This study reports findings of a survey including 139 Finnish and 96 Austrian companies active in Eastern Europe. The study focuses on two major areas in the firms' business activities in Eastern Europe, namely on market strategies the timing of market entry, market selection, entry modes and motives and company performance. The number of market entries has increased after the transition, but the majority of business activities still take place in geographically close countries. Companies have gradually started to use more high commitment modes of operation, but contrary to our expectations, high commitment modes were also frequently used in more unstable markets. Company performance in Russia and especially in other countries of Eastern Europe was in general clearly lower than in domestic markets and foreign markets in general. Against expectations the firm size, dependence on international markets, length of operation, and mode of operation in Eastern Europe did not significantly influence the performance. However, firms which concentrated on Russian markets on a continuous basis performed much better than other firms.
Keywords: market strategies, market entry, market selection, performance, Eastern Europe
In the field of international business empirical studies related to Eastern Europe (EE) are still relatively few, although growing. 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.
Studies focusing on market strategies and performance in OECD countries and LDCs have been numerous, while research focusing on these aspects in EE context has been fragmented and shares some common shortcomings. Most of the studies suffer from a narrow focus as market strategies are often discussed only from the viewpoint of 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 of 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 focus on the following research questions:
what kind of market strategies have foreign firms adopted in EE in terms of the 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 specific and market strategy factors contribute to company performance in EE?
The study reports findings 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 East and West. Both countries have been economically tied to the EE 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 rest of the paper is structured in the following way. 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 market strategies and performance based on previous studies of international business in general and East-West business in particular. The literature review will result in the formation of hypotheses. Chapter four introduces the study methodology and examines the reliability and validity of the results. Chapter five reports the major findings of the survey and tests the hypotheses. The final chapter discusses the relevance of the results to East-West business research.
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 from the basis of statistical economic data can be misleading because of inconsistencies in the data collection and the big role of the 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. Only those countries that have relevance for the empirical part of the study are taken into consideration here. 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 also implicitly 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 in the 1990s have been in Hungary, Poland, the Czech Republic, Estonia, Slovakia and Slovenia.
However, slow transition progress in one particular country does not necessarily 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 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 with such market actors that can be useful for the well-being of the company (Törnroos & Nieminen 1999).
Table 1 gives a rough picture of economic development, structural reforms and institutional development. Obviously changes taking place at the firm level should also be taken into consideration. The business environment in most of the countries in the region is far from being compatible with western market economies. The institutional framework guiding the functioning of a market economy has not yet been completed. 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 trade. 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 make communication and other exchange processes difficult for foreign companies. Differences in business culture are big and bound to prevail, which creates even bigger challenges for foreign companies active in the EE markets.
Table 1. Progress in transition in selected countries of the Eastern Europe in 1997 (adapted from EBRD 1998, 26).
