Scale Privatization:
Social conflict and Consensus, Prague: Institute of Sociology Working Papers,
Academy of Sciences in the Czech Republic.
Huczynski, A. (1993): Explaining the succession of management fads, in: International
Journal of Human Resource Management 4(2), 443-63.
Jeffries, I. (1993): Socialist Economies and their Transition to the Market, London:
Routledge.
Laughlin, R. (1991): Environmental disturbances and organizational transitions and
transformations: some alternative models, in: Organization Studies 12(2), 209-232.
Levy, A. (1986): Second-order planned change: definition and conceptualization, in:
Organizational Dynamics 15(1), 5-20.
Meyer, J./ Rowan, B. (1991): Institutionalized organizations: formal structure as myth and
ceremony, in: Powell, W./ DiMaggio, P. (Eds.), The New Institutionalism in
Organizational Analysis, Chicago: University of Chicago Press, 41-62.
Miller, D./ Friesen, P. (1984): Organizations: A Quantum View, Englewood Cliffs, NJ:
Prentice-Hall.
Mintzberg, H. (1979): The Structuring of Organizations, Englewood Cliffs, NJ: Prentice-
Hall.
Musil, L./ Mares, P. (1993): The ‘entitlement mentality’ and legitimacy of privatization in
industry, in: Working Papers of the Philosophy Faculty, G 35, Brno: Masaryk
University.
Palmer, D./ Jennings, P./ Zhou, X. (1993): Late adoption of the multidivisional form by large
U.S. corporations: institutional, political and economic accounts, in: Administrative
Science Quarterly, 38, 100-131.
Peng, M./ Heath, P. (1996): The growth of the firm in planned economies in transition:
institutions, organizations, and strategic choice, in: Academy of Management Review,
21(2), 492-528.
Rumelt, R. (1974): Strategy, Structure and Economic Performance, Boston: Harvard
Business School.
Salter, M. (1970): Stages of corporate development, in: Journal of Business Policy Spring:
23-37.
Soulsby, A./ Clark, E. (1995): Privatisation and the restructuring of enterprise social and
welfare assets in the Czech Republic, in: Industrial Relations Journal 26(2), 97-109.
Soulsby, A./ Clark, E. (1996): The emergence of post-communist management in the Czech
Republic, in: Organization Studies 17(2), 227-247.
Stark, D. (1992): Path dependence and privatization strategies in east central Europe, in: East
European Politics and Societies 6(1), 17-54.
Thirkell, J./ Scase, R./ Vickerstaff, S. (1995): Changing models of labour relations in eastern
Europe and Russia, in: Thirkell, J./ Scase, R./ Vickerstaff, S. (Eds.), Labour Relations
and Political Change in Eastern Europe, London: UCL Press, 7-29.
64
JEEMS 1/ 1998

Ed Clark
Tushman, M./ Romanelli, E. (1985): Organizational evolution: a metamorphosis model of
convergence and reorientation, in: Cummings, L./ Staw B. (Eds.), Research in
Organizational Behavior, Greenwich, CT: JAI Press, 171-222.
Wheaton, B./ Kavan, Z. (1992): The Velvet Revolution: Czechoslovakia, 1988-1991, Oxford:
Westview.
Williamson, O. (1975): Markets and Hierarchies: Analysis and Anti-Trust Implications, New
York: Free Press.
Wood, S. (1979): A reappraisal of the contingency approach to organization, in: Journal of
Management Studies 16(3), 334-354.
Wrigley, L. (1974): Diversification and Divisional Autonomy, Boston: Harvard Business
School.
JEEMS 1/ 1998 65

Russian Management Style: A Game Theory Approach to Evaluating Decision Making
Russian Management Style: A Game Theory Approach to
Evaluating Decision Making *
Robin Matthews / Ara Yeghiazarian **
This paper springs from the practical problem of designing management
training programs to improve decision making by Russian managers in the
market economy. We approach the problem by attempting to identify any
clustering (focal points) in their decision making, and investigating the impact
upon the efficiency of firms in a simulation game. We then consider the
implications for a real economy and for the orientation of management training
programs by asking whether these focal points inhibit effective decision making
and efficient results. We believe that our methodology has wide implications for
identifying management training needs generally, and is not confined to the
Russian managers who provide the empirical basis for this paper.
Ausgangspunkt dieser Arbeit sind praktische Probleme der Entwicklung von
Managementtrainingsprogrammen zur Verbesserung der Entscheidungsfindung
russischer Manager im Hinblick auf marktwirtschaftliche Erfordernisse. Dazu
wurden zunächst Schwerpunktbereiche der Entscheidungsfindung identifiziert
und deren Auswirkungen auf die Effizienz mittels Simulationen überprüft. Aus
den Ergebnissen wurde die notwendige Ausrichtung von Trainingsprogrammen
abgeleitet. Wir glauben, daß unsere Methode zur Identifikation von
Weiterbildungsbedarf allgemein verwertbar und nicht nur auf russische
Manager anwendbar ist.
*
Manuscript received: 9.8.96, revised: 29.10.97, accepted: 12.1.98
** Robin Matthews, born 1945, Professor of International Business Policy, Kingston
University Business School; Research interests: Game theory, Economics of transition,
Complexity.
Ara Yeghiazarian, born 1957, Senior Lecturer Information Systems at Kingston University
Business School; Research interests: Cross-cultural management decision making,
Economics of transition.
Mail address: Kingston University Business School, Kingston Hill, Kingston on Thames,
Surrey KT2 7LB, UK
Tel.: +44 0181 547 2000
Email: r.matthews@kingston.ac.uk
66
JEEMS 1/ 1998

Robin Matthews / Ara Yeghiazarian
1 Introduction 18
The paper reports on the methodology and results of a project whose aim is to
identify constraints on the developing market economy that stem from the way
Russian managers make decisions and the type of decisions they make. This
approach is seen as complementary to work on reforming the Russian economy
at a macro level. (see for example Dietz 1992; Dyker 1992; Economist
Intelligence Unit, Sachs 1995, 1994(a) and (b); Sachs/ Wyplosz 1994). We are
looking for any clustering of decisions around focal points that may inhibit or
enhance decision making by Russian managers from the point of view of the
firms for which they have responsibility, and for the economy in general. The
project has practical purpose of helping to orient training effectively on
management programs generally.
We describe our methodology in the next section. The theoretical structure is
based on observations of Russian managers taking part in Managers’
Programme in Kingston Business School (Hicks 1995; Yeghiazarian/ Matthews
1995). They have wide ranging business experience in State and private owned
enterprises. They are drawn from both large and small businesses. Many could
be classified as entrepreneurs. Their industries range over much of the Standard
Industrial Classification, including labour intensive industries such as mining,
building & construction, capital intensive industries such as heavy engineering
chemicals and oil, through to fast evolving technical and service industries such
as computing, software houses, telecommunications, media, supermarkets,
consulting and advertising.
We report on the focal points we have identified in managerial behaviour in a
business simulation game. The game, TOPEXEC 19 , has been under continuous
development on a range of undergraduate, postgraduate and executive programs
in companies, including Boeing, BT, Shell in the USA and Europe for over 10
years. The simulation has evolved both in terms of updating the econometric
database and information architecture. There is no limit to number of iteration of
18 The Thatcher and Rothschild Foundations provided the financial support the International
Managers Program by the Business School of Kingston University. The Knowhow Fund
(Training and Academic Links) of the British Council supported the setting up of a
business planning course jointly by Kingston Business School and the Academy of
National Economy under the Government of the Russian Federation. We emphasize that
finance from these bodies was provided and used for the purpose of designing and
operating practical training courses for Russian managers but we would like to
acknowledge that this research is one of the unplanned spin-offs. We hope it is of interest
to a wider audience.
19 The authors would like to thank Professor Al Shreiber of University of Washington at
Seattle, the pioneer of the TOPEXEC Business Management Game. We are also grateful to
Mr Ken Harry who has been a major contributor and user of the game for several years,
and to Mrs Eve Hicks for her collaboration on earlier versions of the paper.
JEEMS 1/ 1998 67

Russian Management Style: A Game Theory Approach to Evaluating Decision Making
game but Russian mangers are restricted by time to eight. At the end of each
iteration, players of TOPEXEC are provided with detailed financial statements
and costing data relating to their own company. This enables them to evaluate
past decisions, and if necessary revise them. Although they have only limited
information about rivals' strategies, they are given the opportunity to negotiate
sales and purchases of inventory or to form strategic alliances. Strategic decision
variables include prices, outputs, investment, marketing expenditures, research
and development, and inventory. Players respond to their interpretation and
analysis of business data, rivals strategies, and to changes in the business
environment simulated by quarterly time series data on factors such as interest
rates, GNP, and activity indices, including prices and employment.
To achieve the practical purpose and aims we have developed a methodology
based upon the theory of focal points. So the paper outlines the theory of focal
points, and our developments of the theory. The aims of the paper are as
follows: i) to outline and theory focal points and their significance for
management decision making, ii) to identify focal points, using data on Russian
managers decision making in a simulation game, iii) to comment upon the
significance of the focal points which we have identified, firstly for the Russian
economy, and secondly for the training of Russian managers. Our results raise
significant issues that are too often ignored both in policy prescriptions for
Russia and in management training.
The paper is organised into three further sections. The next section, section two,
outlines the methodology of our approach. In the third section, we identify focal
points. In the fourth, we make some remarks on their significance.
2 Methodology
This section is in two parts. In the first part we outline the theory of focal points
which was originally developed by Schelling (1960), and Kreps (1990). In the
second part we describe the procedures we use to identify focal points.
2.1 The theory of focal points
The theory of focal points is well developed, but as far as we can detect its
implications for management science have not previously been investigated, so
our paper represents a novel approach. The emphasis is on behaviour on the
micro level: on interactive decisions within firms and between them. We attempt
to identify focal points, or to use another metaphor, attractors, around which
managerial decisions cluster, and assess their effects on the market economy
through the medium of a simulation game.
The notion of Nash equilibrium is central to focal points (Nash 1951). A Nash
equilibrium in a game corresponds to a strategy that a player has no incentive to
revise, provided that other players to not revise their strategies. The notion of
68
JEEMS 1/ 1998

