Path dependence and contractual relations in emergent capitalism: contrasting state socialist legacies and inter-firm cooperation in Hungary and Slovenia - organizational psychology research; includes statistical tables

Organization Studies, Jan, 2003 by Laszlo Czaban, Marko Hocevar, Marko Jaklic, Richard Whitley

As political pressures and the pressure of the shortage economy to create large vertically or horizontally integrated companies have been removed, we might also expect that these integrated companies would break up. As a result, either market relations would develop between the former units of the companies concerned or no relationship between these entities would survive.

Operating in highly uncertain market and institutional environments, companies might be expected to change the ways they conduct business with each other (Csanadi 1997). In particular, risk-sharing can be expected to decrease unless underpinned by other types of loyalty (e.g. personal connections or local communities). In both Hungary and Slovenia trade associations are little developed, thus the institutional framework in which collaboration within sectors or between sectors could counterbalance the breakdown of trust and stable relationships is weak. Equally, ownership patterns do not facilitate closer relationships between suppliers and customers, and banks show a preference for arms'-length relationships with companies. However, in Slovenia local authorities, through informal influence, do play a supportive role to some extent, and in Hungary in 1993-94, the State Holding Corporation imposed long-term supply contracts on companies in the chemical industry.

Overall, then, it could be expected that both Slovenian and Hungarian firms would move towards establishing a more arms'-length relationship with new business partners. However, this general tendency could be adversely affected by factors such as competitive pressures (leading to forming alliances), whose effect, in turn, also depends on the size of the firm, changes in ownership (inter-subsidiary relationships) and changes in product lines and markets.

Trust and Contractual Relations between Customers and Suppliers in Hungary and Slovenia

To explore the changing nature of contractual relationships between customers and suppliers in Hungary and Slovenia, extensive interviews were conducted with senior managers of 18 Hungarian companies in 1996 (these firms were visited previously in 1993-94 and again in 1994-95) and of eight Slovenian companies in 1995--96. The extent of firm interdependence, competence, contractual and goodwill trust was assessed with the same questions and indicators that Sako (1992) used in her study of British and Japanese firms, with additional questions about organization structures and strategies based on the 'Aston' series of organization studies and other analyses.

These firms represent a wide range of size, sector and ownership in the two countries. The Hungarian firms in the sample tend to be larger than the Slovenian, which is partly a reflection of the differences in economic structure between the two countries. The largest Slovenian firm, Slovenian Railways, had fewer than 10,000 employees in 1995, while the third largest company had about 6,000 employees. In Hungary, the largest manufacturing firm had about 20,000 employees in the mid-1990s and there were a number of companies with over 5,000 employees. Thus Slovene firms in our sample are relatively large by Slovenian standards: three of them are among the 20 largest firms and seven of them among the largest 80 firms (see Table 2). Their relative large size is further emphasized by their relative weight in their market: seven of the firms are the largest in their economic branch.