Organ. Soc. vol.15 número46

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o&s - v. 1 5 - n . 4 6 - Ju lh o/ Set em b r o - 2 0 0 8

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* Prof. Escola Superior de Tecnologia e Gest ão/ I nst it ut o Polit écnico de Leiria- Port ugal * * Prof. Kelley School of Business/ I ndiana Universit y

* * * Prof. Unisul Business School

* * * * Prof.College of Business Adm inist rat ion/ Florida I nt ernat ional Universit y

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OMPOSITION

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MALL

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ARGE

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IRMS

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USINESS

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ETWORKS

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RANSITION

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CONOMIES

M a n u e l P o r t u g a l Fe r r e i r a * D a n Li* *

Fe r n a n d o R i b e i r o Se r r a * * * Su n g u A r m a g a n * * * *

A

BSTRACT

n t h is st u d y, u sin g f ir m lev el d at a f r om t w en t y six t r an sit ion econ om ies collect ed b y t he World Bank and t he EBRD in 1999- 2000, we conduct a set of logist ic regression m odels t o in v est igat e t h e com posit ion of sm all an d lar ge f ir m s’ bu sin ess n et w or k s. The result s show t hat , in cont rast t o sm aller firm s, larger firm s are m ore likely t o have form al business relat ionships, and relat ionships wit h nat ional and foreign financial inst it ut ions, gov er n m en t , an d f or eign f ir m s. I n addit ion , in a su bgr ou p an aly sis of sev en t r an sit ion econom ies we show t hat t he com posit ion of t he firm s’ business net works varies subst ant ially across count ries but t hat t he governm ent is st ill a dom inant client . Furt herm ore, we found a large variat ion on firm s’ reliance on inform al t ies and t he ext ent t o which firm s exchange w it h for eign fir m s.

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ESUMO

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T

Introdução

he com posit ion of sm all and lar ge fir m s’ business net w or k s is lik ely t o v ar y su b st an t ially. Wh ile som e sch olar s h av e su g g est ed t h at f ir m s’ b u sin ess n e t w o r k s e v o l v e o v e r t h e i r l i f e cy cl e s i n r e sp o n se t o st r a t e g i e s a n d circum st ances ( Hum an & Provan, 2000; Hit e & Hest erly, 2001) , few st udies hav e at t em pt ed t o t est em pir ically how sim ilar or differ ent ar e t he net w or k s of firm s of different sizes, and whet her in fact t here is any difference. However, it is likely t hat t he com posit ion, st ruct ure, configurat ion, and st abilit y of firm s’ business net works are idiosyncrat ic t o t he firm s’ needs ( Gulat i et al., 2000; Hit e & Hest erly, 2001) . For exam ple, net work t ies are part icularly im port ant for sm all and/ or young fir m s w hose legit im acy and r eput at ion ar e not yet est ablished ( Saxenian, 1990; St uart et al., 1999; Hum an & Provan, 2000) . Firm s int egrat ed in business net works seem t o hav e easier access t o v ar ious t y pes of r esour ces ( Lippar ini & Sobr er o, 1994) and inform at ion ( Dyer & Singh, 1998) t hat im proves t heir chances t o det ect new m arket and innovat ion opport unit ies ( Birley, 1985; Walker et al., 1997; Gulat i, 1998; Hit e & Hest erly, 2001) and gain reput at ion and social endorsem ent ( St uart et al., 1999) .

Pr ev ious r esear ch has suggest ed t hat t her e ar e significant differ ences in t e r m s o f o r g a n i z a t i o n a l st r u ct u r e , m a r k e t f o cu s, st r a t e g y, a n d r e so u r ce endow m ent s bet w een sm all and lar ge fir m s ( e.g., St inchcom be, 1965; Mint zber g, 1979) . For ex am ple, sm all and y oung fir m s ar e highly dependent on t heir per sonal and cohesiv e social r elat ionships ( Hit e & Hest er ly, 2001) such as t heir r elat ionships w it h f am ily m em ber s or f r ien ds on w h ich t h ey r ely t o obt ain r esou r ces, gain legit im acy ( Lippar ini & Sobr er o, 1994; Hum an & Pr ov an, 2000) , and t o ov er com e p o ssi b l e d i sa d v a n t a g e s o f n e w n e ss a n d sm a l l n e ss ( St i n ch co m b e , 1 9 6 5 ) . Conv er sely, lar ger fir m s m ay seek business r elat ionships for differ ent st rat egic m ot ives ( Hit e & Hest er ly, 2001) such as innovat ion, m ar k et access, financial needs, and so for t h. Thus, differ ences in t he business r elat ionships of sm all and lar ge fir m s ar e lik ely t o be det er m ined by bot h r esour ce needs and by st r at egic m ot i-v es. To som e ex t en t , t h e com posit ion of t h e fir m s’ n et w or k is t h e r esu lt of a planned st rat egy ( Baum et al., 2000) and of a rat ional and ‘calculat ive’ pr ocess ( Hit e & Hest er ly, 2001) . How ever, t he env ir onm ent in w hich fir m s operat e also influence bot h fir m s’ r esour ce deficiencies and st r at egies as w ell as t heir abilit y t o configur e t heir net w or k s. Hence, under st anding how t he com posit ion of fir m s’ business net w or k s m ay differ for sm all and lar ge fir m s offer s insight int o w hy fir m s m ay seek t o m odify t heir business net w or k s. I n addit ion, ex am ining how t his occur s in t r ansit ion econom ies offer s insight int o t he influence of t he econom ic and inst it ut ional env ir onm ent on fir m s’ abilit y t o est ablish business t ies.

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em pir ically, w e k now very lit t le about whet her and how t he com posit ion of firm s’ business net work m ay differ in ot her econom ic environm ent s, nam ely in t ransit ion econ om ies.

I n t his st udy, we cont rast t he net works of sm all and large firm s in t ransit ion econ om ies. Th is st u dy con t r ibu t es t o ou r u n der st an din g of f ir m s’ n et w or k s in t ransit ion econom ies as a facilit at ing m echanism for firm s’ abilit y t o ride t hrough t he t r ansit ion per iod. This st udy fur t her per m it s us t o dr aw som e dissim ilar it ies am ong t r ansit ion count r ies ev idencing t hat m or e fine gr ained ex am inat ions, in cont rast t o st udies t hat gr oup all t ransit ion count r ies t oget her, ar e r equir ed t o under st and cont ext ual fact or s as w ell as fir m s’ char act er ist ics t hat influence t he com posit ion of firm s’ net works. Specifically, on a sam ple of firm s from t went y six t ransit ion econom ies, we em pirically t est whet her t he com posit ion of firm s’ business net work varies for sm all and large firm s. The rem aining of t his st udy is st ruct ured in t hree m ain sect ions. The first sect ion ent ails a brief lit erat ure review wit h t he developm ent of hypot heses, anchored in t he idea t hat firm s rely on t heir business net works where t he com posit ion of t hese net works differs significant ly depending on fir m s’ size and count r y of or igin. The second sect ion dev elops t he em pir ical m et hod and includes t he descript ion of t he dat a, variables, and result s. The t hird sect ion com prises a discussion of t he result s, im plicat ions, and avenues for fut ure r esear ch .

