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a scientific quarterly
ISSN 2353-883X eISSN 2353-8821 2016, Vol. 4, No. 4
Thematic Issue
Entrepreneurship in the Global Context
edited by
Maria Urbaniec
Cracow University of Economics, Poland
Agnieszka Żur
Cracow University of Economics

Faculty of Economics and International Relations
Centre for Strategic and International Entrepreneurship
a scientific quarterly
E B E R
Entrepreneurial Business and Economics Review
ISSN 2353-883X eISSN 2353-8821 2016, Vol. 4, No. 4
Thematic Issue
Entrepreneurship in the Global Context
edited by
Maria Urbaniec
Agnieszka Żur

Editorial Board
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Krzysztof WACH
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Table of Contents
Editorial 7
Maria Urbaniec, Agnieszka Żur
Thematic Articles
Innovations and Export Performance: Firm-level Evidence from Poland 11

Andrzej Cieślik, Jan Jakub Michałek, Krzysztof Szczygielski
Identification of Linkages between the Competitive Potential and Competitive 29

Position of SMEs Related to their Internationalization Patterns Shortly
after the Economic Crisis
Piotr Trąpczyński, Barbara Jankowska, Marlena Dzikowska, Marian Gorynia
Foreign Market Knowledge and SME’s International Performance: 51

Moderating Effects of Strategic Intent and Time-to-Internationalization
Mariola Ciszewska-Mlinarič
Organizational Culture and Firms’ Internationalization, Innovativeness and 67

Networking Behaviour: Hofstede Approach
Maja Szymura-Tyc, Michał Kucia
International Entrepreneurship Theory: Past, Present and Way Forward 93

Ikemefuna Allen
Youth Entrepreneurship in Visegrad Countries 105

Marian Holienka, Anna Pilkova, Zuzana Jančovičová
Student Entrepreneurship in Hungary: 123

Selected Results Based on GUESSS Survey
Andrea S. Gubik, Szilveszter Farkas
Other Articles
Metaphors of Entrepreneurship among Polish Students: 141

Preliminary Research Findings
Michał Chmielecki, Łukasz Sułkowski
Work-life Balance Decision-making of Norwegian Students: 153

Implications for Human Resources Management
Remigiusz Gawlik, Gorm Jacobsen
The Changing Structure of Retail Industry: 171

Case Studies on Competitive Advantage of Small Companies in Croatia
Blaženka Knežević, Dora Naletina, Mate Damić
Special Economic Zones as Growth and Anti-growth Poles 189
as Exemplified by Polish Regions
Hanna Godlewska-Majkowska, Agnieszka Komor, Magdalena Typa
Organizational Dysfunctions: Sources and Areas 213

Jacek Pasieczny, Beata Glinka
Editorial Announcements
EBER in Focus 225
Call for Papers 226
Reviewing Policy and Procedures 227
Publication History 228

2016, Vol. 4, No. 4 DOI: 10.15678/EBER.2016.040401
Editorial
Entrepreneurship is on one hand a fast-growing research field, and on the other hand
a complex and multidimensional phenomenon (Fayolle, 2014; Welter, 2011; Żur
& Urbaniec, 2016), as it concerns not only actions of individuals, but also activities within
the organizations or systems. Recent literature highlights that entrepreneurship is a con-
text-based phenomenon (Zahra & Wright, 2011; Welter, 2011). And thus research on en-
trepreneurship has moved from the focus of the individual entrepreneurs and their chal-
lenges to a broader understanding of the context in which entrepreneurship is embedded.
Context can be considered in different ways and with diverse dimensions, e.g. institu-
tional, market, industry, spatial, social (Zahra & Wright, 2011). This thematic issue focusing
on Entrepreneurship in the Global Context is a next step in the development of Entrepre-
neurial Business and Economics Review. The global context of entrepreneurship is an ex-
pansion of prior thematic issues referring to international entrepreneurship.
Current developments in the theory of entrepreneurship point to international entre-
preneurship as one of important potential factors contributing to the intensification of the
global processes of internationalization of the firm. The advantages of globalization are
particularly noticeable in technology and service industries, where the output crosses bor-
ders with fewer barriers than in the production industry (Mascitelli, 1999). The increasing
globalization of the economy creates the possibility of rapid internationalization and is
a key driver of entrepreneurial activities. Researchers agree that entrepreneurs have an
opportunity to interact with a global world more than ever before. Firms are gaining new
knowledge and experience, which decreases risk and increases commitment to new mar-
kets (Wach, 2015).
The purpose of this issue is to present current trends in entrepreneurship with focus
on globalization and internationalization processes observed in different organizations,
sectors and environments, presenting the diversity and multiplicity of facets of relevant
and often underexplored contexts expanding the traditional understanding of entrepre-
neurship. With contributions from a large variety of contexts, this journal issues embraces
studies at macro, meso and micro level, giving insights into the complex and context-de-
pendent processes hindering, promoting and shaping entrepreneurship as a unique set of
processes, practices and attitudes. This thematic issue consists of seven thematic articles
and five nonthematic articles.
The first section, including the thematic articles, focuses on two important issues of
entrepreneurship. First, the attention to processes associated with internationalization
patterns at the firm level focusing on innovation, competition and cultural differences will
be explored. Second, entrepreneurship is discussed as the subject of research depended
on different drivers affecting involvement and motivation for entrepreneurial activities.
8| Editorial
In the first thematic article entitled Innovations and Export Performance: Firm-level
Evidence from Poland, Andrzej Cieślik, Jan Jakub Michałek and Krzysztof Szczygielski focus
on the relationship between innovations and export performance of Polish firms. The em-
pirical results of this study indicate that the probability of exporting is positively related to
product and process innovations, firm size, share of university graduates in productive
employment and foreign capital participation. The results depend also on the level of tech-
nology used in the analysed sector and the relative importance of export market.
The second thematic article entitled Identification of Linkages between the Competi-
tive Potential and Competitive Position of SMEs related to their Internationalization Pat-
terns Shortly after the Economic Crisis, written by Piotr Trąpczyński, Barbara Jankowska,
Marlena Dzikowska and Marian Gorynia, present the internationalization profiles of SMEs
for the period immediately following the global economic crisis (years 2010-2013) and
characterise them with reference to the firms' competitive potential during the crisis (year
2009), and their competitive position at the end of the analysed period. The study suggests
that the strategy of diversifying international markets during the economic crisis and re-
covery can be a means of improving performance and reducing excessive dependence on
fluctuations in key markets.
Next, Mariola Ciszewska-Mlinarič in her article entitled Foreign Market Knowledge and
SME’s International Performance: Moderating Effects of Strategic Intent and Time-to-In-
ternationalization, contributes to the ongoing discussion on factors supporting the accumula-
tion of foreign market knowledge by focusing on the role of strategic intent and time to inter-
nationalization in this respect. Her research is aimed at examining whether and how strategic
intent and time-to-internationalization moderate the relationship between foreign market
knowledge and SMEs’ international performance.
Maja Szymura-Tyc and Michał Kucia in their article entitled Organizational Culture and
Firms’ Internationalization, Innovativeness and Networking Behaviour: Hofstede Ap-
proach, emphasize the features of firms’ organizational culture within four of Hofstede’s
national culture dimensions (i.e. power distance in organization, collectivism and individ-
ualism in organization, uncertainty avoidance in organization, short and long orientation
of organization) and their potential relationships with internationalization, innovativeness
and networking behaviour of firms. The paper gives an insight into the organizational cul-
ture features relationships with a broad area of firms’ behaviour related with their ability
to gain competitive advantage.
The fifth thematic article entitled International Entrepreneurship Theory: Past, Present
and Way Forward, written by Ikemefuna Allen, offers a wide perspective on the historical
development of international entrepreneurship as a field of research, and demonstrates how
concepts brought forth contribute to a broader understanding of fundamental international busi-
ness and entrepreneurship theories. The findings indicate that International Entrepreneur-
ship is still in a developmental stage. However, the field is rich with novel ideas and con-
cepts that can give an impetus to researchers as they strive to explore themes such as
international entrepreneurial orientation and entrepreneurial internationalization.
Marian Holienka, Anna Pilkova and Zuzana Jancovicova in their article entitled Youth
Entrepreneurship in Visegrad Countries, analyse the entrepreneurial activity drivers of
youth and young adults in Visegrad countries. They found common drivers and distinctive
Editorial |9
attributes affecting involvement of young people in business start-up according to its mo-
tivation. Based on empirical analysis, their findings point out that the self-confidence and
access to networks are universally important factors. In most examined cases, fear of fail-
ure and being a female reduces the chance of business start-up, especially among youth,
being a student significantly inhibits involvement in enterprising efforts.
Following to this subject of research, Andrea S. Gubik and Szilveszter Farkas in their
article entitled Student Entrepreneurship in Hungary: Selected Results based on GUESSS
Survey, investigate students’ entrepreneurial activities and aim to answer questions regarding
to what extent do students utilize the knowledge gained during their studies and the personal
connections acquired at universities, as well as what role a family business background plays in
the development of students’ business start-ups. The study show that the rate of self-employ-
ment among Hungarian students who study in tertiary education and consider themselves to
be entrepreneurs is high. A family business background and family support play a determining
role in entrepreneurship and business start-ups, while entrepreneurial training and courses of-
fered at higher institutions are not reflected in students’ entrepreneurial activities.
The second section of this journal issue, embracing other articles, draws attention to
different aspects of entrepreneurship, for example, related to human resources, organiza-
tional, sector-oriented and regional context-based dimensions.
In the article entitled Metaphors of Entrepreneurship among Polish Students: Prelimi-
nary Research Findings, Michał Chmielecki and Łukasz Sułkowski raise the issue of the en-
trepreneurship metaphors among Polish management students. The authors point out,
that in Poland entrepreneurship was often perceived as an extremely risky process and
entrepreneurs were often portrayed in a negative light. Their research results suggest that
there are several major entrepreneurial narratives evident among Polish management
students including creativity and innovation, competition, war, journey, risk, adventure
and exploitation.
Remigiusz Gawlik and Gorm Jacobsen in the article entitled Work-life Balance Deci-
sion-making of Norwegian Students: Implications for Human Resources Management, an-
alyse the significance of work-life balance determinants between the Youth of highly de-
veloped societies and its implications for human resources management on the example
of Norway. The research on perceptions of determinants of quality of life and attractive-
ness of life strategies shows that in a country with relatively high socio-economic develop-
ment level, such as Norway, differences in rankings do exist. They can be observed in rel-
evance to both material and non-material quality of life determinants.
The article entitled The Changing Structure of Retail Industry: Case Studies on Compet-
itive Advantage of Small Companies in Croatia, written by Blaženka Knežević, Dora Nalet-
ina and Mate Damić, provide an insight into dynamics of changes in retail structure. The
authors explain trends of retail internationalization and concentration as well as highlight
the possibilities for improving the competitive ability of small retailers. As suitable com-
petitiveness strategies they suggest retail alliances and differentiation by assortment.
Next, Hanna Godlewska-Majkowska, Agnieszka Komor and Magdalena Typa in their
article entitled Special Economic Zones as Growth and Anti-growth Poles as Exemplified by
Polish Regions, demonstrate both positive and negative effects of economic zones on the
polarization of economic space as exemplified by Polish regions. Conclusions presented in
this paper help to identify the factors that either increase the chances of positive effects
10 | Editorial
contributing to the development of the economic zones or cause their negative effects to
prevail. The results of the analysis may be applied not only to foster the development of
Poland’s regions, but also the regions located in other countries, based not only on Special
Economic Zones, and also on other forms of public aid, as the mechanisms of polarisation
are universal in character. Consequently, they may be particularly useful to stimulate re-
gional economy in underdeveloped agricultural regions and problem regions characterized
by an anachronistic structure of regional economy based on industrial monoculture.
The last article entitled Organizational Dysfunctions: Sources and Areas, written by
Beata Glinka and Jacek Pasieczny, describe various types and sources of organizational
dysfunctions in organizations operating in Poland. The sources of dysfunctions may be
found both within the organization and its environment. Regardless of its specific features,
most of the dysfunctions may be interpreted as an undesirable goal displacement. Very
often areas of these dysfunctions are strongly interconnected and create a system that
hinders organizational performance. The paper provides insight into "the dark side of or-
ganising" by identifying sources and areas of dysfunctions.
All these papers show that the entrepreneurship is a multistream and multidisciplinary
research field focused on different contexts and perspectives. These studies demonstrate
that the applicability of the entrepreneurship is wide with promising routes also for future
research. Hopefully the content of this journal issue will provide inspiration and sufficient
insights to accordingly take up further research.
Maria Urbaniec
Agnieszka Żur
Thematic Issue Editors
REFERENCES
Fayolle, A. (2014). What we know and what we need to know in the field of entrepreneurship. In
A. Fayolle (Ed.), Handbook of Research on Entrepreneurship (pp. 1-10). Cheltenham, UK: Edward
Elgar.
Mascitelli, R. (1999). A framework for sustainable advantage in global high-tech markets.
International Journal of Technology Management, 17(13), 240-258.
Mtigwe, B. (2006). Theoretical Milestones in International Business: The Journey to International
Entrepreneurship Theory. Journal of International Entrepreneurship, 4(1), 5-25.
Wach, K. (2015). Entrepreneurial Orientation and Business Internationalisation Process:
The Theoretical Foundations of International Entrepreneurship. Entrepreneurial Business and
Economics Review, 3(2), 9-24.
Welter, F. (2011). Contextualizing Entrepreneurship – Conceptual Challenges and Ways Forward.
Entrepreneurship Theory and Practice, 35(1), 165-184.
Zahra, S.A., & Wright, M. (2011). Entrepreneurship’s next act. Academy of Management
Perspectives, 25(4), 67-83.
Żur, A., & Urbaniec, M. (2016). Editorial. Entrepreneurial Business and Economics Review, 4(3), 7-9.
2016, Vol. 4, No. 4 DOI: 10.15678/EBER.2016.040402
Innovations and Export Performance:

Firm-level Evidence from Poland
Andrzej Cieślik, Jan Jakub Michałek, Krzysztof Szczygielski
ABSTRACT
Objective: The main objective of this article is to study the empirical relationship
between innovations and export performance of Polish firms.
Research Design & Methods: Our analytical framework refers to the most recent
strand in the new trade theory literature based on the Melitz (2003) model that
stresses the role of firm heterogeneity and the importance of firm productivity in
entering export markets. We treat innovations as a key element that can increase the
level of productivity and study the significance of both product and process innova-
tions. The empirical implementation of the theoretical framework is based on the
probit model and the unique Polish CIS firm-level dataset covering the period 2008-
2010.
Findings: Our estimation results indicate that the probability of exporting is positively
related to product and process innovations, firm size, the share of university gradu-
ates in productive employment and foreign capital participation. The results depend
also on the level of technology used in the analysed sector and the relative im-
portance of export market.
Implications & Recommendations: It is necessary to develop an innovation support-
ing mechanism that would stimulate both product and process innovations in Poland.
Contribution & Value Added: The originality of this work lies in the use of the unique
Polish CIS firm level dataset that allows distinguishing between product and process
innovations.
Article type: research paper
export performance; firm heterogeneity; innovations; Poland; probit
Keywords:
model
JEL codes: F14, P33
Received: 12 June 2016 Revised: 26 August 2016 Accepted: 29 August 2016
Suggested citation:
Cieślik, A., Michałek, J.J., & Szczygielski, K. (2016). Innovations and Export Performance: Firm-level
Evidence from Poland. (2016). Entrepreneurial Business and Economics Review, 4(4), 11-28, DOI:
http://dx.doi.org/10.15678/EBER.2016.040402
12 | Andrzej Cieślik, Jan Jakub Michałek, Krzysztof Szczygielski
INTRODUCTION
Innovation is one of the key terms related to the modernization and development of the
EU economy. However, empirical studies devoted to the subject in the context of inter-
national competitiveness at firm level are relatively few. Innovation activities cover
product and process innovations as well as the creation of intellectual property rights
related to patents and trademarks. Previous studies have focused almost exclusively on
the analysis of companies in developed countries such as Germany or the United King-
dom, with a high levels of firm innovation. These studies have mainly focused on product
and process innovation.
One of the key elements of innovation activity, analysed in the context of firm export
performance in the old EU-15 member states, is research and development (R&D) activi-
ty. This activity is described as the process of systematic creative work that combines
both basic and applied research aimed at extending the company's knowledge resources
and its practical application. Measures of innovative activity of companies can include
spending on R&D as well as its effects, such as patents and share of new products in total
sales. R&D may result in improved efficiency of the company.
The main objective of this paper is to study the relationship between innovation of
Polish firms and their export competitiveness. In particular, we empirically validate the
main hypothesis concerning the positive relationship between innovation activities and
exports performance using the probit model. In contrast to previous studies that use
R&D spending as a measure of innovation, we focus on innovation outcomes. Our de-
tailed hypotheses postulate the existence of positive relationships between firm export
performance and different types of innovation activities: product and process innova-
tions. We seek to determine which of the aforementioned types of innovation activity is
of the greatest importance for exporting and whether it depends on firm size, the level
of internationalization, the use of human capital and its sector of activity. In addition, we
take into account the intellectual property creation at firm-level. Our study is based on
Polish firm-level data for the period 2008-2010.
The results of our study can contribute to proposing a set of policy conclusions that
can apply to Poland and other New Member States (NMS) of the European Union. The
firms from those countries are lagging behind in terms of innovation activities and their
presence in foreign markets is still limited compared to the firms from the old EU-15.
This is particularly important in the light of changes in the allocation of the EU funds in
the current Financial Perspective, i.e. increasing expenditure for innovative firms, aimed
at increasing their presence in the global markets. This study should also contribute to
a better understanding of the mechanisms of cooperation between managers, engineers,
scientists and research centres serving to create new processes, products and technolog-
ical progress as well as social development of the NMS.
The structure of this paper is as follows. In the next section we provide the literature
review. Then, we describe the dataset and the analytical framework. Subsequently, we
present and discuss our empirical results. The last section summarizes and concludes.
Innovations and Export Performance: Firm-level Evidence from Poland | 13
LITERATURE REVIEW
There is an extensive theoretical literature on the determinants of innovation and their
consequences for productivity and exporting. In particular, a key hypothesis in this litera-
ture is that innovation is a driver of productivity improvement that in turn could stimu-
late exports. This literature has identified two main types of innovation: product innova-
tion and process innovation. Product innovation is a key factor for successful market
entry in models of creative destruction and Schumpeterian growth while process innova-
tion reduces costs of production and improves firm’s market position. Both modes of
innovation are expected to raise firm’s productivity and propensity to export.
The early endogenous growth theory literature traditionally stressed the importance
of product innovation in for economic growth in a world where consumers have a desire
for variety and/or a high quality of available products (Grossman & Helpman, 1991).1
Later, economists started to explore the potential differences between product and
process innovation focusing on heterogeneous agents and technological unemployment
(Foellmi & Zweimüller, 2006). In dynamic models with heterogeneous firms (Jovanovic,
1982; Hopenhayn, 1992; Melitz, 2003; Grossman, Helpman & Szeidl, 2006), investment
in firm-specific assets that could be associated with product innovation led to a selection
of firms. The least productive ones did not participate in the market at all and the most
productive ones supplied consumers not only at home but also abroad (through exports),
while those with an intermediate productivity only faced demand from domestic con-
sumers. In this context, investment in firm-specific assets and a high total factor produc-
tivity were considered as the key determinants of a firm’s export propensity.2
Most recently, Atkeson and Burstein (2007) and Constantini and Melitz (2008) have
analysed dynamic industry models to formalize the relationships between firm-level
productivity and the choices of both to export and to invest in R&D or adopt new tech-
nology. In these models, productivity distinguishes heterogeneous firms, and its evolu-
tion is endogenous and affected by innovation decisions at the firm level apart from
a stochastic component.
There is also extensive empirical literature that points to a positive impact of innova-
tion as such on exports at the firm- or plant-level. The majority of the existing studies
rely on R&D expenditures as an indirect measure of innovations (Hirsch & Bijaoui, 1985;
Kumar & Siddharthan, 1994; Braunerhjelm, 1996; Basile, 2001). Early empirical studies
(Hirsch & Bijaoui, 1985; Schlegelmilch & Crook, 1988) that looked into the effects of
innovations on exports used measures of innovation input and arrived at mixed conclu-
sions (Ebling & Janz, 1999).
1
However, the literature on the relationship between innovation and international trade is much less numer-
ous. International economics focuses on the role of product innovation for trade in open economy growth
models (Dollar, 1986; Jensen & Thursby, 1987; Grossman & Helpman, 1989; 1990; 1991; Segerstrom, Anant
& Dinopoulos, 1990).
2
At the same time the early industrial organization literature stressed the role of marginal cost-reducing inno-
vations (i.e. expenditures for research and development for the sake of process innovation) in international
oligopoly models (Spencer & Brander, 1983). According to this literature a higher investment in such process
innovations increases a firm’s output sold in domestic and foreign markets. Subsequent research focused on
the relationship between process innovation and competitive pressure at the local (Martin, 1993) and the
global level (Baily & Gersbach, 1995).
In addition, there is a limited number of studies that employ survey data with explicit
information on the actual innovations (Wakelin, 1998; Bernard & Jensen, 1999; Roper
& Love, 2002; Lachenmaier & Wößmann, 2006). In particular, firm-level studies which
used more direct measures of innovation output (i.e., actual innovations) are those of
Wagner (1996) and Wakelin (1997; 1998). Wagner (1996) used a sample of firms in the
German State of Lower Saxony and found a positive impact of new products introduced
on exports. Wakelin (1998) employed British data and reported a positive impact of in-
novating on the intensive and extensive margins of exports at the firm level. Overall,
these studies find a strong positive impact of innovations on export performance.
There is also some evidence on a systematic determination of innovation. Probably,
the first empirical study on the impact of endogenous innovations on exports is the one
by Entorf, Krader and Pohlmeier (1988). They estimated a simultaneous equation system
of exports, innovation, and labour demand and identify not only a positive impact of
innovations (captured by an indicator variable) on exports but also one of exports on
innovations based on data from the Ifo Innovation Survey. Ebling and Janz (1999) studied
the impact of innovations (captured by a binary variable) on the extensive margin of
exports in the service sector, using data for 1997 from the Mannheim Innovation Panel.
Their results were based on a two-step probit model and simultaneous probit models
and pointed to a positive impact of innovations on exports, but not vice versa.
Van Beveren and Vandenbussche (2010) analysed the relationship between firm-
level innovation activities and firms' propensity to start exporting for Belgian firms. They
measured innovation by innovative effort (R&D) as well as by innovative output (product
and process innovation). Their evidence pointed to firms self-selecting into innovation in
anticipation of their entry into export markets, rather than product and process innova-
tion triggering entry into the export market. Their results suggested that governments
could foster firm-level innovation through trade liberalization.
While Cassiman and Martinez-Ros (2007) found support for the product innovation–
productivity–export link in data on Spanish firms, the reverse causal direction (export-
ing–process innovation– productivity growth) was investigated with a less success.
Cassiman, Golovko and Martínez-Ros (2010) argued that the positive association found
between firm productivity and exports in the literature relates to the firm's innovation
decisions. Using a panel of Spanish manufacturing firms they find strong evidence that
product innovation – and not process innovation – affects productivity and induces small
non-exporting firms to enter the export market.
Caldera (2010) investigated the relationship between innovation and the export be-
haviour of Spanish firms over the period 1991-2002. He presented a simple theoretical
model of the firm decision to export and innovate that guides the econometric analysis.
Consistent with the predictions of the theoretical model, the econometric results sug-
gested a positive effect of firm innovation on the probability of participation in export
markets. The results further revealed the heterogeneous effects of different types of
innovations on the firm export participation. In particular, product upgrading appears to
have a larger effect on the firm export participation than the introduction of cost-saving
innovations. These findings were robust to firm unobserved heterogeneity, dynamic
specifications, and to the use of instrumental variables to control for the potential en-
dogeneity between innovation and exporting.
Lachenmaier and Wößmann (2006) used instrumental-variables procedures to esti-