Country |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
Total |
Mean |
Hungary |
4 |
4+ |
3+ |
3+ |
4 |
3 |
3 |
3 |
30 |
3.71 |
Poland |
3+ |
4+ |
3 |
3+ |
4 |
3 |
3 |
3 |
28 |
3.50 |
Czech Republic |
4 |
4+ |
3 |
3 |
4 |
3 |
3 |
3 |
28 |
3.46 |
Estonia |
4 |
4+ |
3 |
3 |
4 |
3 |
3 |
2 |
27+ |
3.42 |
Slovak Republic |
4 |
4+ |
3 |
3 |
4 |
3 |
3 |
3 |
26+ |
3.29 |
Slovenia |
3+ |
4+ |
3 |
3 |
4 |
2 |
3 |
3 |
26 |
3.21 |
Latvia |
3 |
4 |
3 |
3 |
4 |
2 |
3 |
2 |
24+ |
3.04 |
Lithuania |
3 |
4 |
3 |
3 |
4 |
2 |
3 |
2 |
24+ |
3.04 |
Croatia |
3 |
4+ |
3 |
3 |
4 |
2 |
3 |
2+ |
24 |
3.00 |
Kazakstan |
3 |
4 |
2 |
3 |
4 |
2 |
2+ |
2 |
22+ |
2.79 |
Russian Fed. |
3+ |
4 |
2 |
3 |
2+ |
2+ |
2 |
2 |
20+ |
2.54 |
Ukraine |
2+ |
3+ |
2 |
3 |
3 |
2 |
2 |
2 |
19+ |
2.42 |
Belarus |
1 |
2 |
1 |
2 |
1 |
2 |
1 |
2 |
12 |
1.50 |
Advanced industrial econ. |
4+ |
4+ |
4+ |
4+ |
4+ |
4+ |
4+ |
4+ |
35 |
4.33 |
1 = Large-scale privatization 5 = Trade & foreign exchange system
2 = Small-scale privatization 6 = Competition policy
3 = Governance & restructuring 7 = Banking reform & interest rate liberalization
4 = Price liberalization 8 = Securities market & non-bank financial institutions
Timing of Market Entry
Early entry in a foreign market is expected to create several advantages for the companies 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 of how to operate in the market, this should also be an advantage as compared to latecomers. Disadvantages for early entrants have been more unstable environment and the fact that no previous patterns of how to operate in the market existed, thus making the perceived risk level higher than for latecomers. However, it is expected that the advantages will overcome the disadvantages.
The dividing line between early entrants and latecomers is regarded as the turnaround of the system, which took place at 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 extremely 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 EE markets after the transition as latecomers.
After the transition the countries of EE have gone through different paths of development (see e.g. Allsopp & Kierzkowski 1997). Both the literature on macroeconomic development in the transition economies (see Chapter 2) and the direction of FDI suggest that the most favourable target countries for foreign firms in EE are those showing most progress in transition (see e.g. EBRD 1998). As a result, it is believed that the pull effects of the most advanced transition economies in EE have overcome the geographical distance: as the countries make progress in their market-oriented reforms, they become more attractive for foreign companies. On the other hand, it is generally believed that commercial transactions normally occur more between neighbouring countries than between more distant ones. Consequently, we can make the following hypothesis:
H1: Big firms started their business operations in Eastern Europe mainly before 1990 and SMEs in 1990 or later.
H2: In the 1990s, the number of market entries increased more in geographically close countries and in countries with the most rapid progress in transition than in geographically distant countries and in countries with slow transition progress.
Empirical evidence of firms' internationalisation models suggests 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). 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 over time as experiential 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 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 EE will follow the above presented pattern, i.e., first markets are selected from geographically close markets and as the internationalisation evolves through increased market experience and accumulated knowledge firms gradually expand to geographically more distant EE. Consequently, the following hypothesis is developed:
H3: Firms have started their business operations in EE from geographically close countries and expanded their operations gradually to more distant countries
Entry modes
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 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 EE (Hirvensalo 1991; Wolniak 1991; Benito & Welch 1994; Shama 1995; Vahlne et al. 1996). Given the undeveloped market conditions together with fast and unpredictable changes, it seems reasonable to expect the majority of companies to choose 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 on the suddenly opened huge markets (see e.g. Shama 1995), it is likely that most foreign companies still use arm's length and cooperative modes while entering EE countries. These companies operate "from the outside" and are not established in EE through their own company.
Low commitment forms of entry are most often used at the time of entry and especially when business conditions in the target market differ considerably from the domestic market. For example, Hirvensalo (1993) showed that in the 1980s as many as 75 % of Finnish companies started their business activities in the Former Soviet Union by using export operations. Thus, it is expected that firms have used mainly low commitment forms when entering EE 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 the foreign market through manufacturing units by setting up a joint venture, acquisition or a wholly owned subsidiary. However, foreign companies were not able to establish FDI operations in EE until the end of the 1980s. We label these FDI forms of market entry high commitment forms. Establishment in the local market is motivated by several reasons: companies want to control their assets in the region, 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 facilitate better customer service, among others. Although the risks are higher because of larger resource commitment, the 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 compared to smaller companies (Shama 1995; Franko 1996). The gradual increase in foreign market involvement presented above is in accordance with the gradual approach theories of internationalization.
