Jarmo Nieminen University of Vaasa Department of Marketing P.O. Box 700 |
Jorma Larimo University of Vaasa Department of Marketing P.O. Box 700 |
FIN-65101 Vaasa E-mail: Jarmo.Nieminen@uwasa.fi |
FIN-65101 Vaasa E-mail: Jorma.Larimo@uwasa.fi |
Studies focusing on market strategies and perforamnce based on large populations of western companies active in Eastern Europe have been few and there exists a total lack of studies including large samples from two or more countries in the same study. This study reports findings of a survey including 139 Finnish and 95 Austrian companies active in Eastern Europe. The study focuses on two major areas in firms' business activities in Eastern Europe, namely on market strategies – timing of market entry, market selection, entry modes and motives – and company performance. The number of market entries has increased after the transition to geographically close countries and/or to countries with good progress in transition. Companies have gradually started to use more high commitment modes of operation, but contrary to our expectations, high commitment were frequently also used in more unstable markets. Company performance in Russia and in other countries of Eastern Europe was clearly lower than in foreign markets in general. Against expectations the firm size, dependence on international markets, and length of operation in Eastern Europe had not significantly influenced the performance.
The breaking up of the planned economy in the Eastern Europe (EE) (1).
has created a new challenge for foreign companies to utilize these previously relatively closed markets. Despite the increased interest in these countries, market conditions have not improved as quickly as was expected a decade ago, although great differences across countries exist. After a decade of market-oriented reforms in these markets it is first of all important to examine whether market strategies of foreign companies have altered and to what extent. Company performance in EE has also not been analyzed in depth.
In the field of international business empirical studies related to EE are still relatively few, although growing. Studies focusing on the market strategies and performance in OECD countries and LDCs and have been numerous, while research focusing on these aspects in EE context has been fragmented and share some common shortcomings. Most of the studies have a narrow focus on only one aspect of market strategies, usually the entry modes. The studies have also often been static, relying on cross-sectional data from snapshot surveys, being thus unable to catch the dynamics of market strategies. Furthermore, previous studies have dealt with relatively small samples and mostly big multinational enterprises, thus being unable to generalize the results of firm behaviour into a larger population. This study offers a dynamic view to analyzing market strategies in EE by analyzing their evolution in two different time periods: at the time of market entry and the time of the investigation (Summer-Fall 1998). Company performance in EE has been discussed in some studies, but no analysis is available of the specific factors that contribute to performance. Consequently, the aim of this study is to analyze the following research questions:
• what kind of market strategies have foreign firms adopted in EE in terms of timing of market entry, market selection and expansion, entry modes and motives and to what extent have they altered since the market entry?
• which firm and market strategy-specific factors contribute to company performance in Eastern Europe?
The study reports results of a survey conducted among Finnish and Austrian companies active in EE. For research purposes, Finland and Austria are of special interest because of their exceptional geopolitical position between the East and the West. Both countries have been economically tied to the EE – especially to the Soviet Union – after World War II. Being politically neutral, both countries have traditionally served as a gateway to the EE for foreign companies – Austria already before the transition and Finland increasingly after the transition.. In addition, in both countries the share of EE in total exports has been well above the OECD average.
The paper is structured in the following way. Chapter one deals with the study background and research objectives. Chapter two focuses briefly on the changing nature of the East European transition markets in order to introduce the study context. Chapter three builds up the study framework by analyzing the present literature on international business in general and East-West business in particular dealing with market strategies and performance. The discussion will result in the formation of hypotheses. Chapter four introduces the study methodology along with the instruments used in the statistical data analysis. Chapter five reports the major findings of the survey and tests the hypotheses. The final chapter discusses the relevance of the research results to research on the internationalisation of the firm in general, and East-West business research in particular.
In order to understand foreign companies' business activities in EE, we have to examine more closely the study context, that is, the nature and magnitude of the recent changes that have taken place in the transition economies. The turn of the nineties was a milestone in the political and economic turnaround in all of these countries, but both the starting point for the reforms and the speed of the transition has differed considerably between countries in the region (for good reviews, see e.g. Allsopp & Kierzkowski 1997 and EBRD 1998).
The move to a market economy has by no means been quick and straight-forward throughout the region. There is a strong diversity in the progress and shape of the transition and in the timing and form of economic recovery (EBRD 1998). Analyzing the transition progress only on the base of statistical economic data can be misleading because of the inconsistencies in the data collection and the big role of shadow economy. Thus, it is more reasonable to analyze the transition progress on a rougher aggregate level, as presented in Table 1.
Table 1 shows the progress that has been made in individual countries towards a market economy. That is, the better the progress in transition, the more similar are the market conditions as compared to the advanced industrial economies. Progress in transition indicates not only the development of market conditions as compared to advanced market economies, but it implicitly also reveals the magnitude of the potential market risk that foreign firms might face at market entry. Table 1 suggests that most advanced market conditions and less risky markets in EE are in Hungary, Poland, Czech Republic, Estonia, Slovakia and Slovenia.
However, slow transition progress in one particular country does not neccesserily indicate that foreign companies should avoid market entry. Although in some countries in the region political and commercial risks are high, foreign companies may be able to capitalize on first-mover advantages, low competition, and special treatment when negotiating e.g. foreign investments. To survive in a turbulent and underdeveloped market conditions foreign companies can succeed by establishing themselves in the market, by creating their own competence factors suitable for the market and building up networks to such market actors that can be useful for the well-being of the company (Törnroos & Nieminen 1999).
Table 1 gives a picture mainly of the macroeconomic development, structural reforms and institutional development. Obviously changes taking place at the firm level should also be taken into consideration. The business environment is far from being compatible with the western market economies. Consumer markets suffer from the small size of the middle class and industrial markets are in many countries characterized by low investment rate and barter. Local companies suffer from low productivity, lack of competitive products for export markets, financial problems etc. These micro level problems coupled with shortcomings in managerial talent and organizational transformation makes communication and other exchange processes difficult for foreign companies. Differences in business culture are big and bound to prevail, which create even bigger challenges for foreign companies active in the EE markets.
Since the opening of the East European markets in late 1980’s, a lot of academic and practical articles have been written on the ways how Western companies should utilize the transitionary markets. Recent studies in East-West Business have focused on several characteristics of doing business in the transition economies: business environment, market entry strategies, consumer behaviour, marketing management and performance of Western firms in the transition economies (for review, see e.g. Schuh & Springer 1997). In this section, a closer examination of the generic theories and empirical findings of market strategies and performance are discussed.
Early entry in a foreign market is expected to create several advantages for the companies as compared to late entrants. This is especially expected to be the case in EE. It takes time to build up market networks and create company image, competition is weaker, which makes it easier for the company to gain a good market position with bigger profit margins than is available for latecomers. As it obviously takes time to learn the right ways how to operate in the market, this should also be an advantage as compared to latecomers. Disadvantages for early entrant has been the more unstable environment and the fact that no previous patterns of how to operate in the market existed making the perceived risk level higher than for latecomers. However, it is expected that the advantages overcome the disadvantages.