mate the impact of potentially endogenous innovations on exports based on the firm
level data on 981 German firms for the year 2002. Their focus was on total innovations,
but they also looked into product versus process innovations in one of their specifica-
tions. In broad terms, they found that impediments to innovations matter and that such
variables could be used as identifying instruments for innovations. Their results showed
that treating innovations as exogenous may lead to largely downward-biased estimates
of the impact of innovations on firm-level exports.
Most recently, Becker and Egger (2013) also studied the effects of new product ver-
sus process innovations on export propensity at the firm level in Germany. They hypoth-
esized that in line with the new trade theory product innovation should be relatively
more important than process innovation. They investigated this hypothesis in a rich sur-
vey panel data set with information about new innovations of either type. With a set of
indicators regarding innovation motives and impediments and continuous variables at
the firm and industry level at hand, they determined the probability of launching new
innovations and their impact on export propensity at the firm level through a double
treatment approach to account for self-selection of firms into either type of innovation.
Their results point to the importance of product innovation relative to process innova-
tion for the decision to export. Firms that perform both process and product innovations
have a higher probability to export than firms that do not innovate; however, when per-
formed alone, product innovation is more important in the exporting behaviour of a firm
than is process innovation. This can be viewed as evidence on the importance of the
extensive margin in product space for a firm’s entry into export markets. While process
innovations increase a firm’s probability to export only when being combined with prod-
uct innovations, they marginally raise a firm’s export-to-sales ratio at the intensive mar-
gin.
Hence, the majority of empirical studies for the old EU-15 countries find support for
the positive relationship between various types of innovations and exporting. In particu-
lar, these studies find that firms that introduce either process or product innovations
exhibit a higher probability to export than firms that do not innovate. However, product
innovations seem to be more important in determining the export performance of firms
than process innovations.
In the context of the new EU member states empirical evidence on the relationship
between innovation and exporting is scarce. The only exception, to the best of our
knowledge, is the study by Damijan, Kostevc and Polanec (2010) who explored the causal
links between innovation and export activities of firms in Slovenia. First, from product
innovation to productivity and to decision to export may effectively explain how a firm’s
decision to invest in R&D and to innovate a product drives its productivity and triggers
the decision to start exporting. Second, in the opposite direction, the link going from
exporting to process innovation to productivity growth may be crucial to understand
how export activity can force a firm to engage in process innovation, which in turn im-
proves its productivity growth in the long run. Their empirical approach is to tackle both
sides of this causality link using Slovenian microdata, including financial data, innovation
survey data, industrial survey data, as well as information on trade flows, for the period
1996-2002. Their dataset allows them to test the prediction that a firm’s innovation
enhances its probability of becoming an exporter, and the prediction that learning ef-
fects of exporting will translate to a greater effort to innovate and thus to improvements
in productivity.
They found no evidence that either product or process innovations increases the
likelihood that a firm becomes a first-time exporter. However, they found evidence that
past exporting status increases the probability that medium and large firms will become
process innovators. At the same time they found no impact of past exporting on product
innovations. Thus, their results did not confirm the implications of the Constantini and
Melitz (2008) model and the findings of Aw, Roberts and Xu (2009) that in the case of
Slovenian firms the linkage from product innovation to productivity growth drives the
self-selection of more productive firms into exporting. However, they found some evi-
dence in favour of learning-by-exporting of Slovenian firms, which was already indicated
by Damijan and Kostevc (2006), De Loecker (2007) and Hagemejer and Kolasa (2008).
In particular, Damijan and Kostevc (2006) demonstrated that these learning-by-exporting
effects occur through the mechanism of process innovation enhancing firm technical
efficiency and not through introduction of new products. It is important to note, howev-
er, that the results of the study by Damjan et al. (2010) may not generalize to the whole
group of the new EU member states as Slovenia is a small open economy with the high-
est level of development among the NMS.
The empirical evidence on the link between innovation and export performance for
Poland is virtually non-existent. The previous studies such as Cieślik et al. (2012; 2013;
2014; 2015) stress the importance of R&D expenditure for the probability of exporting.
However, so far no attempt has been made to study the link between innovation out-
comes and the probability of exporting for Poland. Therefore, in this article we investi-
gate empirically whether various innovative activities contribute to increased efficiency
of firms from Poland and whether they improve their ability to compete and stay at in-
ternational markets. First, in contrast to previous studies conducted for selected EU-15
countries, our study is based on the unique firm-level dataset collected by the Polish
Central Statistical Office (CSO). This allows us to analyse the relationship between inno-
vative activities and exporting for both all the Polish as well as particular groups of the
firms depending on the origin of their ownership. Second, in contrast to previous empiri-
cal studies we distinguish and examine the relative importance for exports of two main
types of innovation: product and process innovations as well as patents and trademarks
that reflect the investment in firm-specific assets. Moreover, we identify the relative
importance of specific types of innovation activities for the international competitiveness
of firms from Poland, which are much less innovative when compared to companies from
the old EU-15 member states. Finally, we distinguish between all exporters and firms for
which exporting constitutes an important fraction of their sales.
In addition, our study will allow formulating specific recommendations for economic
policy in Poland and other NMS, especially for policies to encourage innovation in these
countries which differ from the old EU member states in terms of the level of economic
development. As regards possible conclusions for economic policy for the old EU-15
countries, the findings of the previous studies suggest that policy instruments should be
targeted towards specific innovations rather than innovation input, if these countries
want to improve their export competitiveness in world markets. In particular, some
authors have argued that in the case of the old EU-15 countries subsidies and other pro-
grams aiming at product innovations should be on average more likely to cause entry
into export markets than general expenditures on R&D or legal environments which
particularly favour process innovations.
MATERIAL AND METHODS

The new strand in the trade theory argues that the level of firm productivity is critical for
exporting. In particular, the Melitz (2003) model points at the existence of a positive
relationship between firm productivity and export performance. In his model productivi-
ty differences among firms are exogenously given and each firm has to pay fixed costs of
entry into domestic and foreign markets. The majority of empirical studies find support
for the theoretical prediction of the Melitz model, i.e. that more productive firms self-
select into foreign markets. The survey of early empirical evidence on the relationship
between firm productivity and exporting was provided by Tybout (2003). The extensive
summaries of more recent empirical evidence on this relationship in particular countries
were offered by Wagner (2007, 2012). According to the first survey by Wagner (2007),
a large number of studies using data from different countries, report results showing that
exporters and importers are more productive that non-exporters and non-importers.
In particular, he argued that future exporters tend to be more productive than future
non-exporters in the years before they enter the export market. Moreover, the empirical
results for post-entry differences in performance between exporters and non-exporters
point to faster productivity growth for the former group in only some studies. This pic-
ture was largely confirmed in the recent survey by Wagner (2012), i.e. his review pro-
vides extensive evidence in favour of the self-selection hypothesis. Therefore, in our
paper we refer to the self-selection hypothesis.
As the main objective of this article is to study the relationship between innovation
of Polish firms and their export performance we use the unique Polish CIS firm-level
dataset covering the period 2008-2010. The Community Innovation Survey (CIS) is the
principal survey of the innovation activities of firms in the European Economic Area and
the EU candidate and associate countries. The methodology of the survey is based on the
Oslo Manual, first published in 1992 and then revised in 1996 and 2005. The CIS contains
questions referring to revenue and expenditure in the most recent years (e.g. in 2010 in
CIS 2008-2010), as well as questions about various aspects of innovation in the three
years preceding each edition of the survey (e.g. in 2008-2010). Apart from innovation-
related information firms are required to answer questions about their revenue; the
number of staff; whether they are members of groups of firms (where a group of firms is
defined as a set of companies owned by the same person or entity), and if so then where
is the mother company located; whether they have exporting activities and what is the
main markets to which they sell.
However, the firm-level data from the CIS are not easily available for Poland. They
are not available for researchers at the Eurostat’s Safecentre in Luxembourg. It is possi-
ble to purchase raw data, but the information about revenues and expenditure is con-
sidered confidential, resulting in considerable restrictions with respect to the scope of
data made available to researchers.
This study is based on the Polish dataset for manufacturing companies patterned on
CIS 2010 with some alterations. Due to the confidentiality conditions imposed by the
Polish Central Statistical Office (CSO), data on revenue and the exact number of staff was
unavailable; instead we only had information on the firm size category (i.e. small, medi-
um, big). Data on innovation expenditure was available only on a per-capita basis. In
comparison to the CIS survey in the Polish dataset there is additional information on the
number of production lines both automatic and controlled by computers. All of the man-
ufacturing firms employing more than 49 persons were surveyed, as well as a sample of
firms employing 10-49 people. This resulted in 9,841 in the 2010 CIS.
In our study we refer to the classification of manufacturing industries proposed by
the OECD (2012). According to this classification there are 4 categories based on R&D
intensities described in detail in the Annex.3
Our dependent variable, export performance, indicating the export status of the firm
takes two main forms based on the Polish CSO questionnaire. The first form of the varia-
ble (exporter) takes value zero if the firm sells its output only in the domestic market,
and one otherwise, i.e. if it sells also some of its output abroad. The second form of the
variable (exporter_plus) takes value one if the foreign market is declared by the firm as
the most important market for its output and zero otherwise.
It is worth stressing that, given the nature of our research problem, we have to rely
on binary variables as dependent variables. This is due to the nature of the CIS question-
naire that includes neither the information on absolute export revenue, nor the infor-
mation on the share of export revenue in firm’s total turnover.4
In our study we selected a number of independent variables chosen from the survey,
which should reflect the innovation efforts and important characteristics of analysed
firms. The definitions of independent variables are presented in the Table 1. We inter-
pret variables 1 through 4 as characteristics of a firm’s production factor endowment. In
particular, prod_lines reflects capital endowment, HC – human capital endowment, and
the dummy variables for firm size (medium, large) – labour endowment. Variables 5
through 7 are key characteristics of firm innovation performance, while variables 8-13
refer to the membership of firms in domestic or foreign capital groups. Finally, variables
14-16 characterize the sectors in which firms operate according to their technology in-
tensity: controlling for sectoral effects is standard in innovation studies.
Since our dependent variables are binary variables to estimate the postulated rela-
tionship between the probability of exporting and various forms of innovation we use
the probit model. The main advantage of this approach is that the dependent variable
does not have to be continuous.
3
In the past the methodology used three indicators of technology intensity reflecting, (1) R&D expenditures
divided by value added; (2) R&D expenditures divided by production; and (3) R&D expenditures plus technolo-
gy embodied in intermediate and investment goods divided by production. The updated 2001 Scoreboard used
ISIC Rev. 3 R&D expenditure and output data to develop an updated technology classification based on an
evaluation of R&D intensities for 13 OECD countries for the period 1991-1997. The new edition extends the
analysis to cover the period 1991-99, although for only 12 OECD countries.
4
In their study of innovation complementarities, Lewandowska, Szymura-Tyc and Gołębiowski (2016) use the
percentage of export revenues from new products in firm’s total export revenues as the dependent variable.
While this information is available in the CIS database, we cannot, unfortunately, use it to validate our hypoth-
esis, which refers to firm’s export orientation (as opposed to the focus on the domestic market).
Table 1. List of independent variables used in the empirical analysis

No. Variable Explanation of the variable
1. prod_lines Number of automatic product lines and controlled by the computers
2. medium Dummy variable indicating employment between 50 and 249 persons
3. large Dummy variable indicating employment exceeding 250 persons
4. HC Human Capital: the percentage of employees with tertiary education
5. Dummy variable indicating the market introduction of a new or signifi-
product_innov cantly improved good or service with respect to its capabilities, user
friendliness, components or sub-systems.
6. Dummy variable indicating the implementation of a new or significantly
process_innov
improved production process, distribution method, or supporting activity.
7. Dummy variable indicating applications for patents, inventions, trade-
intell_prop
marks, made in the Polish Patent Office
8. group_pl Dummy variable for the membership in the Polish capital group
9. group_fdi Dummy variable for the membership in the foreign capital group
10. group_de Dummy variable for the membership in the German capital group
11. group_fr Dummy variable for the membership in the French capital group
12. group_us Dummy variable for the membership in the American capital group
13. group_other Dummy variable for the membership in the other foreign capital group
14. Dummy variable for the high technology industry. The technology intensi-
ht ty of the manufacturing industries depends on R&D intensities. See: the
Eurostat classification of R&D intensities in the Annex.
15. Dummy variable for the medium-high technology industry. See: the Euro-
mht
stat classification of R&D intensities in the Annex.
16. Dummy variable for the medium-low technology industry. See: the Euro-
mlt
stat classification of R&D intensities in the Annex .
Comment: The variable prod_lines was used only in the Polish version of the questionnaire, as applied by the
Polish Central Statistical Office (CSO).
Source: own study.
Our dependent variable indicating the export status of firm is denoted by ∗ .

