Winning Strategies for Locally-Owned Businesses in Central Europe: What Is Helping or Hindering in the Build Up to Enlargement?
Ambler, Mark, Horvath, Marian, European Business Forum
Issue 3 of EBF (Autumn 2000) reported the results of our study of the strategic business impact of EU enlargement. One of the key conclusions was that, in general, locally-owned businesses in the candidate countries--i.e. those businesses in which foreign firms hold a non-controlling minority interest--were not doing all that they might to exploit the business opportunities offered by enlargement. In particular, few businesses had implemented aggressive growth strategies designed to develop their business either internationally or regionally within Central and Eastern Europe. Instead, their strategies tended to be more defensive as they were concerned about the competitive threats they perceive as linked to enlargement. This contrasted sharply with the steps taken by international businesses, especially the larger ones, which had anticipated enlargement.
The changing context
Since the initial research for our study was completed in 2000, the economic and business context has changed in two important respects:
* the likely timing and structure of the enlargement process has become clearer: it now seems likely that ten of the candidate countries will become members of the EU in 2004, although important uncertainties remain, for example progress with the remaining negotiations and the outcome of the Irish referendum on the Treaty of Nice;
* the rate of growth in the candidate economies has increased relative to the rest of the world thanks mainly to a significant slowing in the rate of growth of the global economy: this has made these countries more attractive locations for internationally mobile investment.
Currently, few would dispute that a significant competitiveness gap still exists between the candidate countries and the EU-15. At the same time, analysis of both trade flows and international investment patterns suggests that the candidate countries enjoy some important competitive strengths internationally in certain sectors.
Looking ahead, all firms operating in the candidate countries will be under pressure to enhance their competitiveness if they are to drive economic growth and, ultimately, to promote closer convergence. The key issue of interest to us is to what extent the future development of the candidate economies will be driven by locally-owned businesses, rather than international businesses, and what can be done to enhance the role of local businesses. In particular, it is important to identify the actions that are needed to ensure that locally-owned firms in the candidate countries are able not only to withstand the competitive pressures that result from accession but also to capitalise fully on the potential benefits which enlargement provides.
In order to understand how the competitiveness of local businesses can be enhanced in the candidate countries, it is important to consider the factors that shape national competitiveness in a systematic way. Figure 1 identifies six broad groups of factors:
* the nature of industrial and consumer demand;
* the internal organisation and strategy of the firms;
* the quantity and quality of inputs available to firms;
* the extent and nature of inter-firm competition and co-operation;
* the industrial and regional clustering; and
* the institutional structure.
Industrial and consumer demand
Industrial and consumer demand for goods and services can affect competitiveness in several ways. Customers with stringent demands in terms of price and quality require competitive suppliers. Where local markets are small, openness to international markets is vital as is the ability to respond successfully to the needs of international customers. For local businesses in the candidate countries, the issue of demand raises some important questions:
* Are the needs of local customers in the candidate countries sufficient to stimulate competitiveness? …