Firms’ Business Networks

Th e co m p o si t i o n o f a f i r m ’ s b u si n ess n et w o r k r ef er s t o t h e t y p es o f organizat ions or t he port folio of m em bers t hat are included in t he organizat ion’s business net work ( Baum et al., 2000; Gulat i et al., 2000) . Following Hit e and Hest erly ( 2001) we rest rict our analysis t o t he firm ’s ego net work, and t o t he act ors direct ly connect ed wit h a focal firm . Therefore, we focus on net work com posit ion in t erm s of t he part ners wit h which each focal firm has direct business relat ionships. That is, we assessed whet her t he firm s had a business relat ionship t o a cert ain econom ic ag en t .

Sm all fir m s h av e, per defin it ion , a lim it ed pool of m an ager ial, fin an cial, inform at ional, and hum an resources ( St inchcom be, 1965; Beam ish, 1999) . Therefore, sm all firm s m ay need t o rely m ore on t heir business net works t o overcom e resource and infor m at ional const r aint s t o im pr ove t heir likelihood of sur vival and success ( Birley, 1985; Jack & Anderson, 2002) . For exam ple, Font es and Coom bs ( 1997) observed t hat business relat ionships are oft en aim ed at accessing com plem ent ary act ivit ies or at com pensat ing for deficiencies. Business r elat ionships also expose fir m s t o infor m at ion and ot her r esour ces not y et held, hence, pr ov iding gr ow t h oppor t u n it ies.

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Formalization of business ties

Th e b u si n ess n et w o r k s o f sm al l f i r m s ar e l i k el y t o b e p r ed o m i n an t l y com p osed of i n f or m al an d p at h d ep en d en t b u si n ess r el at i on sh i p s. I n f or m al r elat ionships ar e fr equent ly t he ow ner s’ per sonal r elat ionships ( Dubini & Aldr ich, 1 9 9 1 ; Hit e & Hest er ly, 2 0 0 1 ) and r efer t o per sonal and generally non- cont r ac-t ual r elaac-t ionships ( Macaulay, 1963; Granov eac-t ac-t er, 1985) such as fam ily ac-t ies ( Lar son, 1 9 9 2 ) , f r i en d sh i p r el at i o n sh i p s ( Pen g & Lu o , 2 0 0 0 ) , af f i l i at i o n co n n ect i o n s ( Macau lay, 1 9 6 3 ) , an d com m u n it y b on d s ( Galask iew icz, 1 9 7 9 ) . Sm all f ir m s f r e q u e n t l y l a ck i n f l u e n ce , e n d o r se m e n t , p e r ce p t i o n o f q u a l i t y, r e l i a b i l i t y, r ep u t at ion , an d leg it im acy ( Boek er, 1 9 8 9 ; Lar son , 1 9 9 2 ) . As a r esu lt , ot h er or ganizat ions m ay hesit at e t o for m for m al r elat ionships w it h sm all fir m s ( St uar t et al., 1999) . Fer r eira ( 2002) suggest ed a par ent ing m odel w her eby new, and possibly sm all, f ir m s t en d t o ex ploit ex ist in g in f or m al r elat ion sh ips w it h t h eir p ar en t f i r m s i n st ead o f ex p l o r i n g n ew r el at i o n sh i p s w i t h f i r m s o u t si d e t h e par ent al net w or k of r elat ionships. I n sum , t he fir m s’ infor m al net w or k of business r elat ionships ar e an im por t ant v ehicle for infor m at ion, r eput at ion, adv ice, r efer r al, m ar k et select ion, m ar k et ent r y facilit at ion, and com m er cial ex pansion ( Ov iat t & McDougall, 1 9 9 5 ; Jack & Ander son, 2 0 0 2 ) par t icular ly for sm all fir m s.

I n cont rast t o sm all firm s, large firm s are m ore likely t o rely on form al business relat ionships. Alt hough inform al relat ionships m ay provide sufficient resources when firm s are sm all, firm s’ growt h oft en requires addit ional resources not m et by exist ing in f or m al r elat ion sh ip s. For ex am p le, lar g e f ir m s m ay n eed t o seek f in an cial in st it u t ion s w it h t h e cap acit y t o m eet lar g er f in an cial cap it al r eq u ir em en t s. Alt ernat ively, large firm s m ay seek financing in capit al m arket s going public, which bears significant m onit oring by ext ernal agent s, inst it ut ional invest ors, and financial r egulat ion inst it ut ions ( Aggar w al & Riv oli, 1991) t hat ar e gener ally out side t he p ossib ilit ies of sm all f ir m s. Th er ef or e, as sm all f ir m s g r ow t o b ecom e lar g er cor por at ions it is r easonable t o assum e t hat m or e for m al ex change gov er nance m echanism s, possibly governed by cont ract s, will gain predom inance. These m ay be business relat ionships wit h local and nat ional governm ent s, wit h m aj or client s and supplier s, w it h for eign fir m s, and w it h financial ser vice fir m s bot h dom est ic and foreign. I n ot her words, large firm s are likely t o be perceived as having higher r eput at ion and st able oper at ions, w hich facilit at es est ablishing for m al t ies w it h ot her fir m s. Mor eover, pr ior r elat ionships w it h ot her lar ge and pr est igious fir m s increase t he likelihood of form ing subsequent addit ional form al relat ionships ( Gulat i, 1995) due t o acquir ed legit im acy and r eput at ion ( Hum an & Pr ovan, 2000) . To co n cl u d e , l a r g e f i r m s h a v e a ccu m u l a t e d e x p e r i e n ce , r e so u r ce s, a n d p r i o r r elat ionships, w hich dow nplay t he im por t ance of, and dependence on, infor m al business relat ionships. Thus, large firm s are m ore likely t o have a larger pool of for m al, as opposed t o in for m al, bu sin ess r elat ion sh ips w it h ot h er agen t s t h an sm all firm s.

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H y pot h e sis 1: Large firm s are m ore likely t o have form al, as opposed t o inform al, business relat ionships in t heir business net work t han sm all firm s.

Business relationships with financial firms

As fir m s gr ow , t h eir fin an cial dem an ds in cr ease an d t h e in abilit y of t h e personal t ies t o pool t oget her t he financial resources required m ay det erm ine t he need t o seek financial inst it ut ions. Sm all firm s will find it difficult t o at t ract financial r esour ces fr om ex t er nal sour ces due t o high per ceived r isk ( Singh et al., 1986; Baum & Oliver, 1991) and prohibit ive cost s of public offerings ( Aggarwal & Rivoli, 1991) . How ever, as t he focal firm s grow and becom e est ablished in t he m arket , a ccu m u l a t e e x p e r i e n ce , b u i l d a t r a ck r e co r d o f su cce ss, i n cr e a se i n t e r n a l form alizat ion, and adopt t ransparent int ernal decision- m aking processes, t heir credit rat ings are likely t o im prove and at t ract financial service firm s’ int erest . Therefore, larger firm s are likely t o ‘calculat ively’ ( Hit e & Hest erly, 2001) est ablish t ies t o co-opt financial service firm s and alleviat e financial resource dependence ( Rowley et al., 2000) t hat inform al t ies cannot overcom e. Financial service firm s such as banks or leasing are also m ore likely t o get involved w it h larger and est ablished firm s t han wit h sm aller firm s due t o lower t ransact ion cost s incurred.