Instead of observing the volume of exports, we observe only a binary variable indicat-
ing the sign of ∗ , i.e. whether the firm sells its output in the domestic market (lo-
cal, regional or national) or it exports. Moreover, we assume that the variable ∗
follows ∗ = + , where the error term is independent of which is a vector
containing explanatory variables that affect exports with the first term equal to unity for
all , is the vector of parameters on these variables that needs to be estimated and
is assumed to be normally distributed with a zero mean.
Our dependent variable follows a binary distribution and takes the value 1 when
the firm exports and 0 otherwise:
∗
1 >0
= ∗ (1)
0 =0
We can obtain the distribution of given . Hence, the probability that a firm ex-
ports can be written as:
= 1| =Φ (2)
where:
Φ - denotes the standard normal cumulative distribution function (cdf).
To be able to successfully employ the probit model, it is important to know how to inter-
pret the vector of estimated parameters on the explanatory variables Ɵ. Consider
a specific explanatory variable , which is an element of vector . The partial effect of
on the probability of exporting can be written as:
= 1|
= (3)
When multiplied by Δ equation (3) gives the approximate change in

= 1| when increases by Δ , holding all other variables constant.
RESULTS AND DISCUSSION

In this section we present and discuss two sets of estimation results using two different
definitions of dependent variables. First, in column (1) and (2) we discuss the results for
firms that do export at least some of their output, and then in columns (3) and (4) for
those for which export markets constitute the main market. The estimation covers peri-
od 2008-2010 and is obtained using the robust standard errors. The results of estima-
tions are reported in the Table 2.
In column (1) of Table 2 we report the benchmark results on the relationship be-
tween innovation activities and export performance obtained for firms that do export at
least some output. These results reveal that the estimated parameter on both measures
of innovations, i.e. on product and process innovations, display expected positive signs,
similar magnitudes and are statistically significant at 1% level. This means that the higher
level of both product and process innovations are positively related to the higher proba-
bility of exporting.
We also investigated whether the probability of exports depends on the in-house
creation of firm specific intangible assets by Polish firms. The control (intell_prop) varia-
ble used here is the measured by the number of firm applications for patents, inventions,
trademarks, made in the Polish Patent Office. The estimated parameter for this variable
is positive, but statistically not significant.
The other control variables are statistically significant at 1% level and reveal the ex-
pected signs. In particular, both variables describing firm size (medium and large) display
large values and positive signs. The estimated parameter for large firms is bigger in com-
parison to medium firms, indicating the importance of economies of scale for exporting.
The estimated parameter on the stock human capital (HC) variable, describing percent-
age of employees with tertiary education, also displays a positive signs and is statistically
significant at 1% level. Thus, a larger percentage of educated employees can be positively
associated with probability of exporting. The number of product lines (prod-lines), proxy-
ing for the stock of capital and the differentiation of production profile, also reveals
a positive sign, and is statistically significant at 1% level. Thus, the larger number
of products offered, reflecting probably the larger stock of capital, can positively affect
the probability of exporting.
Table 2. The list of estimated models

exporter exporter exporter_plus exporter_plus
Dependent variable:
(1) (2) (3) (4)
Independent variables:
prod_lines 0.013*** (0.004) 0.000 (0.002)
HC 0.006*** (0.001) -0.006*** (0.001)
medium 0.605*** (0.031) 0.344*** (0.034)
large 0.968*** (0.061) 0.656*** (0.052)
product_innov 0.223*** (0.049) -0.197*** (0.047)
process_innov 0.245*** (0.047) 0.025 (0.043)
intell_prop -0.001 (0.006) -0.012** (0.005)
group_pl -0.216*** (0.051) -0.331*** (0.056)
group_fdi 1.030*** (0.109)
group_de 1.104*** (0.148) 0.903*** (0.096)
group_fr 1.596*** (0.342) 0.816*** (0.146)
group_us 0.819*** (0.233) 0.904*** (0.162)
group_other 0.937*** (0.124) 0.798*** (0.086)
group_fdi x product_innov -0.148 (0.156) -0.142 (0.157) 0.209** (0.091) 0.211** (0.091)
group_fdi x HC -0.012*** (0.003) -0.011*** (0.003) -0.005* (0.003) -0.005* (0.003)
group_fdi x intell_prop 0.046 (0.052) 0.049 (0.055) -0.042 (0.026) -0.042 (0.026)
mlt 0.257*** (0.032) 0.257*** (0.032) 0.133*** (0.033) 0.134*** (0.033)
mht 0.445***(0.041) 0.446*** (0.041) 0.360*** (0.038) 0.359*** (0.038)
Ht 0.060 (0.082) 0.066 (0.082) 0.203** (0.085) 0.204** (0.084)
constant -0.344*** (0.029) -0.344*** (0.029) -0.995*** (0.033) -0.995*** (0.033)
Observations 9,846 9,846 9,846 9,846

Pseudo R2 0.136 0.137 0.0825 0.0826
Log-likelihood -5358 -5354 -5192 -5191
Robust standard errors in parentheses, *** p<0.01, ** p<0.05, * p<0.1
Source: own calculations in STATA.
Furthermore, the probability of exporting in Poland depends on the sector of eco-

nomic activity. Our estimations results reveal that the largest probability of exporting
exists in the medium-high technology sectors, such as of electrical equipment, motor
vehicles, trailers or other transport equipment. The estimated parameter for medium-
high-tech variable is positive and statistically significant at 1% level. The parameter for
medium-low-tech is also positive and statistically significant at 1% level. Thus, Polish
firms active in the sectors such as manufacturing of coke, basic metals or rubber and
plastics have higher chances to be exporters. On the other hand, the firms active in
low-tech sectors – such as production of food products, beverages and tobacco, textiles
or wearing apparel and in high-tech sectors (e.g. production of pharmaceutical products,
computers or electronic products) are also less export oriented. This pattern of export
propensities in Poland reflects neoclassical pattern of trade analysed in other studies
(Michałek & Śledziewska, 2003). Poland, in comparison to other major partners from the
EU-15, has revealed comparative advantage in more labour intensive sectors and capital
intensive sectors.
Finally, the propensity to exports depends on the ownership structure. The variable
group-pl displays a negative sign and is statistically significant at 1% level. This result
indicates the Polish-owned firms organized in capital groups are less export oriented
compared to non-organized firms. On the other hand, the variable describing member-
ship in foreign capital group group_fdi displays a positive sign and is statistically signifi-
cant at 1% level. Therefore, one can argue, the membership in the foreign capital group
increases the probability of exporting. The similar results have been demonstrated in
other empirical studies for other EU countries.
In column (2) of Table 2 we extend the study of the ownership structure and split the
group_fdi variable into its major components. The variable group_pl still displays a nega-
tive sign and is statistically significant at 1% level. This result indicates the Polish-owned
firms are less export oriented. On the other hand, all variables describing foreign owner-
ship display positive signs and are statistically significant mostly at 1% level. The highest
values of estimated parameters are reported in the case of French (group_fr) and
German (group_de) owned firms. Both of them are significant at 1% level. The lower
values of parameters are displayed in the case of the US owned firms and firms from
other countries.
In column (3) we report the results obtained for firms heavily depending on exports,
for which the foreign market is the principal one. These results reveal some degree of
similarity compared to the results reported in column (1). Main similarities include the
importance for exporting and statistical significance of the size of the firm (medium and
large), the ownership group variables and to some extent also the sectors of economic
activity. The same sectors include medium low and medium high sectors which are more
export oriented compared to the low tech sector.
The main difference with respect to the previous results is in the high technology
sector which is more export oriented in the case of firms heavily depending on exports.
On the other hand, the variables related to product innovations (product_innov), human
capital (HC) and intangible assets (intell_prop) are statistically significant but display
counterintuitive, negative signs. We try to explore these counterintuitive results in col-
umn (4) in which we add three interaction variables: group_fdi x product_innov,
HC x group_fdi and intell_Prop x group_fdi.
The first interaction term displays a positive sign and is statistically significant at 1%
level. This means that firms that belong to a foreign group and introduce more new or
significantly improved products have higher propensity to export. The second interaction
term also displays a positive sign and is statistically significant at 1% level. This means
that firms that belong to a foreign group and employ more educated employees have
higher propensity to export. Finally, the third interaction term displays a negative sign
and is statistically significant at 1% level. This means that firms that belong to a foreign
group and make less applications for patents, inventions, trademarks in the Polish Patent
Office, have higher propensity to export. This result might be due to the fact that a large
fraction of Polish exports is accounted for by subsidiaries of multinational firms that do
not register their patents and trademarks in Poland, but rather use the intellectual prop-
erty created and protected by their parent firms. It can be also the case that large
exporters may benefit from large scale of production that reduces average costs of pro-
duction and are less interested in introducing innovations.
CONCLUSIONS
In this paper we studied the relationship between various types of innovations and ex-
port performance of Polish firms. Our analytical framework referred to the most recent
strand in the new trade theory literature based on the Melitz (2003) model that stresses
the importance of firm productivity in entering the export markets. The empirical im-
plementation of the theoretical framework was based on the probit model and the
unique Polish firm level data set covering the period 2008-2010.
In our approach we treated innovations as a key element that can increase the level
of productivity and focused our analysis on both product and process innovations as well
as intellectual property creation. We also tried to control for human capital and physical
capital proxied by the percentage of employees with tertiary education and the number
of production lines, respectively. In addition, we studied the role of foreign capital partic-
ipation in determining firm export performance. In particular, we controlled for the
country of origin of major investors in Poland.
Our estimation results indicate that the probability of exporting was positively relat-
ed to product and process innovations, firm size, the share of university graduates in
productive employment and foreign capital participation in the case of firms that export
at least some fraction of their output. These results suggest the need for development of
an innovation supporting mechanism that would stimulate both product and process
innovations in Poland.
In the case of firms heavily dependent on exports the roles of innovations and intel-
lectual property creation were obvious. The results depended also on the level of tech-
nology used in the analysed sector. In particular, the firms that operated in the medium
high technology and medium low technology sectors were more export oriented in the
case of all firms that export. Moreover, firms that were heavily dependent on exports
revealed a higher propensity to export in the high technology sector but were less inter-
ested in introducing innovations. In future studies it would be desirable to investigate
the robustness of these results using other estimation methods. In particular, the use of
the logit model would be highly recommended.
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Appendix
Table A1. Classification of manufacturing industries into categories based on R&D intensities
NACE-Rev-2
High-technology industries
classification
Manufacture of basic pharmaceutical products and pharmaceutical preparations 21
Manufacture of computer, electronic and optical products 26
Medium-high-technology industries
Manufacture of chemicals and chemical products 20
Manufacture of electrical equipment 27
Manufacture of machinery and equipment n.e.c. 28
Manufacture of motor vehicles, trailers and semi-trailers 29
Manufacture of other transport equipment 30
Medium-low-technology industries
Manufacture of coke and refined petroleum products 19
Manufacture of rubber and plastic products 22
Manufacture of other non-metallic mineral products 23
Manufacture of basic metals 24
Manufacture of fabricated metal products, except machinery and equipment 25
Low-technology industries
Manufacture of food products 10
Manufacture of beverages 11
Manufacture of tobacco products 12
Manufacture of textiles 13
Manufacture of wearing apparel 14
Manufacture of leather and related products 15
Manufacture of wood and of products of wood and cork, except furniture;
16
manufacture of articles of straw and plaiting materials
Manufacture of paper and paper products 17
Printing and reproduction of recorded media 18
Manufacture of furniture 31
Other manufacturing 32
OECD Directorate for Science, Technology and Industry 7 July, 2011 Economic Analysis and Statistics Division,
ISIC Rev. 3 Technology Intensity Definition, 7 July,2011
Source: Eurostat (2016).
Authors
The contribution of co-authors is equal and expressed as 1/3 (33.33%) each of the authors.
Andrzej Cieślik
Associate Professor in the area of International Economics in the Faculty of Economic Sciences
of the University of Warsaw (Poland). PhD in Economics by the University of Warsaw.
Correspondence to: Prof. dr hab. Andrzej Cieślik; University of Warsaw, Faculty of Economic
Sciences; ul. Długa44/50, 00-241 Warsaw, Poland; e-mail: [email protected]
Jan Jakub Michałek

Associate Professor in the area of International Economics in the Faculty of Economic Sciences
of the University of Warsaw (Poland). PhD in Economics by the University of Warsaw.
Correspondence to: Prof. dr hab. Jan Jakub Michałek; University of Warsaw, Faculty of Econom-
ic Sciences; ul. Długa44/50, 00-241 Warsaw, Poland; e-mail: [email protected]
Krzysztof Szczygielski
Assistant Professor in the area of International Economics in the Faculty of Economic Sciences
of the University of Warsaw (Poland). PhD in Economics by the Warsaw School of Economics.
Correspondence to: Dr Krzysztof Szczygielski; University of Warsaw, Faculty of Economic Sci-
ences; ul. Długa44/50, 00-241 Warsaw, Poland; e-mail: [email protected]
Acknowledgements and Financial Disclosure
The first draft of the analysis was completed during the implementation of the project “Does
Government Support for Innovation Matter? The Effectiveness of Public Support for Private
Innovation”, for which the data was provided by the Central Statistical Office (Szczecin branch).
The contribution of Andrzej Cieślik and Jan Jakub Michałek was financed from the National
Science Centre of Poland (NCN) project no. 2015/17/B/HS4/01 077 entitled “Innovation activity
and export competitiveness in the new EU member countries”.
The authors would like to thank the anonymous referees for their useful comments, which
allowed to increase the value added of this article.
This article is published under the terms of the Creative Commons

Attribution – NonCommercial – NoDerivs (CC BY-NC-ND 3.0) License
http://creativecommons.org/licenses/by-nc-nd/3.0/
Published by the Centre for Strategic and International Entrepreneurship – Krakow, Poland
2016, Vol. 4, No. 4 DOI: 10.15678/EBER.2016.040403
Identification of Linkages between the Competitive

Potential and Competitive Position of SMEs
Related to their Internationalization Patterns
Shortly after the Economic Crisis
Piotr Trąpczyński, Barbara Jankowska, Marlena Dzikowska, Marian Gorynia
ABSTRACT
Objective: We aim to identify internationalization profiles of SMEs for the period
immediately following the global economic crisis (years 2010-2013) and characterise
them with reference to the firms' competitive potential during the crisis (year 2009),
and their competitive position at the end of the analysed period.
Research Design & Methods: The study is based on a complementary data set de-
rived from secondary (AMADEUS database) and primary sources of information (com-
puter assisted telephone interviews with top managers) for 553 micro, small and
medium firms located in Poland. We conduct a cluster analysis to identify different
internationalization profiles of SMEs for the years 2010-2013.
Findings: In the year of the global economic crisis ambitious investors on average had
at their disposal substantially better competitive potential than the remaining two
groups. Ambitious exporters were better equipped than cautious internationalizers
only in terms of human resources, intangible resources and quality control.
Implications & Recommendations: Policy support should be particularly oriented
towards supplying information about foreign markets and fostering firms in an opti-
mal allocation of their resources.
Contribution & Value Added: The study suggests that the strategy of diversifying
international markets during the economic crisis and recovery can be a means of
improving performance and reducing excessive dependence on fluctuations in key
markets.
Keywords: internationalization; SME; economic crisis; Poland; competitiveness
JEL codes: F23, F44, L25, M16
Received: 6 March 2016 Revised: 28 June 2016 Accepted: 29 July 2016
Suggested citation:
Trąpczyński, P., Jankowska, B., Dzikowska, M., & Gorynia, M. (2016). Identification of Linkages
between the Competitive Potential and Competitive Position of SMEs Related to their Internation-
alization Patterns Shortly after the Economic Crisis. Entrepreneurial Business and Economics
Review, 4(4), 29-50, DOI: http://dx.doi.org/10.15678/EBER.2016.040403
30 | Piotr Trąpczyński, Barbara Jankowska, Marlena Dzikowska, Marian Gorynia
INTRODUCTION
Poland is often regarded as a country, which had not been significantly affected by the
global economic crisis. In fact, Poland’s annual GDP growth in 2009 amounted to 2.63%
as opposed to the average for OECD members of -3.94% (World Bank, 2012). Undoubt-
edly, the expansion of a nation's exports has positive effects on the growth of the econ-
omy as a whole, as well as on individual firms (Cavusgil & Nevin, 1981). Additionally, an
extensive network of international operations allows firms to react swiftly to unexpected
declines in demand or increases in production factor prices in both domestic and inter-
national markets, as it allows to shift sales to customers in more munificent environ-
ments or benefit from operational flexibility and move operations to less costly locations
(Kogut & Kulatilaka, 1994; Roberts & Tybout, 1997). At the same time, the capacity of the
firms to react actively to the challenges brought by the crisis, deeply influences the abil-
ity of the whole economy to recover from it. From this perspective changes in interna-
tionalization level of companies during economic crisis period is an interesting research
area worth further investigation. It is especially important in terms of a country that was
performing relatively well in terms of its economic results during the global economic
crisis (Poland) and relations of international expansion issue with aspects of firm compet-
itiveness in general. Therefore, the scientific problems undertaken in this paper is the
identification of internationalization profiles of Polish SMEs for the period following
global economic crisis and their background in terms of the competitive potential pos-
sessed by those companies before that period and the competitive position occupied by
them at its end.
Macroeconomic data indicate that changes in terms of Polish companies involve-
ment into foreign markets were taking place during the global economic crisis. This evi-
dence pertains to the most advanced form of firm internationalization, i.e. foreign direct
investment (FDI): net outflows from Poland in 2009 grew by 21.51%, as compared to
a sharp decline of 32.85% for the OECD group. This can reflect a relatively high immunity
of Polish firms to the economic downturn and increase in Polish companies’ interest in
expansion to foreign markets (Gorynia, Nowak, Trąpczyński & Wolniak, 2015b). Still, the
export of goods and services from Poland in 2009 decreased by 6.28%, and it was
accompanied by a decrease in import of goods and services amounting to 12.38%
(as opposed to a decline of respectively 11.40% and 11.76% for the OECD group) (World
Bank, 2016).
Adopting a microeconomic perspective towards Polish companies, in particular small
and medium enterprises (SMEs), extant studies point to clearly negative effects of the
crisis for domestic firms, including inter alia the decline of orders, sales, delayed or can-
celled payments (Orłowski, Pasternak, Flaht & Szubert, 2010), decline in corporate value
and increase in costs (Grądzki & Zakrzewska-Bielawska, 2009; Brojak-Trzaskowska
& Porada-Rochoń, 2012). Additionally, the study of Zelek and Maniak (2011) suggest that
SMEs most frequently recurred to defensive rather than offensive reactions to the crisis.
Furthermore, in the context of Polish SMEs there was evidence of a rather low perceived
effectiveness of expansion to new markets (Burlita, Bursiak, Grzesiuk, Lachowska, Mani-
ak, Świergiel & Zelek, 2011). Nevertheless, in the post-crisis time firms can respond to
changes in external settings by inter alia extending or limiting their international opera-
Identification of Linkages between the Competitive Potential and … | 31
tions, and deepening or shallowing their internationalization level. Thus, the aim of our
study is threefold. Firstly, we aim to identify the internationalization profiles of Polish
SMEs in terms of their internationalization after the global economic crisis (years 2010-
2013). For this purpose we look at the intensity of internationalization in terms of its
breadth and depth Second, our research is to detect whether the most ambitious inter-
nationalization behaviour described by the changes in its depth and breadth can be asso-
ciated with possessing a superior competitive potential. Third, our investigation is to
discover any links between the changes in the depth and breadth of internationalization
and competitive position of the firms.
We set out by outlining the conceptual background behind internationalization, firm
competitiveness, as well as their mutual relationships. We then use existing literature on
the effects of economic crisis on competitiveness and internationalization of firms to
formulate hypotheses related to the interplay of firm internationalization and competi-
tiveness under crisis conditions. Subsequently, we present the methodology of our em-
pirical data collection, as well as the findings of the related cluster analysis and the
Kruskal-Wallis H test. In the final part of the paper, we discuss the findings and highlight
their implications.
LITERATURE REVIEW
Firm Internationalization and Competitiveness
Welch and Luostarinen (1988, p. 36) define firm internationalization as “the process of
increasing involvement in international operations”. However, business reality clearly
indicates that sometimes firms tend to limit their international commitment. Particularly
for firms with less advanced international operations the probability of exiting foreign
markets is high (Benito & Welch, 1997). In fact, Benito and Welch (1994) argue that firms
learn throughout the process of internationalization, thus adjusting their approach to
risk and paying greater attention to subsequent expansion steps. Moreover, since both
organizational and environmental complexity rises with the widening of a firm's interna-
tional operations (Verbeke, Li & Goerzen, 2009), Calof and Beamish (1995) argue that
internationalization is related to adapting the firms’ operations to international envi-
ronments, which pertains to their strategy, structure and resources.
One of the key questions in the research on internationalization is whether the in-
crease of its degree is beneficial to firm performance (Verbeke, Li & Goerzen, 2009).
Meanwhile, the related academic debate remains inconclusive (Matysiak & Bausch,
2012). It has been argued that the predominant focus on the direct link between interna-
tionalization degree and performance is not entirely legitimate, as performance is a de-
rivative of its capabilities, leveraged in international markets (Luo, 2002). Thus, in order
to account for the interplay of resources, internationalization, and performance, it
appears legitimate to explore the concept of firm competitiveness.
In the presence of numerous determinants of competitiveness, it is relevant to de-
compose this concept into specific dimensions (Gorynia, Jankowska & Tarka, 2013; Buck-
ley, Pass & Prescott, 1988; Wach, 2014). According to the model of Gorynia (2004; 2005),
firm competitiveness can be divided into competitive potential, competitive strategy and
competitive position. However, even the deconstruction of the competitiveness concept
into competitive potential, competitive strategy and competitive position still does not
allow to conduct its measurement, and therefore, all those dimensions need to be oper-
ationalized into variables. Due to the aims of this paper our understanding of competi-
tive potential and competitive position are of special importance. In regard to competi-
tive potential, answering to an issue raised in the literature (Collins, 1991; Porter, 1991;
Dess, Gupta, Hennart & Hill, 1995; Spanos & Likoukas, 2001; Sheehan & Foss, 2009), the
perspective applied in the paper combines competences (Porter, 1985) and resources
(Wernerfelt, 1984; 1995; Prahalad & Hamel, 1990; Barney, 1991; 2002; Barney & Clark,
2009) as sources of a company’s competitiveness. Such approach has been also suggest-
ed in some previous studies refering to firm competitiveness (Dzikowska, 2014).
On the other hand, competitive position can be defined as the result of market eval-
uation of a firm's offering. It reflects constant rivalry between competitors and since that
it has a dynamic character (Porter, 2006). Variables expressing this dimenssion can be
classiffied into three basic groups: financial results (i.e. profits, rate of return on assets,
rate of return on investments etc.), market results (i.e. profits, market shares etc.) and
shareholders results (i.e. shareholder total return, economic value added etc.) (Richard,
Devinney, Yip & Johnson, 2009). Additionally, the mentioned variables can be expressed
as objective measures (nominal values) or subjective ones (evaluations of respondents).
It is easy to notice that the above mentioned competitive dimensions are inter-
linked. Competitive positions are results achieved thanks to the competitive potential
used during a competition process, conducted according to a scheme set by a company’s
competitive strategy that takes into account environmental conditions (Dzikowska, 2014;
Jankowska, 2011).
The achievement of a given competitive position is determined by the possession or
lack of competitive advantage, which pertains to the ability to survive in the middle- and
long-run. Competitive advantage results from “a skilful exploitation of existing potential
with the use of appropriate competitive instruments” (Gorynia, Jankowska & Tarka,
2013, p. 28).
The Role of Internationalization Depth and Breadth during Economic Crisis