As the dividing line between early entrants and latecomers can generally be regarded the turnaround of the system, which took place in the turn of the 1990s in most of the Central EE markets. In Russia the market-oriented reforms started only in the beginning of 1992 as a result of the collapse of the Soviet Union. Russia/the Soviet Union has been a major market for Finnish companies and Central EE countries for Austrian firms for several decades. Operating in a planned economy clearly favoured companies with large resources, because the demanded delivery size was often extermely high. Small firms could mainly do business in the market as subcontractors to bigger companies in construction projects etc. Consequently, it is expected that SMEs have mainly entered the EE markets after the transition as late comers. The opening of the EE has obviously increased the interest of foreign firms to utilize these markets. It is expected that both the number of companies that have entered the market and the number of market entries has been bigger in the 1990s than before 1990. As a result, we can make the following hypothesis:
H1: Big firms have started their business operations in Eastern Europe mainly before 1990 and SMEs in 1990 or later
H2: The number of companies that have entered Eastern Europe in the 1990s and the number of entries is higher than those before 1990
Empirical evidence of the firms' internationalisation models suggest that companies tend to enter international markets concentrically starting from geographically close countries that are also perceived as psychologically/culturally close and similar to the firm's existing markets (see e.g. Johanson & Wiedersheim-Paul 1975; Luostarinen 1979, Cavusgil 1980, and Nordström 1991). The internationalization process models (Johanson & Vahlne 1977) suggest that a firm proceeds abroad through temporally defined, sequential, and stage-wise process, and that foreign expansion is incremental and dependent on a firm's experiential learning (see also Fina & Rugman 1996). The models predict that that over time as experiental knowledge increases, firms escalate their commitment to international markets.
Vahlne et al. (1996) suggest that companies start their operations in EE from markets that are more advanced in terms of transition progress and after gaining market-specific knowledge gradually expand their activities to countries that would not have been considered at the outset because of higher perceived risks. This notion is in accordance with the gradual approaches of internationalization that stress the importance of organizational learning.
More recent results seem to indicate that the firms' internationalisation process has been accelerating and that the pattern of moving from close to more distant markets is not so dominating in high-tech and service sectors (see e.g. OECD 1997). However, starting from geographically close markets still seems to be the dominating pattern in firms' internationalisation (see e.g. Larimo & Arola 1998 and OECD 1997). Therefore it is expected that the market development in Central and Eastern Europe will follow the above presented pattern, i.e., first markets are selected of geographically and psychologically close markets (Russia and the Baltic countries) and as the internationalisation evolves – through increased market experience and accumulated knowledge – the same pattern is adopted in expanding to other markets in the region (other CIS countries and Central Eastern Europe).
However, based on the previous studies on market entry to EE, it is expected that the internal market conditions is not the only decisive factor considered by a western company prior to choosing the markets. For example Shama (1995) found in his study that market size mitigates market risk and encourages early entry. Consequently, the following hypotheses are developed:
H3: Firms have started their business operations in Eastern Europe from geographically close countries and expanded their operations gradually to more distant countries
The internationalisation theories suggest that internationalisation is a process of increased resource commitment and knowledge development (e.g. Johnson & Vahlne 1977; Luostarinen 1979). In more detail, firms tend to start their internationalisation with entry modes that minimise the risks and do not involve large amounts of company resources (e.g. export operations). According to several previous studies, exports still seem to be the dominating form of Western companies' business operations in Eastern Europe (Hirvensalo 1991; Wolniak 1991; Benito & Welch 1994; Shama 1995; Vahlne et al. 1996). Given the undeveloped market conditions along with fast and unpredictable changes, it seems to be reasonable to expect that majority of the companies have chosen low commitment forms (exporting, licensing, subcontracting etc.) to enter these markets. These entry modes are characterized by low risk and low resource commitment. Although large multinationals often look for high risk entry modes (e.g. local manufacturing via acquisitions and wholly-owned companies) in order to capitalise the suddenly opened huge markets (see e.g. Shama 1995), it is likely that most foreign companies still use arm's length and cooperative entry modes while entering the East European countries. These companies operate "from the outside" and are not established in Eastern Europe through an own company.
Low commitment forms of entry are most often used at the time of entry and especially when the business conditions in the target market differ considerably from the domestic market. For example Hirvensalo (1993) showed that even 75 % of Finnish companies had started their business activities in the Former Soviet Union by using export operations in the 1980s. Thus, it is expected that firms have used mainly low commitment forms when entering the East European markets.
The second stage of the internationalization process – as suggested by Engelhard & Eckert (1993) in their study of German firms in the former Soviet Union – seems to be the establishment of an own agency – either a sales unit or representative office. Companies may also be established in theforeign market through manufacturing units by setting up a joint venture, acquisition or a wholly owned subsidiary. However, in EE foreign companies were not able to establish FDI operations until the end of 1980s. We label these FDI forms of market entry as high commitment forms. Establishment in the local market is motivated by several reasons: the companies want to control their assets in the region, they want to monitor their competitors' moves and major changes taking place in the market, they are able to react more quickly to changing market conditions, utilize cheap local labour or raw materials, increase market share, build up customer networks and to facilitate better customer service. Although risks are higher because of larger resource commitment, high commitment modes, expected returns are also higher than in low commitment modes. These are usually preferred by large multinationals that seek to increase their market share and are more capable of taking higher risks because of larger resources as compared to smaller companies (Shama 1995; Franko 1996). The above presented gradual increase in foreign market involvement is in accordance with the gradual approach theories of internationalization.
As the firms most likely can make advantage of factor mobility more easily in geographically close countries as compared to more distant markets, it is expected that as a result of increased market experience and accumulated knowledge in the region, the companies have gradually moved to a high resource commitment modes in geographically close countries.
H4: Firms have entered the Eastern European markets by using low commitment modes and moved gradually to the use of high commitment modes
H5: Firms have used high commitment modes more often in geographically close East European markets than in more distant markets
Previous research in internationalization (see e.g. Douglas & Craig 1989) suggest that both internal and external factors explain the firms' move to international markets. Internal factors are either related to the strategic goals or strengths of the company in the market or emphasise the competitive strengths of the company. External factors are related both to push factors of the domestic market and to the attractiveness of the target market in terms of market size, proximity to the market, economic and political stability, commercial infrastructure etc.