I n t ransit ion econom ies, t he capit al m arket and t he financial inst it ut ions are gener ally under dev eloped, ineffect iv e, and inefficient ( Per ot t i, 1 9 9 3 ; New m an, 2000) . To overcom e t his lim it at ion, firm s m ay resort t o inform al sources of capit al ( Newm an, 2000) . Alt ernat ively, firm s m ay seek foreign financial service firm s. Most local ( nat ional or r egional) bank s in t r ansit ion econom ies cont inue t o be lar gely st at e owned and t end t o sust ain loans t o non- perform ing and over- indebt ed st at e-owned firm s ( Perot t i, 1993; St iglit z, 1994) , less oft en ext ending loans t o privat e ent erprises ( St iglit z, 1994; Jelic et al., 1999) . Technologically obsolet e local banks are unable t o evaluat e t he viabilit y of privat e or privat ized firm s especially when t hese firm s are sm all.

H y pot h e sis 2 .1. Large firm s are m ore likely t o have business relat ionships t o local financial service firm s in t heir business net work t han sm all firm s.

Foreign financial service firm s are also im port ant sources of financial capit al for firm s. Foreign banks are part icularly im port ant given t he short age of liquidit y by local banks in t ransit ion econom ies ( St iglit z, 1994) . Foreign financial service firm s are unlikely t o finance t he operat ions and/ or invest m ent s of sm all firm s except in lim it ed and specific sit uat ions of a provable t rack record of, for exam ple, innovat ive perform ance. However, t he m aj orit y of t he sm all firm s do not have t he reput at ion and legit im acy nor t he t rack record of accom plishm ent s needed, which height ens foreign financial firm s’ uncert aint y. Furt herm ore, t he t ransact ion cost s of lending t o sm all firm s increase in t he form of uncert aint y and inform at ion needs sim ply because it is m ore difficult t o obt ain independent and reliable dat a on sm all firm s t han on lar ge fir m s, par t icular ly on lar ge public fir m s. An inefficient pool of r egulat or y inst it ut ions height ens t hese risks and cost s. Hence, it is m ore likely t hat foreign financial service firm s will engage in business t ransact ions wit h large and legit im ized firm s rat her t han wit h sm all firm s.

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on v ar iou s m ech an ism s, n am ely on t h e p r ocesses r eq u ir ed t o ob t ain f or eig n financing by foreign financial services firm s.

H y pot h e sis 2 .2 . Large firm s are m ore likely t o have business relat ionships t o foreign financial service firm s in t heir business net work t han sm all firm s.

Business relationships with foreign partners

Firm s in t ransit ion econom ies have significant benefit s from int erfaces wit h foreign firm s for t echnological learning, t o speed t heir int ernat ionalizat ion, and t o det ect m ar k et oppor t u n it ies in f or eign m ar k et s. How ev er, t h e dev elopm en t of r elat ionships w it h for eign client s and supplier s is lik ely t o be dependent on t he foreign part ners’ percept ion of t he focal firm s’ credibilit y and capacit y t o m eet t heir obligat ions. The m aj or barriers for foreign firm s’ int erest s in est ablishing exchange relat ions wit h t he focal firm s include t he lack of knowledge about t he focal firm s’ t rust wort hiness, t he inabilit y t o m easure accurat ely t he focal firm s’ perform ance, or t he absolut e lack of know ledge on t he focal fir m s’ exist ence. I n fact , for eign firm s will have an even higher difficult y of evaluat ing t he focal firm s’ st at us and perform ance t han ot her dom est ic firm s do when t he inform at ion available is less reliable. Therefore, large firm s are m ore likely t han sm all firm s t o have business r elat ionships w it h for eign or ganizat ions.

Lar ge fir m s hav e a m or e dev eloped and possibly m or e ex t ensiv e pool of business relat ionships t o bot h dom est ic and foreign firm s t hat serve as referrals for legit im acy and corporat e st rat egy ( Hum an & Provan, 2000) . These relat ionships highlight t hat t hey are t rust wort hy and capable. Furt herm ore, large firm s are likely t o seek foreign m arket s ( client s) t o place t heir product s as a m arket diversificat ion st r at eg y. How ev er, t o access f or eig n m ar k et s f ocal f ir m s n eed t o h av e som e knowledge of t he m arket , which necessit at es local collaborat ion. Jack and Anderson ( 2 0 0 2 ) , f or ex am p le, f ou n d t h at v ar iou s m ar k et ex p loit in g op p or t u n it ies ar e em bedded in t he local st ruct ure and cannot be recognized and explored w it hout social em beddedn ess – t h at is, w it h ou t r elat ion sh ips t o locally - based agen t s. Bu sin ess r elat ion sh ips t o for eign clien t s an d su pplier s m ay be br idges for t h e det ect ion of m ar k et oppor t unit ies in for eign m ar k et s. I n sum , w e suggest t hat large firm s are m ore likely t o have business relat ionships wit h foreign client s because large firm s have larger m anufact uring capacit ies t hat m ay sat isfy t he client s needs, have m ore exposure t o foreign cont act s ( e.g. part icipat ion in t rade fairs, and ot her ev ent s) , and ar e m or e r eliable in t er m s of m eet ing and fulfilling cont r act s t han sm aller firm s. Furt herm ore, as discussed above, t he added reput at ion and credibilit y of large firm s lowers t ransact ion cost s, which is part icularly im port ant in t ransit ion econ om ies.

H ypot h e sis 3 .1 . Large firm s are m ore likely t o have business relat ionships wit h foreign client firm s in t heir business net work t han sm all firm s.

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H y pot h e sis 3 .2 . Large firm s are m ore likely t o have business relat ionships t o foreign supplier firm s in t heir business net work t han sm all firm s.

Business relationships with the government

The governm ent is a m aj or econom ic player in any econom y and part icularly in econom ies t hat are st ill in t ransit ion from a cent rally planned econom ic syst em . The governm ent or governm ent agencies are m aj or client s, suppliers, and invest ors in t he m aj orit y of t he indust ries ( Henisz, 2001) . As a large client , t he governm ent is likely t o have st rict crit eria t o ascert ain from which firm s it should procure goods and services. I n fact , in m any count ries, governm ent al agencies specify t he norm s and requirem ent s t hat suppliers need t o fulfill t o qualify ( e.g. I SO 9000 and 14000) . The governm ent also procures in large quant it ies and seeks firm s wit h higher st abilit y and r eput at ion. Finally, t he gov er nm ent oft en pay s it s pur chases aft er sev eral m ont hs requiring firm s t o have t he financial capacit y t o carry account s. Therefore, we suggest t hat t he governm ent is m ore likely t o procure from large est ablished firm s and, hence, large firm s are m ore likely t o have business t ies t o governm ent al agencies for supply pur poses.