Many international business studies focus on the relationship between widely under-
stood enterprise’s internationalization and it’s performance. However, at it was already
mentioned, the results remain inconclusive. While some results indicate that the rela-
tionship between the mentioned variables is linear and positive (Vernon, 1971; Grant,
1987) or negative (Collins, 1990), others suggest existanse of U-shaped (Qian, 1997;
Elango & Pattnaik, 2009), reverted U-shaped (Ramaswamy, 1995; Gomes & Ramaswamy,
1999) or S-shaped (Contractor, Kundu & Hsu, 2003) relationship. In a call to better ex-
plain the performance effects of internationalization, it has been argued that further
studies should explore the actual substance of internationalization, rather than simple
measures like the share of foreign sales (Verbeke, Li & Goerzen, 2009). While most stud-
ies still focus on the effect of the share of foreign sales on firm performance (for an over-
view see Matysiak & Bausch, 2012), there is also empirical evidence that it is FDI that
affects economic outcomes in international markets (Fang, Wade, Delios & Beamish,
2012; Luo, 2002). Hence, we argue that the breadth of internationalization should be
distinguished from its depth, the former meaning the number and diversity of foreign
markets served by the firm, while the latter referring to the advancement of the com-
mitment of resources to foreign markets. In fact, as it has been argued, the influence of
internationalization on firm competitiveness is contingent upon its stage of advancement

(Trąpczyński & Wrona, 2013), which can be measured both along its depth and breadth.
The ability of firms to sustain a favourable competitive position and even improve
financial performance during the period of crisis can be enhanced by the possession of
appropriate competitive potential in terms of product, process and organizational inno-
vativeness (Antonioli, Bianchi, Mazzanti, Montresor & Pini, 2011; Köksal & Özgül, 2007).
Lee, Beamish, Lee and Park (2009) argue, based on their study of Korean exporters dur-
ing the Asian crisis that firms with a leading market position were the most international-
ized. Meanwhile, this relationship was positively moderated by the possession of above-
average R&D capabilities (Lee et al., 2009). In the same vein, Filippov and Kalotay (2011)
argue that foreign operations of firms whose strategic position was strong already before
the crisis, were able to grow more quickly throughout the crisis. As far as the depth of
internationalization, i.e. the role of FDI in foreign expansion, is concerned, it has been
argued that the crisis increases the propensity of firms to raise control of foreign opera-
tions through capital ownership (Williams & Martinez, 2012). In fact, foreign operations
with a higher investment of the parent firm show higher survival chances (Chung
& Beamish, 2005). Another argument for the particular role of internationalization depth
during the crisis pertains to the acquisition mode. In fact, research indicates that reces-
sion conditions favour high-performing acquisitions as compared to pre- and post-crisis
conditions, which can be related to the emerging takeover opportunities (Wan & Yiu,
2009). Given the above, we propose that:
Higher competitive potential of SMEs at the outset of the economic crisis is
H1: characteristic for firms that increase their internationalization depth rather
than breadth thorough the post-crisis period.
The gross financial results of Polish exporters declined from 44.4 billion PLN in the
first half of 2008 to 34 billion PLN in the first half of 2009. However, firms specialised in
export (whose share of export in total revenues exceeds 70%) managed to increase their
results in the same period from 9.2 billion PLN to 12.2 billion PLN (Wołodkiewicz-
Donimirski, 2010). Likewise, Amendola, Ferragina, Pittiglio & Reganati (2012) found that
Italian exporters from different sectors had higher survival chances, although this rela-
tionship was also affected by their liquidity and level of debt. In a similar vein, exporters
knowing a variety of host countries and having a network of foreign contacts, were more
able to cope with uncertainty related to economic risk, thus achieving higher perfor-
mance gains (Jansson, Hilmersson & Sandberg, 2010).
In the light of extant research, an extensive network of international operations
allows firms to react swiftly to unexpected declines in demand or increases in production
factor prices in both domestic and international markets, as it allows to shift sales to
customers in more munificent environments or benefit from operational flexibility and
move operations to less costly locations (Kogut & Kulatilaka, 1994; Roberts & Tybout,
1997). During the crisis, enhancing internationalization depth in a narrow number of
locations may not necessarily be an appropriate solution, since firms seek to limit their
investment risk in locations with higher uncertainty (Hryckiewicz & Kowalewski, 2010).
In fact, the economic crisis even intensifies the phenomenon of international divestment
(Benito & Welch, 1997; Filippov, 2011). Hence, we argue that it is the firms which diversi-
fy risks under crisis conditions by extending internationalization breadth more intensively

that will enjoy higher performance gains (Figure 1):
The improvement of competitive position of SMEs shortly after the economic
H2: crisis is more positive for firms that increase their internationalization breadth
rather than depth.
Internationalization
H1 depth
Competitive Competitive
potential position change
H2
breadth
Figure 1. Analytical framework

Source: own study.

Objective, Methods, Variables and Operationalisation
The objective of the presented study is the identification of the linkages between the
competitive potential and competitive position of SMEs in Poland shortly after the eco-
nomic crisis with regard to their internationalization patterns. To meet this objective we
conducted the in-depth literature studies and then we collected primary data on the
topic using computer assisted telephone interviews (CATIs). CATIs were conducted with
firms fulfilling particular criteria presented in the next section and with the use of a ques-
tionnaire. The in-depth critical literature studies proceeded and supported the design of
the questionnaire. The results of the literature studies were exploited to properly define
the research variables and their measures. The initial version of the questionnaire was
discussed with the representatives of firms that were to participate in CATIs and later
updated according to their comments. It was necessary to test the the accuracy of the
face validity of the questionnaire and check the understanding and unambiguity of ques-
tions. Then the authors conducted the pilot study among 154 firms. This allowed for the
preparation of the final version of the questionnaire. The questionnaire referred to the
competitiveness of the firms, intensity of their internationalization, diversified external
circumstances related to demand, competition and resource conditions the firms had to
cope with. Nevertheless in the presented paper the authors report just on the results
related to the internationalization intensity and the competitiveness of the firms under
study. The dimensions of competitiveness of the firms in the years 2009, 2010, 2011,
2012 and 2013 were evaluated with the use of a 7-point Likert scale, with the range of
<-3; 3>, where the response -3 stood for "the company was much worse than competi-
tors”, and the 3 meant “the firm has been much better than the competitors” (Chang,
Chen & Huang, 2015; de Jong, van Dut, Jindra & Marek, 2015; Fernández-Mesa & Alegre,
2015; Nguyen & Rugman, 2015). The internationalization issue was evaluated with re-
gard to the export intensity and intensity of foreign investment.
Table 1. Operationalisation of variables

Internal
Variable Operationalisation
consistency
Internationalization depth
The number of new FDI projects undertaken by a firm
FDI intensity (IFDI) diminished by the number of previous FDI projects
abandoned by a firm in the period 2010-2013.
The share of export in total sales of the company in the
Export intensity (EXPI)
period 2010-2013.
Internationalization breadth
Number of new foreign The number of new foreign markets a firm entered in
markets in the portfolio the period 2010-2013 diminished by the number of
of markets (NFM) previous markets a firm left in the period 2010-2013.
13 variables on a 7-point Likert scale, where -3 stands
Competitive potential
for "much worse than direct competitors”, an 3 stands
in the crisis period
for "much better than direct competitors”. The set of
(2009)
variables included resources and competences.
Material resources, human resources, intangible re-
Resources sources (knowledge, brand, patents, etc.); financial
resources.
Logistics (performance and efficiency), production (per-
formance and efficiency), marketing and sales (effec- Cronbach’s
tiveness and efficiency), service (effectiveness and effi- Alpha
ciency), supplies (performance and efficiency), technolo- (2009) = 0.974
Competences
gy (advancement and efficiency), management of hu-
man resources (efficiency and performance), firm man-
agement systems (efficiency and effectiveness), quality
control (efficiency)
Competitive position in the crisis period and shortly after (years 2009 and 2013 respectively)
5 variables (profitability, sales growth, market share,
Cronbach’s
overall financial condition, customer satisfaction) evalu-
Alpha
Subjective measures ated with the use of 7-point Likert scale, where
(2009) = 0.949
-3 stands for "much worse than direct competitors”,
(2013) = 0.940
3 stands for "much better than direct competitors”
4 variables related to the financial position of a firm: the
Objective measures profit margin (EBIT/revenues), sales growth (based on
company revenues - year to year), return on equity
Source: own study.
To analyse primary data we applied the following statistical methods: two-step clus-
tering technique, the post-hoc test descriptive statistics and non-parametric analysis of
variance. Firstly, a hierarchical cluster analysis based on Ward’s minimum variance tech-
nique was carried out in order to identify the most stable number of clusters for the
proposed solution. To distinguish the clusters we used two variables – internationaliza-
tion breadth and internationalization depth (Table 1). The Cornbach’s alfa was applied to
check the reliability of indicators used to measure the construct of the competitive po-
tential and competitive position (Table 1). Secondly, a K-means cluster analysis was per-
formed to verify the hierarchical cluster analysis. To be more confident about the num-
ber of clusters that were to be indicated for the K-Means cluster analysis we applied
additional measure suggested by Mojena (1977) also known as the upper tail rule.
In order to check the differences between the variables in relation to the generated
clusters, the F-test was applied. Then the post hoc test – Games Howell test was con-
ducted.
In the next step we characterised the clusters with regard to internationalization and
evaluated the competitive potential and position of firms in the identified clusters using
descriptive statistics. Last but not least, we checked whether there are any statistically
significant differences among the clusters with regard to their competitive potential and
position using the Kruskal-Wallis non-parametric analysis of variance.
Sample and Time Frame

The study is based on data from the AMADEUS database and primary data from comput-
er assisted telephone interviews with top managers of 553 micro, small and medium
firms located in Poland and operating in 7 manufacturing industries defined according to
NACE Rev. 2 at the level of divisions (Table 2). The delimitation of the sectoral back-
ground of sample firms was determined by a prior analysis with the use of linear order-
ing of objects (Dzikowska, Gorynia & Jankowska, 2015). The latter’s aim was to identify
industries in which firms did relatively well during the economic crisis (division 10, 17, 25,
32) in Poland and those that had difficulties with returning to pre-crisis performance
(division 14, 15, 24). Subsequently, a ranking of industries was developed. The industries
included in our study encompass 44% of firms registered in Poland and operating in the
manufacturing sector.
Our proprietary electronic database featured complete contact and financial records
for a total of 2533 firms representing the 7 selected industries1. Thereof, 750 firms were
contacted in July and August 2015 and 701 completed questionnaires were accepted as
reliable data, resulting in an effective response rate of 25%. Among those 701 compa-
nies, there are 553 micro, small and medium entities, thereafter called SMEs for the
purpose of this study. The majority of SMEs represent division 10 (242 entities) and divi-
sion 25 (190 entities) which are industries that coped relatively well with the crisis. The
criteria used to identify the SMEs was the number of employees in 2009 indicated by
respondents in questionnaires.
The timeframe of the study embraces the period 2009-2013. The year 2009 is recog-
nised as the crisis period, while the years 2010-2013 represent the post-crisis time. The
1
That is the number of entities in the database without records related to firms that participated in the pilot
study that was conducted by the authors in 2014.
first symptoms of the global economic crisis in Poland were visible in the second half of
2008, hence the year 2009 was defined as the period of the crisis. The growth of GDP in
2009 was 1.79%, down from 5.13% in 2008. In 2010, GDP growth recovered to the level
of 3.88% (World Bank, 2015).
Table 2. Sectoral structure of the sample – number of firms from particular divisions (n = 553)
≤ 9 employ- 10-49 em- 50-249 Total
Division Description of activity
ees ployees employees number
Division manufacture of food
15 80 147 242
10 products
manufacture of fabricated
Division metal products, except
19 89 82 190
25 machinery and equip-
ment
Division manufacture of paper and
0 19 30 49
17 paper products
Division manufacture of basic
4 8 10 22
24 metals
Division manufacture of other
4 9 8 21
32 manufacturing
Division manufacture of wearing
0 14 9 23
14 apparel
Division manufacture of leather
1 4 1 6
15 and related products
Source: own study.

Identification of the most Ambitious Internationalizers – Cluster Analysis
First, the authors used a hierarchical clustering which created a hierarchy of clusters. The
applied algorithms for hierarchical clustering were agglomerative. The obtained dendro-
gram allowed to determine Euclidean distances between the analysed units. To deter-
mine the appropriate number of clusters the authors examined the fusion curve and it
suggested that there are 3 clusters of firms differ in terms of their internationalization
breadth and depth. The suggestion was supported by the upper tail rule. According to
the rule, we have selected the first number of groups that satisfied the Mojena’s equa-
tion which in our case amounted to 3. The three clusters embraced 492, 29 and 32 firms
respectively. The accuracy of delimitation of three clusters resonates with the results of
the analysis of variance presented in Table 3, statistically significant differences among
the identified clusters are easily visible. The variables were normalised to assure their
comparability.
The highest evaluation of IFDI is characteristic for cluster 3 (MN = 3.625). The EXPI in
cluster 3 (MN = 0.303) is higher than in cluster 1 (MN = 0.133), but lower than in cluster
2 (MN = 0.446). It means that firms in cluster 3 are the most involved in FDI, being at the
same time characterised by a lower export intensity. Firms in cluster 2 are practically not
involved in FDI as the mean value for IFDI is 0.000, but they report strong development
of their market portfolio (MN = 3.483), which means the breadth of their internationali-
zation is the largest. The same firms are the most involved in exporting (EXPI)
(MN = 0.446). The lowest evaluation of the EXPI (MN = 0.133) and IFDI (MN = 0.004)
variables is characteristic for cluster 1. Looking at the data in Table 4 we can conclude
that the most ambitious internationalizers – firms involved the most in the highest de-
gree of internationalization depth belong to cluster 3. However, to obtain a more de-
tailed and meaningful view of internationalization profiles of the identified clusters, it is
useful to analyse a number of indicators.
Table 3. Analysis of variance

Between Within Significance
Variables df df2 F Test
Clusters Clusters level
Export itensity (EXPI) 3.3834 2 22.9027 550 40.625 0.000
Foreign outward invest-
395.3291 2 17.4919 550 6215.201 0.000
ment intensity (IFDI)
Number of new foreign
markets in the portfolio of 327.5687 2 171.8237 550 524.266 0.000
markets (NFM)
Source: own study.
Table 4. Mean values for cluster variables (normalised) (n = 553)

Variables Cluster 1 Cluster 2 Cluster 3
EXPI 0.133 0.446 0.303
IFDI 0.004 0.000 3.625
NFM 0.024 3.483 0.188
Number of firms 492 29 32
Source: own study.
The results of the analysis of variance (Table 3) show that the entities in the clusters
differ in a statistically significant way with regard to the breadth and depth of interna-
tionalization, but we still don’t know which of the specific clusters differ. To check it we
ran the multiple comparisons, post hoc test using the Games Howell test. There are dif-
ferences between the pair of clusters 1, 2 and 3 in terms of the EXPI, differences be-
tween the following pairs of clusters – cluster 1 and cluster 3; cluster 2 and cluster 3 in
terms of IFDI, and last but not least differences between the following pairs of clusters:
cluster 1 and cluster 2; cluster 2 and cluster 3 in terms of NFM.
Characteristics of the most Ambitious Internationalizers – Cluster Profiles