Despite the sudden opening of the EE markets in the turn of the 1990s, surprisingly little attention has been paid in the literature to the underlying motives of Western firms to enter these markets, except motives for FDI. Benito & Welch (1994) found that Norwegian companies had three major motives to be present in the market: the likely importance of these markets in the future; the supply of products well suited to these markets: and the need for expansion into new markets. E.I.U. (1993) and Paliwoda (1995) suggested that foreign companies invest in EE to seek new markets while facing saturated markets in most other regions, to gain market share, to tap the regional markets, and low-cost sourcing.
In her large study of Finnish firms active in the Former Soviet Union, Hirvensalo (1993) did not discuss entry motives. However, it is expected that both the Finnish and Austrian companies have mainly preferred external motives during their entry to the region. That is, the entry decision has been triggered by pull factors of the EE markets like proximity of the market, low labour costs and demand in the target countries. It is also expected that by the end of 1990s business environment in EE has become more competitive forcing the companies to become more established in the region, which demands more internal resources. Thus, it is expected that the companies have to pay much more attention today to their own competitive strength factors like unique product characteristics, managerial competence and technological skills to survive in these markets. Consequently, the following hypothesis were generated:
H6: External motives have been more important than internal motives at the entry stage to EE
H7: Internal motives have been more important than external motives for presence in EE in 1998
Despite the increased importance of the Central and Eastern European markets among Western companies, studies analysing the overall business performance of Western companies in the region have been almost non-existent. Of survey studies where performance-related questions have been included, can be mentioned the FIBO surveys reported in the study by Hirvensalo (1993) focusing on the performance of Finnish companies in the USSR. She measured performance by analysing the profitability of export transactions in relation to domestic operations, not the profitability level in general or in relation to other foreign operations. The results indicated that in the turn of the 1990s exports to the USSR was rated to have been as profitable as domestic operations. Benito & Welch (1994) reported results of a survey among 48 Norwegian companies active in Eastern Europe. Performance was measured by using the company managers' assessment of the results achieved in Eastern European markets. 17 % of the companies rated the results achieved in the region as 'very good' and 21 % as 'good'. None of the companies considered their results to have been 'very poor'. In the study by Shama (1995) of U.S. companies, most respondents expressed their satisfaction in their investments and overall performance, but most companies did not provide the hard data that was required. Ali (1997) reported results of UK companies experiences in the Eastern Europe. His results showed that 40 % of the companies were satisfied with their investments in Eastern Europe, while one fifth reported failures and one quarter reported that their investments to Eastern Europe had exceeded expectations. Thus, the results indicate that the performance has in all studies been perhaps surprisingly good taking into account the great changes and turbulent environment in most EE countries. Noteworthy is that the performance has not been the major focus of these studies and unfortunately there has not been any focus on the contributing factors to performance (e.g. McCarthy et al. 1993).
Several studies have indicated that the amount of government and other barriers, instabil operation environment, and poor infrastructure has had a negative influence on the performance results (see e.g. Green 1982, MacGuinness and Little 1981, and Rabino 1980). Related to the performance in CEE it may be expected that e.g. because great changes in the market and legal environment in CEE and in several cases greater amount of government barriers and rather poor infrastructure firms have performed better in domestic market and in foreign operations in general than in Russia and/or in other CEE markets.
In addition to the cultural and/or geographic distance it may be expected that the size of the company, international experience and area experience as well as the market focus in foreign sales will have an impact on the performance of the operation. Larger firms possess more managerial and financial resources, have greater production capacity, attain higher levels of economies of scale and tend to be associated with lower levels of perceived risks in exporting operations (see. e.g. Boccorsi 1992). These factors can facilitate the development and sustenance of a sound export competitive position. It would thus be reasonable to expect that large firms are likely to enjoy more competitive advantages in export markets than SMEs and based on the above that there would also exist a positive relationship between company size and export performance. The results in studies analysing the relationship between company size and export performance have been, however, mixed (see e.g. Bilkey and Tesar 1977, Cooper and Kleinschmidt 1985, Lee 1987 and Reid 1982). Because of the high level of uncertainty related to the CEE markets and the great competence level required, it may be expected that in CEE countries large companies have performed better than SMEs.
Furthermore, it may be expected that both general foreign operation experience and especially area focused experience will lead to better performance. Firms having little international and/or area specific experience may easily make mistakes because of limited or total lack of knowledge of cultural differences and/or other important factors influencing the success of operating in the target country. By operating in foreign markets firms learn how to operate in foreign markets, learn about various types of specialities related to operation (e.g. about cultural specialities), and can try to transfer these experiences from one market to other markets. Based on this general and market specific experience firms learn what´s the optimal level of operation in the market to reach the sales etc. goals of the company, i.e. to reach the desired performance level. Although the empirical results in export marketing studies have been mixed (see e.g. Axell et al. 1996, Kleinschmidt 1982, and Madsen 1995), a positive relationship is expected between international and/or area specific experience and performance in CEE markets. Because of the specialities of the CEE markets a stronger positive relationship is expected between area oriented experience and performance than between general international experience and performance in CEE markets.
The role of different market areas may also be expected to have an impact on the performance. Reaching success in foreign markets usually demands continuous and committed operation in the market to build the needed distributor and customer networks, customer loyalty etc. Because of the increased competition in all markets including CEE the probability of good success in a market where a company operates only occasionally and which is not the main foreign market for a company is nowadays apparently very low. Thus, it is expected that the more permanently a company operates the CEE market and the more important the market is for the company the better also the performance of the company has been.
Finally, it may be expected that the intensity of the operation in the target market also has an impact on the performance. The use of more intensive operation modes (various types of investment operation modes) means usually clearly greater financial and human resource investments than the use of traditional exports and/or other low commitment operation modes. Therefore use of more intensive modes indicates to the local customers that the foreign company has long term orientation to the market. More intensive operation modes usually offer better possibilities for stronger market foothold than low commitment modes and several studies studies have indicated a positive relationship between market position and performance in the market. Thus, a positive relationship is expected with the use of high intensive operation modes
In summary, for the empirical part of the study the following hypotheses related to the performance are made:
H8 The performance in Russia and other CEE markets has been lower than the perfromance in domestic market and generally in foreign foreign markets.
H9 Large firms, firms being more dependent on international markets, firms having longer CEE area experience, and firms havin their main foreign markets in CEE have performed better than SMEs, firms having less international and/or CEE experience, and firms having their main foreign markets outside CEE.
H10 Firms using high commitment operation modes have performed better than firms using low commitment modes in their CEE operations.
Most studies on East-West business have been based on the use of survey methods, but lately also case studies have been used to gain more understanding of the business activities of Western firms in Central and Eastern Europe (see e.g. Nieminen & Törnroos 1996 and Salmi 1998). As case studies give a richer description of events and decisions taking place in individual companies, surveys reveal more generalizable information of the activities of larger populations. In this study, quantitative method was chosen in order to to cover the market strategies and performance patterns of a larger population.