H y pot h e sis 4 .1 . Large firm s are m ore likely t o have business relat ionships t o t he governm ent and governm ent al agencies in t heir business net work t han are sm all firm s

Governm ent s invest in firm s for a variet y of reasons, som e of which st rat egic, ot hers polit ical, and yet ot hers for social m ot ives. For exam ple, t he governm ent m ay be a part ner or an invest or in indust ries t hat are considered t o be of st rat egic int erest for t he count ry but t hat require t oo large of an invest m ent t o t rigger privat e int er est ( e.g., railr oads, m ilit ar y equipm ent and defense, and ener gy ) . Ot her t i-m es, t he governi-m ent invest s in firi-m s t o prevent bankrupt cy and t o avoid t he polit ical and social dist ress t hat follows a large loss of j obs. I n addit ion, t he governm ent or affiliat ed agen cies oft en in v est in lar ge dev elopm en t pr oj ect s t h at r equ ir e t h e pooling of privat e and public finances ( e.g., large dam s, highways) and m ay do so by acquiring an equit y st ake in an incum bent firm . Therefore, it seem s reasonable t o suggest t hat t he governm ent as an invest or is keener on invest ing in firm s wit h an est ablished reput at ion, t hat are larger and m ore able t o offer warrant ies. The inform at ional m arket im perfect ions in t ransit ion econom ies m ake t his preference m ore salient .

H y pot h e sis 4 .2 . Large firm s are m ore likely t o have business relat ionships t o t h e gov er n m en t an d gov er n m en t al agen cies as in v est or s in t h eir bu sin ess net work t han are sm all firm s.

Data And Methods

Sample

The dat a used in t his st udy w as dr aw n fr om a sur v ey conduct ed by t he World Bank and t he European Bank for Reconst ruct ion and Developm ent ( EBRD) . Th e su r v ey an d d at a ar e p u b licly av ailab le in t h e ser ies Bu sin ess En t er p r ise Environm ent Survey1_{( BEEPS survey) . The survey dat a was collect ed t hrough phone} in t er v iew s t o t op m an ag er s ( e. g . CEO, Pr esid en t , Dir ect or, Man ag er, Ow n er, Pr opr iet or ) of fir m s fr om t w ent y- six t ransit ion econom ies dur ing 1999- 2000. We

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excluded t he surveys wit h m issing dat a in t he variables of int erest , st at e- owned firm s, cooperat ives, and non- profit organizat ions. We also excluded firm s founded prior t o 1985 because t he m aj orit y of t he firm s in t he dat aset were younger t han t en y ear s and t he r em aining w er e pr edom inant ly st at e- ow ned. Our final sam ple was com posed of 3,048 firm s. The count ries included in t he dat aset are: Albania, Arm enia, Azerbaij an, Belarus, Bosnia, Bulgaria, Croat ia, Czech Republic, Est onia, Georgia, Hungary, Kazakhst an, Kyrgyzst an, Lat via, Lit huania, Macedonia, Moldova, Poland, Rep. Serpska, Rom ania, Russia, Slovakia, Slovenia, Turkey, Ukraine, and Uzbek ist an .

The ext ant research has acknowledged t he t ransform at ion in t he inst it ut ional st r u ct u r es an d or gan izat ion s t h at accom pan ied t h e f all of com m u n ism in t h e t r an sit ion econ om ies, m ost ly Cen t r al an d East er n Eu r op ean cou n t r ies ( e. g ., Newm an, 2000; Peng & Luo, 2000; Rot h & Kost ova, 2003) . By t ransit ion econom ies w e r ef er t o t h ose econ om ies w h er e t h e in st it u t ion al ch an g es u n d er w ay ar e profound enough t o cause a rest ruct uring of firm s’ business relat ionships. These changes are charact erist ic of t he t ransit ion econom ies, and differ m arkedly from t he t r ansfor m at ions occur r ing in t he em er ging econom ies of Cent r al and Sout h Am erica, for inst ance. Aghion and Schankerm an ( 1999) not ed how t he inst it ut ional and phy sical infr ast r uct ur es inher it ed fr om t he socialist er a ar e inadequat e and t he challenges t hat firm s face in t hese environm ent s. Newm an ( 2000) referred t o dr am at ic changes in t he legal, polit ical and r egulat or y fr am ew or k s in t r ansit ion econom ies. Despit e som e int er- count ry variat ions, t he inst it ut ional inadequacies during t he t ransit ion period are com m on and sim ilar ( even if not ident ical) t o all t r ansit ion econom ies. These count r ies’ inst it ut ions ar e st ill engr ained in t he pr o-cesses t hat charact erized t he com m unist regim e, which signifies t hat t hese count ries lack m ar k et - or ien t ed in st it u t ion s, efficien t legal an d r egu lat or y fr am ew or k s t o enforce cont ract s, t o prot ect privat e propert y, and t o preserve a level playing field for privat e invest m ent and individual init iat ive. Moreover, all t he count ries included in t h e sam p le w er e id en t if ied b y t h e Eu r op ean Ban k f or Recon st r u ct ion an d Developm ent as “ count ries in t ransit ion”.

Measures

D e pe n de n t va r ia ble s - The dependent variables reflect t he com posit ion of a firm ’s net work of business relat ionships and specifically t he exist ence of business r elat ion sh ip s w it h a cer t ain econ om ic ag en t . Sp ecif ically, t h er e is a b u sin ess relat ionship if t here is any form of t ie t hat is report ed by t he firm in t he survey. We coded int o dum m y variables each of t he following nine business relat ionships t hat m ay exist in a firm ’s net work: relat ionships wit h foreign firm s as client s ( FOREI GCL) , f o r ei g n f i r m s as su p p l i er s ( FOREI GSUP) , f o r ei g n f i r m s as eq u i t y o w n er s o r shar eholder s ( FOREI GPT) , gov er nm ent and/ or gov er nm ent al agencies as client ( GOVERCL) , g ov er n m en t an d / or g ov er n m en t al ag en cies as eq u it y ow n er s or sh ar eh older s ( GOVERPT) , n at ion al f in an cial ser v ice f ir m s ( ban k s) as in v est or s ( FI NNABA) , and foreign financial service firm s as invest ors ( FI NFORBA) . The focal firm ’s inform al relat ionships ( FI NI NFOR) reflect whet her t he firm relies on fam ily, friends, and ot her t radit ional inform al sources ( e.g., m oney lender, supplier credit ) for resources. Given t he em phasis of prior lit erat ure on fam ily and friends as t he m ain inform al resource suppliers, we ident ified t he relat ionships wit h fam ilies and friends ( FI NFAMI L) as a sub- case of inform al relat ionships.