Looking at the shares of export in total value of sales, they were the highest in cluster
2 (Table 5). In each of the three identified clusters, the intensity of export grew through-
out the analysed period. However, the strongest growth of that indicator was observed
in the second cluster (over 6 percentage points).
Additionally, it is visible that cluster 2 is composed of firms that serve the biggest
number of foreign markets which confirms that their internationalization breadth is the
2
The number 550 results from subtracting the number of clusters on the number of survey units for which
complete data existed or 553-3 = 550.
largest (Table 6). Simultaneously, when we compare the change in the number of foreign
markets that the firms entered and the number of foreign markets the firms left in all
respective years of the post-crisis period, the net result is positive and the most satisfac-
tory in the case of cluster 2. Accordingly, these firms were the most engaged in extend-
ing the breadth of their internationalization. On the other hand, the same difference in
cluster 1 is negative in 2010 and 2013, which means that de-internationalization oc-
curred and affected the breadth of internationalization. Cluster 1 encompasses compa-
nies that indicated the lowest number of foreign markets served.
Table 5. Share of import in total purchases and share of export in total sales during the post-
crisis period (n = 553)
2010 2011 2012 2013
Category
MN SD MN SD MN SD MN SD
Cluster 1 12.92 19.83 13.35 20.36 13.40 20.26 13.52 20.58
Share of export in
Cluster 2 42.28 24.40 42.28 25.89 46.28 24.46 47.52 23.65
total sales (%)
Cluster 3 28.75 20.15 30.50 21.88 30.72 22.46 31.25 23.37
Source: own study.
Table 6. The number of foreign markets served, left and entered by the company during the post
2010 2011 2012 2013
Category
MN SD MN SD MN SD MN SD
The number of foreign markets Cluster 1 2.42 5.09 2.41 5.07 2.45 5.10 2.45 5.10
served by the company (incl. Cluster 2 7.76 5.00 8.83 4.53 9.83 5.29 10.55 5.59
export markets) Cluster 3 4.59 4.11 4.72 4.12 4.66 4.17 4.72 4.19
Cluster 1 0.02 0.16 0.04 0.27 0.02 0.15 0.03 0.17
The number of foreign markets
Cluster 2 0.03 0.18 0.17 0.91 0.03 0.18 0.03 0.18
the firm left (incl. export markets)
Cluster 3 0.00 0.00 0.00 0.00 0.09 0.29 0.00 0.00
The number of new foreign mar- Cluster 1 0.02 0.15 0.03 0.19 0.05 0.29 0.02 0.14
kets the firm entered (incl. export Cluster 2 0.69 0.88 1.28 1.11 1.03 1.71 0.76 1.07
markets) Cluster 3 0.06 0.24 0.13 0.33 0.03 0.17 0.06 0.35
Source: own study.
The most diversified set of foreign markets is visible for cluster 2 (Table 7). This rein-
forces the earlier remark about the focus of firms in cluster 2 on extending international-
ization breadth rather than depth. The role of Central and Eastern Europe, Western
Europe, USA and Africa did not change in the post-crisis period, on the whole. The per-
centage of indication for particular regions in the case of firms from cluster 3 is stable
and similar for the crisis and post-crisis period, with the exception of Asia, where in 2009
its level of indication was 12.50% and in the post-crisis period it reached the level of
15.63%.
As far as FDI operations are concerned, it is visible that Cluster 3 is characterised by
firms strongly involved in FDI (Table 8). In the crisis year more than 80% of firms in clus-
ter 3 reported new FDI projects and the involvement of the companies in FDI has grown
since that year. It could suggest that they exploited the crisis to increase the depth of
their internationalization. Bearing in mind that their portfolio of markets was not that
much developed as in the case of cluster 2, we can suppose that they trade off breadth
for depth by switching from mere exporting to FDI, rather than diversifying their geo-
graphic portfolios. The highest mean values for IFDI (Table 4) is in a way confirmed by the
fact that more than 96% of those businesses reported undertaking new FDI projects and
just around 3% indicated dismantling their foreign investments. Thus, they can be re-
ferred to as ambitious investors.
Table 7. Percentage of firms doing business in particular locations in the post crisis period
(n = 553)
Region Cluster 2010 2011 2012 2013
Cluster 1 32.59 32.79 32.65 32.38
Central and Eastern Europe Cluster 2 93.10 93.10 93.10 93.10
Cluster 3 93.75 93.75 93.75 93.75
Cluster 1 25.66 25.66 25.92 26.07
Western Europe Cluster 2 82.76 82.76 86.21 86.21
Cluster 3 46.88 46.88 46.88 46.88
Cluster 1 2.65 2.65 2.86 2.65
USA Cluster 2 24.14 20.69 27.59 34.48
Cluster 3 6.25 6.25 6.25 6.25
Cluster 1 5.30 5.50 5.51 5.50
Asia Cluster 2 37.93 51.72 51.72 51.72
Cluster 3 15.63 15.63 15.63 15.63
Cluster 1 2.65 2.65 2.65 2.65
Africa Cluster 2 3.45 3.45 3.45 6.90
Cluster 3 9.38 9.38 9.38 9.38
Source: own study.
Cluster 2 embraces firms that are involved the most significantly in exporting since
the EXPI indicator reached the highest value. No firm from that cluster reported any new
FDI projects in the crisis year 2009 and in the post-crisis period of 2010-2013 (Table 8).
There are no firms involved in withdrawing from FDI activities. However, they expanded
abroad by entering new foreign markets (Table 5). The mean values for the number of
new foreign markets is the highest in the case of cluster 2 and the set of foreign markets
served by the firms from cluster 2 is diversified the most (Table 6). Hence, they can be
called ambitious exporters.
Table 8. Undertaking or abandonment of FDI in the post-crisis period – percentages of indica-

tions (n = 553)
Category 2010 2011 2012 2013
Cluster 1 0.41 0.00 0.20 0.41
Undertaking of new FDI Cluster 2 0.00 0.00 0.00 0.00
Cluster 3 93.75 96.88 96.88 96.88
Cluster 1 0.00 0.20 0.00 0.41
Abandonment of FDI Cluster 2 0.00 0.00 0.00 0.00
Cluster 3 9.38 6.25 3.13 3.13
Source: own study.
Cluster 1 are firms undertaking export and trying to win new foreign markets, but
their intensity of export is still the lowest within the whole sample of firms. Accordingly,
we call them cautious internationalizers. It should be noted at this juncture that they
constitute the majority of our total sample.
Competitive Potential of Ambitious Investors, Ambitious Exporters and Cautious

Internationalizers in the Crisis
A closer look at the elements of the competitive potential of firms within particular clus-
ters allows us to state that the highest values were reported among ambitious investors
(cluster 3, Table 9). Firms the most involved in FDI possessed the best competitive poten-
tial in the crisis year 2009. In the case of ambitious exporters and cautious international-
izers, a higher assessment for a larger number of aspects is visible for the cluster of cau-
tious internationalizers. This provides additional rationale for the term cautious. In fact,
they were better equipped than the ambitious exporters during the crisis, but still ex-
panded very carefully (Tables 4, 5 and 6).
In order to verify whether the differences in the competitive potential of firms rep-
resenting particular clusters are statistically significant, we used the Kruskal-Wallis test.
The results presented in Table 9 include critical values and significance levels in relation
to the elements of competitive potential where clear differences were observed in the
distribution of the answers related to the evaluation of its particular elements. A com-
parison between the H-values and the critical value in the statistical table of the chi-
square distribution for k-1 = 3-1 = 2 degrees of freedom and p = 0.05, which equals
5.991, showed that the calculated values of the H statistics were above the critical range
(H>5.991). Therefore, the differences in the competitive potential of ambitious investors,
ambitious exporters, and cautious internationalizers are statistically significant.
Table 9. Competitive potential of firms in 2009 – during the crisis (n = 553)

Aspects of competitive Kruskal- Level of
Cluster MN SD
potential Wallis test significance
Cluster 1 0.41 0.87
Material resources (available ma-
Cluster 2 0.41 0.93 H = 29.97 p = .0000
chines, assets and infrastructure)
Cluster 3 1.47 1.09
Cluster 1 0.46 0.79
Human resources Cluster 2 0.48 0.72 H = 30.81 p = .0000
Cluster 3 1.47 1.09
Cluster 1 0.45 0.86
Intangible resources (knowledge,
Cluster 2 0.52 0.93 H = 33.87 p = .0000
brand, patents, etc.)
Cluster 3 1.50 1.00
Cluster 1 0.39 0.93
Financial Resources Cluster 2 0.10 0.92 H = 30.85 p = .0000
Cluster 3 1.47 1.09
Cluster 1 0.48 0.77
Logistics (efficiency and effectiveness) Cluster 2 0.31 0.53 H = 28.52 p = .0000
Cluster 3 1.31 0.92
Cluster 1 0.73 0.99
Production (efficiency and effective-
Cluster 2 0.34 0.88 H = 14.35 p = .0008
ness)
Cluster 3 1.38 1.29
Cluster 1 0.35 1.28
Marketing and sales (effectiveness
Cluster 2 0.17 1.12 H = 11.47 p = .0032
and efficiency)
Cluster 3 1.25 1.62
Cluster 1 0.17 1.13
Service (efficiency and effectiveness) Cluster 2 0.07 0.98 H = 13.13 p = .0014
Cluster 3 1.19 1.65
Cluster 1 0.73 0.97
Supply (efficiency and effectiveness) Cluster 2 0.28 0.69 H = 17.43 p = .0002
Cluster 3 1.38 1.29
Cluster 1 0.42 0.89
Technology (advancement and per-
Cluster 2 0.34 0.71 H = 29.52 p = .0000
formance)
Cluster 3 1.47 1.09
Cluster 1 0.48 0.80
HR management (efficiency and effec-
Cluster 2 0.52 0.81 H = 29.15 p = .0000
tiveness)
Cluster 3 1.47 1.09
Cluster 1 0.35 1.27
Company management systems (effi-
Cluster 2 0.24 1.13 H =11.08 p = .0039
ciency and effectiveness)
Cluster 3 1.25 1.62
Cluster 1 0.15 1.12
Quality control (efficiency) Cluster 2 0.31 0.99 H = 10.40 p = .0055
Cluster 3 1.03 1.65
Source: own study.
The Competitive Position of Ambitious Investors, Ambitious Exporters and Cautious

Internationalizers – Contrasting the Crisis and Post-crisis Period
The changes in the intensity of internationalization, which can be considered as one of
the reactions to crisis, can have an impact on the competitive position of firms. Interest-
ingly, the mean values for subjective indicators of performance (Table 10) are generally
the lowest for the ambitious exporters (cluster 2) in the crisis period (year 2009), with
the exception of client satisfaction. It could mean that firms tried to keep their clients
even at the expense of their profitability (MN = -0.07). Being exporters very much fo-
cused on EU markets (Table 7), whose situation at that time was difficult, and coping
with the consequences of the depreciation of the Polish currency (PLN), which are nega-
tive in case of firms using imported goods in production (Table 5), they clearly perceived
their position as the worst within the whole sample. However, the evaluation of compet-
itive position for 2013 compared with the results from 2009 reveals that ambitious ex-
porters improved their performance to the highest extent during the post-crisis period
(Table 10).
Table 10. Competitive position according to subjective indicators contrasting the crisis and post-
Dimensions 2009 2013 Change
Kruskal- Level of
of competitive Cluster 2013-
MN SD MN SD Wallis test significance
position 2009
Cluster 1 0.32 1.40 0.63 1.39 0.31
Profitability Cluster 2 -0.07 1.39 0.72 1.23 0.79 H = 14.07 p = .0009
Cluster 3 1.25 1.50 1.59 1.30 0.34
Cluster 1 0.43 1.43 0.65 1.38 0.22
Sales growth Cluster 2 0.10 1.40 0.72 1.23 0.62 H = 13.65 p = .0011
Cluster 3 1.25 1.62 1.59 1.30 0.34
Cluster 1 0.33 1.38 0.63 1.40 0,30
Market share Cluster 2 0.10 1.42 0.72 1.23 0.62 H = 13.65 p = .0011
Cluster 3 1.31 1.51 1.59 1.30 0.28
Cluster 1 0.46 1.45 0.61 1.44 0.15
Overall financial
Cluster 2 0.10 1.32 0.66 1.18 0.55 H = 9.65 p = .0080
condition
Cluster 3 1.13 1.65 1.44 1.48 0.31
Cluster 1 0.75 0.77 0.76 0.76 0.02
Client satisfaction Cluster 2 0.79 0.71 0.86 0.68 0.07 H = 24.29 p = .0000
Cluster 3 1.63 0.99 1.63 0.99 0.00
Source: own study.
To check if the differences in the competitive position of firms from particular clus-
ters measured with subjective indicators are statistically significant, we used the Kruskal-
Wallis test. The results, also presented in Table 10, include the critical values and signifi-
cance levels in relation to the indicators of competitive position, where clear differences
were observed in the distribution of the answers related to the evaluation of its particu-
lar dimensions. A comparison between the H values and the critical value in the statisti-
cal table of the chi-square distribution for k-1 = 3-1 = 2 degrees of freedom and p = 0.05,
which equals 5.991, demonstrates that the calculated values of the H-statistics are above
the critical range (H>5.991). Thus, the differences in the competitive position of firms
measured with subjective indicators representing our identified clusters are statistically
significant.
The evaluation of objective measures of competitive position for particular clusters
are presented in Table 11. The measures are based on the financial results reported by
the firms and available in the AMADEUS database. In the crisis period, the sales growth
was the highest in the case of cautious internationalizers, and the worst in the case of
ambitious exporters. To calculate the sales growth in 2009, we used data from 2009 and
2008. As 2008 was marked by recession particularly in Western Europe, which consti-
tutes the main export area of the firms representing the ambitious exporters, this finding
is not surprising. Cautious internationalizers depended much less on foreign markets,
thus they were able to achieve relatively higher sales growth. The highest profit margin
can be observed for ambitious investors in the crisis year 2009 in Poland. Ambitious
exporters scored the best result in terms of return on equity in 2009. It was the group of
firms that managed to improve its sale growth and profit margin the most – when we
compare the results from 2013 and 2009. However, these findings for objective indica-
tors are not statistically significant at p = 0.05.
Table 11. Competitive position according to objective indicators contrasting the crisis and post-
crisis period
Dimensions 2009 2013 Change
Kruskal- Level of
of competi- Cluster 2013 vs
MN SD MN SD Wallis test significance
tive position 2009
Cluster 1 0.96 10.43 0.02 0.48 -0.93
Sales growth Cluster 2 0.00 0.24 0.09 0.19 0.09 H = 4.84 p = .0888
Cluster 3 0.06 0.28 0.00 0.26 -0.06
Cluster 1 0.03 0.96 -0.05 1.59 -0.08
Profit margin Cluster 2 0.03 0.08 0.05 0.07 0,02 H = 4.42 p = .1095
Cluster 3 0.06 0.07 -0.07 0.70 -0.13
Cluster 1 0.15 1.19 -0.21 9.35 -0.37
Return on
Cluster 2 0.31 0.71 0.18 0.19 -0.13 H = 1.51 p = .4698
equity
Cluster 3 0.15 0.31 0.18 0.22 0.03
Source: own calculations based on data from the AMADEUS database.
CONCLUSIONS
Our study corroborates the findings or earlier research on the internationalization of
Polish firms that they are still at an early stage of evolution of their international opera-
tions (Burlita et al., 2011; Gorynia, Nowak, Trąpczyński & Wolniak, 2015b). In fact, we
identified three groups of firms characterised by different profiles of their international
strategy, as expressed by the breadth and depth of internationalization. Clearly, firms
belonging to cluster 1 (cautious internationalizers) are still limited both in terms of the
breadth and depth of their internationalization. They constitute the vast majority of our
sample, which is indicative of overall trends in the actual population of Polish SMEs doing
business abroad. Conversely, firms involved in broader and deeper internationalization,
i.e. ambitious exporters and ambitious investors, respectively, are far less numerous,
pointing to the still limited scale of this phenomenon.
In addition to this more descriptive contribution, our findings bear several normative
implications related to reactions to crisis and their consequences. In fact, the identified
firm clusters differ significantly in terms of changes in depth and breadth of their interna-
tionalization, as well as the initial competitive potential and the changes in their compet-
itive position during the crisis. Our cluster analysis provides support for the hypothesis
that better competitive potential of SMEs at the outset of the economic crisis is charac-
teristic for firms that increase rather their internationalization depth than breadth thor-
ough the post-crisis period (Hypothesis 1). In fact, we find that firms which are the most
dynamically engaging in FDI activities during the period of crisis and thereafter, are the
ones best equipped with different resources and capabilities, which resonates with exist-
ing theoretical concepts of FDI. Second, we argued earlier in the paper that bigger im-
provement of competitive position of SMEs shortly after the economic crisis is more
positive for firms that increase rather their internationalization breadth than depth (Hy-
pothesis 2). Our empirical evidence provides support for this assertion. In fact, it is the
ambitious exporters, focusing more on internationalization breadth than depth, that
managed to enhance their financial and non-financial performance most visibly, although
in absolute terms their performance was on average the lowest among our sample firms.
In particular, given the fact the crisis affected the key export markets of Polish firms, it
seems legitimate to argue based on the present findings that the strategy of diversifying
international markets during the economic crisis and recovery can be a mean of improv-
ing performance and reducing excessive dependence on fluctuations in key markets.
Overall, the findings contribute to the discussion whether reactive or proactive steps are
more effective in sustaining the crisis period. Contrary to some prior studies pointing to
a lesser perceived role of expansion as a means of withstanding the crisis (Lachowska,
2011; Orłowski et al., 2010; Zelek & Maniak, 2011), our study provides some arguments
to the debate about the effectiveness of proactive measures in crisis times.
Interestingly, we find that decisions related to enhancing or limiting a firm’s interna-
tionalization breadth and depth are not necessarily linked to their resources and capabil-
ities, or their performance outcomes, as the cautious internationalizers turned out to
excel in certain specific dimensions. This reinforces the notion that internationalization
decisions are complex in nature and highly affected by managerial values (Wrona
& Trąpczyński, 2012). Thus policy support should be particularly oriented towards sup-
plying information about foreign markets and fostering firms in an optimal allocation of
their resources (Gorynia, Nowak, Trąpczyński & Wolniak, 2015a).
The study is burdened with several limitations. The reliance on predominantly inter-
view-based measures may provide a biased account on the evaluations of resources and
performance. Applying the cluster analysis the authors are aware of its limitations. Bear-
ing in mind the strengths and weaknesses of this method of exploration of data, the
authors purposefully combined the hierarchical and non-hierarchical cluster analysis.
Moreover, while our cluster analysis allowed identifying the internationalization profiles
of SMEs as a reaction to crisis, how it was affected by the possession of capabilities, and
how it affected firm performance, the choice of our research methods only provides an
initial exploratory look at the data. We are aware that our study does not provide a full
understanding of causality in the studied relationships. Further studies should recur to

econometric modelling to investigate moderating effects of internationalization depth
and breadth on the relationships between firm resources and strategy on performance,
in order to seize the effect of internationalization in a more direct manner. To profile the
clusters we used the Kruskal-Wallis test which provides a correct in terms of methodolo-
gy, but rather not a very detailed and in-depth picture of the phenomenon. To obtain
more valuable results the authors plan to apply more advanced methods in the future,
such as discriminant analysis or decision trees. Furthermore, the nature of the sources of
competitive advantage of firms should be explored in more detail in different geographic
contexts, as it is the contexts in which the resources are deployed that their value can be
assessed. Accordingly, a more nuanced analysis with consideration of the geographic
patterns of expansion should be undertaken by future studies.
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Authors
The contribution share of authors is amounted to 25% of Piotr Trąpczyński, 25% of Barbara
Jankowska, 25% of Marlena Dzikowska, 25% of Marian Gorynia.
Piotr Trąpczyński
Assistant Professor in Department of International Competitiveness at the Poznan Univeristy of
Economics and Business. His research focuses on strategy adaptation and performance in the
internationalization of firms as well as de-internationalization.
Correspondence to: Dr. Piotr Trąpczyński; Poznan Univeristy of Economics and Business, Facul-
ty of International Business and Economics, Department of International Competitiveness; al.
Niepodleglosci 10, 61-875 Poznan, Poland; e-mail: [email protected]
Barbara Jankowska
Associate Professor in Department of International Competitiveness at the Poznan Univeristy of
Economics and Business. Her research focues on internationalization with particular emphasis
on FDI and international competitiveness of firms and industries, on the role of business cluster
for innovativeness, internationalization and competitiveness of firms.
Correspondence to: Dr. hab. Barbara Jankowska; Poznan Univeristy of Economics and Business,
Faculty of International Business and Economics, Department of International Competitiveness;
al. Niepodleglosci 10, 61-875 Poznan, Poland; e-mail: [email protected]
Marlena Dzikowska
Assistant Professor in Department of International Competitiveness at the Poznan Univeristy of
Economics and Business. Her research focuses on internationalization and international com-
petitiveness of firms with particular emphasis on global sourcing.
Correspondence to: Dr. Marlena Dzikowska; Poznan Univeristy of Economics and Business,
Faculty of International Business and Economics, Department of International Competitiveness;
al. Niepodleglosci 10, 61-875 Poznan, Poland; e-mail: [email protected]
Marian Gorynia
Full profesor in Department of International Competitiveness at the Poznan Univeristy of Eco-
nomics and Business. His research focuses on internationalization of firms and international
competitiveness of firms and industries.
Correspondence to: Prof. dr hab. Marian Gorynia; Poznan Univeristy of Economics and Busi-
ness, Faculty of International Business and Economics, Department of International Competi-
tiveness; al. Niepodleglosci 10, 61-875 Poznan, Poland; e-mail: [email protected]
The article came into being within a research project financed by the National Science Centre
no 2012/07/B/HS4/03050; title: International competitiveness of Polish companies during
period of prosperity and the global economic crisis.
Dr. Piotr Trąpczyński is supported by the Foundation for Polish Science (FNP).

