Academic journal article Management International Review

Privatisation and Sustainable Competitive Advantage in the Emerging Economies of Central Europe (1)

Academic journal article Management International Review

Privatisation and Sustainable Competitive Advantage in the Emerging Economies of Central Europe (1)

Article excerpt


* Extant research on the impact of privatisation in the Central Europe (CE) region has focused on improvements in efficiency and the nature of cost-based advantages. This study argues that the development of a vibrant privatised sector requires attention to the broader resource configurations of domestic enterprises.

* Empirical research was conducted on a large sample of firms in Poland, Hungary and Slovenia. Foreign investment was found to significantly impact on resource accumulation with implications for the development of strategic capabilities and competitive advantage.

Key Results

* FDI is an effective vehicle for the transfer of financial resources, reputation and new brands but not organizational capabilities.


The business environment in Central and Eastern Europe has been dramatically altered by the privatisation of State-owned enterprises which has been ongoing since the fall of Communism in 1989. A variety of privatisation methods have been in evidence in the region, ranging from the sale of State-owned assets by government which has been popular in Hungary to mass ownership transformation which has been relatively successful in Poland and the Czech Republic (Thomas 1993). Though the generation of revenues is typically seen as the main goal of the traditional sell-off of assets, all methods of privatisation involve some element of seeking to improve both corporate control and competitiveness in a newly-privitised enterprise. Consequently, a great deal of research has focused on the role of privatisation in improving the efficiency of enterprise (Jones/Mygind 2000, Vickers/Yarrow 1991). As State-owned enterprises are generally characterised by inefficiencies caused by overstaffing, dependence on subsidies and the absence of competition (Lieberman 1993), cost savings are the most frequently observed source of performance improvement after privatisation. In addition, many of these firms operate from a comparatively low cost base, accentuating the focus on costs as a source of advantage. But the extent to which these cost differences and efficiencies provide a basis for sustained advantage remains open to question. Already there is evidence that increasing costs and wages are placing pressures on many firms and that attempting to stay competitive by keeping wages low or by relying on the constant devaluation of currency are not viable options (Economist 1997). From a normative perspective, this would suggest that firms in the region need to be able to develop other sources of advantage and indeed, be able to construct multiple layers of advantage (Doh 2000, Prahalad/Hamel 1990).

This paper builds on some emerging work in the economics (Frydman et al. 1999, Svejnar 1991) and management literatures (Brouthers/Arens 1999, Jelic/Briston 1999, Peng/Heath 1996) which adopt a micro or firm-level perspective on privatisation in Central Europe (CE). The pursuit of competitive advantage is an idea which is very much at the heart of the effective management (Ghemawat 1986, Porter 1985). Debate concerning the nature of competitive advantage has been heavily influenced by insights from the resource-based view of the firm over the past decade (Barney 1991, Peteraf 1993), where the ability to gain and sustain advantage is seen as contingent on the firm's resource position. However, while there is increasing acceptance that resources influence the potential for advantage, there is much less understanding of where resources come from and how they are developed. The transition economies of Central Europe offer the prospect of providing valuable insights into the important issues of resource development and accumulation. For example, the dramatic events in the region beg such questions as, how have sudden changes in the competitive environment affected the resource trajectories of local firms and what role has privatisation played in changing the resource base of firms and in improving their competitive positions. …

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