A survey instrument was developed by using 40 (mainly multiple-choice) questions related to Finnish and Austrian firms' business activities in Central and Eastern Europe. The data was collected in June-November 1998. In Finland, the target firms were selected from the membership files of the Finnish-Russian Chamber of Commerce and own files of the authors. In Austria, the company directory of the Austrian Chamber of Commerce was used to select potential firms active in EE.
In Finland, the questionnaire was sent in June 1998 to 835 prospective firms believed to be active in business activities in EE. In order to achieve a better response rate and more reliable results, the survey instrument was sent to managers in charge of East-West business operations of the firm. By the end of November 1998, 197 questionnaires were returned, resulting in a 23.6 % response rate. The instrument consisted of almost 600 variables, which obviously decreased the response rate to some extent. Of the returned questionnaires 115 were usable. 34 companies indicated that they had no commercial transactions with the Eastern European countries at present, 18 returned incomplete responses, which were not usable, and 20 informed that they did not want to respond to the survey because of limited time or they felt that some of the questions were too confidential to be answered. 24 companies not having responded to the survey were interviewed by telephone. This raised the total number of usable questionnaires up to 139. In Austria, 300 questionnaires were sent out, of which 121 were returned resulting in a 40.3 % response rate. Of the returned questionnaires, 95 were usable. Both subsamples resulted in a total sample of 234 companies. Descriptive statistics of the sample are presented in Table 2.
Of the sample firms ca. 70 % were SMEs, although in the Austrian subsample the share of large firms was clearly higher than in the Finnish subsample. Of the companies 60 % represented industrial sectors, the metal and electronics industry being cleraly the most important sector. The degree of internationalization was high in the sample as in almost half of the companies the share of foreign sales was more than 50 % of the turnover. In the Austrian subsample the degree of internationalization was been higher. For one fourth of the companies Eastern Europe generated more than 25 % of total sales, for the Finnish companies slightly more. More than half of the companies were operating in Eastern Europe frequently, but their major markets were elsewhere. For the Finnish companies the East European markets seem to be slightly more important than for the Austrians.
The following limitations should be taken into consideration while interpreting the results of the study. First, about half of the questionnaires were returned after the end of August, that is, since the emergence of the latest economic and political crisis in Russia. As the crisis was deeper than anticipated at the outset, the unfavourable market development may have reflected some of the companies' responses to performance-related questions. As far as the validity of the study is concerned, it should be noted that the Finnish sample covers mainly small and medium-sized companies and is not statistically representative for the whole population companies active in EE.
Table 2. Key features of the sample firms.
TOTAL SAMPLE |
AUSTRIAN SAMPLE |
FINNISH SAMPLE |
||||
Company size (number of employees) |
n |
% |
n |
% |
n |
% |
· < 49 |
85 |
36.3 |
16 |
16.8 |
69 |
49.6 |
· 50 - 249 |
74 |
31.6 |
34 |
35.8 |
40 |
28.8 |
· 250 - |
73 |
31.2 |
44 |
46.3 |
29 |
20.9 |
· Missing information |
2 |
0.9 |
1 |
1.1 |
1 |
0.1 |
Field of activity |
||||||
· Metal & electronics |
73 |
31.2 |
38 |
40.0 |
35 |
25.2 |
· Plastics & chem. |
30 |
14.4 |
13 |
13.7 |
17 |
12.2 |
· Consumer goods |
37 |
15.8 |
10 |
10.5 |
27 |
19.4 |
· Foodstuff |
21 |
9.0 |
8 |
8.4 |
13 |
9.4 |
· Construction |
17 |
7.3 |
3 |
3.2 |
14 |
10.1 |
· Trade & services |
37 |
15.8 |
10 |
10.5 |
27 |
19.4 |
· Paper & wood |
13 |
5.5 |
7 |
7.4 |
6 |
4.3 |
· Other |
9 |
2.6 |
6 |
6.3 |
0 |
0.0 |
Foreign sales as % of turnover |
||||||
· - 19.9 |
55 |
23.5 |
16 |
16.8 |
39 |
28.1 |
· 20 - 49.9 |
66 |
28.2 |
23 |
24.2 |
43 |
30.9 |
· 50 - |
110 |
47.0 |
56 |
58.9 |
54 |
38.8 |
· Missing information |
3 |
1.3 |
0 |
0.0 |
3 |
2.1 |
Eastern Europe as % of foreign sales |
||||||
|
||||||
· - 4.9 |
48 |
20.5 |
25 |
26.3 |
23 |
16.6 |
· 5 - 24.9 |
115 |
49.1 |
47 |
49.5 |
68 |
44.9 |
· 25 - |
59 |
25.2 |
21 |
22.1 |
38 |
27.3 |
· Missing information |
12 |
5.1 |
2 |
2.1 |
10 |
7.2 |
Importance of East European markets |
||||||
· Operating occasitionally, not major market |
36 |
15.4 |
13 |
13.7 |
23 |
16.5 |
· Operating frequently,not major market |
142 |
60.7 |
67 |
70.5 |
75 |
54.0 |
· Operating frequently, major market |
55 |
23.5 |
15 |
15.8 |
40 |
28.8 |
· Missing information |
1 |
0.5 |
0 |
0.0 |
1 |
0.7 |
Timing of Market Entry and Market Selection. When determining the timing of market entry, we asked the respondents to indicate the year they had entered the EE markets. Then, the frequencies were divided into two groups: companies that had started teir operations either before 1990 or in 1990 or afterwards. This way we were able to trace the early entrants that enteresd the markets before the transition, and those who have entered the markets as latecomers. The respondents were asked to identify their first target market in EE and to which countries they had expanded their markets since the year of entry.
Choice of Entry Mode. The analysis consists of identification of the entry modes and the consequent internationalisation paths of the companies in three most important countries in Eastern Europe. Twelve alternatives were given starting from low commitment forms (exports, imports, licencing, subcontracting, and using an EE partner as a subcontractor) to high commitment forms (representative office, own sales unit, joint venture, acquisition and own manufacturing unit).
Motives for Market Entry. The respondents were given 15 factors (both internal and market-related) to determine their major motives for market entry and reasons for their market presence in Summer/Fall 1998. The respondents were asked to indicate as many motives as appropriate.
Performance. As far as international operations are concerned, export performance has been measured by share of exports from total sales, development of export sales, development in domestic vs. export sales, export profitability, firm's export sales as compared to the same industry in average, management evaluation of the export performance. etc. (for a good review, see e.g. Bodur 1994). While measuring the performance of FDI operations various financial measures like ROI, ROE, net profit, stock price, sales growth, growth of market share, and management's own evaluation have been used (see e.g. Larimo 1993). Both export and FDI performance measures have their own advantages and disadvantages. One of the arguments against the use of management's own evaluation when measuring company performance is based on the view that the results might be biased. However, there is quite a lot of evidence that management's own evaluation has correlated at least rather or even very well to the performance measured by using other indicators (see e.g. Larimo 1993). Therefore also in this study company performance in EE was measured by using the subjective assessments of the company managers. A 5-point Likert scale (1=extremely unsatisfied with the performance, ... 5=extremely satisfied with the performance) was used. Performance was measured in two different regions, namely in Russia and in Central Eastern Europe. In addition, the respondents were asked to measure the company's performance in the domestic market and in foreign markets in general to facilitate performance ratings across different geographical market areas.