2016, Vol. 4, No. 4 DOI: 10.15678/EBER.2016.040404
Foreign Market Knowledge and SME’s International

Performance: Moderating Effects of Strategic
Intent and Time-to-Internationalization
ABSTRACT
Objective: The objective of the article are threefold. First, to examine the significance of
knowledge based resources for internationalization of small and medium sized enterpris-
es. Second, to verify the strategic intent as a factor enhancing SMEs’ ability to accumulate
the knowledge about foreign markets. Third, to examine whether and how strategic intent
and time-to-internationalization moderate the relationship between foreign market
knowledge and SMEs’ international performance.
Research Design & Methods: The study was conducted on a sample of 89 Polish firms
operating in a low-tech but fairly internationalized sector. In line with a theoretical back-
ground, hypotheses are developed and tested with linear regression models.
Findings: The findings reveal that foreign market knowledge (FMK) is positively asso-
ciated with international performance (IP), and both, strategic intent and firm’s age at
internationalization are moderators of FMK-IP relationship.
Implications & Recommendations: Firms’ ability to clearly formulate the strategic
intent brings important consequences for ability to accumulate knowledge. Strategic
intent enhances the development of the stock of foreign market knowledge, which in
turn enables firms to achieve better performance in international markets.
Contribution & Value Added: The article seeks to contribute to the ongoing discus-
sion on factors supporting the accumulation of foreign market knowledge by focusing
on the role of strategic intent and time to internationalization in this respect.
foreign market knowledge; strategic intent; age at internationaliza-
Keywords:
tion; international performance; SMEs
JEL codes: F23
Received: 18 June 2015 Revised: 16 September 2016 Accepted: 20 September 2016
Suggested citation:
Ciszewska-Mlinarič, M. (2016). Foreign Market Knowledge and SME’s International Performance:
Moderating Effects of Strategic Intent and Time-to-Internationalization. Entrepreneurial Business
and Economics Review, 4(4), 51-66, DOI: http://dx.doi.org/10.15678/EBER.2016.040404
52 | Mariola Ciszewska-Mlinarič
INTRODUCTION
Foreign market knowledge (FMK) is one of central concepts within international business
strategy research. Its importance has been recognized in the incremental model of inter-
nationalization, i.e. the Uppsala Model (Johanson & Vahlne, 1977) that explains the pro-
cess of international expansion in terms of experiential learning and accumulation of
foreign market knowledge. Researchers have also validated the significance of foreign
market knowledge for the firm performance in international markets (Eriksson, Johan-
son, Majkgard & Sharma, 2000; Mogos Descotes & Walliser, 2013; Musteen, Datta
& Butts, 2014), triggering the studies examining learning processes of internationally
oriented firms, sources of foreign market knowledge, or antecedents/factors enhancing
accumulation of foreign market knowledge (Musteen et al., 2014; Fink & Kraus, 2007).
Knowledge about foreign markets is particularly important for small firms (Liesch
& Knight, 1999) that originate from transition economies (Musteen & Datta, 2011), as
they often lack resources and capabilities.
While prior studies have cumulatively formed the sound body of knowledge, much
of them focus on samples originating from developed economies. Given that emerging
market firms, both large and small, are increasingly active in the international market-
place, undertaking research in this context is well-justified to fill in this gap. Foreign mar-
ket knowledge can be particularly important for firms originating from such economies,
as liberalization of trade and foreign direct investments have opened their home markets
to foreign competitors, which in turn forced firms to search for international growth
opportunities (Luo & Tung, 2007). Thus, this paper enriches extant research on foreign
market knowledge within the context of Central East European region, by providing evi-
dence from Polish SMEs.
Another gap in the extant literature refers to factors enhancing the accumulation of
foreign market knowledge. Factors other than firm’s international experience, network
ties, technological orientation or firm size have been seldom examined. In this respect,
the concept of strategic intent (Hamel & Prahalad, 1989; 1993; 1994) seems to be largely
sidelined. The current study investigates the significance of strategic intent for develop-
ing the stock of knowledge about foreign markets, while controlling for other, above
mentioned variables. It is proposed that the strategic intent perspective should be in-
cluded in research examining organizational learning and the accumulation of foreign
market knowledge. I argue that strong strategic intent, by providing direction of organi-
zational efforts oriented on learning, leads to the accumulation of knowledge about
foreign markets, which in turn increases the likelihood of achieving greater international
performance by small and medium sized enterprises. Additionally, the study examines
how the relationship between foreign market knowledge and international performance
is moderated by the firm age at internationalization.
Therefore, the objectives of the paper are threefold. First, to examine the signifi-
cance of knowledge based resources for SMEs’ internationalization. Second, to verify the
role of strategic intent as a factor enhancing SMEs’ ability to accumulate the knowledge
about foreign markets. Third, to identify conditions affecting the relationship between
knowledge of foreign markets and performance (including as moderators strategic intent
and age at internationalization). In order to test the hypothesised relationships, the
Foreign Market Knowledge and SME’s International Performance: … | 53
study employs a sample of 89 Polish firms that operate in the furniture manufacturing
sector.
The present study contributes to extant understanding of foreign market knowledge
in the successful internationalization of small and medium sized firms in three ways. The
first is by proposing a novel factor, i.e. strategic intent that explains the accumulation of
foreign market knowledge, leading in that way to greater international performance. The
second is by verifying the significance of strategic intent and a firm’s age at international-
ization for the relationship between foreign market knowledge and international per-
formance, thus bringing empirical support for the conditions explaining the relationship.
The article is structured as follows. In the first section, theoretical background is dis-
cussed and research hypotheses are developed. The second section presents details on
the sample, data selection procedure, and operationalization of variables. Then, results
of statistical analyses and key findings are provided. The paper closes with conclusions
and future research recommendations.
LITERATURE REVIEW
Foreign Market Knowledge and International Performance
In line with prior research (Johanson & Vahlne, 1977; Musteen & Datta, 2011), foreign
market knowledge (FMK) is defined as “the knowledge of business practices and poten-
tial opportunities as they relate to foreign markets. It includes knowledge related to local
culture, competitive conditions, customer needs, and the broader institutional environ-
ment” (Musteen & Datta, 2011, p. 93). Internationalization literature postulates that
knowledge about foreign markets is an essential concept that explains internationaliza-
tion behaviour/commitment of firms. According to Uppsala model such knowledge has
experiential character and is growing along with a firm’s international experience.
FMK is seen as one of the most important resources in the internationalization pro-
cess (Johanson & Vahlne, 2003; Autio, Sapienza & Almeida, 2000), as it is necessary to
understand opportunities and deal with uncertainties (Andersen, 1993) and risks (Liesch,
Welch & Buckley, 2011). The lack of FMK represents a significant barrier to firm’s inter-
nationalization (Eriksson et al., 1997). Numerous studies confirm this thesis, providing
evidence that lack of FMK deteriorates directly or indirectly performance in the foreign
markets, both in the context of developed market firms (Mogos Descotes & Walliser,
2013), and emerging market firms (Musteen & Datta, 2011; Musteen et al., 2014; Elango
& Pattnaik, 2007). For instance, Musteen and Datta (2011, p. 96) argue that “superior
understanding of the foreign competitive and political environments should mitigate the
liability of foreignness, enabling entrant firms overcome the barriers set up by incumbent
firms and governments and allow them to compete more effectively in international
markets”. However the incremental character of internationalization, and the assump-
tion that knowledge is acquired via first-hand experience have been questioned by nu-
merous researchers, pointing to the abundance of born-global (BG) firms (Zhou, 2007)
and other than experiential modes of learning (Forsgren, 2002). Searching for explana-
tions of the phenomenon of early internationalization, where firms have no or very lim-
ited knowledge about foreign markets, scholars have pointed either to learning ad-
vantages of newness or/and others sources of learning and knowledge accumulation,
that can be used by BGs, in general agreeing with the value of foreign market knowledge
for the performance. Thus, in line with traditional theorizing it is hypothesized that:
Foreign market knowledge is positively related to a firm’s international per-
H1:
formance.
Strategic Intent and Foreign Market Knowledge

Antecedents or predictors of knowledge about foreign markets constitute another popu-
lar research theme. Among most often employed predictors are prior international expe-
rience, network ties, size, and technological orientation (Fink & Kraus, 2007; Ellis, 2011;
Musteen et al., 2014). While controlling for the typically employed predictors of FMK,
this paper builds on strategic intent perspective (Hamel & Prahalad, 1989; 1993; 1994) to
shed novel light on organizational learning and the resulting stock of foreign market
knowledge.
The term strategic intent was developed and popularized by Hamel and Prahalad
(1989). Analysing the post-war growth of Japanese firms they argued that these firms
have used a different approach to strategy formation than their Western peers. Hamel
and Prahalad (1993) posit that long term competitiveness of global companies is deter-
mined by managers’ willingness to challenge continually the assumptions, premises, and
accepted wisdom (‘managerial frames’, ‘mindset’) that relate to how companies com-
pete. According to the authors, competition takes place not so much at the level of
products, but at the level of managerial mindsets. They contend that “creating stretch,
a misfit between resources and aspirations, is the single most important task senior
management faces” (Hamel & Prahalad, 1993, p. 78). It demands more creativity in find-
ing or creating new market space, identifying unmet needs of customers, avoiding com-
petitive confrontation (focus is rather on encirclement or making competition irrelevant)
– in short, finding ways to achieve more, while possessing less or “getting the most from
the least” (Hamel & Prahalad, 1993, p. 78). They argued that clearly defined and com-
municated strategic intent (which gives the sense of direction, destiny, and discovery) is
critical for firms’ success, as it creates the misfit between goals and resources and opens
the way to leveraging resources.
However, in the field of international business and international entrepreneurship,
the concept of strategic intent is rather forgotten. Some exceptions in this respect, in-
clude the arguments on strategic intentionality of Johanson and Vahlne (2009) who point
to the importance of strategic intentions, that may determine the focus of managerial
attention, how managers interpret information, and what decisions and actions they
may undertake. Such arguments lead to the use of strategic intent (measured as export
intention) as a moderator of the relationship between learning and export intensity
(Casillas, Barbero & Sapienza, 2015), or – more broadly – the concept of strategic think-
ing for the pace of internationalization (Wach, 2015).
This study puts forward the notion that clearly defined and shared strategic intent
can be invaluable to create proper organizational conditions for accumulating foreign
market knowledge. One reason for that is strategic intent helps organizations to focus
their efforts to gain new knowledge, helps to identify opportunities, including opportuni-
ties to learn. Thus:
Strategic intent is positively associated with the accumulation of foreign mar-

H2:
ket knowledge.
Strategic Intent and Age at Internationalization as Moderators

In the field of international business, Johanson and Vahlne (2009) suggest that intentions
determine the focus of managerial attention, efforts, the way of interpreting infor-
mation, as well as decisions and resulting actions. Following this reasoning, I argue that
firms that have clearly formulated strategic intent will increase their ability to learn “by
actively seeking knowledge about international markets, potential customers, competi-
tors” (Zhou, 2007, p. 284). In other words, the ability to learn about foreign markets and
accumulate knowledge increases when owners and managers provide and effectively
communicate the strategic intent (the sense of direction, destiny, and discovery); so that
organizational efforts are focused on spotting and exploiting new opportunities, an im-
portant source of knowledge. Therefore, it is expected that the relationship between
FMK and performance will be stronger in case of firms with clearly formulated strategic
intent than in case of firms with ambiguous strategic intent. Therefore:
The relationship between foreign market knowledge and international per-
formance is moderated by the strategic intent, so that in case of firms with
H3a:
clearly formulated strategic intent, the positive relationship between FMK and
performance will be stronger.
Age at internationalization (in other words, time-to-internationalization) is another
moderator of the relationship between FMK and performance, which is employed in this
study. Age at internationalization refers to the phenomenon of early internationalization,
which questions the logic of gradual internationalization process (Johanson & Vahlne,
1977). One of arguments explaining the phenomenon of early internationalization refers
to the learning advantages of newness (LAN). According to Zhou and Wu (2014, p. 134),
learning advantages of newness characterizes new ventures that “tend to possess fewer
deeply embedded routines (from domestic operations), face fewer inertial constraints
(past-dependent cognitive biases), and thus are in a forward-looking position to explore
new opportunities in international markets.” However, young and small firms also suffer
from the lack of managerial, human and financial resources, and they may not have
enough time and experience to develop organizational routines supporting learning.
When they try to develop their business simultaneously in domestic and foreign markets,
such resource shortages may become even more evident. In the context of SMEs origi-
nating from post-transition economies. Cieślik and Kaciak (2009, p. 381) observe that
“The shift from a communist to a market economy opens new opportunities for firms to
expand internationally but also poses serious risks because of these firms’ lack of inter-
national experience and relevant skills.” Therefore, in contrast to the ‘learning ad-
vantages of newness’ argument, this article postulates that absorptive capacity (i.e. the
ability to recognize the importance of new knowledge, absorb and use) (Cohen & Levin-
thal, 1990) of small firms originating from post-transition economies increase with time
so that in case of firms that are older at the time of internationalization, the relationship
between FMK and performance will be stronger.
The relationship between foreign market knowledge and international per-

formance is moderated by the firm age at internationalization, so that in case
H3b:
of firms that were older at the time of internationalization will benefit more
from accumulation of foreign market knowledge.
Figure 1 presents all hypothesized relationships.
Age at
H3
Foreign Market
Strategic intent Performance
H2
Knowledge H1
Figure 1. Conceptual model

Source: own elaboration.