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alt er n at iv e m easu r em en t s of f ir m s’ size. Th e cor r elat ion b et w een f ir m s size m easured by fixed asset s and m easured by sales was .7 and st at ist ically significant . Pr i o r r e se a r ch h a s i n d i ca t e d t h a t t h e l i k e l i h o o d o f f o r m i n g b u si n e ss relat ionships wit h cert ain agent s m ay be associat ed wit h t he firm ’s age, indust ry background, physical locat ion, legal form , and public st at us. Therefore, we included sev er al cont r ol v ar iables in our logist ic r egr ession m odels t o account for t hese alt er nat iv e ex planat ions. Fir m s’ age has been concept ually ar gued t o influence t he com posit ion of t heir net work ( e.g., Hit e & Hest erly, 2001; Huang et al., 2003) . For exam ple, older firm s m ay have m ore experience and resources t o build t heir business relat ionships wit h various m arket players. Firm s’ age was const ruct ed as t he difference bet ween t he year of founding and 2000. Age in our sam ple varies from one t o fift een ( i.e., founded in 1985 or lat er) .

The fir m s’ indust r y m ay also hav e an effect on it s net w or k com posit ion. For ex am p le, t h e d if f er en ces in m ar k et ch ar act er ist ics m ay lead t o v ar iat ion s in oppor t u n it ies t o for m par t n er sh ips. Th e con t r ol for in du st r y2_{is set as du m m y} v ar iable t hat equals 1 for ser v ice fir m s and 0 for m anufact ur ing fir m s. Par t icipat ion in t r ad e associat ion s ( Tr ad e associat ion ) is a d u m m y v ar iab le t h at cap t u r es w h et h er t h e f i r m i s m em b er o f a t r a d e a sso ci a t i o n . Pa r t i ci p a t i o n i n t r a d e associat ions m ay enhance fir m s’ v isibilit y, r eput at ion, legit im acy, endor sem ent , and ex t ension of t heir infor m at ion channels facilit at ing t he for m at ion of business r elat ionships. We also cont r ol for fir m s’ legal for m ( Legal for m ) such as single pr opr iet or ship, par t ner ship, and cor por at ion. I n addit ion, w e included t w o cont r ols for fir m locat ion: t he count r y of t he fir m s ( 26 dum m ies) and t he size of t he cit y w her e t hey ar e locat ed ( Lar ge cit y ) . We classify t he cit y as lar ge if it has m or e t han 250.000 cit izens or if it is t he count r y ’s capit al. Finally, w e coded t he fir m s or igin in t hr ee dum m y v ar iables: pr iv at e fir m s ( equals 1 if t he fir m is pr iv at e since est ablishm ent ) , j oint v ent ur es ( JV) ( equals 1 if t he fir m w as est ablished as a j oint v ent ur e bet w een dom est ic and for eign par t ner s) , and pr iv at ized fir m s ( equals 1 if t he fir m r esult ed fr om t he pr iv at izat ion of a pr ev iously st at e- ow ned fir m ) .

Results

I n Tables 1 and 2, we provide descript ive st at ist ics and correlat ions for all v ar iables. Alt hough t her e ar e a num ber of significant cor r elat ions, none is high enough t o raise m ult icollinear it y concer ns ( Hair et al., 1995) . We used var iance in f lat ion f act or s ( VI F) t o t est f or m u lt icollin ear it y an d n on e of t h e VI F scor es appr oached t he com m only accept ed t hr eshold of 10 t o indicat e m ult icollinear it y. One of t he not ewort hy correlat ions in Table 2 is bet ween firm size and age which is v er y low ( 0 . 1 4 ) an d sign ifican t . I n pr ior st u dies t h ese v ar iables h av e been con f ou n d ed , w h ich m ay ex p lain t h e d if f icu lt ies in clear ly d ist in g u ish in g t h e independent effect s of size and age. The unexpect ed low correlat ion bet ween firm size and age is an advant age in our sam ple because we avoid possible confounding effect s of t hese t wo variables on our dependent variables, as m ay occur whenever t here is a high correlat ion bet ween firm s’ size and age. However, t he low correlat ion m ay also r eflect lim it at ions of our sam ple. Fir m age r anges fr om one t o fift een years old, w hich, under m ost indust ry condit ions, im plies relat ively young firm s. The m ean age of t he firm s in our sam ple is 6.95 years, 33 percent are at m ost five years old and 91 percent are at m ost t en years old. Firm s at t his st age m ay st ill suffer from a liabilit y of newness or of adolescence.

2_{Alt hough a larger different iat ion of indust ries would be desirable t his is not perm it t ed given t he dat a}

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Ta ble 1 -M e a n s a n d St a n da r d D e via t ion s

Ta ble 2 - Cor r e la t ion s M a t r ix

Not e: * p < 0 . 0 5

Result s of t he logist ic r egr ession m odels used t o t est t he hy pot heses ar e pr esent ed in Table 3. The dependent var iables capt ur e w het her t he focal fir m s have a cert ain t ype of business relat ionship ( client , supplier, and invest or) wit h a cer t ain agent ( e.g., fam ily / fr iends, nat ional financial fir m s, gov er nm ent , for eign financial fir m s) . To t est t hese hy pot heses w e ran nine logist ic r egr essions and

Va r ia ble Obs M e a n St d. D ev M in M a x

FOREI GPT 2964 0.14 0.34 0 1

FOREI SUP 2963 0.33 0.47 0 1

FOREI GCL 2907 0.26 0.44 0 1

GOVERPT 2964 0.06 0.24 0 1

GOVERCL 2821 0.46 0.50 0 1

FI N FAM I L 2838 0.19 0.39 0 1

FI N I N FOR 2838 0.08 0.28 0 1

FI N N ABA 2838 0.21 0.41 0 1

FI N FORBA 2838 0.03 0.16 0 1

Siz e 2968 1.97 1.66 1 10

Age 2968 6.95 2.57 1 15

I n du st ry 2967 0.52 0.50 0 1

Cou nt r y 2968 14.77 7.48 1 26

La r ge cit y 2968 0.50 0.50 0 1

Pr iv a t e fir m 2968 0.69 0.46 0 1

Pr iv a t iz ed fir m 2968 0.28 0.45 0 1

Joint v en t u r e 2968 0.03 0.18 0 1

Le ga l for m 2967 2.68 1.53 1 6

Tr a de

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exam ined t he probabilit y of occurrence of a cert ain business relat ionship. Wit h t he sign ifican ce lev el at 9 9 . 9 % , ou r logist ic r egr ession m odels w er e sign ifican t as indicat ed by t he m odels’ Chi- square values.

Ta ble 3 - Logist ic Re gr e ssion M ode ls

No t e: Cell ent r ies ar e unst andar dized coefficient s. †_{p< .10;}*_{p< .05;}* *_{p< .01;}* * *_{p< 0.001} FI NI NFOR- in for m al r elat ion sh ips, FI NFAMI L - r elat ion sh ips w it h fam ily m em ber s an d fr ien ds, FI NNABA - fin an cin g by n at ion al ban k , FOREI GCL - for eign clien t , FOREI SUP - for eign su pplier , FOREI GGPT for eign in v est or / par t n er , GOVERCL gov er n m en t as clien t , GOVERPT

-gov er n m en t as in v est or / par t n er .