Company size. In order to avoid any arbitrary classifications, company size categories used by the European Union were used (small firms less than 50 employees; medium-sized up to 249 employees and large firms more than 250 employees). Even majority of the large companies were not multinationals.
Degree of international involvement. The share of foreign sales in company turnover was used to determine to what extent the company has internationalized. As the study focused only on the EE markets, the degree of international involvement could not be examined by the nature of operation modes used in international markets.
Involvement in the EE markets. Sales generated in EE as percentage of total sales was used to determine the degree to which the companies were dependent on the EE markets.
Importance of the EE markets. It was expected that all the companies fall into one of the following categories: (1) the company operates in EE only occasionally and is not a major market for the company; (2) the company operates in EE frequently, but is not a major market for the company; and (3) the company operates in EE frequently and it is the major market for the company.
In this section, timing of market entry, market selection and expansion are analyzed. H1 indicated that big companies have mainly entered the EE markets mainly before 1990 and SMEs mainly in the 1990s. Table 3 clearly supports the acceptance of the hypothesis. This means that even the EE markets are in a state of transition, they offer much more opportunities for SMEs than the traditional planning system.
The results from Table 4 confirm first of all the rapid increase in the number of companies entering EE since its opening. H2 indicated that the number of companies that have entered Eastern Europe in the 1990s and the number of entries is higher than those before 1990. In the 1990s the number of market entries has increased almost threefold in average as compared to the pre-transition, which seems to support our hypothesis. Before the transition, Finnish firms were concentrated only in the Soviet market (including Estonia at that time). The Austrian firms were operating in a larger number of countries, but mainly in near located markets. The results confirm that in the 1990s the growth rate of new market entries has been high in all the countries in the region except Hungary and Russia.
However, the number of companies that have entered the EE markets in the 1990s is not considerably higher than before the transition. Surprisingly, in the Austrian subsample the number of new companies active in EE is equal in both time periods. The hypothesis gets only partial support from the results. The number of newcomers (entry in 1990 or later) outnumbers clearly the early entrants (entry before 1990) in all market areas in the total sample. The only exception is Hungary, where Austrian firms had slightly more entries before 1990 than later. Consequently, it seems that although the geographical proximity of the East European countries clearly has affected the market selection, the transition has given even a bigger boost for newcomers. On the other hand, market entry to more distant countries has mainly been made in the 1990s as expected.
As far as market selection patterns in EE is concerned, significant differences can be made between the two countries. First of all, although both countries operate mostly in different markets, they have concentrated in the geographically close markets. Major markets have not changed after the transition and they are still the geographically closest located markets. Prior to transition, Austrian companies have been operating in a larger geographical area as compared to the Finnish companies, which were more concentrated in the former Soviet Union. After the transition, Finnish companies have been more eager to expand their markets in more distant countries in Eastern Europe, while Austrian companies have mainly increased their presence in their traditional markets.
The number of new companies active in EE was clearly bigger in the Finnish sample, while in the Austrian sample the number of newcomers equalled the early entrants. There was also a big difference in the timing of foreign market entry in general: while 52 % of the Finnish firms had started their foreign operations only in the 1990s, in the Austrian sample only 19 % were newcomers in international markets. Finnish companies have been much more active in the countries of the former Soviet Union (especially the Baltic countries, but in the 1990s also increasingly in Ukraine) since the transition than the Austrian companies. The number of Finnish companies' entries to Eastern Europe has grown fourfold in the 1990s, while the number of Austrian companies' has nearly doubled. Austrian companies have increased their importance especially in the Czech Republic, Croatia and Slovenia. Consequently, the differences in market selection patterns can only partly be explained by the geographical proximity. It seems obvious that the Finnish companies have gained advantage of their longer presence in the Soviet Union while expanding to other countries of the former Soviet Union (especially the Baltic countries and Ukraine).
The results also suggest that even slow progress in transition and riskiness of the business environment does not necessarily indicate smaller numbers of entries. As a matter of fact geographical proximity, size of the market, and traditions of market presence matter more than the transition progress. This is clearly the case in the Finnish sample, which is very active in Russia, Latvia and Lithuania. On the other hand, it seems that especially in smaller economies like Estonia and Slovenia – which have above average progress in transition and are geographically closely located – the growth rate in foreign entries has been well above average. Although the market size is small in both cases, they may offer a foothold for foreign companies to start business operations in Eastern Europe, which may later on facilitate more entries to other countries as a result of accumulated knowledge to operate in the region.
Tables 5a and 5b show how the market expansion patterns of the companies in EE. H2 suggested that firms have started their business operations in EE from geographically close countries and expanded their operations gradually to more distant countries. The Finnish sample (Table 5a) gives clearly support for the hypothesis as they have started mainly from the Russian or Estonian market and then moved gradually to the other Baltic countries, Poland and Hungary. However, in the Austrian sample (Table 5b) a similar kind of expansion pattern can not be found. Some kind of expansion pattern can be drawn, starting most often Czech Republic or Poland, expanding then to Hungary, Slovenia, Slovak Republic and Croatia. Russia did not fit well to this expansion pattern. Most importantly, Austrian companies have not expanded to more distant East European countries, but instead remained in the relatively close markets and intensified their presence in these growing markets. This difference in market expansion patterns may be explained by the fact that all close markets to Austria have made relatively good progress in transition and economic growth rates are relatively high. New growing markets that are geographically closely located may thus prevent the companies from further internationalization in more remote East European countries. Consequently, the results give only partial support to H2.
The respondents were asked to name the operation modes they used at the time of entry and the operation modes they were using at the time of the inquiry in three of their major markets in Central and Eastern Europe. First of all, we were interested in finding out whether differences across individual EE countries exist. Clear differences may indicate country-specific differences in transition progress and better factor mobility, among others. Second, we wanted to analyze to what extent the companies had altered their operation modes between the time of the market entry and Summer/Fall 1998.