Sample and Data Collection
The sample was drawn from the population of Polish firms operating in the furniture
manufacturing sector, which were actively involved in international operations in 2013.
Furniture manufacturing is among the most competitive manufacturing sectors in Poland
– it generates app. 2% of Polish GDP, and has a significant surplus in foreign trade (Polish
Furniture Magazine, 2012). The sector is important to Poland’s exports (accounting for
approximately 5-6% of Polish exports, which is one of the highest shares in exports).
Approximately 90% of furniture produced in Poland is exported (Polish Furniture Maga-
zine, 2012). Moreover, Poland is among largest worldwide exporters of furniture (in 2011
following China, Germany, and Italy), which makes furniture manufacturing one of glob-
ally visible manufacturing sectors in Poland. Polish exports of furniture is constantly
growing over the last decades, and according to Eurostat data the value of Polish furni-
ture exports in 2014 equalled to 8.037 billion EUR, which grew in comparison to 2013 by
13.2% (in 2013 the value of Polish furniture exports was equal to 7.1 billion EUR)
(OIGPM, 2015). Thus, the sector was chosen due to its importance to the Polish economy
and its global visibility.
The findings presented in this paper are based on a larger project that examined in-
ternationalization strategies of Polish firms operating in the furniture manufacturing
sector. A total of 1100 firms with international sales were identified (with the coopera-
tion of Eniro Polska, which owns the largest and, supposedly, the most up-to-date data-
base of Polish firms) and contacted by telephone in February/March 2014. The inter-
viewer asked for permission to conduct a telephone interview with managers, owners or
chief executive officers directly responsible for key decisions concerning the firm’s inter-
nationalization. Regarding internationalization issues in the context of SMEs, they are the
most knowledgeable informants (Nummela, Saarenketo & Puumalainen, 2004). After
rejecting non-existing firms and firms with 100% foreign ownership, and after receiving
permission to conduct a telephone interview, the final sample consisted of 121 firms of
different size. For the purpose of this study the large firms, and surveys that were in-
complete, were dropped from the sample. Thus, the final sample comprises 89 micro,
small and medium sized firms that each employed between 1-250 employees.
The questionnaire was pretested on several firms in order to provide reliability of
the results. Then, interviewers from the research agency were trained in the questions.
The questionnaire was targeted to chief executive officers (CEOs), owners, and managers
directly responsible for making key internationalization decisions because they are the
most knowledgeable informants regarding internationalization issues in SMEs (Nummela
et al., 2004). As the survey was conducted over a phone with a single informant, and
predictor and criterion measures were obtained from the same source, common method
variance (CMV) may be a concern (Podsakoff, MacKenzie, Lee & Podsakoff, 2003; Chang,
Witteloostuijn & Eden, 2010). To ensure the reliability of the study, several procedural
remedies were used ex-ante (e.g., the questionnaire was pretested to eliminate any
ambiguity, vagueness, or unfamiliarity), response anonymity and confidentiality were
guaranteed, and single-common-method-factor approach was taken ex-post to detect
CMV. Harman’s single-factor test revealed that CMV should not be a problem in the
present study as loading all items into exploratory factor analysis revealed neither the
single factor nor the general factor1 that would account for a majority of covariance
between the measures (Podsakoff et al., 2003).
Dependent Variables
Foreign market knowledge. The items applies as measures of foreign market knowledge
covered: foreign regulations and law, foreign competitors, foreign customers, foreign
distribution channels, and foreign business opportunities. This approach is in line with
prior research (Musteen et al., 2014) and covers the dimensions of foreign institutional
and business knowledge (Eriksson et al., 1997; Autio et al., 2000; Hadley & Wilson, 2003).
Specifically, the respondents were asked to evaluate the top managers’ knowledge using
5-point scale (1=very low level of knowledge; 5=very high level of knowledge) concerning
a firm’s major overseas markets, in terms of: (i) the foreign law and industry regulations;
(ii) the policies and actions of foreign competitors; (iii) the expectations of foreign cus-
tomers; (iv) the effectiveness of foreign distribution channels; (v) business opportunities
in foreign markets such as opportunities for partnering, and/or for potential new cus-
tomers. The factor analysis indicated that the items’ loadings were between 0.746 and
0.846. The construct has a satisfactory Cronbach’s alpha of 0.852 (Nunnally & Berstein,
1994), as well as the composite/construct reliability (CR=0.895), and average variance
extracted (AVE=0.632) (Fornell & Larcker, 1981).
International performance. Musteen and Datta (2011, p. 98) argue that “firms in
transition economies are generally very reluctant to provide earnings information. In-
deed,[…] requests for earnings data is viewed very suspiciously by SME managers”.
Therefore, perceptual/subjective measures are often used in performance operationali-
zation (Zahra, Neubaum & Huse, 1997; Nummela et al., 2004; Musteen & Datta, 2011;
Musteen et al., 2014). Although such measurement may be vulnerable to personal bias,
there is a research evidence confirming that subjective and objective measures are high-
1
The unrotated principal component factor analysis revealed the presence of four distinct factors with eigen-
value greater than 1.0 (thus no single factor emerged). The four factors together accounted for 59.8% of the
total variance; and the first factor did not account for a majority of the variance (23.10%).
ly correlated (Dollinger & Golden, 1992; Wall et al., 2004), and thus can be used when
objective measures are not available (Musteen et al., 2014). In this study, international
performance was measured on a 5-point scale by two items. First respondents were
asked to indicate their satisfaction with the firm’s international performance (1 = very
dissatisfied, 5 = very satisfied), and second, to evaluate the firm’s success in foreign mar-
kets in comparison to its main competitors (1 = much worse, 5 = much better than main
competitors). The construct has a rather unsatisfactory Cronbach’s alpha of 0.579
(Nunnally & Berstein, 1994), but the composite/construct reliability (CR = 0.826), and
average variance extracted (AVE = 0.704) met the recommended thresholds (CR > 0.6
and AVE > 0.5), which supports the construct internal consistency (Fornell & Larcker,
1981).
Independent Variables
Strategic intent. The construct of strategic intent was operationalized in the past differ-
ent ways. For instance, Casillas et al. (2015) operationalized strategic intent as an export
intention, while Mariadoss, Johnson and Martin (2014, p. 2396) as overall strategic ag-
gressiveness, a multi-item measure focused on aggression, ambition, winning, and mar-
ket leadership. This paper, however, builds on the original work of Hamel and Prahalad
(1989; 1994). The construct was thus operationalized using three items: a sense of direc-
tion, destiny, and discovery. Respondents were asked to indicate the extent to which
they agreed with each of the following statements (5-point scale, 1 = strongly disagree,
5 = strongly agree): (i) the overall aim of our company clearly indicates the direction in
which we are going, (ii) the overall aim of our company is well known to and shared by
employees, (iii) in comparison with our main competitors, the overall aim of our compa-
ny is far more ambitious. The factor analysis revealed that the items’ loadings were be-
tween 0.680 and 0.814. The construct has a satisfactory Cronbach’s alpha of 0.613 (Nun-
nally & Berstein, 1994), as well as the composite/construct reliability (CR = 0.797), and
average variance extracted (AVE = 0.569) (Fornell & Larcker, 1981).
Time to internationalization. In line with prior operationalization (Cieślik & Kaciak,
2009; Musteen et al., 2014; Wach, 2015), time to internationalization, (or firm age at
internationalization) was measured by the number of years that passed from the firm’s
founding until the first foreign market sales.
Control Variables
The study employs several control variables based on prior research. First, firm interna-
tional experience was captured by the number of years a firm has carried out sales in
foreign markets. In line with a conventional theorizing it is argued that a longer time may
lead to foreign market knowledge accumulation (Musteen & Datta, 2011) and enhance
international performance. The second control variable refers to network ties. As evi-
denced by prior research, ties with foreign partners may foster both, development of
foreign market knowledge and firm international performance (Fink & Kraus, 2007). The
significance of foreign customers (suppliers) in a firm network was computed as ratio of
foreign customers (suppliers) in a total number of a firm’s customers (suppliers), includ-
ing both foreign and domestic customers (suppliers). Third, ownership was treated as
a dichotomous variable indicating whether the firm is domestic (coded as ‘0’), or has
a minority or majority share of foreign capital (coded as ‘1’). Firms with 100% foreign
ownership were not included in the study. As argued by Zahra, Ireland and Hitt (2000),
ownership may exert influence on a firm international operations and resources that are
available for them. According to prior research, firms with foreign ownership (full or
partial) are more internationalized, and have a higher level of sales and exports per em-
ployee than firms with only domestic/Polish capital (Cieślik, 2010; Kolasa, Rubaszek
& Taglioni, 2010). Additionally, firm size was controlled with the log of total number of
employees.
Correlations for all variables are shown in Table 1. In order to detect potential issues
with multicollinearity, the variance inflation factors (VIF) were calculated for all the vari-
ables in key models (Table 1). The VIFs for all the variables in both models were below
1.61, which is substantially lower than the recommended cut-off, indicating that multi-
collinearity should not be a problem (Neter, Kutner, Nachtsheim & Wasserman, 1996).
An assessment of the normality of the random component was performed with Shapiro-
Wilk and Kolmogorov-Smirnov’s tests (probabilities > 0.05).
Table 1. Correlations of the key variables (n = 89)

Variables 1 2 3 4 5 6 7 8 VIFa VIFb
1. International performance 1
2. Foreign market knowledge 0.58** 1 1.607
3. Strategic intent 0.41** 0.60** 1 1.073 1.417
4. Age at internationalization 0.01 0.02 0.01 1 1.063 1.064
5. Firm size 0.32** 0.37** 0.15 0.07 1 1.174 1.301
6. Firm international experience 0.13 0.15 0.12 0.12 0.24* 1 1.208 1.209
7. Ownership 0.39** 0.17 0.13 -0.20 0.16 -0.12 1 1.162 1.164
8. Foreign partners (suppliers) 0.04 -0.00 -0.04 -0.02 0.06 0.04 0.03 1 1.071 1.076
9. Foreign partners (customers) 0.38** 0.19 0.10 -0.16 0.09 0.11 0.23* 0.25* 1.166 1.204
Note: Correlation is significant: ** at the 0.01 level (2-tailed); * at the 0.05 level (2-tailed).
a
Refers to Model 1 in Table 2; b refers to Model 2 in Table 2.
Source: own study.
RESULTS AND FINDINGS

Research hypotheses were tested with the hierarchical linear regression models. In order
to examine the significance of strategic intent for the accumulation of foreign market
knowledge we run two regressions (Table 2).
The baseline model (Model 0) includes only control variables, and the full model
(Model 1) includes the independent variable. A comparison of baseline and full model
indicates whether the explanatory power increased. The regression results show that
both models are significant, and the full model (Model 1) has significantly greater ex-
planatory power (change in R-squared = 0.199, F-change = 19.850, p<0.001). According
to the results, strategic intent (p <0.001) contributes to the accumulation of foreign mar-
ket knowledge, thus H1 was supported.
Regression results for hypotheses examining the significance of foreign market
knowledge for international performance (H2), and the moderating effects of strategic
intent (H3a) and age at internationalization (H3b) are presented in Table 2, Model 0’,
Model 2, and Model 3. The baseline model (Model 0’) includes only control variables and
moderators, the main effects model (Model 2) includes additionally independent varia-
ble (FMK), and full models (Model 3) includes interaction effects (FMK x strategic intent,
FMK x age at internationalization). All models are statistically significant. As evidenced in
Model 2, foreign market knowledge (p<0.01) is significantly associated with international
performance, thus, H2 is supported. In comparison with Model 0’, Model 2 has signifi-
cantly greater explanatory power (change in R-squared = 0.093, F-change = 10.960,
p<0.001).
Table 2. Linear regression results

Dependent Foreign Market Knowledge International Performance
Model Model Model Model Model
Independent 0 1 0’ 2 3
Foreign market
n/a n/a 0.387** (3.311) 0.410*** (4.057)
knowledge [FMK]
Strategic intent n/a 0.462*** (4.455) 0.227* (2.212) 0.049 (0.444) 0.091 (0.976)
Age at internationaliza-
0.001 (0.009) -0.021 (-0.204) 0.064 (0.624) 0.072 (0.758) 0.022 (0.265)
tion
FMK x Intent n/a n/a n/a n/a 0.195* (2.393)
FMK x Age at int. n/a n/a n/a n/a 0.333*** (3.909)

Firm international
0.052 (0.422) -0.028 (-0.253) 0.017 (0.160) 0.028 (0.278) -0.017 (-0.195)
experience
Firm size 0.299* (2.419) 0.281* (2.594) 0.180† (1.670) 0.071 (0.673) 0.100 (1.121)
Ownership 0.103 (0.848) 0.035 (0.321) 0.325** (3.039) 0.312** (3.137) 0.314*** (3.722)
Foreign partners (sup-
-0.079 (-0.667) -0.054 (-0.524) -0.040 (-0.388) -0.019 (-0.197) -0.008 (-0.103)
pliers)
Foreign partners (cus-
0.191 (1.558) 0.154 (1.425) 0.297** (2.766) 0.237* (2.343) 0.192** (3.105)
tomers)
Model summary
R2 0.179 0.378 0.389 0.482 0.644
Adjusted R2 0.100 0.308 0.320 0.414 0.584
F 2.284* 5.379*** 5.644*** 7.101*** 10.671***
Change in R2 0.199 0.093 0.162
F-change 19.850*** 10.960** 13.401***
Note: † p<0.10; *p<0.05; **p<0.01; ***p<0.001.
Source: own study.
In order to examine the hypotheses 3a and 3b assuming the moderation effects, the
interaction terms (FMK x strategic intent, FMX x age at internationalization) were com-
puted by multiplying the centred values of corresponding components (i.e. values of
foreign market knowledge, strategic intent, and age at internationalization were stand-
ardized). Model 3 includes interaction effects and has significantly greater explanatory
power than Model 2. Increase in explanatory power, captured by the change in
R-squared (Model 3: change in R-squared = 0.162, F-change = 13.401, p<0.001), confirms
that both moderation effects exist (Cohen & Cohen, 1983).
To understand the interactive effects, two graphs were plotted (Figure 2 and Fig-
ure 3). They present the effect of foreign market knowledge on international perfor-
mance, indicating that firm performance in foreign markets market increases with the
stock of foreign market knowledge, and this relationship is accentuated when: (a) a firm
started its international operation early (i.e. within three years since its inception; Figure
2); (b) a firm has a clearly formulated strategic intent (Figure 3). Implications of these
findings are discussed in the next section.
Early
internationalization
Late internationali-
zation
Figure 2. Moderation effect of age at internationalization

Ambiguous
Clear
Figure 3. Moderation effect of strategic intent

DISCUSSION AND CONCLUSIONS

The current study sheds novel light on the foreign market knowledge and its relevance
for a firm international performance by focusing on two aspects. First, the study findings
suggest that differences in SMEs’ ability to accumulate FMK can be explained by the
strategic intent (Hamel & Prahalad, 1989), which is a new variable in this stream of re-
search. The strategic intent (characterized by the sense of direction, destiny, and discov-
ery) enables firms’ ability to accumulate new knowledge. Therefore, the inclusion of
strategic intent perspective, which in a broad sense was postulated by Johanson and
Vahlne (2009) is justified, as well as bringing into discussion the original meaning of stra-
tegic intent as proposed by Hamel and Prahalad (1994). This way the study answers the
call to enrich existing research “on what enhances the acquisition of foreign market
knowledge in SMEs” (Mustee & Datta, 2011, p. 93).
Second, the study provides additional explanations to better understand when for-
eign market knowledge is particularly beneficial for firm international performance. As
evidenced by the research results, the stock of accumulated knowledge is positively
associated with the firm international performance (which is measured subjectively, by
managers’ satisfaction with their firms’ international performance). This finding is gener-
ally in line with prior theoretical and empirical studies, indicating positive, direct or indi-
rect, relationship between processes of learning and knowledge accumulation, and per-
formance in foreign markets (Johanson & Vahlne, 1977; Eriksson et al., 2000; Mogos
Descotes & Walliser, 2013; Musteen et al., 2014). However, more theoretically interest-
ing contribution of this paper points to the conditions that affect this relationship. In-
deed, the relationship is accentuated by both moderators i.e. strategic intent and time-
to-internationalization.
In case of companies that have clearly formulated strategic intent, assimilation of
new FMK results in greater performance gains than in case of firm with ambiguous or
unclear strategic intent. It is postulated that strategic intent promotes/enhances the
accumulation of FMK through focusing organizational efforts on spotting new opportuni-
ties in the marketplace which leads to the acquisition of new knowledge resulting from
pursuing such opportunities. Strategic intent activates and directs the process of acquir-
ing knowledge about foreign markets, increase efforts to acquire new knowledge and
openness to multiple sources. Therefore, it can be argued that it sharpens attention to
the identification and utilization of market opportunities. These findings resonate well
with the postulated significance of managerial intentions for the resulting actions
(Johanson & Vahlne, 2009) – in other words, the paper provides empirical evidence that
strategic intent not only has a positive impact on FMK, but it also moderates the FMK-
performance relationship.
Considering the effect of age at internationalization (i.e. time-to-
internationalization), the study results reveal that in case of firms that were older than
three years at the time of internationalization, the FMK-performance relationship was
stronger. A time frame of three years was adapted in this study, as it is most often used
in rapid internationalization literature (Knight, Bell & McNaughton, 2001; Aspelund
& Moen, 2005). This finding supports the notion that small firms that decided to enter
foreign markets after operating for at least four years in the domestic market, most likely
had the chance to develop their absorption capacity (i.e. the ability to recognize the
importance of new knowledge, absorb and use) (Cohen & Levinthal, 1990), so that they
could expect later to achieve more pronounced performance gains resulting from the
acquisition of FMK. As suggested in the literature, absorptive capacity increases along
with the existing stock of knowledge (Cohen & Levinthal, 1990). In the light of the study
results, it could be hypothesised that domestic knowledge and learning abilities (devel-
oped in the first years when firms focused solely on the domestic market) occurred later
beneficial for the use of foreign market knowledge.
From the managerial point of view, the paper offers two implications. First, it pro-
vides evidence that SMEs’ that are able to develop and accumulate the stock of foreign
market knowledge, may expect to achieve better international performance. Therefore,
investing organizational efforts, time and resources to develop international learning
routines is reasonable from ‘business’ perspective and most likely should be perceived by
SMEs’ owners and managers as ‘an investment’, not unnecessary a cost. Second, the
paper offers at least partial explanation to the question ‘what helps SMEs to accumulate
this knowledge’. Here, the role of strategic intent should not be overlooked. Those SMEs,
whose owners and managers are willing and able to define and communicate the strate-
gic intent (that provides organizationally shared sense in terms of direction, destiny and
discovery), are better prepared and predisposed to accumulate foreign market
knowledge.
Although the empirical findings discussed in this paper broaden our understanding
of conditions moderating the relationship between FMK and performance, and bring into
discussion strategic intent perspective, the current study obviously suffers from several
limitations. First, the sample comprised of firms operating within only one highly interna-
tionalized sector. Therefore, it should be recognized that the presented results are con-
text-specific and their application to other industry contexts may be limited. In particu-
lar, it may concern the moderating effect of age at internationalization. In other con-
texts, for instance high-tech industries, results could be different, supporting rather
learning advantage of newness’ arguments. Second, the operationalization of the key
construct, strategic intent, was not applied in prior research. The operationalization is
based, however, on the description presented in original works of Hamel and Prahalad
(1989), and its reliability scale is satisfactory. Thus, future studies should include more
diversified, cross-industrial samples to validate the presented findings and proposed
measurement of strategic intent. Finally, a promising research stream could examine
through in-depth study design how exactly strategic intent is related to the absorptive
capacity (i.e. the ability to recognize, absorb, and use the new knowledge (Zahra
& George, 2002) in the context of “early and late internationalizers”.
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Author
Assistant Professor of Strategic Management and International Business Strategy at Kozminski
University, Visiting Professor at ESCCA (France) and MCI Innsbruck (Austria), and Academic
Coordinator of “Strategic Management” specialization of Master Program in Management at
Kozminski University. Her research focuses on internationalization strategy of emerging market
firms, internationalization process and decision-making, and relational capabilities.
Correspondence to: Dr. Mariola Ciszewska-Mlinarič; Kozminski University, Department of
Strategy; ul. Jagiellonska 57/59, 03-301 Warsaw, Poland; e-mail: [email protected]
The author would like to thank the anonymous referees for their useful comments, which al-
lowed to increase the value of this article.

2016, Vol. 4, No. 4 DOI: 10.15678/EBER.2016.040405
Organizational Culture and Firms’ Internationalization,

