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

Most Slovenian companies attempted to make up their lost turnover in OECD markets, particularly in Germany. These Slovenian companies mainly compete on prices in the OECD markets for the following reasons: (1) their relatively small size; (2) perceptions of poor-quality products by their customers; (3) the cost of rebuilding their sales network; (4) serious overcapacity that encouraged them to sell products at the cost of producing them.

The majority of the Hungarian companies studied were dominant actors in the domestic market, although they were becoming exposed to sharp competition from imports. This quasi-monopolistic character of the Hungarian market encouraged large firms to maintain traditional inter-firm networks, while relationships with new and smaller business partners were often more predatory, but these deals represented only a small share in the total sales. Most competed on price in OECD markets selling standardized products.

Sako (1992, 1994) suggests that high levels of mutual dependence between suppliers and customers indicate considerable levels of goodwill trust between diem, on the grounds that this implies they will not take opportunistic advantage of such dependence on a single customer or supplier. In her study, high dependence was measured by the combination of single sourcing by the customer with considerable (over 20 percent) supplier dependence on that customer. In our samples, while none of the firms showed such a dependence on single customers or suppliers, clear differences emerged between the two countries, as shown in Table 3. The degree of interdependence with their major customer shown by the Hungarian firms was much higher than that displayed by the Slovenian firms. Not only were customers of Hungarian firms more dependent on the supply of these firms than the customers of Slovenian firms, but these customers were also more important for Hungarian firms than for Slovenian ones: sales to the largest three custo mers accounted for more than 50 percent of turnover in 14 of the 18 firms. While this may reflect greater goodwill trust in Hungary, it is probably also due to the larger size and dominant position in the domestic market of the Hungarian enterprises and the more oligopolistic nature of many Hungarian industries. The much more fragmented customer base of the Slovenian firms and their greater reliance on exports restrict their ability to form close ties with major customers.

Other indicators of trust used by Sako suggest a preference for OCR-type relationships in both countries. The majority of these companies operated on regular contracts and maintained informal relations with their largest customers to a significant extent. Comparing the two countries, the tendency to OCR-type market organization was stronger in Hungarian companies as, for example, all Slovenian companies claimed that their customers sought multiple quotations for both new and repeat orders, while in Hungarian companies it was exceptional. This difference can be attributed to the higher degree of exposure of Slovene firms to competition and the larger scale of switch from their former markets to new ones.