As firms most likely can take advantage of factor mobility more easily in geographically close countries compared to more distant markets, it is expected that as a result of increased market experience and accumulated knowledge in the region, companies will use more high commitment modes in geographically close countries compared to more distant countries. The discussion above leads to the formation of the following hypotheses:
H4: Firms have entered the EE 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 EE markets than in more distant markets.
Entry motives
Previous research in internationalization (see e.g. Douglas & Craig 1989) suggests that both internal and external factors explain 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 at 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 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 regional markets, and to use 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 Finnish 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 such as proximity of the market, low labour costs and demand in the target countries. It is also expected that by the end of 1990s the 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 today foreign companies have to pay much more attention to their own competitive strength factors such as unique product characteristics, managerial competence and technological skills to survive in these markets. Consequently, the following hypotheses were generated:
H6: External motives were more important than internal motives at the entry stage to EE
H7: Internal motives were more important than external motives for market presence in EE in 1998
Performance in EE
Despite the increased importance of EE markets among Western companies, studies analysing the overall business performance of Western companies in the region have been almost non-existent. As an example of survey studies where performance-related questions have been discussed, the FIBO surveys reported in the study by Hirvensalo (1993) can be mentioned, which focus on the performance of Finnish companies in the USSR. Hirvensalo 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 at the turn of the 1990s exports to the USSR were rated to have been as profitable as domestic operations.
Benito & Welch (1994) reported the 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 EE markets. Of the companies, 17 % 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 the results of UK companies` experiences in the EE. His results showed that 40 % of the companies were satisfied with their investments in EE, while one fifth reported failures and one quarter reported that their investments to EE 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. It is noteworthy that 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, instable operation environment, and poor infrastructure have had a negative influence on performance results (see e.g. Green 1982, MacGuinness and Little 1981, and Rabino 1980). Related to the performance in EE, it may be expected that e.g. because of great changes in the market, poor legal environment, in several cases a greater amount of government barriers and rather poor infrastructure, firms have performed better in the domestic market and in foreign operations in general than in Russia and/or in other EE markets.
In addition to cultural and/or geographic distance it may be expected that the size of the company, international experience, experience in EE, as well as the market focus on 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. Bonaccorsi 1992). These factors can facilitate the development and sustenance of a sound competitive position in foreign markets. It would thus be reasonable to expect that large firms are likely to enjoy more competitive advantages in export markets than SMEs and that there would also be 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 and high competence level required, in EE it may be expected that large companies have performed better than SMEs.
Furthermore, it may be expected that both long experience in foreign operation and especially experience in EE will lead to better performance. Firms having little international and/or EE 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 characteristics), and can try to transfer these experiences from one market to other markets (see e.g. Vahlne et al. 1996). Based on this general and market specific experience firms learn the optimal level of operation in the market required to reach the desired performance level. Although the empirical results in export marketing studies have been mixed (see e.g. Axinn et al. 1996, Kleinschmidt 1982, and Madsen 1995), a positive relationship is expected between international and/or area specific experience and performance in EE markets.
The extent to which companies commit themselves to foreign markets is also be expected to have an impact on company 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 increased competition in all markets of EE, 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 in EE market and the more important the market is for the company, the better also the performance of the company will be.
Finally, it is expected that the intensity of 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) involves greater financial and human resource investments than the use of traditional exports and/or other low commitment modes. Therefore use of more intensive modes indicates to the local customers that the foreign company has long term orientation to the market. High commitment modes offer better possibilities for stronger market position than low commitment modes and several studies have indicated a positive relationship between market position and performance in the market. Thus, a positive relationship is expected between the use of high commitment modes and company performance. To sum up, the following hypotheses related to company performance in EE are stated:
H8: The performance in Russia and other EE markets was lower than the performance in the domestic market and in foreign markets in general.