Robin Matthews / Ara Yeghiazarian
focal points captures a recurrent theme in social sciences; the idea of hidden
order. It appears in number of forms that are variations on the theme of the
Invisible Hand. Focal points and focal equilibria are wider concepts in two
senses: i. they apply generally, to any ordering, or reconciling principles, or
spontaneous agreements, existing in individual or group psychology, or in
culture, that enable people to choose between alternative Nash equilibria; ii. they
may imply suboptimal as well as optimal behaviour.
We are not concerned here with problems of the existence of equilibrium, but
with situations (simulation games, or interactions in a real market setting)
where there is a multiplicity of possible equilibria, and a large number of
players. Dealing with multiple potential Nash equilibria, Schelling, examined
conditions that may cause players in a game to expect each other to implement a
particular equilibrium. When this happens, the expected equilibrium becomes
self fulfilling. Schelling called this phenomenon a focal point effect. A focal
point equilibrium has some property that conspicuously distinguishes it from all
others.
The following example, illustrating focal points was provided by Kreps (1989,
1990). Consider a game between two players, both American college students.
They are presented with a list of eleven cities, (New York, Kansas City, Dallas,
Denver, Chicago, Los Angeles, Phoenix, Boston, Philadelpia, San Francisco,
and Atlanta), each of which has been given an arbitrary index, ranking its
importance to commerce, the arts, and so on. The students know that New York
scores highest with 100 points, and Kansas City, the lowest, with 1. Each
student is asked to choose a subset of cities independently without consulting the
other. One is told that he must list Boston: the other that he must list San
Francisco. After the lists are drawn up they are compared. If a city appears on
one list and not the other, the student listing that city wins as many dollars as the
city's index. If a city appears on both lists, each loses twice as many dollars as
the cities index. If the students manage to partition the eleven cities between
them, this triples their total winnings.
In pure strategies, the game has 512 Nash equilibria. When it is played though,
there is significant co-ordination. The Boston list nearly always contains New
York, and Philadelphia, and less frequently, Chicago. Los Angeles, Phoenix, and
Denver are invariably included on the San Francisco list, and sometimes, but
less frequently, Dallas, and Kansas City. The reason, apparent to people familiar
with the geography of the United States, is that choices are based upon which
cities are located to the east, and which to the west, of the Mississippi river.
Sometimes a Sunbelt/Snowbelt division is chosen, but the joint presence of
Miami and Atlanta, both in the sunbelt usually causes this principle to be
rejected.
Many examples of focal points are provided in Schelling's (1960) book. Simple
qualitative factors underlie focal points. Symmetry and uniqueness seem to be
JEEMS 1/ 1998 69

Russian Management Style: A Game Theory Approach to Evaluating Decision Making
important in selecting principles. In games involving division of payoffs, the
symmetric notions of equity, or efficiency, often become organising principles.
When one ordering principle defines a unique equilibrium, and an alternative
suggests many, the first tends to be applied (Myerson 1991). Cultural norms
may be important, as for example in the listing of cities. The experimental work
of Roth and Schoumaker (1983) suggests that implicit agreements often arise
through a process of adaptive expectations: learning from the experience about
how others have played in the past, affects a players current and future
behaviour.
2.2 The data set
The work reported here is an application of the theory of focal points to
management decision making. The data set we used to identify focal points is
based upon evidence from 86 Russian managers, participating on the
International Managers Programs over the period 1993-97. Managers are aged
between 25-40. They have wide ranging business experience prior to coming on
the course. They are drawn from both large and small businesses. Many could be
classified as entrepreneurs. Examples of their industries include labour intensive
industries such as mining, building and construction through to fast evolving
industries such as computing, software houses, telecommunications, media and
advertising. Less than 10% of them have visited UK previously, although the
majority of them had business experience with at least one or more country
outside the Eastern block during the pervious five years. Although we have
evidence from Russian managers on programmes prior to 1993, and evidence
from number of case studies (Matthews/ Harry 1993), we have not included
them explicitly in our analysis, but we have taken them into account in our
commentary upon the results.
2.3 The simulation game
Our results are based on successive iterations of a simulation game TOPEXEC.
The game consists of 2 simulation years (ie 8 decision making processes). The
participants in each company receive nearly 1000 item of information about the
company on each run, and they have to make 20-30 decisions for subsequent
run. The simulation is subject to random shocks and noise from real macro
economic data which is fed into model. Decisions range over pricing, marketing
expenditures, research and development, stock control, financial reporting, and
loan management.
3 Focal points in russian management
We begin with two general observations that underlie the elements in the table
as a whole.
70
JEEMS 1/ 1998

Robin Matthews / Ara Yeghiazarian
i) A marked characteristic of the behaviour of Russian managers is that they
seem to perceive the market economy as a zero sum game, having fixed total
payoffs to be distributed among participants; in aggregate gains are seen as
being matched exactly by losses.
ii) Russian players of the game attempt to maximise profits, but this is carried
out as we might expect with bounded rationality (Simon 1982): they have
limited information and powers of calculation. Short time horizons are evidence
of rationality: discount rates that incorporate expected inflation and other risks
mean that longer term earnings can rationally be ignored. Also we note that as
expected inflation falls, so time horizons seem to lengthen. Competitive
advantage seems to be defined by Russian decision makers, not so much by
profitability (cost structures are higher), but by the leverage that market share
gives in setting prices.
In successive iterations of the game by the eight cohorts of Russian mangers we
observed a set of focal points that are summarised in Table 1.
Table 1: Focal points in Russian management decision making
Focal Point
Strength of clustering
MANAGERIAL GOALS
Bounded profit maximisation
Strong clustering
Perception of the market as a zero sum game Strong clustering
Positive utility for stocks
Short time horizons
Weak clustering
Strong clustering but adaptation over time as expected
inflation declines
COMPANY BEHAVIOUR
Rigid pricing
Limited arbitrage
Poor controls
Strong clustering
Strong clustering
Strong clustering
Considering the elements in Table 1 in some detail we list a number of findings.
(a) Generally prices are relatively high in Russian games. Games involving
Western players have lower prices, and consequently higher sales. However a
more important feature is the rigidity of prices.
(b) Russian companies in the simulation frequently lose sales through shortages
of finished goods, which could be rectified by exchange of stocks that exist
within the system at a given time. Among Russian firms, there are significant
differences in levels of stocks held, in terms of raw materials, work in progress,
and finished goods. Stock levels are relatively higher on average than in
Western games, but stocks are poorly distributed in terms of final customer
demand. There is marked reluctance by firms holding excess stocks to sell them
JEEMS 1/ 1998 71

Russian Management Style: A Game Theory Approach to Evaluating Decision Making
to other firms who are experiencing excess demand. For example in a typical
game we observe stocks increasing by more than 50% and prices as a whole
finished goods rising by 20%. We would normally expect the correlation to be
negative rather than positive, with prices of finished goods tending to be reduced
in the face of rising stock levels; as the table shows the relationship is
predominantly positive at the cumulative level. At the same time as some firms
are experiencing stock shortages, others have excess supplies [see Table 2].
(c) Another way of expressing the previous paragraph is to say that arbitrage
among Russian firms in the simulation is distinctly low. Russian managers tend
to see inter company trade as a zero sum game, and strategic alliances,
subcontracting, and even straightforward sales of stocks are excluded from their
decision set. The reason for this seems to be that the sale of scarce stocks will
simply result in the surrender of competitor advantage to rivals since in a zero
sum game there are no net overall gains to be made from such an exchange.
(d) Although unit costs of production are often higher, because of smaller
volumes of production, and excessively large stocks, overall profitability of
Russian games is relatively high in comparison to games played by Western
players. Low levels of price competition, together with price leadership by the
dominant firm, leads to the high price structure in Russian games.
As compared to a typical game played by UK and USA managers, the overall
result of Russian games is that their economy, defined by aggregate output of
their game, tends to be smaller, and economic efficiency, measured by consumer
surplus, tends to be lower. The average cost of finished goods is relatively high,
due not only to poor inventory policy noted above, but also to excessive
expenditures on marketing and under provision for research and development,
and maintenance. In their smaller economy, Russian teams end up with more
profitable companies operating with greater X inefficiency (Leibenstein 1966),
taking the form of higher unit costs, and lower asset utilisation.
The results of this section are summarised in Figure 1. Constant costs are
assumed for convenience, hence the supply curves MS and NS' are horizontal.
The vertical distance between the curves illustrates X inefficiency. Outputs in the
Russian game are smaller by the amount KB, and prices higher, by RP, than the
efficient market quantity price combination. Higher unit costs are represented by
NM. Area HGJ represents the additional loss of consumer surplus through
restricted output: in addition, area NMXT is lost through higher opportunity
costs of production.
72
JEEMS 1/ 1998

Table 2: Excess demand and supply at the firm and economy level 20
Company A Company B Company C
Year Quarter Period Price changes Stock changes Price changes Stock changes Price changes Stock changes
[P(t+1)-P(t)]/P(t) [Q(t+1)-Q(t)]/Q(t) [P(t+1)-P(t)]/P(t) [Q(t+1)-Q(t)]/Q(t) [P(t+1)-P(t)]/P(t) [Q(t+1)-Q(t)]/Q(t)
0 4 T(1) -1.22% 4.28% -0.24% 4.28% -2.68% 3.41%
1 1 T(2) -0.21% -0.56% -1.98% -3.18% 0.00% -4.60%
1 2 T(3) -3.76% 12.73% -1.18% -1.71% -0.74% 8.38%
1 3 T(4) -1.24% -1.35% -6.88% 5.74% -2.00% 6.21%
1 4 T(5) 8.35% 1.36% 12.83% -12.27% 7.25% -4.16%
2 1 T(6) -3.85% -23.78% 0.00% -33.74% 7.90% 32.53%
2 2 T(7) 2.61% 28.78% 5.97% 37.86% 0.00% 4.11%
2 3 T(8) 4.49% 19.33% 0.00% 5.89% -0.89% -33.15%
2 4 T(9)
Cumulative 5.17% 40.79% 8.52% 2.87% 8.83% 12.73%
Source: TOPEXEC results of Russian Managers Course Oct 1996
20 In the table P(t) denotes price per unit and Q(t) quantity of stock at the end of period t (t=1,…,8).
The impact of decisions about stocks does not become evident in the game until the end of year 0.