Hy pot hesis 1 suggest ed t hat lar ge fir m s w er e m or e lik ely t o hav e for m al relat ionships, and, conversely, t hat sm all firm s were m ore likely t o rely on inform al r elat ionships. Models 1 and 2 t est ed t his hy pot hesis. I n Model 2, fir m size w as significant ly relat ed t o t he form at ion of inform al relat ionships ( â= - 0.15, p< .01) . However, t he coefficient est im at ed in Model 1 is not st at ist ically significant . As firm s’ size incr eases, it seem s t hat t hey ar e less lik ely t o m aint ain infor m al business r elat ionships t o fam ily and fr iends. Ther efor e, hypot hesis 1 r eceived only par t ial su ppor t .

Hypot hesis 2 advanced t hat , in cont rast t o sm all firm s, large firm s were m ore likely t o have relat ionships wit h bot h nat ional financial firm s ( Hypot hesis 2.1) and foreign financial firm s ( Hypot hesis 2.2) . I n fact , we found firm size t o be significant ly relat ed t o t he likelihood of having business relat ionships wit h local financial firm s in Model 3 ( â= 0.13, p< .001) and wit h foreign financial firm s ( banks) in Model 4 ( â= 0.35, p< .001) . Therefore, bot h Hypot heses 2.1 and 2.2 were support ed.

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Additional results

Fir m s’ le ga l for m

We ex t en ded ou r an aly sis t o f ir m s’ legal f or m . We obser v ed t h at f ir m s originat ed as j oint vent ures wit h foreign firm s were m ore likely t o be involved wit h foreign firm s as suppliers, client s, and/ or invest ors ( see m odels 4, 5, and 6 in Table 3) . Joint vent ures were also m ore likely t o obt ain financial resource from foreign financial inst it ut ions t han eit her privat e firm s or privat ized st at e- owned firm s. This r esult seem s t o indicat e t hat business r elat ionships ar e cum ulat iv e and ent ail a posit ive spillover. However, t he sm all num ber of j oint vent ures in t he sam ple requires caut ion in pot ent ial ex t r apolat ions. I n addit ion, pr iv at e fir m s ar e m or e lik ely t o have a higher proport ion of inform al business relat ionships. A sim ple explanat ion is t hat t hese firm s m ay have a liabilit y of newness and t hat it is likely t o be m ore difficult for new fir m s t o est ablish for m al t ies due t o a lack of r eput at ion and legit im acy, as discussed previously. I t m ay also be specific t o our dat a where new fir m s pr edom inat e. Fur t her m or e, fir m s t hat r esult fr om pr iv at izat ion of for m er ly st at e- ow ned ent er pr ises hav e m or e r elat ionships w it h nat ional financial ser v ice firm s. A possible explanat ion is t hat privat ized firm s have t o rely m ore on financial inst it ut ions for r esour ces because t hey have lost , at least par t ially, t he financial backing of t he governm ent .

Count r ie s e nvir onm e nt a l idiosyncr a sie s

To exam ine whet her t he relat ionships verified on t he com posit ion of business net w or k s in t r ansit ion econom ies ar e univ er sal or par t icular t o all count r ies, w e conduct a sub- group analysis for select ed count ries. To select t hese count ries, we ut ilized t he CI A Wor ld Fact book ( w w w.cia.gov ) t o det er m ine t he populat ion and GDP per capit a ( at purchasing power parit y: PPP) . We also looked at t he count ries t h at eit h er j oin ed or w h ich ar e m ost lik ely t o j oin t h e Eu r op ean Un ion3_{. We} r est r ict ed t h e an aly ses t o t h e f ollow in g cou n t r ies: Bu lgar ia ( GDP_{p c} PPP4_{: $ 6 . 6 0 0 ,} popu lat ion : 7 . 6 2 1 ) , Czech Repu blic ( GDP_{p c} PPP: $ 1 5 . 3 0 0 , popu lat ion : 1 0 . 2 5 7 ) , Polan d ( GDP_{p c} PPP: $ 9 . 5 0 0 , popu lat ion : 3 8 . 6 2 5 ) , Hu n gar y ( GDP_{p c} PPP: $ 1 3 . 3 0 0 , popu lat ion : 1 0 . 0 7 5 ) , Tu r k ey ( GDP_{p c} PPP: $ 7 . 0 0 0 , popu lat ion : 6 7 . 3 0 9 ) , Uk r ain e ( GD P_{p c} PPP: $ 4 . 2 0 0 , p o p u l a t i o n : 4 8 . 3 9 6 ) , a n d Ru ssi a ( GD P_{p c} PPP: $ 8 . 8 0 0 , p op u lat ion : 1 4 4 . 9 7 8 ) .

The result s in Table 4 below show t hat , in t hese count ries, firm s’ business relat ionships wit h t he governm ent st ill play a m aj or role beyond a level we expect in m ore inst it ut ionally developed count ries. I n Ukraine, about 65 percent , and in Poland and Russia, about 55 percent of firm s have supply t ies wit h t he governm ent . Th e ex t r em ely h ig h p ar t icip at ion of t h e g ov er n m en t as a clien t m ay r ef lect rem iniscences of a cent rally planned econom y. However, given t hat our sam ple is lim it ed t o privat ely- held firm s t he governm ent appears as a sm all invest or. Perhaps, even t hough t he governm ent m ay be decreasing it s econom ic part icipat ion in t hese count ries, t he reconfigurat ion of firm s’ business net work is t aking t im e t o form and t hat t hese firm s are st ill highly dependent on procurem ent t ies wit h governm ent al ag en cies.

3_{The European Union candidat e count ries are: Bulgaria, Czech Republic, Est onia, Hungary, Lat via,}

Lit huania, Poland, Rom ania, Slovakia, Slovenia, and Turkey.

4_{GDP per capit a PPP – Gross Dom est ic Product per capit a at purchasing power parit y. These values}

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Ta ble 4 - Com pa r ison of N e t w or k Com posit ion in Se le ct e d Cou n t r ie s

% Bu lga r ia Cze ch

Re pu blic Pola n d Ru ssia Tu r k e y H u nga r y Uk r a in e

FOREI GPT 10.22 21.24 18.52 6.51 9.23 23.48 12.96

FOREI GSUP 24.14 27.43 29.63 15.75 26.15 30.43 27.31

FOREI GCL 21.84 28.57 35.00 9.39 29.69 21.62 23.11

GOVERPT 9.09 0.00 4.50 9.16 0.00 5.22 5.56

GOVERCL 32.47 44.86 54.49 54.45 30.16 33.64 65.00

FI N FAM I L 44.58 29.00 7.60 15.42 30.77 21.93 18.98

FI N I N FOR 14.46 26.00 11.39 7.05 3.08 4.39 8.80

FI N N ABA 22.89 12.00 36.08 20.26 43.08 14.04 19.44

FI N FORBA 2.40 9.00 3.80 1.32 3.08 2.63 1.39

Not e: t h e v alu es in dicat e t h e % of f ir m s’ bu sin ess r elat ion sh ips. Th ese v alu es do n ot add t o 1 0 0 % sin ce each f ir m m ay car r y sim u lt an eou sly sev er al t y pes of t ies an d t o m u lt iple a g e n t s.