H9: Large firms, firms which are more dependent on international markets, firms having longer experience in EE, and firms having their main foreign markets in EE performed better than SMEs, firms having less international and/or EE experience, and firms having their main foreign markets outside of EE.
H10: Firms using high commitment operation modes performed better than firms using low commitment modes in their EE operations.
Data Collection and Sample
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 the 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 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. In Austria, 300 questionnaires were sent to companies definitely operating in EE. The companies were called in advance to address the questionnaire to the manager in charge of business with EE. 121 questionnaires 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.
Table 2. Key features of the sample firms.
TOTAL |
AUSTRIAN SAMPLE |
FINNISH |
||||
Company size (number of employees) |
n |
% |
n |
% |
n |
% |
· < 49 |
85 |
36.0 |
16 |
16.5 |
69 |
49.6 |
· 50 - 249 |
74 |
31.3 |
34 |
35.1 |
40 |
28.8 |
· 250 - |
73 |
30.9 |
44 |
45.4 |
29 |
20.9 |
· Missing information |
4 |
1.7 |
3 |
3.1 |
1 |
0.1 |
Field of activity |
||||||
· Consumer goods |
62 |
26.3 |
25 |
25.8 |
37 |
26.6 |
· Industrial goods |
132 |
55.9 |
65 |
67.0 |
67 |
48.2 |
· Trade & services |
41 |
17.4 |
6 |
6.2 |
35 |
25.2 |
· Missing information |
1 |
0.4 |
1 |
1.0 |
|
|
Foreign sales as % of turnover |
||||||
· - 19.9 |
55 |
23.3 |
17 |
17.5 |
39 |
28.1 |
· 20 - 49.9 |
66 |
28.0 |
22 |
22.7 |
43 |
30.9 |
· 50 - |
110 |
46.6 |
56 |
57.7 |
54 |
38.8 |
· Missing information |
3 |
2.1 |
2 |
2.1 |
3 |
2.1 |
Eastern Europe as % of |
||||||
foreign sales |
||||||
· - 4.9 |
48 |
20.3 |
25 |
25.8 |
23 |
16.6 |
· 5 - 24.9 |
115 |
48.7 |
47 |
48.4 |
68 |
44.9 |
· 25 - |
59 |
25.0 |
21 |
21.6 |
38 |
27.3 |
· Missing information |
12 |
5.9 |
4 |
4.1 |
10 |
7.2 |
Importance of East European markets |
||||||
· Operating
occasionally, |
38 |
16.1 |
15 |
15.5 |
23 |
16.5 |
· Operating
frequently, |
142 |
60.2 |
67 |
69.1 |
75 |
54.0 |
· Operating
frequently, |
55 |
23.3 |
15 |
15.5 |
40 |
28.8 |
· Missing information |
1 |
0.4 |
0 |
0.0 |
1 |
0.7 |
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 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 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 to 139.
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 over 55 % represented industrial sectors, the metal and electronics industry being clearly 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 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 when 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 of the whole population companies active in EE.
Company size. In order to avoid any arbitrary classifications, we used company size categories used by the European Union (small firms less than 50 employees; medium-sized up to 249 employees and large firms more than 250 employees).
Role of foreign sales. The role of foreign sales was measured by using the share of total foreign sales. The share of foreign sales in turnover was used to determine to what extent the companies were internationalized. As the study focused only on EE markets, the degree of international involvement could not be examined by the nature of operation modes used in international markets.
Importance of the EE markets. The companies` respondents were asked to choose one of the following categories to characterize the importance of the EE markets for his / her company: (1) the company operates in EE only occasionally and EE is not a major market for the company; (2) the company operates in EE frequently, but EE is not a major market for the company; and (3) the company operates in EE frequently and EE is the major market for the company.
Timing of market entry. When determining the timing of market entry, we asked the respondents to indicate the year they had entered the EE markets. The responses were divided into two groups: companies that had started their operations either before 1990 or in 1990 or later. This way we were able to trace early entrants which entered the markets before the transition, and those which have entered the markets as latecomers.