Russian Management Style: A Game Theory Approach to Evaluating Decision Making
Figure :1 Outcomes of the simulation illustrated
74
JEEMS 1/ 1998

Robin Matthews / Ara Yeghaizarian
JEEMS 1/ 1998 75

Russian Management Style: A Game Theory Approach to Evaluating Decision Making
simulation decision making in the Russian teams tends to be hierarchical, with a
leader rapidly emerging. The main criteria for leadership seem to rest upon
dominant character traits, rather than skills or aptitudes. Once the issue of
leadership is decided, decisions are more or less automatically agreed by all
members of the team. The leader’s decision tends not to be challenged when it is
seen to involve contentious issues. Good team players were viewed as those who
agreed with their leader rather that those who work well with the leader to reach
the right decision.
There are relatively few informal meetings among the Russian teams, and there
seems to be little attempt to make use of diverse skills in apportioning work.
Although the simulation produces too much data for one person to analyse, and
interpret alone, we find a significant reluctance to delegate, or to apportion tasks,
and trust subordinates. Instead of developing trust, and a dividing
responsibilities, all decisions seem to be discussed collectively, and decided
primarily as a result of character dominance.
Whilst all the elements discussed above may exist at the outset in games
between Western players, they are gradually eroded: in comparison we find that
hierarchical structures tend to be robust in Russian games, even when the team is
unsuccessful.
4 Concluding remarks
We have sufficient confidence in the existence of a mapping from the focal
points we have identified into actual managerial behaviour, to take account of
our conclusions and methodology in designing training programmes for Russian
managers. We attach most importance to the approach itself. The identification
of focal points provides a useful path to the understanding of management
culture and its significance for decision making.
The perception of markets as zero sum games suggests that the nature of markets
is not understood. Unless the perception is modified, it can become self fulfilling
prophesy, with managers refusing to trade, especially in stocks of goods and
work in progress, even when such trade is capable of producing mutual benefits.
Prices remain rigid in successive games in spite of evidence of substantial
excess supply or demand at the firm level.
By control we refer to the process of comparing current and recent performance
with plans. The importance given to business environment analysis and
accounting, especially management accounting, suggests that although the need
for them has been grasped, the significance of controls has not. Although
opportunities exist in the game to revise behaviour in response to information
about the consequences of past decisions, Russian managers are reluctant to take
76
JEEMS 1/ 1998

Robin Matthews / Ara Yeghaizarian
advantage of this by altering prices, engaging in arbitrage over stocks of goods,
or revising marketing and research and development expenditures, in the light of
evidence of shortfalls between aims and achievements.
The shock therapy model adopted by international institutions and accepted by
many Russian reformers involves the following elements (Sachs1995; 1994(a);
1994(b)): liberalising prices, and cutting subsidies; opening the economy to
international trade; privatisation and encouraging foreign direct investment;
trade led growth and democratic consolidation provided that they do not block
the therapy. A problem with such measures is that the drastic redistribution of
real income and wealth involved in the process, destabilises the economic
reforms that shock therapy is designed to promote, by engendering a feeling of
unfairness, and resistance to the market system itself.
The fundamental assumption of shock therapy is that the sudden shift in the
business environment that it brings, causes a change in the behaviour of decision
makers; it is assumed that the shock is sufficient to shift the focal points of
economic behaviour that have adjusted over the years to a command economy,
to the kind of (boundedly) rational behaviour that makes a market system work.
Focal points, at least in the short and medium term, are more autonomous than
the proponents of shock therapy assume. It takes time to adjust, and especially
since so much of the change that people experience involves redistribution of
income and wealth, it may be legitimate for decision makers to view the market
as a zero sum game, in which behaviour inherited from the past is still
appropriate.
We are struck by similarity as well as differences in the behaviour of managers
across cultures and national boundaries. In the same way as planned and market
economies form part of a continuum with market like planning (for example the
use of shadow prices within large organisations) and planning like markets (state
sponsored regulation, corporatism and industrial policy within market
economies), so differences between decision making behaviour by Russian and
Western managers are of degree rather than of kind. However the focal points
that we have identified, over the period 1993 to 1997 are sufficiently resilient to
withstand shocks and determine the nature of the market economy that emerges
in Russia.
5 References
Dietz, R. (1992): Ten Propositions Towards a Theory of Transformation; From Command to
Exchange Communication, in: Sandor Richter (ed): The transition from Command to
Market Economies in East-Central Europe, Westview Press, Oxford.
Dyker, D.A. (1992): Restructuring the Soviet Economy, Routledge, London.
Economist (1992): A Survey of Russia, December.
Economist Intelligence Unit, Russia: Country Profile, various issues.
JEEMS 1/ 1998 77

Russian Management Style: A Game Theory Approach to Evaluating Decision Making
Hicks, E./ Yeghiazarian, A./ Matthews, R. (1995): Culture And Decision Making Styles Of
Russian Managers: A Comparative Analysis, Frontiers in Economic Psycology
Proceeding of the 20th IAREP conference, Bergen.
Hayek, F.A. (1949): Individualism and Economic Order, Routledge and Keegan Paul,
London.
International Monetary Fund (1992): The Economy of the Former USSR in 1991,
Washington, D.C..
International Monetary Fund (1992): Common Issues and Interrepublic Relations in the
Former USSR, Washington D.C.
Kreps, D.M., (1987): Nash equilibrium, in: Eatwell, J./ Milgate, M./ Newman, P. (eds): The
New Palgrave: A Dictionary of Economics, Macmillan, London.
Kreps, D.M., (1990): Corporate Culture and Economic Theory, in: Alt, J. E./ Shepsle, K.A.:
Perspectives on Political Economy, Cambridge University Press.
Liebenstein, H., (1966): Allocative Efficiency vs. X-Efficiency, in: American Economic
Review, Vol. LVI.
Matthews, R./ Harry, K., (1993): The Russian Firm: Managing Chaos in Vladivostok, in:
European Business and Economic Development, Vol.2, Part 2.
Myerson, R.B. (1991): Game Theory: Analysis of Conflict, Harvard University Press,
London.
Nash, J. (1951): Non Cooperative Games, in: Annals of Mathematics, 54.
Porter. M. (1985): Competitive Advantage: Creating and Sustaining Superior Performance,
Collier Macmillan, London.
Roth, A.E./ Schoumaker, F. (1983): Expectations And Reputations In Bargaining, in:
American Economic Review 73, pp 362-372.
Sachs, J.D. et al (1995): Economic reform and the process of global integration, in:
Comments Brookings Papers on Economic Activity, Issue, 1.
Sachs, J.D. (1994a): The prospects for reform in Russia, in: Canadian Business Review, Vol:
21, Issue, 3.
Sachs, J.D./ Wyplosz, C. (1994): Too little, too late?, in: East European Markets, Vol: 14,
Issue, 2.
Sachs, J.D. (1994b): Russia's struggle with stabilization: Conceptual issues and evidence, in:
World Bank Research Observer, Annual Conference Supplement.
Schumpeter, J.A. (1942): Capitalism, Socialism and Democracy, George Allen and Unwin,
London.
Schelling. T. (1960): The strategy of Conflict, Harvard University Press.
Simon, H.A. (1982): Models of Bounded Rationality. 2 Vols, Cambridge Mass., MIT Press.
Varian, H. (1987): Measuring the Deadweight Costs of DVP and Rent Seeking Activities,
Mimeo, University of Michigan.
78
JEEMS 1/ 1998