I n general, firm s across all t hese seven count ries carry a subst ant ial port ion of inform al t ies such as t he t ies t o fam ily and friends. This finding is consist ent wit h Rot h an d Kost ov a’s ( 2 0 0 1 ) st u dy. Yet , a closer obser vat ion r ev ealed t h at t h e im por t ance of infor m al r elat ionships differ s pr onouncedly acr oss count r ies. For exam ple, approxim at ely 45% of t he inform al relat ionships of Bulgarian firm s are com posed of fam ilies and fr iends w hile t hese account for 10% for Polish fir m s. Therefore, alt hough inform al relat ionships play an im port ant role in t he net works of firm s in t ransit ion econom ies, ot her m acro- level fact ors ( e.g., nat ional cult ure, m at urit y of capit al m arket ) m ay st ill lead t o different em phasis on firm s’ reliance on per sonal t ies for business r elat ionships.

Business relat ionships t o foreign invest ors are part icularly frequent in Hungary and Czech Republic. How ev er, for eign fir m s ar e m or e im por t ant as client s and suppliers t han as invest ors across our sam ple. This pict ure m ay be changing as a growing num ber of foreign firm s ( nam ely from West ern Europe) relocat e t he m ore labor- int ensive act ivit ies t o t ransit ion econom ies. The prospect t hat m ore of t hese count ries m ay j oin t he European Union is likely t o bring even m ore econom ic, polit ical, and social st abilit y t o t he region. Financing from foreign banks plays, st ill, a lim it ed role in t he pool of financing sources, but we m ay expect t heir im port ance t o increase as polit ical and econom ic risk decrease and larger m ult inat ionals set operat ions in t hese count r ies.

Discussion and Conclusion

I n t h is st u dy w e ex am in ed t h e com posit ion of t h e n et w or k of bu sin ess relat ionships of firm s of different sizes and from t ransit ion econom ies. The result s indicat e t hat in cont rast t o sm aller firm s, larger firm s are m ore like t o have form al business relat ionships, and relat ionships wit h local and foreign financial inst it ut ions, governm ent / governm ent agencies, and foreign firm s. This st udy cont ribut es t o a bet t er underst anding of sm all and large firm s’ business net work. Furt herm ore, it cont r ibut es not only t o t he social net w or k lit er at ur e by inv est igat ing em pir ically t he com posit ion of firm s’ business net works in t erm s of t he t ype and t he role of t he net work m em bers, but also t o t he int ernat ional business lit erat ure by exploring fir m s’ business r elat ionships in t he cont ex t of t r ansit ion econom ies. We t est ed som e hypot heses t hat have been concept ualized, alt hough not em pirically t est ed, in prior research.

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econom ic developm ent of t he t r ansit ion econom ies, par t icular ly t hose in East er n Europe, and t he fact t hat at least som e of t hese count ries have j oined t he European Union m akes t hem an int erest ing obj ect of st udy. I n fact , t his set t ing is im port ant as it allows us t o observe count ries whose business environm ent s are subst ant ially different from t hat of t he US or West ern European count ries. New insight s, wit h t he pot ent ial for t heor y gener at ion, m ay also em er ge fr om analy zing business net works in count ries t hat are shift ing from a cent rally planned econom ic syst em t o a m arket - based econom ic syst em .

Our st udy furt her sheds som e insight s int o how t he configurat ion of firm s’ business net w or k s m ay affect t r ansit ion econom ies’ abilit y t o be innov at iv e. For exam ple, if t he nat ional firm s have business relat ionships predom inant ly t o ot her nat ional firm s, t his m ay hinder t heir abilit y t o int roduce m aj or m odificat ions in t he t echnological pat h of t he count ry ( Kogut , 1991) . Conversely, if nat ional firm s have t ies t hat span t he nat ional boundar ies it is lik ely t hey m ay engage in a m ix of ex ploit at ion and ex plor at ion of v ar ious t echnological t r aj ect or ies ( Kogut , 1991; March, 1991) . For exam ple, sm all firm s are likely t o be const rained t o local searches ( Lipparini & Sobrero, 1994) , because t heir t ies t end t o be local and less diverse. Conversely, large firm s are m ore likely t o have broader t ies and be able t o explore bot h locally and int ernat ionally. Large firm s also have larger resources t o com m it t o t hose searches. Nevert heless, t he im pact of firm s’ business t ies for innovat ion in t r ansit ion econom ies w ar r ant s addit ional r esear ch.

How do firm s const ruct , reconst ruct , and adj ust t heir net work of business relat ionships t hroughout t heir life cycles? Hit e and Hest erly ( 2001) suggest ed t hat firm s’ net works evolve t o accom m odat e em erging resource needs and changes in ex t er nal pr essur es. While sm all and new fir m s m ay est ablish r elat ionships w it h t he purpose of overcom ing a lack of legit im acy and reput at ion, in lat er st ages, t he m ain purpose of business relat ionships m ay be t o sat isfy resource needs or different t ypes of legit im acy ( e.g. legit im acy t o operat e in foreign m arket s, t o part ner wit h t h e Go v er n m en t ) . Ho w ev er, t h i s r ea so n i n g d o es n o t a d d r ess ex p l i ci t l y t h e inst it ut ional envir onm ent fact or s. The under st anding of fir m s’ business net w or ks r eq u i r es t h a t w e e x a m i n e t h e r e so u r ce d ep e n d en ci e s t h a t l e a d t o ce r t a i n com posit ions of firm s’ business net works in each st age of firm s evolut ion ( Pfeffer & Salancik, 1978) , t he environm ent al inst it ut ional effect s ( DiMaggio & Powell, 1983) , and t he firm s’ st rat egies ( Hit e & Hest erly, 2001) . Furt herm ore, given t hat size is a m aj or dim ension along which firm s evolve, t his analysis has a pot ent ial for ext ension in ot her dim ensions t hat also charact erize t he evolut ion of firm s such as age, and product or m arket port folio.

I n addit ion t o em pirical evidence for t he hypot heses advanced, som e of our ot her result s are of not iceable int erest . The low correlat ion bet ween age and size is int er est ing and m ay r eflect t he pr ofound inst it ut ional, econom ic, and polit ical shift s t ak ing place in t r ansit ion econom ies. Thus, t his low cor r elat ion m ay be a nat ur al out com e w hen st udy ing fir m s fr om t r ansit ion econom ies r at her t han an ar t ifact of t he dat a used. I n addit ion, giv en t hat access t o econom ic agent s is im port ant in est ablishing business relat ionships, we included t he size of t he cit y in which t he firm is locat ed. The result s indicat e t hat t he larger t he cit y t he m ore likely t he firm has relat ionships t o a variet y of agent s. Firm s in larger cit ies have easier access t o t he gov er nm ent , t o for eign agent s and t o local financial inst it ut ions. Thus is, larger cit ies seem t o be m ore m unificent ( Wan & Hoskisson, 2003) and firm s in t hese cit ies resort t o inform al t ies less oft en ( t he coefficient s for FI NFAMI L and FI NI NFOR are negat ive and significant in m odels 1 and 2 in Table 3) t han firm s in sm aller cit ies.