Market selection and expansion. The respondents were asked to identify their first target market in EE and the countries in which they had expanded their markets since the year of entry. This way we were able to trace the paths of market expansion in EE.
Market involvement. The analysis consists of identification of the entry modes and their consequent development in the three most important countries in EE. Twelve alternatives were given starting from low commitment forms (exports, imports, licencing, subcontracting, and using an EE partner as a subcontractor) to high commitment modes (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 able to indicate as many motives as appropriate.
Performance. 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. In the transition countries performance was measured in two different regions, namely Russia and other EE markets. For comparison, 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.
RESULTS
Timing of Market Entry and Market Selection
H1 indicated that big companies entered the EE markets mainly before 1990 and SMEs mainly in the 1990s. Table 3 clearly suggests that only about one third of SMEs were active in EE before the transition. On the other hand, almost 3/4 of the big companies were active in the EE already during the planned economy era. Consequently, despite the turbulence of the markets, it seems that the transition has accelerated especially SMEs` business activities in EE. This applies especially to the Finnish sample. Chi-Square tests confirm that H1 receives support.
H2 suggested that in the 1990s the number of market entries had increased more in geographically close countries and in countries with the most rapid progress in transition than in geographically distant countries and countries with slow transition progress. The results from Table 4 show that in the 1990s the number of new entries has grown significantly. Entries have been made especially to geographically close countries both by Finnish and Austrian companies.
H2 receives clear support in the Austrian subsample, but in the Finnish subsample significant growth in market entries has also taken place in countries with slow transition progress. The large number of entries into Ukraine suggest that market potential may sometimes mitigate geographical proximity and transition progress. To sum up, the hypothesis receives only partial support from the results.
The results also suggest significant differences in market development patterns between the two countries. First of all, both countries have concentrated their business operations in the geographically close countries. Prior to transition, Austrian companies were 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 newcomers 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 more active than the Austrians in the countries of the former Soviet Union (especially the Baltic countries, but in the 1990s also increasingly in Ukraine) since the transition. 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. The differences in market selection patterns can only partly be explained by geographical proximity. The Finnish companies might have gained advantage from 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 do not necessarily indicate smaller numbers of entries. In fact, size of the market, and traditions of market presence play also a key role in market selection. 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 business knowledge in the region.
Tables 5a and 5b show the market expansion patterns of the companies in EE. H3 suggested that firms started their business operations in EE from geographically close countries and expanded their operations gradually to more distant countries. The Finnish sample (Table 5a) clearly gives support for the hypothesis as they have started mainly from the Russian or Estonian market and then moved gradually to the other Baltic countries, and further to CEE and CIS. The firms seem to start most often in the Czech Republic, expanding then to Hungary and Slovenia. Russia did not fit well into this expansion pattern as for several companies it was the first target country in EE.. More importantly, Austrian companies have not expanded to more distant East European countries. 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 H3.
The presence of firms from both countries in the region is still relatively young. This suggests that more time is needed to trace longer internationalization paths among the firms. Obviously in the coming years the internationalization of both countries' firms will lead to more distant countries.
Modes of Market Entry
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 of the firms in EE. H4 suggested that foreign firms entered the EE markets by using low commitment modes and moved gradually to high commitment modes. The results reveal first of all that a 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). 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 commitment forms of operation. The share of high commitment modes is higher among the Austrian firms compared to the Finnish subsample, which can be explained by the transition progress of the target countries and their geographical proximity. H4 receives support in both subsamples. However, it is worth noticing that local manufacturing operations have not significantly increased, the growth in high commitment forms is mainly due to increases in representative offices and sales units.
H5 suggested that firms are using more high commitment modes in geographically close countries compared to more distant countries. In the case of Finland, Russia and Estonia were chosen as the geographically close countries and Hungary and the Czech Republic in the case of Austria. In both cases, non-neighbouring countries were regarded as geographically distant countries. In the Finnish sample H5 receives clear support, but the Austrian subsample does not reveal any clear differences in the use of high commitment modes between geographically close and distant countries.
