Ten years after: Hungarian big entrepreneurs in the European Union

1. Ten years after: Hungarian big entrepreneurs in the European Union Prof. MihályLaki Institute of Economics Hungarian Academy of Sciences VUZF University Open International Seminar 30 November 2012

2. Research history - Basic research (48 interviews in 1998-2001) Mihály Laki – Júlia Szalai: The Puzzle of Succes: Hungarian Entrepreneurs at the Turn of the Milleneum Europe Asia Studies Vol. 58 N2 3 May 2006 317-347 pp - Follow-up research (35+7++31 interviews in 2009-2011) under publication

3. What is permissible (acceptable) inoureconomicsystem?

4. Performance of de nuovoand of privatizedcompanies/ownermanagersCzechRepublic More recentstudieshavereachedsimilarconclusions, confirmingthattheoldnewelite of theformerCzechnomenklatura and themarketeersfromthefirststage of thetransitionwerenotalwaysselectedonthecriteriaofthefirstbest. Theirpositionwasunsustainableassocietymovedintothesecondstage of thetransition and therise of the market, competition and efficiency-enhancinginstitutions of capitalism. Benaczek (2006) pp. 1165-1166

5. Negative effects of the first round selection process Czech Republic „So the progress of the transition in the Czech Republic – establishing a market economy – was detoured by incompetent entrepreneurship, unsustainable property holdings, frauds, profits derived from implicit subsidies, decision-making intertwined with state bureaucracy and market competition impeded by government intervention. The result was the economic crisis in 1997–1999 when real GDP fell by 1.3%. The macro-economic misalignments were not the cause but a concomitant effect.” Benaczek (2006) p. 1164.

6. Weak performance of the old guard and of theprivatizedentreprisesPoland „Inprivatizedenterprises, notto mention enterprisesthatarestateowned, theowner-management, and management-employee relations havebeenforsometime a carry-overfromthecommunistpast. Privatizationmeansthatthese relations amongthesamepeople (limited replacementsinthe management notwithstanding) arechangingratherslowlyundertheimpact of the market environmentoutsidethefirm and owners’ performance withinthefirm. The reasonthisoccursslowly is becausethesamepeoplenearlythesameintra-firmenvironmentfinditdifficulttogetrid of thebadhabitsofthecommunistpast. The story is completellydifferentinthenewfirms. There, owner-managers relations (iftheyarenotthesameindividuals, asoften is thecase) areset right, that is inaccordancewiththerules of the market, fromthebeginning.” Winiecki ( 2004) p.143.

7. SelectionprocessRussia „In many large Russian firms „ownership” of private assets is allocated by individual political elites in a personalistic manner.„ King (2002)

8. Firstround of theselectionprocessRomania „Based on survey and ethnographic data, I suggested that in the race to marketization, the former cadres are at an advantage due to their organizational experience (as a form of human capital) and their network resources. Nevertheless, education, as the most basic form of human capital, plays an extremely important role in this story of post-socialist entrepreneurship: better educated Romanians have the upper hand in operating as employers eleven years after the collapse of the communist regime.” Stoica (2004) 271. p

9. Performance of privatizedentreprisesRomania The managers of the studied organizations respond to the‘transition’ institutional norms in the way they responded yesterday to the norms of a centrally planned economy. Consequently, old managerial identities are still appropriate to perform the ceremony. Kelemen (1999) 207.p

10. Conclusion of ourpreviousresearch „The strategy of adaptation has again been successful, as the earlier statistical data indicate, and domestic grand business has been able to maintain its share and its position. In light of such renewed success EU accession seems to promise easier conditions and mowing forward rather than collapsing. Obviously, it is a new phase with new challenges for adaptation, but after all, this is very area in which Hungarian grand entrepreneurs have for decades shown their most outstanding performance.” Laki-Szalai (2006)

11. How to analyse non-representative small samples ? What could be the optimal outcome? • to produce a documented hypotesis • - which is (could be) an incentive to reconsider (to modify ) the mainstream/dominant theory

12. Definition (previous and follow up research) All the interviewed persons are owners of a decisive (in lot of cases majority) share of the stocks and they are the main decision makers at a company or at a group of companies with hundreds of employees and/or with 0.5-10 thousand million HUF (3-4 million Euro) turnover/year.

13. Basic social indicators

14. Turning points of the old guard’s carrier path and methods of acquisition

15. Performance measured by company development1990-1999

16. Performance measured by company development 2000-2008

17. Plausible explanations (explanatory factors) of the weak performance in the last decade (companies) • -the mood of property acquisition • - world economic crisis since 2008 • - macro economic development • - conventional incentives 1 (taxes) • - conventional incentives 2 (loans and rate of interest) • non conventional incentives 1(stable/calculable state regulation) • - non conventional incentives 2 (stability of the property rights regime) • - branch structure • - innovativeness • - involvement of the state

18. Growth of GDP industrial production and of the number of companies

19. Taxes as % of GDP in Hungary

20. Volume of company loans compare to GDP 1999-2008 (%)

21. The distribution of subscribed capital of enterprises with single and double entry in 1992-2009

22. Frequent (typical) characteristics of life/carrier path

23. The usual market strategy and • development (old guard ) • - the collapse of state owned companies produced additional demand • - enter to the (shortage) market or market niches of these previous/privatized companies was lucrative • - fast growing market share on these markets stimulate other (Hungarian or foreign) companies to enter • - the impacts of the additional demand disappeared these markets began to saturate – mainly in the first years of the new century • - the newcomers (multinational companies for example) used very efficient tools of competition • - the market share of the previous participants of the competition diminishes

24. Some elements of the successful adaptation (control group) • Diversification • - New markets or market niches at home and abroad • - Restructuring the network capital (cooperation with the multinationals – subcontracting) • - Implementation of West European management methods

25. Frequent reasons for business failures (delays) • too optimistic forecasts • - trade of real estates

26. Thank you for your attention!