Tables 6a and 6b show the operation mode dynamics by the firms in EE. H3 suggested that foreign firms have entered the EE markets by using low commitment modes and moved gradually to high commitment modes. The results reveal first of all that majority of the companies have used exports as the first entry mode as noted in several previous studies (e.g. Hirvensalo 1993 and Shama 1995). However, exports have in some cases been complemented by either representative offices or own sales units. As compared to Hirvensalo's (1993) results of the year 1990, Finnish companies are at present more involved in high resource commitment forms of operation. The share of high commitment modes is higher among the Austrian firms as compared to the Finnish subsample, which can be explained by a large number of target countries in general and the geographical proximity of several EE markets. Again, the hypothesis H3 receives only partial support as in the Austrian sample there has not been any clear shift in a more extensive use of high commitment modes at present as compared to market entry.
H4 suggested that firms are using more high commitment modes in geographically close countries as compared to more distant countries. In the case of Finland, Russia and Estonia were chosen as the geographically close countries and Poland and Latvia as geographically more distant countries. Poland and Latvia were chosen, because we did not get enough responses of business operations in some other markets to get statistically relevant results. In the case of Austria, Hungary and the Czech Republic were regarded as geographically close and Russia and Hungary as geographically distant countries. In the Finnish sample H4 receives clear support, but the Austrian subsample does not reveal any clear difference between geographically close and distant countries. Consequently, H3 receives only partial support.
Market entry motives were divided into internal and external motives to the company to find out whether the decision to enter the Central and Eastern European markets is based on internal capabilities or diverse pull factors of the target countries. Like in the previous section, motives were analyzed in two points of time: at the time of the market entry and in Summer/Fall 1998.
H5 suggested that
external motives were more dominant at the time of the market entry as compared
to the year 1998. The results are shown in Table 7. The total sample supports
the acceptance of the hypothesis as the will to be present in a new market,
demand in the target market and proximity to the market were clearly the most
important motives to enter the markets. However, there were again big differences
between the two subsamples. Among the Austrian firms internal motives like technological
advantage and unique qualities of the product(s) sold to EE were regarded as
the major reasons to enter the markets. Thus, H5 receives only partial support.
H6 suggested that internal motives were more pronounced in the year 1998 than external motives. The importance of internal motives has increased since the time of market entry, but external motives still remained more emphasized. In general, external motives proved out to be clearly more important than internal motives to explain both market entry and reasons for market presence in 1998. Potentially large markets, market demand and proximity to the markets were dominating. Of the internal motives, unique qualities of the product and technological advantages were clearly most dominating. Comparing the motives between the time of entry and in 1998, no significant differences could be found among internal motives. Of the external motives competition seems to have increased since the companies entered the market. As the results could not be divided between individual countries, we cannot find out whether country-specific differences existed. The economic recovery in the EE markets is reflected in the responses indicating the growing importance of market demand as a reasons for market presence.
Contrary to previous studies, low labour costs was only a minor motive to explain either market entry of market presence in 1998. One reason for the limited use of local manufacturing either through subcontracting or FDI is the small size of the companies, especially in the Finnish subsample.
A 5-point Likert scale (1=extremely unsatisfied ..., 5=extremely satisfied) was used to measure the company managers' degree of satisfaction with the results achieved in EE. The management view of the performance is presented in Table 8. As can be seen from the results in the total sample, firms had performed better in domestic markets than in foreign markets (means 3.76 and 3.47). The difference in the means was somewhat but only little smaller in the Finnish than in the Austrian sample, but the variation was somewhat greater in the Austrian than in the Finnish sample. Compared to the general performance in foreign markets, the performance in Russian and in other EE markets had clearly been poorer (means 2.92 and 2.95) in the whole sample (differences statistically significant at the 0.01 level). Thus, the hypothesis H7 receives support. The rapidly changing market and legal environment in EE markets has clearly caused more problems than firms have had in domestic and foreign markets in general.
The results in country samples indicate that the performance in the Russian market was clearly better in the Finnish subsample than in the Austrian subsample (means 3.27 and 2.44, difference stat. significant at the 0.01 level) whereas in the other CEE markets the means were almost equal (3.00 and 2.92). The better performance of Finnish companies in Russian markets could be expected based on the long trade traditions between Finland and Russia. However, the fact that the difference in the performance was so great, is perhaps a little bit surprising. Based on results in the subsamples it can be concluded that H8 receives support in the Austrian subsample, but in the Finnish subsample only for that part which concerns performance in the other CEE markets than Russia. Related to the big difference in the Austian and Finnish performance means, a more detailed analysis of the results indicated that in cases where Russia was the most important EE market for firm, the mean in Austrian sample was clearly higher (3.55), in fact a little bit higher than in the respective Finnish group (3.48). Thus, if the Russian market was the main market for the firm, in fact no difference in the performac existed between Austrian and Finnish companies.
In H9 it was expected that large firms, firms having longer international experience, firms having longer EE area experience, and firms having their main foreign markets in EE have performed better than SMEs, firms having less international and/or EE area experience, and firms having their main foreign market outside EE. What concerns the impact of firm size on the performance, the total results did not support the expectation of better performance in large companies than SMEs neither in Russian or other EE markets. Thus in general the expectation of positive influence of greater financial and human resources of large companies was not supported. However, in the Austrian subsample the expectation received clearly support and in the Finnish subsample slight support. Thus apparently because of the clearly bigger market size and perhaps more turbulent market and legal environment than in other EE markets, the company size has been more important in Russia.
Against expectations
the results did not indicate a positive relationship between the share of foreign
operations and performance in Russia and in other EE countries. The results
in Russia indicated best performance in the mid foreign sales group (difference
statistically significant between smallest and mid foreign sales groups at the
0.05 level) whereas the results in other EE indicated mixed results. Thus the
hypothesis H9 is rejected also for that part which concerns the positive relationship
between share of foreign sales and performance. In the Finnish sample the performance
means were clearly higher than the Austrian means in every foreign sales category
(in cases of very high share of foreign sales difference between means stat.
significant at the 0.01 level) whereas in other EE countries the results were
mixed.
Table 8. Company performance in Russia and in other EE markets.
