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

The Hungarian companies studied here included some of the largest vertically integrated companies in the economy. Although units of some of these vertically integrated companies were legally independent companies, they were effectively operated as wholly controlled subsidiaries through ownership and concern agreements. One of the formerly both vertically and horizontally integrated companies in the sample was broken up into independent units and these were privatized separately. Another formerly belonged to a horizontally integrated trust and became independent in 1989. Most of the remaining companies remained strongly integrated backwards into component manufacturing even after being restructured by foreign strategic investors.

Four of the eight Slovenian companies used to be part of horizontally integrated, diversified companies with little links between their activities, while the other four were non-diversified companies in the state socialist period. By the mid-1990s these had become quite separate and independent firms. All but one of the eight were strongly insider controlled and relatively profitable. The eighth company was less financially healthy and owned by the State Development Fund.

Companies also varied by ownership: state ownership and foreign strategic investors were much more dominant in the Hungarian firms in the sample, while inside control (often combined with ownership) was strongly represented in Slovenia. In terms of sectors, the proportion of companies in the capital-intensive sector was much larger in the Hungarian sample than in the Slovenian one, representing the greater importance of these sectors (chemical industry and certain branches of engineering) in the Hungarian economy.

Contractual Relations with Customers

The break-up of Yugoslavia and the collapse of the CMEA forded companies to significantly rearrange their customer bases in the early 1990s. Firms in our sample lost about 30 percent of their sales in the early 1990s (although there were a few companies that actually increased their sales). In spite of the large-scale drop in sales, many Hungarian firms managed to retain their largest customers, while this was not the case in Slovenia. This difference derives from the organizational structure these companies inherited from the state socialist period.

With the independence of Slovenia and subsequent outbreak of war, most firms lost their distribution networks in the former Yugoslavia, while with the break-up of the larger COALs, many also lost the specialized foreign trade companies. In contrast, many large Hungarian companies continued to rely on their traditional customer--supplier arrangements in the domestic markets (although these came under tension in 1990-92), often underpinned with strong informal relationships. In OECD markets they relied on either their own sales staff or their trading subsidiaries. This sales strategy was only partly related to size. One firm with just over 1,000 employees, for example, had such subsidiaries. Thus, the central problem for Hungarian companies was to switch a larger proportion of their sales from the CMEA markets rather than to enter Western markets for the first time.