Robin Matthews / Ara Yeghaizarian
JEEMS 1/ 1998 79

Book Reviews
Book Reviews
Heribert Warken: Unternehmenskontrolle und Finanzmärkte im
Transformationsprozeß Osteuropas aus Sicht der Principal-Agent-Theorie,
Josef Eul Verlag, Lohmar/ Köln 1997, DM 67,-
Der Titel dieser Schrift, die als Dissertation in Köln angenommen wurde, klingt
vielversprechend. In einer Zeit, in der Überlegungen naheliegen, warum der
Transformationsprozeß in den Staaten Osteuropas unterschiedlich weit
fortgeschritten ist, ist die Suche nach Erklärungsansätzen hierfür ein aktuelles
Thema. Der Rücktritt des Radikalreformers Václav Klaus in Tschechien im
Dezember 1997 und sein Hinweis auf Versäumnisse im Transformationsprozeß
lenken den Blick einmal mehr auf dieses Gebiet. Da liegt die Frage auf der
Hand, welche Bedeutung den Finanzmärkten und einer funktionierenden
Unternehmenskontrolle in diesem Zusammenhang zukommt. Liefern
ineffiziente Finanzmärkte und eine mangelnde Unternehmenskontrolle eine
Erklärung für den manchmal als zu langsam beklagten Produktivitätsfortschritt
und die Unterschiede im Transformationsprozeß?
In seiner Einführung klärt Autor Heribert Warken über das Ziel der Arbeit auf.
Der Schwerpunkt soll in “der Erarbeitung von Vorschlägen für die Gestaltung
der Rahmenbedingungen eines effizienten Unternehmensmanagements in
Osteuropa liegen.” An dieser Zielsetzung soll sich die Beurteilung der Arbeit
orientieren.
Warken beginnt seine Untersuchung mit einer Darstellung der
Systemtransformation in den einzelnen Ländern Osteuropas. Er betrachtet
makroökonomische Größen und kommt zu dem Schluß, daß die insgesamt noch
unbefriedigende wirtschaftliche Entwicklung auch auf ein funktionsuntüchtiges
Bankensystem zurückzuführen ist. Dementsprechend sieht er im Aufbau eines
funktionierenden Finanzsystems eine Grundlage für weiteres Wachstum. Im
folgenden Kapitel widmet sich der Autor den grundlegenden Überlegungen der
Principal-Agent-Theorie. Diese Überlegungen wendet er anschließend auf
Probleme der Unternehmenskontrolle an. Den Abschluß bildet ein Kapitel zur
Frage von Unternehmensfinanzierung und Kapitalmärkten im
Transformationsprozeß, in dem Warken Vor- und Nachteile bank- und
marktbasierter Finanzsysteme untersucht. Als bankbasierte oder bankdominierte
Systeme bezeichnet er dabei solche, in denen “die Kontrolle des Managements
durch Bankenvertreter stark beeinflußt wird.” (S. 74) Dies ist bedingt durch
Beteiligungen der Banken oder die Verwaltung der Stimmrechte für andere.
Demgegenüber sind marktbasierte Systeme “hauptsächlich dadurch
charakterisiert, daß die Kontrolle durch einen Markt (Wertpapiermarkt)
vollzogen wird.” (S. 75) Hier wird bereits ein Grundproblem dieser Arbeit
deutlich: Der Mangel an Sorgfalt. Warken läßt bei seiner Einteilung in bankund
marktbasierte Systeme Mischformen völlig außer acht. Die Tatsache, daß
80
JEEMS 1/ 1998

Book Reviews
auch bei Verwaltung der Depotstimmrechte durch ein Kreditinstitut
(bankbasiertes System), Unternehmensübernahmen und damit Kontrolle durch
den Markt möglich sind, wird vernachlässigt. Ebenso kümmert sich Warken
nicht um die Frage, daß Banken als die größten Kreditgeber auch dann
Einflußmöglichkeiten auf ihre Kreditnehmer haben, wenn sie weder über eine
Beteiligung an diesen noch Stimmrechte Dritter verfügen. Eine weitere
Möglichkeit der Unternehmenskontrolle wird überhaupt nicht diskutiert: Die
Kontrolle durch einen einzelnen Großaktionär - in Transformationsstaaten mit
ihrem Mangel an Kapital insbesondere ein ausländisches Industrieunternehmen.
Jedoch zur Kritik im Detail: An der allgemein gehaltenen und den meisten
Lesern nicht neuen Darstellung des Transformationsprozesses in Osteuropa im
zweiten Kapitel der Arbeit ist im großen und ganzen nichts auszusetzen. Die
Frage lautet nur: Wo ist der Zusammenhang zur übergeordneten Fragestellung
der Dissertation? Für die Frage der Unternehmenskontrolle scheint diese
Ausführlichkeit der rein beschreibenden Darstellung unnötig. Ärgerlich ist
zudem, daß sich der Autor in seiner Gesamtbeurteilung des
Transformationsprozesses zu unangebrachten Werturteilen hinreißen läßt. Die in
dem Teilsatz “Überzogene Lohnforderungen und eine zu schnelle Ausweitung
der sozialen Komponente” (S. 39) enthaltene Bemerkung zur Lohnentwicklung
hat wohl nichts mit dem engeren Thema zu tun. Im dritten Kapitel wünscht sich
der Leser dagegen etwas mehr an Information. Geht es hier doch um die
“Principal-Agent-Beziehung in der Plan- und Marktwirtschaft” und der
Transformation. Diese zentralen Inhalte werden auf gerade mal gut fünf Seiten
abgehandelt. Das folgende vierte Kapitel zu “Corporate Control aus Sicht der
Principal-Agent-Theorie” liefert noch immer nicht die gewünschten neuen
Erkenntnisse. Eine knappere Darstellung der bekannten Themen im Text mit
mehr Literaturhinweisen in den Fußnoten hätte den besseren Eindruck
hinterlassen. Zumal die Präsentation nicht als gelungen betrachtet werden kann:
Es wird zweifellos Stirnrunzeln beim Leser verursachen, wenn behauptet wird,
es “muß ein neues Zentralbankensystem geschaffen werden, welches die
Währung sichert, ..., die reibungslose Abwicklung des Zahlungsverkehrs
gewährleistet, ... und ein funktionsfähiges Geschäftsbankensystem etabliert.” (S.
65) Oder wenn der Autor ein “gerechtes Steuersystem” fordert “welches den
Unternehmen einerseits als feste Kalkulationsgrundlage bei der Ermittlung des
Absatzpreises dient und andererseits ... Unternehmensgewinne nicht bereits so
hoch besteuert, daß der Gewinnanreiz ... im Keim erstickt wird.” (S. 68) In
einem anderen Abschnitt weist der Autor mit Recht darauf hin, daß die Gefahr
der Unternehmensübernahme bei ineffizienter Ressourcenverwendung und der
damit oft verbundene Austausch der Unternehmensführung die Manager dazu
anhält, nur Investitionen zu tätigen, die den Aktienkurs hoch halten.
Unwidersprochen mag so mancher Leser wohl nicht hinnehmen, wenn es in
diesem Zusammenhang heißt: “Somit können Manager, um einen langfristigen
Erfolg sicherzustellen, keine kurzfristigen Verluste mehr in Kauf nehmen.
JEEMS 1/ 1998 81

Book Reviews
Langfristige Investitionen würden dann nicht mehr getätigt.” (S. 76) Vom
positiven Einfluß langfristig rentabler Projekte auf den Aktienkurs, die
kurzfristig zu Bilanzverlusten führen, scheint Warken noch nie gehört zu haben.
Derlei gewagte Thesen lassen sich überall in der Arbeit finden. Diese
inhaltlichen Schwächen legen die Vermutung nahe, daß hier schnell ein Werk
beendet werden sollte. Diese Hast bei der Erstellung der Arbeit läßt sich auch an
anderer Stelle wiederfinden. So schreibt Warken ständig “Akerhof” (S. 121 und
im Literaturverzeichnis S. 186) und meint damit den Wissenschaftler George
Akerlof.
Die Schlußbemerkung soll die Ergebnisse der Arbeit zusammenfassen. Dem
oben genannten Ziel, “der Erarbeitung von Vorschlägen für die Gestaltung der
Rahmenbedingungen eines effizienten Unternehmensmanagements” wird sie
nicht gerecht. Die Handlungsempfehlungen ähneln in ihrer normativen Art eher
dem Kommentar eines besserwissenden Journalisten in einer Tageszeitung als
wissenschaftlich fundierter Politikberatung. Weltbewegende Erkenntnisse
werden hier ohnehin nicht präsentiert. Symptomatisch für die ganze Arbeit
scheint neben Mengen an Tipp- und Rechtschreibfehlern das
Abkürzungsverzeichnis zu sein: Hier wird gleich zweimal erläutert, was “bzw.”
und “z. Bsp.” bedeuten, während für die Europäische Entwicklungsbank die
falsche Abkürzung EIB angegeben wird.
Fazit: Von der Lektüre des Buches ist abzuraten.
Winfried Liedtke, Lehrstuhl Finanzwirtschaft und Bankbetriebslehre, TU
Chemnitz
•••
Mariano R. Viola: Reputationsbildung und Auslandskapital: Entwicklung der
Transformationsländer Ungarn und Polen, Gabler Verlag, Deutscher Universitä
tsVerlag, Wiesbaden 1996
Die seit dem Ende der 80-er Jahre ablaufenden revolutionären gesellschaftlichen
und wirtschaftlichen Änderungen in den ex-sozialistischen Ländern berührten
mehr oder minder alle mittel- und osteuropäischen Bürger. Die Veränderungen
in der Wirtschaft und dem persönlichen Leben der Leute vollziehen sich bis
heute, der Beginn und die ersten Jahren der Wende gelten aber immer mehr als
Vergangenheit und Geschichte. Viele Politiker, Theoretiker und praktische
Fachmänner versuchten in vielen Dimensionen, die Ereignisse und das
Geschehen des Transformationsprozeßes in den Staaten des ehemaligen
sozialistischen Blockes zu interpretieren, zu erklären.
82
JEEMS 1/ 1998