Entry motives
Market entry motives of the company were divided into internal and external motives 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. As in the previous section, motives were analyzed from two points of time: at the time of the market entry and in summer/fall 1998.
H6 suggested that external motives were more dominant at the time of the market entry compared to the year 1998. The results are shown in Table 7. The total sample supports the acceptance of the hypothesis as the desire to be present in a new market, demand in the target market and proximity to the market were clearly the most important motives for entering the markets. However, there were again big differences between the two subsamples. Among the Austrian firms internal motives such as technological advantage and unique qualities of the product(s) sold to EE were regarded as the major reasons for entering the markets. Thus, H6 receives only partial support.
H7 suggested that internal motives were more pronounced in 1998 than were 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 to be clearly more important than internal motives when explaining both market entry and reasons for market presence in 1998. Potentially large markets, market demand and proximity to the markets were dominant motives. Of the internal motives, unique qualities of the product and technological advantages were clearly most dominant. When comparing the motives between the time of entry and 1998, no significant differences could be found among internal motives. Consequently, H7 does not receive support.
Of the external motives competition seems to have clearly 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 reason for market presence. Contrary to previous studies, low labour costs was only a minor motive in explaining either market entry or 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.
Performance
A 5-point Likert scale (1 = extremely dissatisfied ..., 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 performed somewhat better in domestic markets than in foreign markets (means 3.57 and 3.48). An interesting finding is that the domestic performance had been better than the foreign general performance only in the Finnish sample. Compared to the general performance in foreign markets, the performance in Russian and in other EE markets was clearly poorer (means 2.92 and 2.95) in the whole sample (differences statistically significant at the 0.001 level). Thus, the hypothesis H7 receives support. The rapidly changing market and legal environment in EE markets has clearly caused more problems for firms than 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 one (means 3.27 and 2.44, difference stat. significant at the 0.001 level) whereas in the other EE 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 rather 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 EE markets other than Russia. Related to the big difference in the Austrian 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 the Austrian sample was clearly higher (3.55), in fact slightly higher than in the respective Finnish group (3.48). Thus, if the Russian market was the main market for the firm, there was in fact, no difference in the performance 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 performed better than SMEs, firms having less international and/or EE area experience, and firms having their main foreign market outside EE. As regards, the impact of firm size on the performance, the total results did not support the expectation of better performance in large companies than in SMEs either in Russian or other EE markets. Thus in general the expectation of positive influence of the greater financial and human resources of large companies was not supported. However, in the Austrian subsample the expectation received clear 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 compared with other EE markets, 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 0.01 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 (both in cases of low and very high share of foreign sales difference between means statistically significant at the 0.01 level) whereas in other EE countries the results were mixed.
Related to the timing of entry in EE, it was expected that there would be a positive relationship between lenght of operation experience and performance.The expectation did not, however, receive support either in the total sample or in the country samples. Firms which had entered the EE markets before transition had not performed better than firms which had entered the markets after the transition. In fact, the results indicated that the newcomers in EE markets performed better than firms which had longer operation experience in EE. Especially in Russia the Austrian newcomers performed better (difference in the means almost statistically significant). Either the newcomers had learned quickly how to operate in the EE market and/or their performance goals were perhaps not at such a high level as the goals of 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 unable 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 in the total sample and in both country samples were clearly higher where firms acted continuously in the EE markets than in cases where firms operated in EE markets only temporarily, and clearly best 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 when operating only occasionally in the area. Furthermore, the extremely high performance mean (3.70) related to operation in the 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, indicate that concentration and long lasting relationship building can lead to good results. In both these two subgroups the performance means even slightly exceeded the performance means of the subgroups in the domestic market and in foreign markets in general.