TOTAL |
AUSTRIAN SAMPLE |
FINNISH SAMPLE |
|||||||
N |
Mean |
Std. Dev |
N |
Mean |
Std. Dev. |
N |
Mean |
Std. Dev. |
|
Domestic |
195 |
3.76a1 |
0.96 |
95 |
3.79 |
1.04 |
100 |
3.73 |
0.84 |
Foreign general |
185 |
3.47 |
0.76 |
97 |
3.44 |
0.80 |
92 |
3.49 |
0.73 |
In Russia |
169 |
2.92 |
1.32 |
71 |
2.44a2 |
1.44 |
98 |
3.27b3a4 |
1.10 |
1. Firm size |
|||||||||
· Small |
54 |
2.93 |
1.24 |
8 |
1.75 |
1.39 |
46 |
3.13 |
1.11 |
· Medium |
50 |
2.90 |
1.28 |
22 |
2.36 |
1.40 |
28 |
3.32 |
1.02 |
· Large |
63 |
2.95 |
1.42 |
40 |
2.70b5 |
1.51 |
23 |
3.43b6 |
1.20 |
2. Foreign sales as % of turnover |
|||||||||
· - 19.9 |
35 |
2.69 |
1.21 |
10 |
1.80 |
1.14 |
25 |
3.04 |
1.06 |
· 20 - 49.9 |
41 |
3.27b7 |
1.27 |
12 |
2.75b8 |
1.48 |
29 |
3.48 |
1.12 |
· 50 - |
90 |
2.84 |
1.37 |
48 |
2.48 |
1.49 |
42 |
3.26a9 |
1.11 |
3. Timing of mkt entryin Eastern Europe |
|
||||||||
· Before 1990 |
107 |
2.83 |
1.35 |
58 |
2.48 |
1.44 |
49 |
3.25a2 |
1.11 |
· 1990 or later |
62 |
3.06 |
1.25 |
13 |
2.23 |
1.48 |
49 |
3.29a3 |
1.10 |
4. Role of Eastern Europe as a mkt area |
|||||||||
· Ext. limited |
20 |
2.25 |
1.41 |
10 |
2.00 |
1.50 |
10 |
2.50 |
1.35 |
· Limited |
100 |
2.71 |
1.28 |
51 |
2.35 |
1.42 |
49 |
3.08a10 |
1.00 |
· Main market |
49 |
3.61a11 |
1.06 |
10 |
3.30a12 |
1.25 |
39 |
3.70a13 |
1.00 |
5. Market involvement |
|||||||||
in Eastern Europe |
|||||||||
· Low commitment |
115 |
2.75 |
56 |
2.25 |
1.44 |
59 |
3.22 |
1.13 |
|
· High commitment |
54 |
3.27b14 |
15 |
3.13a15 |
1.25 |
39 |
3.33 |
1.06 |
|
In other East European countries |
149 |
2.95 |
0.97 |
90 |
2.92 |
1.05 |
59 |
3.00 |
0.85 |
1. Firm size |
|
|
|||||||
· Small |
38 |
2.84 |
1.10 |
14 |
2.86 |
1.51 |
24 |
2.83 |
0.82 |
· Medium |
52 |
3.00 |
1.01 |
32 |
2.97 |
1.09 |
20 |
3.05 |
0.89 |
· Large |
55 |
2.98 |
0.87 |
41 |
2.93 |
0.88 |
14 |
3.14 |
0.87 |
2. Foreign sales as % of turnover |
|||||||||
· - 19.9 |
25 |
3.16 |
1.03 |
15 |
3.13 |
0.99 |
10 |
3.20 |
1.35 |
· 20 - 49.9 |
40 |
2.90 |
0.90 |
20 |
3.00 |
1.08 |
20 |
2.80 |
0.70 |
· 50 - |
81 |
2.91 |
1.00 |
53 |
2.83 |
1.07 |
28 |
3.07 |
0.86 |
3. Timing of mkt entry in Eastern Europe |
|
|
|
|
|
||||
· before 1990 |
96 |
2.98 |
0.87 |
66 |
3.05 |
1.04 |
30 |
2.97 |
0.72 |
· 1990 or later |
52 |
2.85 |
1.02 |
23 |
2.61 |
1.03 |
29 |
3.03 |
0.98 |
4. Role of Eastern Europe as a mkt area |
|
|
|
||||||
· Ext. limited |
18 |
2.11 |
0.76 |
13 |
1.92 |
0.75 |
5 |
2.60 |
0.55 |
· Limited |
100 |
2.98 |
0.95 |
63 |
2.98 |
1.02 |
37 |
2.97 |
0.83 |
· Main market |
31 |
3.35a16 |
0.88 |
14 |
3.57a17 |
0.76 |
17 |
3.18 |
0.95 |
5. Market involvement |
|||||||||
In Eastern Europe |
|||||||||
· Low |
65 |
2.79 |
|
31 |
2.65 |
1.02 |
34 |
2.91 |
0.87 |
· High |
84 |
3.08 |
59 |
3.07 |
1.05 |
25 |
3.12 |
0.83 |
|
|
t-tests; means stat. different : a = stat. significant at the 0.01 level; b= stat. significant at the 0.05 level; 1) between domestic and Russian performances, and between domestic and other EE performances in the total sample, 2) in the Austrian sample between domestic and Russian performance, 3) in the Austrian and Finnish sample concerning performance in Russia; 4) in the Finnish sample between domestic and Russian performance, 5) between small and large Austrian firms, 6) between Russian and Finnish large firms, 7) between smallest and middle group, 8) between middle group and smallest group, 9) between largest groups in the Austrian and Finnish sample, 10) between Austrian and Finnish limited operation groups, 11) between ext. limited vs. main market in the Austrian sample, 12) between main market groups in the Austrian and Finnish samples, 13) between low and high commitment groups in the total sample, 14) between low and high commitment groups in the Austrian sample, 15) between ext. limited and main market groups in the total sample,16) between ext. limited and main market groups in the Austrian sample
Related to the timing of entry in EE it was expected that there would exist a positive relationship between lenght of operation experience and performance.The expectation did not, however, receive support neither in the total sample nor in the country samples. Firms which had entered the EE markets before transition had not performed better than those firms which had entered the markets after the transition. In fact the results indicated that the newcomers in EE markets had performed better than those firms which had longer operation experience from EE. Especially in Russia in the Austrian newcomers had performed better (difference in the means almost stat. significant). Either the newcomers had learned quickly how to operate in the EE market and/or their performance goals were perhaps not at as high level as the goals of those firms which had started their EE operations already before transition. One possible explanation is also the loadnesses of the past (see e.g. Hirvensalo, 1993). Those firms which have entered the markets already in 1960s or 1970s may have been inable to adapt from planned market economies to free market conditions.
The only part of the H9 which very clearly received support concerned the relationship between role of EE markets and performance. The performance means were in the total sample and in the both country samples clearly higher in those cases where firms acted continuously in the EE markets than in cases where firms operated in EE markets only temporarily and clearly best in cases where the companies´ main foreign markets where in EE area (differences in the means in almost most cases statistically significant at the 0.01 level). The results give support to the view that it is extremely difficult to reach good performance results in EE markets operating only occasionally in the area. Furthermore, the extremely high performance mean (3.70) related to operation in Russian market in the Finnish subsample and almost as high performance mean (3.57) in the other EE markets in the Austrian subsample in cases where the foreign operation of the companies had focused on EE markets indicates that concentration and long lasting relationship building can lead to good results. In these both two subgroups the performance means even slightly exceeded the performance means of those subgroups in the domestic market and in foreign markets in general.