Book Reviews
Mariano R. Viola tut das in dem auf seiner Dissertation basierenden Buch „
Reputationsbildung und Auslandskapital: Entwicklung der Transformationslä
nder Ungarn und Polen” in spezifischer und sehr interessanter Weise. Die
Analyse bezieht sich auf zwei Länder und die Jahren 1990-94. Die
Grundgedanken können aber auch derzeit und in anderen Staaten dieses Teils
Europas gültig - und beherzenswert sein.
Die Begriffe Reputation und Kapital bestimmen die Leitfaden der Arbeit. Nach
der Anfangshypothese und der zentralen Behauptung des Buches kommt „der
Reputation eines Landes bei der Gewinnung von Kapital für seine interne
Entwicklung und sein Wachstum große Bedeutung” zu (1.). In der Dissertation
zeigen sich die beiden Länder als bewußte und zielstrebige Beteiligte der
Transformation: der Autor präsentiert neben der Theorie - die Modellierung der
Reputation wird von den beiden Disziplinen Vertragstheorie und Spieltheorie
verwirklicht - reiches empirisches Material welches zeigt, wie und wieviel
Ungarn und Polen in ihre Reputation investiert hatten, und wie die auslä
ndischen Investoren darauf reagierten.
Das erste Kapitel formuliert den theoretischen Rahmen für Reputationsbildung.
Zuerst geht es um die Investitionsumgebung, um die makroökonomischen und
die mikroökonomischen Risikofaktoren der Länder. Nach den in dem Buch
zitierten Forschungen waren die Investoren hinsichtlich des Risikoniveaus
damals der Meinung, daß Ungarn im allgemeinen weniger riskant sei als Polen.
Aus den Umfragen stellte sich heraus, daß das größte Hindernis für ausländische
Investoren in den beiden Ländern die komplizierten bürokratischen Vorschriften
zur Gewerbeanmeldung waren. Das Kapitel erklärt auf diesem Basis auch,
welche Maßnahmen bei den gegebenen Risikofaktoren für Investitionen
notwendig sind. Das Hauptziel ist es, die Ungewißheit mit Hilfe von impliziten
bzw. expliziten Verträgen zu reduzieren (die Vertragsungewißheit zu
vermeiden) und die Transaktionskosten zu minimieren. Die Reputation spielt
eine wichtige Rolle zur Verhinderung von Vertragsverletzungen. Zur Senkung
der ex ante Transaktionskosten war es laut der Empfehlung zum Beispiel
dringend erforderlich, daß Ungarn und Polen die Quantität und Qualität der
Datenerhebung verbessern und diese den Investoren zugänglich machen.
Der Autor stellt uns die Stabilisierungsprogramme von Ungarn und Polen als
Strategien zur Vertrauensbildendung dar, und stellt fest, daß diese erfolgreich
waren - demzufolge gewannen die Länder das Vertrauen von Investoren und
Kreditgebern. Am Ende des Kapitals zeigt der Autor die Zusammenhänge
zwischen der Reputation und strategischem Verhalten auf, und erklärt, wie die
Reputation mit Hilfe der Spieltheorie modelliert werden kann.
Ungarn und Polen stöhnten Ende der 80-er Jahre schon unter einem sehr hohen
Schuldenstand. Das zweite Kapitel untersucht, wie die beiden Länder ihre
Glaubwürdigkeit auf den Schuldenmärkten verbessern konnten. Wir lernen die
JEEMS 1/ 1998 83

Book Reviews
Entwicklung des Schuldenstandes, die Liquiditäts- und die Solvenzlage von Jahr
zu Jahr sowie die Strategien und Maßnahmen der Staaten genau kennen.
Nach der Behauptung des Autors ist es Ungarn gelungen, einen im Vergleich zu
anderen osteuropäischen Ländern eindeutig besseren Zugang zu den auslä
ndischen Kapitalmärkten zu erreichen. Viola entwickelt ein Modell für den
Aufbau der Rückzahlungsreputation für Ungarn, bzw. erklärt, wie die Banken
und die institutionellen Investoren auf Ungarns Anstrengungen reagiert haben.
Polen hat einen anderen Weg beschritten, und hat neben der Umsetzung eines
Stabilisierungsprogrammes mit einer erfolgreichen Umschuldung seine
Glaubwürdigkeit zurückgewonnen. Die Teilnehmer werden auch hier in einen
spieltheoretischen Rahmen eingesetzt.
Das dritte Kapitel stellt die Reaktionen der Investoren auf die ungarischen und
polnischen Reformmaßnahmen dar. Zuerst werden die möglichen Formen der
ausländischen Direktinvestitionen präsentiert, dann werden die tatsächlichen
Motive der in Ungarn und in Polen tätigen Investoren und die Verteilung der
durchgeführten Investitionen gezeigt. Der Autor analysiert die Vor- und
Nachteile des oft bevorzugten Joint Ventures als Eigentumsform.
Unter Enteignungsrisiko wird das Risiko der Verstaatlichung, der
unerwartenden Änderungen der Steuersätze und der Devisenkontrolle
verstanden. In Ungarn und Polen war das Gewinnabführungsrisiko und die
Gefahr, daß der Staat in die Unternehmensplanung- und entscheidungen
interveniert, besonders hoch. Nach der Untersuchung des Enteignungsprozesses
und der Direktinvestitionen präsentiert Viola ein Enteignungsspiel, wo mit Hilfe
eines Reputationmodelles die endogenen Komponenten des Enteignungsrisikos
analysiert werden.
In dem vierten Kapitel wird vor allem auf die Bedeutung der impliziten Verträge
zwischen den Investoren und den Agenten der privatisierten Unternehmen
eingegangen. Nach der Analyse der Verknüpfungen des Staates und der auslä
ndischen Investoren sowie des Tempos, des Umfanges und der Kontrolle der
Transformation des staatlichen Vermögens in den beiden Ländern, geht es um
die strukturellen Probleme: die Schwierigkeiten bei der Bewertung von Staatsunternehmen,
die Mängel in der Corporate Governance während der spontanen
Privatisierungsperiode in Ungarn und Polen, die Anreize und das ineffiziente
strategische Verhalten des Managements und der Gewerkschaften in den
Unternehmen. Daran anschließend wird untersucht, auf welcher Weise die
Anreizsysteme im Rahmen impliziter Verträge zu effizienterem Verhalten der
Manager und der Gewerkschaften führen können. Der ausgewählte Verstä
rkungsmechnismus ist die Drohung der Eigentümer, die Manager und die
Arbeitnehmer zu entlassen, wenn sie gegen den Interessen der Inhaber oder der
Firma verstoßen. Der Autor präsentiert ein Entlassungsspiel, das den
Reputationsverlust der Manager und Arbeiter auf dem Arbeitsmarkt modelliert.
84
JEEMS 1/ 1998

Book Reviews
Der effiziente Bankensektor ist eine wichtige Voraussetzung für die
Glaubwürdigkeit eines Staates auf den Kapitalmärkten. Das letzte Kapitel besch
äftigt sich deshalb mit den Problemen des Bankensystems, bzw. damit, wie die
Reputation zu einem effizienteren Bankensektor führen kann. Was die
strukturellen Probleme in den beiden Länden betrifft, hebt der Autor die hohe
Konzentration der Einlage- und Kreditmärkte, die starke Segmentierung und die
Solvenzprobleme, die durch die hohe Anzahl der uneinbringlichen Forderungen
verursacht wurden, hervor. Unter den systemischen Problemen werden die
schwachen Anreizstrukturen, die die Banken dazu veranlassen, sich als Glä
ubiger passiv zu verhalten, und der Rückgang der Rentabilität der Banken in
Ungarn und Polen erwähnt und analysiert. Viola zeigt, mit welchen Maßnahmen
und Strategien Ungarn („der zentralisierte Ansatz”) und Polen („der
dezentralisierte Ansatz”) ihre Banken umstrukturiert und privatisiert haben. In
dem letzten Abschnitt des fünften Kapitels des Buches spielt wieder die
Reputation als verstärkender Mechanismus die Hauptrolle: zuerst stellt ein
Modell (Bankenschließungsspiel) dar, wie die Reputation des Staates als eine
strenge Aufsichtsbehörde das Management der Banken beeinflußt, dann wird die
Auswirkung der Reputation, die Glaubwürdigkeit der Schließungsdrohung des
Staates untersucht.
Die Arbeit von Mariano R.Viola „beleuchtet die zentralen Probleme des
Transformationsprozeßes und der Kapitalbildung bzw. Kapitalattraktion”, und
ihr „kommt exemplarischer Charakter zu” - schreibt Professor Dr. Dr. h.c.
Joachim Starbatty, der Doktorvater des Autors, am Anfang des Buches in
seinem Geleitwort.
László Lázár, Lehrstuhl für Führung und Organisation, Wirtschaftsuniversität
Budapest
JEEMS 1/ 1998 85