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 market |
190 |
3.57a1 |
0.96 |
90 |
3.39 |
1.05 |
100 |
3.73a2 |
0.84 |
Foreign general |
184 |
3.48 |
0.77 |
92 |
3.47 |
0.80 |
92 |
3.49 |
0.73 |
1. Firm size |
|||||||||
· Small |
54 |
2.93 |
1.24 |
8 |
1.75c6 |
1.39 |
46 |
3.13 |
1.11 |
· Medium |
50 |
2.90 |
1.28 |
22 |
2.36 |
1.40 |
28 |
3.32b7 |
1.02 |
· Large |
62 |
2.94 |
1.42 |
39 |
2.64 |
1.48 |
23 |
3.43c8 |
1.20 |
2. Foreign sales as % of turnover |
|||||||||
· - 19.9 |
35 |
2.69c9 |
1.21 |
10 |
1.80c10 |
1.14 |
25 |
3.04b11 |
1.06 |
· 20 - 49.9 |
41 |
3.27 |
1.27 |
12 |
2.75 |
1.48 |
29 |
3.48 |
1.12 |
· 50 - |
90 |
2.84 |
1.37 |
48 |
2.48 |
1.49 |
42 |
3.26b12 |
1.11 |
3. Timing of mkt entry in Eastern Europe |
|
|
|
||||||
· Before 1990 |
83 |
2.71 |
1.33 |
48 |
2.26 |
1.38 |
40 |
3.20a13 |
1.09 |
· 1990 or later |
85 |
3.12 |
1.29 |
27 |
2.70 |
1.54 |
58 |
3.31c14 |
1.11 |
4. Role of Eastern Europe as a mkt area |
|||||||||
· Extremely limited |
20 |
2.25 |
1.41 |
10 |
2.00 |
1.49 |
10 |
2.50 |
1.35 |
· Limited |
100 |
2.71 |
1.28 |
51 |
2.35 |
1.43 |
49 |
3.08b15 |
1.00 |
· Main market |
49 |
3.61a16 |
1.06 |
10 |
3.30b17 |
1.25 |
39 |
3.70b18 |
1.00 |
5. Market involvement |
|||||||||
in Eastern Europe |
|||||||||
· Low commitment |
109 |
2.76 |
1.31 |
56 |
2.25 |
1.44 |
53 |
3.30 |
1.10 |
· High commitment |
55 |
3.38a19 |
1.05 |
15 |
3.13b20 |
1.25 |
40 |
3.47 |
1.01 |
In other East European countries |
149 |
2.95 |
0.97 |
90 |
2.92b21 |
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 |
0.86 |
2. Foreign sales as % of turnover |
|||||||||
· - 19.9 |
25 |
3.16 |
1.03 |
15 |
3.13 |
0.99 |
10 |
3.20 |
1.14 |
· 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 |
73 |
2.86 |
0.92 |
47 |
2.94 |
0.99 |
28 |
2.93 |
0.72 |
· 1990 or later |
74 |
3.04 |
1.03 |
41 |
2.90 |
1.14 |
31 |
3.06 |
0.96 |
4. Role of Eastern Europe as a mkt area |
|
|
|
||||||
· Extremely 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 |
3.35a22 |
0.88 |
14 |
3.57a23 |
0.76 |
17 |
3.18 |
0.95 |
5. Market involvement |
|||||||||
In Eastern Europe |
|||||||||
· Low |
57 |
2.91 |
0.91 |
26 |
2.88 |
0.95 |
31 |
2.94 |
0.89 |
· High |
83 |
3.02 |
1.01 |
59 |
3.00 |
1.08 |
24 |
3.08 |
0.83 |
t-tests; means statistically different: a = stat. significant at the 0.001 level; b= stat. significant at the 0.01 level; c= 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 and Finnish sample concerning domestic performance, 3) in the Austrian sample between domestic and Russian performance, 4) in the Austrian and Finnish sample concerning performance in Russia, 5) in the Finnish sample between domestic and Russian performance, 6) between small and large Austrian firms, 7) between Austrian and Finnish medium-sized firms, 8) between Austrian and Finnish large firms, 9) between smallest and middle group, 10) between smallest group and middle group, 11) between Austrian and Finnish smallest groups, 12) between largest groups in the Austrian and Finnish sample, 13) between Austrian and Finnish firms having entry before 1990, 14) between Austrian and Finnish firms having entry after 1990, 15) between Austrian and Finnish limited operation groups, 16) between extremely limited and main market in the total sample, 17) between extremely limited vs. main market in the Austrian sample, 18) between extremely limited vs. main market in the Finnish sample, 19) between low and high commitment groups in the total sample, 20) between low and high commitment groups in the Austrian sample, 21) between domestic and other EE in the Austrian sample, 22) between extremely limited and main market groups in the total sample, 23) between extremely limited and main market groups in the Austrian sample.