In H10 it was expected that there would exist a positive relationship between the use of high commitment operation modes and performance. As can be seen from Table 8 the results both in the total sample and in the Austrian sample indicate that the performance had been clearly better in those cases where the firms had used high commitment modes compared to the firms which had used only low commitment operation modes in the Russian market (differences statistically significant at the 0.05 and 0.01 level depending on the case), but not in other EE markets. Also in the other EE markets the use of high commitment modes had led to better performance, but the differences are just out of statistical significance. One explanation for the great difference in the performance between the two commitment groups in the Austrian sample is that Russia was the the most important EE market for several of those firms which had used high commitment operation modes in those markets whereas for several firms using low commitment modes Russia had clearly lower importance. It is hard to explain why the differences in the performance means were so much smaller in the Finnish sample. One explanation is that in several of those cases where the Finnish firms had used high commitment modes those operation modes were started rather recently and because the start-up period in high commitment modes, especially in joint ventures and manufacturing investments, may take several years, the goals set for the operation were therefore not reached so well. The H9 can thus be accepted for that part concerns operation in the Russian market, but not related to operation in other EE markets.
As compared to previous studies on company performance in EE, the performance of the Finnish sample coincide better with previous results than the Austrian firms. Especially the performance of Austrian companies in Russia was relatively poor, but the role of Russian market is at the same time rather marginal for several Austrian companies. For those companies to whom the role is clearly more important also the performance in those markets was much better.
The transition in various EE countries in the turn of the 1990s increased remarkably the interest of Western scholars and companies towards these markets. Much of the recent studies in East-West business can be characterized by narrow focus or stagnant rather than dynamic approach e.g. on market entry, FDI or responses of multinational companies to the opening of the Eastern Europe. Unfortunately these studies are of little use when trying to understand the market strategies and performance of majority of foreign companies active in Eastern Europe. In addition, little is known about the dynamics of foreign companies market strategies in Eastern Europe. While most of the large sample studies on market strategies were made in the early 1990s, little is known about how foreign companies have altered their strategies during the first decade of the transition.
The goal of this paper was to analyze the evolution of market strategies and company performance among Finnish and Austrian companies active in EE. Of special interest was to analyze the development of the strategies and to compare the strategies used by the 234 firms in the sample. The study is the first study based on larger sample sizes from two OECD countries trying to analyze the development of market strategies and market performance in EE. The role of trade with the EE countries has been both in Finland and Austria clearly more important than for any other single OECD country. Thus, it is supposed that the results will reveal interesting viewpoints also for non-multinationals from other countries.
The transition period has increased the importance of foreign companies to enter these markets. However, big companies were mostly present in the EE already before the transition. Clear differences between the attractiveness of the target countries were identified and entries have mainly concentrated in the geographically close markets, in the 1990s incresingly also in the more distant EE markets. Slow progress in transition is not necessarily an indication of small number of foreign entries. In fact, geographical proximity, size of the market and traditions of market presence may matter more than the transition progress. These may also explain why high commitment operation modes are used equally much in countries with higher environmental instability and the more advanced EE countries. This is contrary to the results presented in previous studies. Exports have remained the most important operation mode, although its importance has diminished since market entry. Firms are more often looking for a foothoold in the market mostly through marketing and promotional units. Companies' market entry and market presence were mainly motivated by such pull factors of the target countries like will to be present in a new market, demand in the target market and proximity to the market.
The performance of the operations was measured using management evealution of degree of satisfaction with the results achieved using a five point Likert scale (1= extremely unsatisfied, ..., 5= extremely satisfied with the results achieved ).The mean performance in foreign operations in general was 3.47, in Russia 2.92 and in other EE countries 2.95. Thus, the mean performance was clearly lower in Russia and other EE than in foreign operations in general. However, there existed great differences between the samples – the Finnish firms were much more satisfied with their results both in Russia and in other EE countries (mainly in Baltic States) than the Austrian firms. Against expectations the firm size, role of foreign operations in general, lenght of operation in EE countries, had not significantly influenced the performance. The only factors which had significantly influenced the performance was the role of EE markets and the type of operation modes which were used. Firms which permantly operated in EE markets and for which those markets were the main foreign markets had in both samples performed much better than firms operated only occasitionally in EE or operated continuously there but for which EE countries did not represent the main foreign markets. The performance in the main EE markets – in the Finnish sample in Russia and in the Austrian sample in other EE market – exceeded in these subgroups the general foreign performance and was in the Finnish subsample at the same level as the domestic performance. The results indicate that reaching good performance needs long term commitment and focus on the EE markets. Furthermore, the use of high commitment modes had led to better performance than the use of low commitment modes. This was the case especially in the Russian market and in the Austrian sample. Apparently the big size of the Russian markets had partly influenced to the fact that it is not possible operate efficiently in those markets using only low commitment modes. The long geographical distance between Austria and Russia may also be one reason for the greater importance of high commitment modes in Austrian than in Finnish sample.
Even though the study represents apparently the first survey including samples from two OECD countries focusing on market strategies and performance in EE, there are some clear limitations and weaknesses in the study. One clear weakness is that the participation rate to the study was rather low in both countries and that several of those companies, which have significant operations in EE did not respond to the survey. Especially the Finnish results gives the view of market strategies and performance from a SME point of view. Noteworthy is also that the surveys were made in Summer – Autumn 1998. The great fall in the Russian economy started in late August 1998 and the Finnish survey was finished at that time. Because of the economic problems the Finnish exports to Russia started to decrease remarkably in late 1998 and the decrease continued in 1999.Thus, it is rather evident that if the survey would had been realized more recently, the results related to the performance in Russia would apparently had been clearly lower, closer or even lower than the Austrian figures. The Russian crisis has evidently influenced the modes of operation. In general the investment flows to Russia have decreased and a large number of foreign units in the country have been closed. Furthermore, the political instablility in Russia has increased. In other EE countries there has not existed respective changes except in some CIS countries and in some parts of former Yugoslavia. Thus it would be interesting to make a follow up study how these changes have possibly influenced the market strategies and performance of Finnish and Austrian firms in EE. Furthermore, this study included only market strategies. It would be interesting to integrate also the role and use of various competitive strategies to the analysis.
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(1).We use the term East European countries to cover all the ex-socialist planned economies in Europe. Central Eastern Europe (CEE) covers here Poland, Hungary, Czech Republic, Slovak Republic, Slovenia, Romania, Bulgaria and countries of the former-Yugoslavia. Baltic countries cover Estonia, Latvia and Lithuania. CIS covers all the countries of the former Soviet Union except the Baltic countries.
(2) - Table 5a. The numbers indicate the sequence of target countries during the internationalization process of the firm (No. 1 = the first target country in the region; no. 2 = the second target country in the region, etc.). If business activities started during one year to two or more markets, they received the same "position" in the internationalization process. For this reason, the column sums do not evolve in a decreasing fashion.
(3) - Table 6b. Multiple choices were possible.