News / Information
News / Information
13. Leipziger Weltwirtschaftsseminar
Das 13. Leipziger Weltwirtschaftsseminar, zu dem das Zentrum für
Internationale Wirtschaftsbeziehungen für den 27. und 28. November 1997 an
die Universität Leipzig eingeladen hatte, stand unter dem Thema Mittel- und
Osteuropa als Produktionsstandort und Absatzmarkt für Westeuropa.
Den Auftakt zur ersten Session "Produktionsverlagerungen von West- nach
Osteuropa" gab Hubert Gabrisch (Institut für Wirtschaftsforschung Halle).
Gabrisch betrachtet das rasche Anwachsen der Produktionsverlagerungen aus
Deutschland und den EU-Ländern nach MOE als Teil des allgemeinen
Globalisierungsprozesses. Anlaß zur Sorge gebe aber, daß der Kapitalfluß in
diese Länder weit hinter den ursprünglichen Prognosen zurückgeblieben ist und
die Gefahr besteht, daß sich die MOE-Länder trotz liberalisiertem
Kapitalverkehr in der Falle arbeitsintensiver Produktion gefangen finden. Toni
Philipp (Verbundnetz Gas AG, Leipzig) sprach über den Privatisierungsprozeß
der Energie- bzw. der Gaswirtschaft in Mittel- und Osteuropa, der in den
meisten Ländern langwierig verläuft. Da aus politischen oder
wirtschaftspolitischen Gründen bisher keine kostendeckenden Energiepreise
bestehen, dienten die Direktinvestitionen vorrangig der Einflußsicherung auf
einem zukünftigen Wachstumsmarkt. Mit der raschen Ausweitung des Passiven
Lohnveredlungsverkehrs zwischen Mittel- und Osteuropa und den EU-Ländern
befaßte sich Uta Möbius (Deutsches Institut für Wirtschaftsforschung Berlin).
Der Löwenanteil des westeuropäischen wie auch des deutschen
Lohnveredelungsverkehrs entfällt auf die Textil- und Bekleidungsindustrie, was
nicht zuletzt durch die handelspolitische Begünstigung der westeuropäischen
Textil- und Bekleidungsindustrie (Ursprungsregeln, Quoten in den Europa-
Abkommen) erklärt wird. Ca.
20 % der Lohnveredelung der deutschen Textil- und Bekleidungsindustrie
stammen laut Umfragen inzwischen bereits aus eigenen Betrieben in den
entsprechenden Ländern. In der Session "Handelsströme und Handelsstruktur
zwischen dem westeuropäischen Wirtschaftsraum und den MOE-Ländern"
untersuchte Klaus Werner (Institut für Wirtschaftsforschung Halle) die Exporte
der mitteleuropäischen Länder nach Westeuropa seit 1990. Zwar gelang es
diesen Ländern, ihren Handel binnen kürzester Zeit auf den westeuropäischen
Absatzmarkt umzuorientieren und dabei andere, meist außereuropäische
Anbieter zu verdrängen. Bisher konnte aber nur Ungarn das bisherige Muster
der internationalen Arbeitsteilung, das durch ein niedriges Technologieniveau
und durch Erzeugnisse mit hoher Ressourcen- und Arbeitsintensität in den
MOE-Ländern gekennzeichnet war, deutlich verbessern. Matthias Lücke
(Institut für Weltwirtschaft Kiel) wies anhand ökonometrischer Modelle nach,
86
JEEMS 1/ 1998

News / Information
daß das Handelswachstum, daß sich aus der Transformation und der
Umorientierung der ehemaligen RGW-Länder ergeben hatte, inzwischen
weitgehend erschöpft sei. Ein weiteres Wachstum der deutschen Exporte könne
nur als Folge aufholenden Wirtschaftswachstums erwartet werden, sei allerdings
wegen der niedrigen gesamtwirtschaftlichen Investitionsquoten in den
Transformationsländern nicht übermäßig hoch zu veranschlagen. In der Session
"Perspektiven der wirtschaftlichen Zusammenarbeit der EU mit den MOE-
Ländern" analysierte Tomas Kalinowski (Danziger Institut für Marktwirtschaft)
Entwicklung und regionale Verteilung der ausländischen Direktinvestitionen in
Polen. Bevorzugte Standorte sind außer Warschau immer noch traditionelle
Wachstumszentren, wie Kraków, Wroclaw, Katowice, Lodz. Der vor zwei
Jahren gestartete Versuch einer Investitionslenkung mittels
Sonderwirtschaftszonen könne bisher noch nicht zuverlässig beurteilt werden.
Andrea Szalavetz (Institut für Weltwirtschaft Budapest) untersuchte die Rolle
von Produktionsverlagerungen westlicher Unternehmen für die Modernisierung
der ungarischen Volkswirtschaft. Westliche Produktionsverlagerungen sichern
zwar eine rasche und umfassende technologische Erneuerung in den
ungarischen Tochterunternehmen und einen problemlosen Absatz in
Westeuropa, reduzieren die Tochterunternehmen allerdings sehr häufig auf eine
Zulieferrolle. Die Auswirkungen der wirtschaftlichen Zusammenarbeit mit
Mittel- und Osteuropa auf den deutschen und westeuropäischen Arbeitsmarkt
diskutierte Dieter Schumacher (Deutsches Institut für Wirtschaftsforschung,
Berlin). Dem tendenziellen Absinken der Löhne und tendenziellen Ansteigen
der Arbeitslosigkeit in den arbeitsintensiven Industrien Westeuropas stehen
dauerhafte Erträge in den humankapitalintensiven Sektoren gegenüber, so daß
die EU-Länder grundsätzlich in der Lage sein müßten, diesen Strukturwandel zu
bewältigen. Waltraut Urban (Wiener Institut für Internationale
Wirtschaftsvergleiche) wies nach, daß seit 1993 in der Branchenstruktur der
MOE-Länder die Spezalisierungsmuster aus der RGW-Zeit allmählich abgelöst
werden durch die Einbindung in eine umfassendere internationale
Arbeitsteilung. Dabei sanken außer in Rumänien überraschenderweise auch die
Anteile der arbeitsintensiven Textil- und Bekleidungsindustrie.
In der lebhaft geführten, vom Veranstalter Meinhard Miegel immer wieder
bewußt auf die strittigen Punkte gelenkten Diskussion war man sich über die
Vorteile der bisherigen wirtschaftlichen Zusammenarbeit für die EU-Länder und
insbesondere Deutschland nahezu einig. Dagegen wurden die Ergebnisse,
besonders aber die Prognosen für die mittel- und osteuropäischen Länder eher
kontrovers diskutiert. Vorherrschend blieb dabei die Besorgnis über die
steigenden Handelsbilanzdefizite, ungünstige, sich kaum verbessernde
Handelsstrukturen, ungenügende Kapitalzufuhr und die nur langsame
Restrukturierung der Industrie. Wie schon in den vergangenen Jahren erwies
sich das Seminar als ein streitbares Forum, auf dem unterschiedliche
wirtschaftstheoretische Ansätze, ostmitteleuropäische und westeuropäische
JEEMS 1/ 1998 87

News / Information
Perspektiven, aber auch die Einsichten von Wirtschaftspraktikern in einen
anregenden Dialog mündeten. Die Konferenzmaterialien erscheinen 1998 im
Band 8 der Reihe "Transformation. Leipziger Beiträge zu Wirtschaft und
Gesellschaft”.
Cornelia Kunze, Zentrum für Internationale Wirtschaftsbeziehungen,
Universität Leipzig
•••
Summer University in Budapest
As a part of the CEU Summer University in July in Budapest, there will be a
special course on Ethics of Capitalism directed by Laszlo Zsolanai, Business
Ethics Center, Budapest University of Economic Sciences.
The summer course is focusing on the moral foundation of capitalism in the
context of the late 20th century realities. The legitimacy of purely profit-seeking
activities has been questioned on various ground.
The stakeholder theory is central in examining the issue. The main message of
the theory is that in corporate and public policy-making every individual, group
or organisation, which can be affected by the policy, should be respected but
also their moral rights. Corporate decision makers and public administrators
have primary duties and obligations concerning the well-being of their
stakeholders. Hence the ideal of Kantian capitalism emerges.
To discuss the moral foundation of capitalism is especially important in Central
and Eastern Europe where the legitimacy of the market economy is weak and
vulnerable: Privatisation and restitution schemes have presented difficult social
and ethic issues. The trade-off between economic efficiency and social security
produces hard choices for politicians and business managers day by day. The
success of the economic transition in the region depends not only on material
pay-offs for the people but also on the social and ethical acceptability of the
transforming process.
The goal of the course is to get together leading scholars from the USA and
Europe for providing a fair picture about the new directions of capitalism and its
relevance and applicability in Central and Eastern Europe.
The deadline for application for the course was February 1, 1998.
For further information please contact:
CEU Summer University, Nador u. 9, Budapest, Hungary
Tel.: +361 327 3069, Fax: +361 327 3124, Email: summeru@ceu.hu
88
JEEMS 1/ 1998

News / Information
BUCKINGHAMSHIRE BUSINESS SCHOOL
Centre for Research into East European Business
-CREEB-
FOURTH ANNUAL CONFERENCE
23 and 24 June 1998
Convergence or Divergence: Aspirations and Reality in Central and
Eastern Europe and Russia
CALL FOR PAPERS
The scope of the conference will combine keynote speakers, paper and poster presentation,
discussion, etc. The themes will include:
Socio-economic convergence/ divergence
Benchmarking: aspiration and reality
Institutional transformation
Ownership and governance
Management development
Research issues: philosophy, methodology and practice.
Venue: Newiend Park, Chaffont St Gifes, Bucks, UK
Abstracts of proposed papers should be submitted by Monday, 23 February 1998
Completed papers for publication in the conference proceedings must be submitted by
Monday, 18 May 1998
Conference fee (including accommodation, meals and conference proceedings): £140
(research students: £85) Non-residental fee: £110 (research students: £65)
For further details, contact:
Margaret Levell
CREEB, Buckinghamshire Business School, Buckinghamshire University Collage
Newland Park, Goreland Lane, Chalfont St Giles, Bucks, HP8 4AD, UK
Phone: +44 1494 603159 Fax. +44 1494 874230
e-mail: creeb@buckscol.ac.uk http://www.bucksol.ac.uk
JEEMS 1/ 1998 89

News / Information
Center for East European Studies (CEES) - Copenhagen Business School (CBS)
INTERNATIONAL WORKSHOP:
”Transition and Enterprise Restructuring in Eastern Europe”
Call for Papers
The international workshop will be held in Copenhagen in Denmark, August 20-22, 1998
The following themes will be discussed at the workshop:
Corporate Governance:
privatization and the establishment of a market based system of corporate governance
comparison of different ownership structures and institutional environment (legislation,
financial institutions etc.)
evolution of ownership pattern over time and its implications
Internationalization of Business:
entry of foreign investors
alternative forms of international cooperation
access to international production networks and markets
Management in transition:
organizational change
change in management methods
development of key functions such as marketing, accounting, finance, HRM etc.
strategic repositioning and entry into new markets
Deadlines: Abstracts of proposed papers should be submitted by April 1, 1998.
Completed papers for publication in the workshop proceedings (together with
disk) must be submitted by August 1, 1998.
Workshop fee: The workshop fee (including meals and workshop proceedings):
1.000 DKK (approximately 150 US$).
For further information, please contact:
Administrator Christina Pind, or Associate Professor Niels Mygind
Center for East European Studies, Copenhagen Business School
Dalgas Have 15, DK-2000 Frederiksberg, Denmark
Phone: +45 3815 3030; Fax +45 3815 3037, Email:cp.cees@cbs.dk,
http://www.econ.cbs.dk/institutes/cees
90
JEEMS 1/ 1998