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est ablishing business r elat ionships t han pr iv at e fir m s, w hich m ay be due t o t he recency of t he privat izat ion proj ect s and t o t he oft en quit e radical m odernizat ion and r est r uct ur ing t hat fir m s under go post - pr iv at izat ion. I t is possible t hat t he r est r uct ur ing is incr easing t he per ceiv ed r isk s of car r y ing ex changes w it h t hese firm s.

Fin ally, w e su g g est t h at cou n t r y id iosy n cr at ic v ar iab les m ay b e st r on g det erm inant s of t he com posit ion of firm s’ net work. Nat ional cult ure, societ al norm s, and values m ay influence t he t ypes of t ies est ablished. For inst ance, Hungary and Poland ar e pr edom inant ly Cat holic, w her eas t he cent r al Asian count r ies in t he sam p le ar e p r ed om in an t ly Mu slim , w h ich m ay h av e an im p act on f in an cin g . Gover nm ent al influences, r egulat or y and legal policies, and social char act er ist ics are ot her possible cont ext ual fact ors. For exam ple, it m ay be t hat int er- firm t rust and st able business relat ionships are m aj or and effect ive governance m echanism s against risks of opport unist ic behaviors ( William son, 1985; Dyer & Singh, 1998) . I n fact , t rust am ong part ner firm s has been not ed as an essent ial condit ion for efficient econom ic t ransact ions. Trust m ay even be a subst it ut e t o overcom e inst it ut ional failur es in t r ansit ion count r ies. Fut ur e r esear ch m ay assess w hat is t he r ole of t rust for t he form at ion of business relat ionships in t ransit ion econom ies and how t he profound econom ic t ransform at ions affect t he st abilit y of t rust - based exchanges. I n t his r egar d, it is possible t hat t he infor m al business r elat ionships t end t o be m ore reliant on int er- firm t rust t han on form al and cont ract ual relat ionships.

Limitations and other research avenues

This st udy is based on a cross- sect ional analysis. The dat a only perm it s us t o charact erize t he sit uat ion in a single point in t im e. I n addit ion, we have access t o past dat a sim ply based on t op m anagers’ recall. Scholars have quest ioned t he r eliance on ex ecut iv es’ r ecall of pr ev ious com pany issues. For inst ance, Golden ( 1992) suggest ed t hat ret rospect ive report s of im port ant organizat ional phenom ena m ay be inaccurat e and som ewhat m isleading. However, ret rospect ive report s have been com m only used in st rat egic m anagem ent and organizat ion t heory research. For exam ple, Miller, Cardinal, and Glick ( 1997) responded t o Golden’s crit ique by sh ow in g t h at r et r osp ect iv e r ep or t in g is a v iab le r esear ch m et h od olog y if t h e m easures used are adequat ely reliable and valid. Not wit hst anding, furt her insight s m ay be achieved by ut ilizing longit udinal dat a and dat a from diverse sources rat her t han from a single source. Fut ure research m ay use dat a dedicat ed t o support t his line of research rat her t han publicly available dat a. However, t he cost of surveying an d in t er v iew in g f ir m s in each of t h ese cou n t r ies is lik ely t o be a pr oh ibit iv e con st r ain t .

We were prim arily int erest ed in t he com posit ion of t he net work of business relat ionships and t herefore, we did not delve subst ant ially int o cont ext ual fact ors ( e. g., cu lt u r al var iat ion s, ex t en siv en ess of cor r u pt ion , dem ogr aph y, t ax at ion ) . How ever, cont ex t ual fact or s ar e im por t ant t o under st and how and w hy cer t ain net work com posit ions m ay em erge and persist . Furt her, it is probable t hat indust ry charact erist ics m oderat e som e of t he relat ionships we advanced because different indust r ies have differ ent capit al and t echnological int ensit ies, differ ent needs for int er- firm collaborat ion, different pract ices in what relat es t o procurem ent relat ions and v ent ur e capit al, and so for t h. Our r est r ict ion of indust r y cont r ols t o ser v ice v er sus m anufact ur ing was im posed by t he dat a. How ever, fut ur e r esear ch m ay provide addit ional insight s int o indust ry variat ions.

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Finally, fut ur e r esear ch m ay ex am ine w het her t he for m at ion of business relat ionships is cum ulat ive. I f prior affiliat ions provide endorsem ent and increase t he lik elihood t hat t he focal fir m s w ill be able t o dev elop subsequent business relat ionships wit h ot her organizat ions ( Baum & Singh, 1994) , we could expect t hat prior t ies t o t he governm ent would provide t hat legit im acy. For exam ple, business relat ionships wit h t he governm ent or wit h foreign firm s could be a signal of qualit y, m anagerial abilit y, st abilit y, honor paym ent s and agreem ent s. However, t hat does not seem t o be t he case in our sam ple where privat ized firm s which should benefit from prior t ies t o t he governm ent , do not seem t o hold any advant age. Therefore, fut ure research m ay advance our underst anding on t he ext ent t o which t he firm s’ current net work of business relat ionships is a det erm inant of t heir fut ure net work com posit ion.

To con clu d e, t h e st u d y of t h e com p osit ion of f ir m s’ b u sin ess n et w or k cont ribut es t o our underst anding of t he organizat ion of econom ic exchanges and t he idiosy ncr asies of fir m s’ int er act ions in t r ansit ion econom ies. While fir m s in t ransit ion econom ies are predict ably sim ilar because of a som ewhat com m on recent h ist or y an d in st it u t ion al back gr ou n d, t h ey ar e also pr edict ably dissim ilar fr om West er n fir m s. Under st anding fir m s’ business net w or k can help det er m ine how fir m s over com e t he uncer t aint ies and lim it at ions im posed by sever e inst it ut ional and econom ic t r ansfor m at ions occur r ing in t r ansit ion econom ies. The abilit y t o est ablish a variet y of t ies det erm ines t hese firm s’ abilit y t o obt ain t he resources needed t o survive and grow during and post t he t ransit ion period. The int er- count ry com par ison show ed subst ant ial differ ences ev idencing differ ent pr ogr ess in t he t r an si t i o n p r o cess. Ho w ev er, ov er al l , i n f o r m al r el at i o n sh i p s an d t i es t o t h e gov er nm ent ar e st ill v er y significant . Lar ger fir m s seem t o be m or e capable of est ablishing business r elat ionships, t han sm aller fir m s, w it h bot h dom est ic and foreign firm s, which raises som e concerns on t he nat ional abilit y t o develop a st able indust ry and t o innovat e.

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