In H10 it was expected that there would be 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 was clearly better in cases where the firms had used high commitment modes compared to firms which had used only low commitment operation modes in the Russian market (differences statistically significant at the 0.001 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 led to better performance, but the differences are just out of statistical significance. One explanation for the great difference in performance between the two commitment groups in the Austrian sample is that Russia was the most important EE market for several of the firms which had used high commitment operation modes in those markets, whereas for several firms using low commitment modes Russia clearly had 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 cases where the Finnish firms had used high commitment modes, these 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 Hypothesis H9 can thus be accepted for the part concerning operation in the Russian market, but not related to operation in other EE markets.
Compared to previous studies on company performance in EE, the performance of the Finnish sample coincides better with previous results than does the Austrian sample. In particular, the performance of Austrian companies in Russia was relatively poor, but the role of the Russian market is at the same time rather marginal for several Austrian companies. For those companies for which the role is clearly more important, the performance in these markets was also much better.
The transition in various EE countries at the turn of the 1990s increased significantly the interest of Western scholars and companies towards these markets. Many of the recent studies in East-West business can be characterized by narrow focus or a stagnant rather than a dynamic approach e.g. on market entry, FDI or responses of multinational companies to the opening of Eastern Europe. Unfortunately these studies are of little use when trying to understand the market strategies and performance 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 an analysis of the development of the strategies and to compare the strategies used by the 234 firms in the sample. The study is the first one based on larger sample sizes from two OECD and EU countries trying to analyze the development of market strategies and market performance in EE. The role of trade with 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 entering these markets for foreign companies. 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 increasingly also in the more distant EE markets. Slow progress in transition is not necessarily an indication of a 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 in the target countries as desire 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 evaluation of the degree of satisfaction with the results achieved using a five point Likert scale (1= extremely dissatisfied, ..., 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 countries than in foreign operations in general. However, there were 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 and, length of operation in EE countries, had not significantly influenced the performance. The only factors which significantly influenced the performance was the role of EE markets and the type of operation modes which were used. Firms which permanently operated in EE markets and for which these were their main foreign markets performed much better in both samples than firms which operated only occasionally in EE, or which 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 markets exceeded in these subgroups the general foreign performance and in the Finnish subsample was 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 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 large size of the Russian markets had partly influenced on the fact that it is not possible to operate efficiently in these 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 the Austrian sample compared to the Finnish one.
Even though the study apparently represents the first survey including samples from two OECD and EU 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 in the study was rather low in both countries and that several of the companies which have significant operations in EE did not respond to the survey. The Finnish results especially give the view of market strategies and performance from a SME point of view. It is also noteworthy 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 Finnish exports to Russia started to decrease dramatically in late 1998 and the decrease continued in 1999.Thus, it is quite evident that if the survey had been carried out more recently, the results related to the performance in Russia would probably have been clearly lower, closer to 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, political instability in Russia has increased. In other EE countries similar changes could not be observed except in some CIS countries and in some parts of former Yugoslavia. Thus it would be interesting to carry out a follow up study on 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 also to integrate the role and use of various competitive strategies into the analysis.
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