News / Information
The International Economic Relations Department and The Scientific Research
Institute at D.Tsenov Academy of Economics in Svishtov
International scientific conference on:
INTERNATIONALIZATION AND GLOBALIZATION OF BUSINESS
(Emerging Markets)
Call for papers
May 18 - 19, 1998, Svishtov, Bulgaria
TOPIC AREAS:
1. Theories of International Business Development (including transition
economies)
2. International Marketing in the Emerging and Dynamic Markets
3. International Corporate Finance
4. Formal and Informal Networks in International Business
5. Civilization, Culture and Business Systems
6. Strategic Alliances between Companies in Developed and Emerging Markets
7. Internationalization and Small Business Development
PAPERS: The conference committee wishes to invite you to send a short
description of your intended presentation on the topics of the conference. Two
unpaged lazer print-outs of abstracts of papers, max.5 standard pages, plus a
disk (Word for Windows) should be sent by April 1, 1998.
Fees for attendance and accommodation: There are no fees for attending the
Conference. Participants will be staying at the University Hotel and will pay for
lodging and meals.
Deadline for submission: March 1, 1998.
For further information, please contact:
Conference Committee
International Economic Relations Department, D.Tsenov Academy of
Economics
2 E. Chakarov st., 5250 Svishtov, Bulgaria
Tel: (++359631) 24978, E-mail: uircomm@comm.uni-svishtov.bg
JEEMS 1/ 1998 91

News / Information
Further workshops and conferences in 1998:
Center for Eastern European Studies at the Copenhagen Business School
"Transition and Enterprise Restructuring in Eastern Europe"
we expect to focus on three areas:
Corporate Governance,
Internationalization of Business
Management in Transition.
Date: August 20-22, 1998.
Deadline for submission of abstracts: April 1, 1998
For further details please contact:
Christina Pind, Email: cp.cees@cbs.dk
5th conference of the European Association for
Comparative Economic Studies
Economists and related academics focusing on transition economies are meeting
in September at the Bulgarian sea resort of Varna.
Date: 10.-12.9.
Deadline for submission of abstracts: March 1st
For further details please contact:
Xavier Richet at Universite Marne la Vallee, Email: richet@univ-mlv.fr..
The annual Vienna conference on
"Marketing Strategies for Central & Eastern Europe”
Date: December 2 to 4, 1998 Vienna, Austria
For further details please contact:
Prof. Dr. Reiner Springer, Wirtschaftsuniversität Wien, Althanstr. 51, 1090
Wien, Austria,
Phone: + 43-1-313 36/4371, FAX: + 43-1-313 36/751,
Email:springer@isis.wu-wien.ac.at
92
JEEMS 1/ 1998

News / Information
Prof. Dr. Petr Chadraba, DePaul University, Chicago,
Email: pchadrab@wppost.depaul.edu.
IV CHEMNITZ EAST FORUM
Business Ethics in Central and Eastern Europe
This international conference will be organized from March 3-5, 1999, by the Faculty of
Economics and Business Administration, Chemnitz University of Technology. Scientists as
well as practitioners are invited to share their experiences. Empirical and conceptual
submissions are welcome on a wide variety of topics, such as
general problems of business ethics in the transformation process (e.g. legal structures,
traditional values, business criminality, public opinion on ethics, institutional forms of
business ethics),
ethical basis of corporate culture in CEE countries (e.g. ethical aspects of corporate
governance, consequences for industrial relations, ethical activities and practices),
Entrepreneurship: ethical values and attitudes,
ethical issues in East-West co-operation (e.g. forms of co-operation and their
consequences, processes of market entry decisions).
The conference languages are English and German. The deadline for abstract submission is
August 31, 1998; full papers will be due November 30, 1998.
For more information please contact: Prof. Rainhart Lang, Chemnitz University of
Technology, Faculty of Economics and Business Administration, P.O. Box 964, 09107
Chemnitz, Germany. Phone: +49-371-531 41 52; fax +49-371-531 39 87; Email:
R.Lang@wirtschaft.tu-chemnitz.de.
IV. CHEMNITZER OSTFORUM
Wirtschaftsethik in Mittel- und Osteuropa
Die Konferenz wird von der Fakultät für Wirtschaftswissenschaften der Technischen
Universität Chemnitz organisiert. Sie findet vom 3. bis 5. März 1999 in Chemnitz statt.
Wissenschaftler wie Praktiker sind zum Erfahrungsaustausch eingeladen. Theoretische und
Empirische Beiträge sollten sich mit folgenden Themen befassen:
Wirtschaftsethik im Transformationsprozeß (z.B. Rechtsstruktur, Traditionelle Werte,
Wirtschaftskriminalität, Institutionelle Formen der Wirtschaftsethik),
Ethische Grundlagen von Unternehmenskultur in Mittel- und Osteuropa (z.B. Ethische
Aspekte der Unternehmenskontrolle, Konsequenzen für die industriellen Beziehungen,
Ethisch orientierte Handlungen und Praktiken),
Unternehmertum: Ethische Werte und Einstellungen,
Ethische Probleme von Ost-West Kooperationen (z.B. Formen der Kooperation und ihre
Konsequenzen, Entscheidungsprozesse bezüglich des Markteintritts).
Die Konferenzsprachen sind Englisch und Deutsch. Abstracts sind bis zum 31. August 1998,
die vollständigen Beiträge bis zum 30. November 1998 einzureichen.
JEEMS 1/ 1998 93

News / Information
Weitere Informationen erhalten Sie von: Prof. Rainhart Lang, Technische Universität
Chemnitz, Fakultät für Wirtschaftswissenschaften, PSF.: 964, 09107 Chemnitz, Deutschland.
Tel.: +49 371 531 4152; Fax: +49 371 531 3987; Email: R.Lang@wirtschaft.tu-chemnitz.de.
Pin-Board
Belarus: Message from Juri Starenkov:
Erlauben Sie uns, Ihnen unsere Organisation vorzustellen. Sie heißt
“Gesellschaft der Wissenschaftler und Erfinder der Republik ‘Weißrußland’ und
besteht seit Anfang 1997. Wir befassen uns mit der Entwicklung von neuen
Technologien in verschiedenen Bereichen der Wissenschaft und Technik.
Außerdem vertreten wir die Interessen der Wissenschaftler, die Mitglieder
unserer Organisation sind.
Zur Zeit suchen wir eine Partnerorganisation zur Organisation eines Seminars
zum Thema: “Intellektuelles Eigentum bei der Lösung von wissenschaftlichen,
technischen, ökologischen und wirtschaftlichen Problemen der modernen Welt”.
Das Seminar wird in Minsk (Weißrußland) durchgeführt. Die Finanzierung des
Seminars erfolgt über das TACIS- Programm.
Für weitere Informationen wenden Sie sich bitte an:
Juri Starenkov, Postfach 6, 220018 Minsk, Weißrußland,
Tel.: +375-017 254-45-27, Fax: +375-017 258-69-67, Email: star@cit.org.by
New working papers published by the Center for East European Studies:
No. 9, January 1998: Snejina Michailova / Graham Hollinshead: Developments
in the Management of Human Resources in Eastern Europe - The Case of
Bulgaria
No. 10, February 1998: Klaus Meyer / Inger Bjerg Møller: Managing Deep
Restructuring: Danish Experiences in Eastern Germany
No. 11, February 1998: Patrick Arens: Strategic Decision Making in the
Transitional Economy of Romania: The Case of TAMIV S.A.
Denmark: Message from Klaus Meyer:
The Thunderbird International Business Review has announced a special issue
on "Economic Transition in Central and Eastern Europe: A Decade of Change".
For further Information or submission please contact the special issue editors:
Professors Michael Czinkota and Ilkka Ronkainen at Georgetown University
Email: czinkotam@gunet.georgetown.edu / ronkaii@gunet.georgetown.edu
94
JEEMS 1/ 1998

