A CONCEPTUAL MODEL
3. TRANSITION AND ITS IMPLICATIONS FOR NEW VENTURES IN THE POST-COMMUNIST COUNTRIES
The relevance of networks for the start-up phase of new ventures and their subsequent performance has been confirmed in empirical research (Bosma et al., 2004;Hoang & Antoncic, 2003;Renzulli, Aldrich, & Moody, 2000; Bru¨derl et al., 1998; Ostgaard & Birley, 1996). However, empirical studies linking entrepreneurs’ networks and new venture performance also provide inconsistent results. For example, Batjargal (2000) found a non- significant relationship between strong ties and new venture performance.
By contrast, Bru¨derl et al. (1998)found strong ties to be more critical for new venture performance than weak ties. The inconclusive evidence results primarily from a wide variation in research context, the measurement of networks and performance, and in sample frames (Ostgaard & Birley, 1996).
3. TRANSITION AND ITS IMPLICATIONS FOR NEW
After the collapse of communism, transition in economies and societies of Central and Eastern Europe began. The transition processes comprise privatization of state-owned enterprises and development of small and medium-sized enterprises (i.e., transition from public to private-sector own- ership), as well as liberalization of trade and capital markets (i.e., transition from central administration of prices to market mechanisms). A further ingredient in the transition process is creation of market institutions that are an integral part of the external environmental conditions for new venture creation and development in established market economies, e.g., financial and business support infrastructure (Smallbone & Welter, 2003). Although legal conditions needed for privatization and liberalization mostly already exist, they are not yet final (World Bank, 2000; Dallago, 2003). An insti- tutional framework for supporting entrepreneurship and small and medium- sized enterprises has not been completely developed yet (Dallago, 2003).
Furthermore, establishing a new venture in transition economies is hindered by the existence of considerable bureaucratic barriers (Smallbone & Welter, 2003).
The transition of the economic system runs parallel with social changes. In communism, the professional life of individuals was controlled and organ- ized by the state. Therefore, people in post-communist countries have to learn to be proactive and act independently. Taking responsibility for their own life, however, still seems to be a longer lasting process than implemen- tation of market economy instruments. Expansion of business enterprises coming from established market economies into the former eastern-block countries facilitated knowledge transfer about the principles of the mar- ket economy to the resident managers and co-workers (Peterson, 2003).
Likewise, the development of business education programs on the basis of Western European or the United States programs enabled the scholars to get knowledge about the principles of business management in the market economy. Despite the changes in the economy and in the educational system, not all individuals have yet acquired competences and skills necessary to act in the emerging market economies. Thus, the transition processes are still not final both on the economic and social levels, even if joining the European Union (EU) by the majority of the post-communist countries in 2004 legit- imized their progress in the development of an effective and efficient econ- omy and a democratic society.
The entry to the European domestic market means, for the market par- ticipants, new sales and procurement markets, less problematic expansion possibilities, and also more chances of business co-operations. On the other hand, the extended internal market is connected with intensified competition
and entrepreneurs’ fears of failure of their ventures, in particular, small and new ones in the emerging market economies. They have to compete with the Western European enterprises, which have used instruments of the market economy for decades and, thus, are better prepared for the extension of the domestic market.
We can assume that under conditions of high uncertainty and intensified competition new ventures are exposed to a higher risk of failure. For new ventures, their initial resources are crucial for their survival and early per- formance in view of the liabilities of newness and liabilities of smallness (Lyles et al., 2004;Cooper et al., 1994). In addition, the resource base of a new venture determines a strategy formulated and realized to obtain com- petitive advantages in the market (Barney, 1991). Resources can be defined as‘‘bundles of tangible and intangible assets, including a firm’s management skills, its organizational processes and routines, and the information and knowledge it controls’’ (Barney & Wright, 2001, p. 625). Barney distin- guishes three categories of resources: physical resources, human capital re- sources, and organizational capital resources (Barney, 1991, p. 101). In a new ventures context, the entrepreneur (human capital resources) is partic- ularly relevant for performance of new enterprise (Cooper et al., 1994). In her theory of the early growth of the firm, Garnsey (1998, p. 530) empha- sizes the importance of the founder for the success of a new venture as follows: ‘‘In new firms, the entrepreneurs’ experience, personality, percep- tions and resources are formative. The founder or founding group not only shape initial conditions, but also provide the venture with its essential assets and impetus. Their ambitions determine whether there will be an early drive for growth or modest aspirations for the firm.’’
Initial resources of the new ventures in the Central and Eastern European countries are affected primarily by the historic economic legacy of commu- nism, by the experiences of the founders in the market economy, and by the structural change of the economic system. The former socio-economic sys- tem shaped the way of thinking of individuals and their behavior, e.g., they were influenced by a strong collectivist ideology (Suutari & Riusala, 2001).
Social networks were of great importance under communism both to in- dividuals and enterprises because they had an inadequate and highly un- certain access to resources (e.g., scarcity of financial capital and means of production, insufficient infrastructure, and outdated technology on the organizational level; shortage of food or clothing on the individual level).
In her study of the ‘‘economy of favors,’’ Ledeneva points out that the systematic use of connections to procure favors was a response to the ab- sence of a market (Ledeneva, 1998). Thus, the financial lack of private
households, for example, still determines the initial capital level of the new ventures in transition economies. Likewise, business education in the central planned economy still has an impact on the founders’ knowledge of the principles of the market economy. Further, an extended integration of in- dividuals into family and community, and strong reciprocal relationships based on mutual favors still affect behavior and values of the founders (Danis, 2003;Field, 2003). For example, entrepreneurs in transition econo- mies share on average stronger collectivist values than their Western coun- terparts (Danis, 2003). Therefore, it is to be assumed that the legacy derived from the centrally planned economy and related to the resource scarcity, education system, individuals’ behavior, and way of thinking have an in- fluence on the present level of initial resources of new ventures.