Column
Qualität managen - eine erstrangige Führungsaufgabe
Höchste Produkt- und Dienstleistungsqualität ist weltweit für die Unternehmen
zum Wettbewerbsfaktor Nr. 1 geworden. Qualität entsteht aber nicht im
Selbstlauf, Qualität muß gemanagt werden. Darüber ist schon viel geschrieben
und gesprochen worden. Nach wie vor tun sich aber auch die ehemaligen
Lehrmeister in Sachen Qualität - die deutschen Unternehmen - schwer, den
internationalen Höchststand auf diesem Gebiet wieder zu erreichen. Über viele
Jahre erzielte Erfolge haben selbstzufrieden gemacht. Und Selbstzufriedenheit
ist bekanntlich kein Ansporn für Höchstleistungen. Wer zu den Weltmeistern in
puncto Qualität gehören will, muß fleißig trainieren, um “Medaillenruhm” zu
erringen.
Die jungen MOE- und NUS-Staaten, die sich gegenwärtig in einem
komplizierten Transformationsprozeß von der Planwirtschaft zu einer
marktorientierten Wirtschaft befinden, sind dabei, die Kunden wieder als
Maßstab für unternehmerisches Handeln zu entdecken. Aber dieser Prozeß ist
sehr kompliziert und steinig, insbesondere, wenn es darum geht, den Zugang zu
Märkten in Europa oder auf anderen Kontinenten zu finden, auf denen die
Anbieter im Prinzip noch weitgehend unbekannt sind. Viele Unternehmen in den
neuen Bundesländern kämpfen bekanntlich heute noch mit sehr großen
Schwierigkeiten, sich auf dem nationalen und internationalen Markt zu
behaupten. Gewisse Erfolge und Lichtblicke sind aber auch nicht zu übersehen.
Marktanteile werden keinem Unternehmen geschenkt. Sie müssen erworben und
gegen härteste Konkurrenz verteidigt werden.
Unter diesem Blickwinkel werden spätestens mit dem Eintritt einiger
osteuropäischer Staaten in die EU ähnliche Anpassungsprobleme wie in
Ostdeutschland auch in diesen Ländern entstehen.
Deshalb ist es von größter Bedeutung, daß in den Transformstaaten sehr intensiv
und zielstrebig darin gearbeitet wir, die Produkt- und Dienstleistungsqualität zu
erhöhen. Diese Aufgabe kann nur gelingen, wenn das Management in den
Unternehmen die Bedeutung des Faktors Kundenzufriedenheit und den
entscheidenden Einfluß der Qualität erkennt, der nur durch ein zeitgemäßes
Management in den Unternehmen entwickelt werden kann. Die entsprechenden
europäischen und internationalen Standards sind als Minimalforderungen zu
verstehen. Sie sind gewissermaßen die “Eintrittskarte” für den europäischen
Binnenmarkt.
Die Zertifizierung von Qualitätsmanagementsystemen nach den Normen EN
ISO 9000 ff. sowie die CE-Kennzeichnungspflicht für bestimmte Produkte sind
wichtige erste Schritte, die vom Management in diesen Unternehmen veranlaßt
werden müssen. Je schneller, desto besser. Auch wenn diese Arbeiten in vielen
Unternehmen erst am Anfang stehen, sollte der Blick auch heute schon darauf
gerichtet werden, welche Managementstrategie in der heutigen Zeit und in der
JEEMS 1/ 1998 95

Column
Zukunft den fortgeschrittenen Unternehmen zum Erfolg verhilft: Total Quality
Management - TQM. Die besten Unternehmen Europas können mit dem
European Quality Award ausgezeichnet werden, der einmal im Jahr von der
European Foundation for Quality Management E.F.Q.M. vergeben wird.
Viele Führungskräfte in den Unternehmen osteuropäischer Staaten haben das
auch bereits erkannt. Sie bemühen sich in ganz besonderer Weise, zum Standard
Westeuropas aufzuschließen. Bei diesen Bemühungen sollten wir auch weiter
mit spezifischem Managementknow-how Unterstützung leisten. Insbesondere
geht es dabei um die Hilfe zur Selbsthilfe. Diese Hilfe ist auch nur dann sinnvoll
und willkommen, wenn die landestypischen Besonderheiten in größtmöglichem
Maße berücksichtigt werden. An die Berater werden deshalb sehr hohe
Anforderungen gestellt. Nach Möglichkeit sollten Sie über gute
Landeskenntnisse und Kenntnisse der entsprechenden Landessprache verfügen.
Das Bildungsniveau in den osteuropäischen Ländern ist bekanntlich hoch und
moderne Managementmethoden fallen allgemein auf einen fruchtbaren Boden.
Qualität ist nicht alles - aber ohne Qualität ist alles nichts!
Claus Morgenstern
96
JEEMS 1/ 1998

Guideline for Authores
Guideline for Authors
Please notice the following requirements:
Size
Articles, reports and other contributions to the journal should be submitted in
English or German. Articles should not exceed 25 pages with 60 stops per line
and 35 lines, including graphics and bibliography; reply or discussion papers,
conference reports, book reviews etc. should have not more than 5 pages.
Send the article in 2 copies to the editor. Add a disc with the article, if possible
in Microsoft Word for Windows format.
Abstract
The articles should include an abstract of 100 or fewer words. As far as possible
the abstract should be written in english and german language.
Paragraphs, Type size etc.
Please use only ”Times New Roman”as type.
Use simple spacing.
Do not use automatic or manual word division.
Paragraphs should be connected without blank spacing.
Abbreviations, if not used internationally, should be avoided.
Titles
Main titles should be printed in bold types, secondary titles in bold types and
italics, tertiary only in italics.
Quotations in the Text
mentioning of author: Name (Year)
quotation of authors: (Name/ Name Year:Page)
quotation of different sources (Name Year; Name Year:Page)
more than 2 authors: Name of 1st author et al. (Year:Page)
Footnotes
Footnotes should be kept shortly. They should not be used for citing references
Tables and figures
Tables as well as Firures should be numbered consecutivly (arabic numerals)
and contain a short title.
Table [Number]: [Titel] resp. Figure [Number]: [Titel]
In order to refer to tables or figures within the text only the number should
mentioned
As it can be seen in Table [Number] resp. (see Fig.[number])
JEEMS 1/ 1998 97

Guideline for Authors
The size of tables should not, the size of figures must not exceed one page (A4:
(210 X 297 mm]). The spacing and lettering should allow for subsequent
reduction to the size of JEEMS page (A5)
Tables and Figures which are not yet embedded in the text, should be sent in a
separate file with indication of the program used.
References
Vedin, B.-A. (ed.) (1994): Management of Change and Innovation, Aldershot et
al.
Madhavan, R./ Fogel, D.S. (1992): In Support of Reform: Western Business
Education in Central and Eastern Europe, in: Review of Business, No. 4,
pp 4-9.
Short biography
For a short biography of the author, please state the following items:
Surname, Christian name, year of birth, academic titles, institution, department,
main research topics.
Assessment procedure
All papers will be screened by a member of the editorial board and blindly
reviewed by East resp. West European members of the corresponding board. For
further communication send the full address and if possible the e-mail address.
98
JEEMS 1/ 1998

Richtlinien für Autoren
Richtlinien für Autoren
Bitte beachten Sie folgende Anforderungen:
Art und Umfang
Artikel, Berichte und andere Beiträge für JEEMS sollten in deutscher oder
englischer Sprache verfaßt sein. Die Artikel sollten einen Umfang von max. 25
Seiten mit 60 Anschlägen und 35 Zeilen pro Seite, einschließlich Abstract,
Grafiken und Literatur, haben; alle anderen Beiträge sollten einen max. Umfang
von 5 Seiten haben.
Der Artikel sollte in 2 Exemplaren an den Herausgeber geschickt werden.
Beigefügt werden sollte eine Diskette mit dem Artikel, wenn möglich im Format
Microsoft Word für Windows.
Abstract
Artikel sollten ein Abstract von höchstens 100 Worten, wenn möglich in
deutscher und englischer Sprache enthalten
Schriftart, Absätze etc.
Der Artikel ist vollständig in der Schriftart “Times New Roman” zu verfassen
Der Text sollte im einfachen Zeilenabstand geschrieben werden.
Silbentrennungen sind nur mittels bedingtem Trennstrich vorzunehmen.
Absätze sollten nicht durch Lerzeilen getrennt werden.
Abkürzungen, soweit sie nicht international gebrächlich sind, sollten vermieden
werden.
Überschriften
Hauptüberschriften sollten fett, Überschriften 2. Ordnung fett/kursiv und
Überschriften 3. Ordnung kursiv geschrieben sein.
Zitate im Text
Erwähnung des Autors:
Name (Jahr)
Zitieren von Autoren:
(Name/ Name Jahr:Seite)
Hinweise auf verschiedene Autoren: (Name Jahr; Name Jahr:Seite)
mehr als 2 Autoren:
Name des ersten Autors et al.
Fußnoten
Fußnoten sollten kurz gehalten werden. Sie sind nicht für Literaturangaben zu
nutzen. Fußnoten sollten am unteren Rand der Seite stehen, auf der sie gebraucht
werden.
JEEMS 1/ 1998 99

Richtlinien für Autoren
Tabellen und Grafiken
Tabellen und Graphiken sollten jeweils eigene durchgehende Nummerierungen
(arabisch) haben und mit einem Kurztitel versehen sein.
Tabelle [Nummer]: [Tilel] bzw. Abbildung [Nummer]: [Titel]
Verweise auf Tabellen oder Graphiken im Text sind nur mit der Nummer zu
versehen.
Wie Tabelle [Nummer] zeigt bzw (siehe Abb.[Nummer])
Tabellen sollten, Graphiken dürfen nicht größer als eine Seite sein. Es ist darauf
zu achten, daß sie bei Reduzierung auf die Standardgröße von JEEMS (A5)
lesbar bleiben
Tabellen/ Grafiken die nicht im Text eingebettet wurden, sollten in einer
separaten Datei gesendet werden, mit dem Namen des Programms in dem diese
erstellt wurden.
Literaturverzeichnis
Meissner, B./ Loeber, D./ Levits, E. (Hrsg.) (1992): Die Wirtschaft der
baltischen Staaten im Umbruch, Köln.
Stratemann, I. (1994): Personalauswahl und -entwicklung in den neuen
Bundesländern, in: Zeitschrift Arbeits- und Organisationspsychologie, Nr.
1, S. 41-44.
Kurzbiographie
Für einen Kurzbiographie der Autoren sollten folgende Informationen beigefügt
werden:
Name, Vorname, Geburtsjahr, Titel, Institution, Abteilung, Forschungs-
/Arbeitsschwerpunkte.
Bewertung
Alle Beiträge werden von einem Mitglied des Herausgeberrates überprüft und
von einem ost- resp. westeuropäischen Mitglied des Mitarbeiterkreises
rezensiert. Zur Erleichterung der weiteren Kommunikation ist die komplette
Adresse des Autors - wenn möglich mit E-Mail Adresse - erforderlich.
100
JEEMS 1/ 1998