Innovativeness and Networking Behaviour:
Hofstede Approach
Maja Szymura-Tyc, Michał Kucia
ABSTRACT
Objective: The objective of this paper is to describe the features of firms’ organizational
culture within four of Hofstede’s national culture dimensions and their potential rela-
tionships with internationalization, innovativeness and networking behaviour of firms.
Research Design & Methods: This explorative quantitative research refers to results of
an earlier study on internationalization, innovativeness and networking of firms in
Poland. Descriptive statistics are used to depict the features of the organizational cul-
ture of the firms differing in behaviour in the three fields.
Findings: The study leads to two hypotheses. First is that higher power distance is con-
ducive for firms’ internationalization and innovativeness. The second is that the lower
uncertainty avoidance supports internationalization, innovativeness and networking
behaviour of firms.
Implications & Recommendations: An attempt to create more consistent measures of
organizational culture dimensions should be made in future analyses. This could help
to achieve more sound results on the relationships between organizational culture and
firms’ behaviour in internationalization, innovativeness and networking.
Contribution & Value Added: The paper gives an insight into the organizational culture
features relationships with a broad area of firms’ behaviour related with their ability to
gain competitive advantage.
organizational culture; Hofstede approach; internationalization; inno-
Keywords:
vativeness; networking
JEL codes: M14, D22, M16, O31, L21
Received: 26 January 2016 Revised: 16 September 2016 Accepted: 20 September 2016
Suggested citation:
Szymura-Tyc, M., & Kucia, M. (2016). Organizational Culture and Firms’ Internationalization, Innova-
tiveness and Networking Behaviour: Hofstede Approach. Entrepreneurial Business and Economics
68 | Maja Szymura-Tyc, Michał Kucia
INTRODUCTION
Organizational culture is an important factor influencing the behaviour of firms and their
performance in many fields. It has a broad scope of influence and it is very difficult to
change in a short-term perspective. Organizational culture is conceptualized in many ways,
one of them being based on the concept of national culture introduced by Hofstede
(1980). Hofstede distinguished six dimensions of national culture and four of them: power
distance, collectivism vs. individualism, uncertainty avoidance and long-term orientation
are translated into organizational culture features that may be related to the performance
of firms. Poland as a country is characterized by high level of power distance, high individ-
ualism, very high uncertainty avoidance and short-term orientation (geert-hofstede
.com/Poland).
A significant number of empirical studies demonstrate the influence of the organiza-
tional culture on the innovativeness of firms, their willingness to network or their interna-
tionalization. Hofstede’s concept was used to study the impact of culture on firm level
entrepreneurship (Morris, Davis & Allen, 1994) and on entrepreneurship level of individual
countries (Thomas & Mueller, 2000; Hayton, George & Zahra, 2002). It was also studied in
the context of social networks in the international perspective (Zaheer & Zaheer, 1997;
Manev & Stevenson, 2001). Furthermore, the concept is often employed in studies of for-
eign market entry modes, including joint ventures and strategic alliances, in the research
conducted both on the individual countries’ level and on an international scale. Finally,
Hofstede’s concept of culture dimensions is often related to the innovativeness and R&D
analysed for individual countries and compared internationally (Shane, 1995; Shane,
Venkataraman & MacMillan, 1995; Jones & Teegen 2001; Kirkman, Lowe & Gibson, 2006).
Internationalization, innovativeness and networking are the most important drivers
of firms’ competitive advantage today. These phenomena are to a large extent interre-
lated, which creates a vicious circle for firms representing a low degree of internationali-
zation and innovativeness and unwillingness to engage in networks as is the case for many
firms in transition or emerging economies. Polish firms in general represent a low level of
internationalization, innovativeness and reluctance to cooperate (Szymura-Tyc, 2015a;
Lewandowska, Szymura-Tyc & Gołębiowski, 2015). The main research question that arises
is whether there are any particular organizational culture features that underlie the spe-
cific firms’ behaviour related to internationalization, innovativeness and networking.
An answer to this question might help to understand better the organizational culture
consequences for the firms’ behaviour in the three fields and indicate directions of
changes that might promote further development of these firms.
Hence, the general aim of this exploratory study is to describe the features of firms’
organizational culture within the four above-mentioned Hofstede’s dimensions of national
culture, and find out their potential relationships with internationalization, innovativeness
and networking behaviour of firms.
Research presented in this paper refers to results of an earlier study of international-
ization, innovativeness and networking of firms in Poland conducted by one of the authors
(Szymura-Tyc, 2015b). The current study is based on the empirical data collected via
an internet survey. Descriptive statistics are used to depict the features of organizational
culture of firms within the sample and within four clusters differing in the firms’ behaviour
Organizational Culture and Firms’ Internationalization, Innovativeness and … | 69
in the field of internationalization, innovativeness and networking. The results and conclu-
sions refer to both stages of the research of the organizational culture’s links to interna-
tionalization, innovativeness and networking behaviour of firms.
The paper continues with the literature review related to the Hofstede’s concept
of national culture and its dimensions as well as his understanding of the organizational
culture within these dimensions. This part of the paper also presents selected empirical
research results and theoretical assumptions concerning the potential relationship be-
tween Hofstede’s concept of culture and firms’ behaviour in relation to innovativeness,
internationalization and networking. Additionally, a short review of literature on the inter-
relationships between internationalization, innovativeness and networking and a brief de-
scription of prior empirical research results are included in the theoretical part of the pa-
per. As the current study on organizational culture is exploratory in nature, the literature
review only leads to the formulation of research questions. After that, the research con-
cept is presented together with the methodology, the research instrument and the empir-
ical research process. The results are presented in two parts: for the entire sample and
within clusters of firms. Conclusions, limitations, and future research avenues are dis-
cussed at the end of the paper.
LITERATURE REVIEW
Organizational Culture Concept: Hofstede Approach
The research on cultural determinants of the internationalization, innovativeness and net-
working of firms is based on the concept of national culture dimensions by Geert Hofstede.
Hofstede’s work of 1980 titled “Culture’s consequences: international differences in work
related values” and his subsequent achievements form the most influential theoretical
concept that is the basis for the research on the consequences of culture for the perfor-
mance of nations and countries, organizations, teams and individuals. Hofstede is cited
much more often than other researchers of national cultures (Trompenaars, 1993) and his
work is used in thousands of empirical studies (Kirkman et al., 2006). He is also frequently
criticized for various reasons (McSweeney, 2002; Smith, 2002). However, in spite of that
fact, his concept underlies a lot of studies and research cases on different levels of analysis
conducted by academics from many countries.
Hofstede distinguished four basic dimensions of culture: power distance (PD), collec-
tivism vs. individualism (IDV), masculinity vs. femininity (MSC) and uncertainty avoidance
(UA), the long-term orientation (LTO) added in 1991 as the fifth dimension and also the
indulgency vs. restrained dimension (IND) added in 2010. Hofstede used the distinguished
dimensions of culture to search for correlations between them and other measures de-
scribing the features of studied countries, which lead him to the conclusion that, in most
cases, two or three dimensions have to be used to describe such dependencies (Hofstede,
2001, pp. 43-54). What is more, certain dimensions of culture are strongly correlated with
one another, e.g. the power distance and the individualism have a high negative correla-
tion (Boski, 2011, p. 100). Individualism vs. collectivism is the individual dimension of cul-
ture most frequently studied in various contexts while the power distance and uncertainty
avoidance are the most frequently studied pair of dimensions.
Even though Hofstede assumed that his concept of culture dimensions refers to na-
tions and should not be directly applied to organizations or individuals (the need to distin-
guish levels of an analysis in the convention “gardens – bouquets – flowers” (Hofstede,
1995), researchers using his concept refer to individuals and groups in an organization and
the organization as a whole very often. Culture is usually an independent variable in such
research influencing the performance of such entities or a variable moderating relation
between other variables.
The popularity of Hofstede’s concept among management, entrepreneurship or inter-
national business academics probably results from that fact that the majority of Hofstede’s
achievements is related to the interpretation of dimensions of culture in the context of
people’s behaviours, which is translated, to a degree, to an organizational culture or at
least to behaviour in a work place. Actually, Hofstede himself applied it to all six dimen-
sions of culture: power distance, collectivism vs. individualism, femininity vs. masculinity,
uncertainty avoidance, long-term orientation and indulgence vs. restrained (Hofstede,
Hofstede & Minkov, 2011). However, masculinity vs. femininity is a dimension describing
more the attitudes of people towards the relationship between personal life and work,
while indulgence vs. restrained dimension translates only into a personal behaviour at
a place of work.
Having in mind the aim of the study linking the organizational culture to internation-
alization, innovativeness and networking behaviour of firms, four organizational culture
dimensions should be taken into account: power distance, collectivism vs. individualism,
uncertainty avoidance and long-term orientation. The organizational culture features
based on Hofstede’s national culture dimensions concept can be presented, somewhat
simplified, below (Table 1).
The dimensions of an organizational culture so described by Hofstede et al. (2011)
may affect the behaviour of firms in the area analysed in the study. In particular, such
influence may apply to the organizational power distance (PD) and the organizational un-
certainty avoidance (UA) considered in the context of innovativeness. It can also be im-
portant in internationalization of firms as some researchers define internationalization as
an innovation involving an entry to a new, unknown market that requires new knowledge
and is executed with an uncertainty of the attained result (Andersen, 1993, Kosała, 2015).
What might be important here is that the power distance and uncertainty avoidance
are the basis for the grouping of countries in culture clusters differing in their way of think-
ing about an organization resulting in a strong link to its operation, including its innova-
tiveness. The widely known classification of countries in clusters called the Machine,
Pyramid, Market and Family places Poland in the Pyramid cluster as a country with a char-
acteristic high power distance and very high uncertainty avoidance (Hofstede et al., 2011,
pp. 309-315). Poland shares that cluster with Mediterranean countries that are character-
ized by a lower degree of innovativeness than other developed countries with a signifi-
cantly lower power distance and uncertainty avoidance (e.g. Scandinavian countries, Great
Britain, the United States).
Table 1. Organizational culture features based on Hofstede national culture dimensions concept
Power distance in organization
Low High
Subordinates and superiors are co-dependent Subordinates are dependent on superiors
Superiors consult their decisions with subordinates Superiors make decisions without consultations with
using their own experience and the experience subordinates on the basis of the superiors' experience
of subordinates and formal regulations
Occupying top positions does not entail substantially Occupying top positions entails substantially higher
higher salaries and special privileges salaries and special privileges
Employees occupying lower positions perform
Employees occupying lower positions have lesser
different roles in the enterprise than employees
abilities and skills than employees on higher levels
on higher levels
Important decisions are made on different levels
Important decisions are made on top levels and require
and do not require strict control in the course
strict control in the course of their execution
of their execution
Collectivism and individualism in organization
Collectivism Individualism
Employees strive to act in the interest of the group
Employees strive to act in their own interest
they are part of
Decisions concerning employees’ salary and promo- Decisions concerning employees’ salary and promotion
tion depend on their membership in a group and depend on the regulations in force and their individual
achievements of the group achievements
Even if someone has a different opinion, she/he Everyone can have a different opinion and is expected
should adapt to the opinion of the collective to express it
Interpersonal relations are more important than The execution of tasks is more important than inter-
the execution of tasks personal relations
Relations between the employer and the employee Relations between the employer and the employee
resemble family ties are reduced to the employment contract
Uncertainty avoidance in organization
Low High
Change is more desirable than preservation Preservation of the current situation is more desirable
of the current situation than a change
Innovative and creative employees have more Innovative and creative employees are limited
freedom by regulations
Managers mainly focus on strategic issues and, Managers mainly focus on operational activities and,
to a lesser degree, on operational activities to a lesser degree, on strategic issues
Few matters are regulated in detailed regulations Many matters are regulated in detailed regulations
and they are usually complied with but they are not always complied with
Many ideas/inventions are generated but Few ideas/inventions are generated but most of them
not all are implemented are implemented
Short and long orientation of organization
Short-term orientation Long-term orientation
Actions taken are evaluated from the perspective Actions taken are evaluated from the perspective
of their effects in annual periods of their effects in many years’ periods
Relations with business partners are evaluated from Relations with business partners are evaluated from
the perspective of short-term profits the perspective of long-term profits
Meeting the deadline for a task completion is more Attaining an expected result is more important than
important than attaining an expected result meeting the deadline for a task completion
A fast, spectacular market or financial success is Building of a strong market position gradually is more
more important than the gradual building of a strong important than a fast, spectacular market or financial
market position success
Objectives of the managerial staff and employees Objectives of the managerial staff and employees
diverge converge
Source: own elaboration based on Hofstede et al. (2011, pp. 83-86; 127-133; 215-223; 250-258).
The organizational power distance and the organizational uncertainty avoidance may
be also supplemented with the third organizational dimension – the individualism/collec-
tivism (IDV). Sułkowski (2012) applies such a three-dimensional model of an organizational
culture in the description of firms’ behaviour in the management process, linking it with
their competitive potential.
It is worth mentioning that Hofstede (2011) pointed out that the culture profile of
Poland houses a contradiction resulting from high individualism (IDV) and high power dis-
tance (PD), which are usually negatively correlated. This contradiction creates a specific
tension in Polish culture and a challenge for mangers. To achieve fruitful results managers
are advised to establish a second level of communication, having a personal contact with
everybody in the structure, allowing to give the impression that “everybody is important”
in the organization, although unequal (geert-hofstede.com/Poland).
The individualism/collectivism in organization dimension (IDV) alone may also have
a potential significance for the networking i.e. the willingness of a firm to create network
ties. It may influence the perception of individual and mutual interest, be connected with
opportunistic attitudes toward business partners, result in the lack of trust and loyalty in
business relationships. Combined with very high uncertainty avoidance (UA), high level of
individualism may limit the firms’ openness for cooperation within networks.
Considering the fact that both firms’ innovativeness and internationalization require
investments that bring about effects in a longer term, one should also take a fourth di-
mension into account, i.e. the organizational long-term/short-term orientation. This di-
mension may also appear significant in the process of creation of firms’ long lasting rela-
tionships with business partners that provide basis for a network development.
Internationalization, Innovativeness and Networking: Interrelationships

The dominating model of firms’ internationalization today is the network model of inter-
nationalization (Johanson & Mattsson, 1988; Johanson & Vahlne, 2009). The model de-
scribes the process of internationalization as a process of learning through networks
(Sharma & Blomstermo, 2003; Blomstermo, Eriksson, Lindstrand & Sharma, 2004; Coviello,
2006). It assumes that knowledge exploitation enables the firm to expand on well-known
paths of development only and reduces the risk of increased resource commitment in for-
eign market. The knowledge exploration from external sources, i.e. from partners in the
network, allows for experimentation to explore new possibilities with higher risk but also
higher potential profits in the longer term (Forsgren, 2002; Sharma & Blomstermo, 2003).
Eriksson, Majkgård and Sharma (2000) state that the experiential knowledge of a firm
may be a barrier for its further internationalization as it limits the ability to recognize new
possibilities for international development. The network ties, indirect and weak with mul-
tiple partners rather than direct and strong with few partners, offer an access to
knowledge and resources of the network partners valuable for international expansion.
Combined with the knowledge and resources of the firm, the network ties speed up and
support the process of internationalization (Coviello & Munro, 1995; Sharma
& Blomstermo, 2003; Coviello, 2006; Majkgård & Sharma, 1998; Bell, 1995). Forsgren
(2002) and Johanson and Vahlne (2009) state that the network model of internationaliza-
tion is universal as it describes how both small and medium firms (e.g. born global, new
international ventures) and large corporations internationalize their activity by learning
in networks.
Similarly, the network model of innovation (Rothwell, 1992) has been the model of
innovation dominating since the early 90s. It explains the innovation process as a process
of inter-organizational learning (Calantone, Cavusgil & Zhao, 2002) or network learning in
innovation networks (Dhanaraj & Parkhe, 2006). The innovation processes span the firms’
borders to integrate and share knowledge and resources of multiple partners needed for
successful innovation. Innovation is created within networks that emerge as a result of the
longitudinal cooperation between business partners or in networks engineered intention-
ally to create and support innovations. Powell, Koput and Smith-Doerr (1996) prove that
if the knowledge base in an industry is complex and the sources of expertise are dispersed,
innovation may be not created in a single firm and inter-organizational innovation coop-
eration is necessary. Access to the developing and evolving learning community becomes
a critical factor for competitive advantage in the industry.
Furthermore, international business literature has been discussing relationships be-
tween internationalization and innovativeness of firms for a long time. The majority of
studies on such relationships concentrate on the dependence between internationaliza-
tion and innovativeness assuming that firms’ internationalization is a result of their inno-
vation activity or, more generally, is determined by their innovativeness. Empirical firm-
level studies conducted in numerous countries and sectors generally confirm a positive
link between innovation and exporting (Basile, 2001; Roper & Love, 2002; Becker & Egger,
2009). The other stream of research focuses on the opposite, presuming that internation-
alization can stimulate innovativeness because it offers access to new knowledge, more
demanding customers and challenges of the international competitiveness (Gupta
& Govindarajan, 2000; Zahra, Ireland & Hitt, 2000). Therefore, the innovativeness of a firm
may be the outcome of a firm’s preceding involvement in international market by exports
and learning by exporting is considered to be leading to an increased innovativeness of
a firm (Salomon & Shaver, 2005; Salomon & Jin, 2008).
The findings of three research streams combined have led to a hypothesis that the
internationalization, innovativeness and networking are interrelated. The empirical re-
search performed by the one of the authors has confirmed that positive relationships exist
between all three concepts: internationalization, innovativeness and networking
(Szymura-Tyc & Łapczyński, 2012). The empirical research conducted by direct question-
naire interview covered 274 firms located in Poland. Firstly, the collected data has allowed
for the measuring of the firms’ degree of internationalization, innovativeness and net-
working with the use INT, INN and NET indices based on formative indicators. The
measures indicated a low degree of internationalization, medium innovativeness and
a relatively high degree of networking of the studied firms. Secondly, the analysis of rela-
tionships between internationalization, innovativeness and networking demonstrated
positive although weak to moderate correlations between all the three indices. Thirdly,
the research showed that there were significant differences in the firms’ behaviour in the
field of internationalization, innovativeness and networking. The firms with similar values
of the INT, INN and NET indices have been grouped with the use of a cluster analysis called
self-organizing maps (SOM) or the Kohonen network (Kohonen, 1990). As a result, four
clusters of firms with different characteristics of behaviour in the internationalization, in-
novativeness and networking area were distinguished. Graphical illustration of the clusters
identified by the SOM method is presented in Figure 1.
Figure 1. Clusters of enterprises distinguished with the use of the SOM method (n = 274)
Source: Szymura-Tyc (2015b, p. 187); Szymura-Tyc and Łapczyński (2012, p. 298).
Firms in the first cluster (SOM 1) have a moderate degree of internationalization, high
degree of innovativeness and high degree of networking. These firms may be called
“international network and innovation high-fliers”. The second cluster (SOM 2) contains
firms with low internationalization, moderate innovativeness and high networking degree
called “local innovation and network front-runners”. The third cluster (SOM 3) consists of
firms with low degree of internationalization, moderate innovativeness and moderate net-
working named “local innovation and network commoners”. The fourth cluster (SOM 4)
embraces firms with the lowest internationalization, innovativeness and networking la-
belled “local innovation and network laggards”.
The analysis of relationships between the degree of internationalization, innovative-
ness and networking of the studied firms belonging to individual clusters made it possible
to make certain assumptions regarding the dependence path in the analysed area. As for
the first cluster, it was assumed that a relatively high internationalization degree was con-
ducive to high innovativeness, both being supported by a high networking degree of the
firms. Regarding cluster two, it was presumed that a moderate innovativeness of firms
could not be linked to their internationalization as it was not very high. However, the in-
novativeness of these firms can be “drawn” by their network ties as these firms are char-
acterized by the highest degree of the networking in the studied population. In the third
cluster, consisting of firms whose internationalization resembles the internationalization
of firms belonging to the second cluster, the innovativeness degree that is lower in the
second cluster can be due to a much lower degree of networking. The last cluster consisted
of firms operating mainly on a local market with the lowest innovativeness accompanied
by the markedly lowest networking that could “pull down” their innovativeness.
The findings described above concerning the firms’ behaviour in internationalization,
innovativeness and networking fields as well as rather general knowledge of the potential
influence of organizational culture on this behaviour resulted in further research assump-
tions leading for the explorative study presented in this paper. The first assumption is that
the actual degree of internationalization, innovativeness and networking of the studied
firms may be related to some extent to their organizational culture features. The second
assumption is that differences in firms’ behaviour identified by the cluster analysis may be
dependent on the differences in the organizational cultures of firms in the particular clus-
ters.
As a result, the objective of the current stage of the research has been to answer the
following research questions:
− What are the features of the organizational culture of the studied firms in the context
of the Hofstede’s concept of national culture dimensions?
− May the distinguished features of organizational culture be related with the firms’
behaviour in the internationalization, innovativeness and networking fields?
− Are the firms belonging to the individual clusters characterised by different features of
their organizational cultures?
− May the differences in the organizational culture features within individual clusters be
related to the different firms’ behaviour in internationalization, innovativeness and net-
working fields?

Research Instrument and Research Process
The organizational culture is treated in the study as a variable independent from the
internationalization, innovativeness and networking of firms. It is divided into four dimen-
sions: power distance, collectivism/individualism., uncertainty avoidance, and short/long-
term orientation. The dimensions of the organizational culture are constituted by features
assigned by Hofstede to the individual dimensions of national culture as presented in table 1.
The explorative empirical study is based on an internet survey with the use of a ques-
tionnaire developed for the quantitative research. The research instrument contained five
questions related to situations occurring in the surveyed firms within each of the four di-
mensions of their organizational culture. Respondents were asked to indicate whether any
of the described situations: (1) corresponds to the situation in the firm to a degree;
(2) greatly corresponds to the situation in the firm; (3) fully corresponds to the situation in
the firm. They could also indicate (0) if, in their opinion, none of the described situations
prevailed in the firm. All of the provided answers created a 7-items Likert-type bipolar scale
referring to the opposing designations of features of the organizational culture within its
individual dimensions. This type of scale is commonly used in psychometric studies to
measure attitudes and behaviours by ascribing values to qualitative answer choices that
range from one extreme to another. For example, the short/long-term orientation scale
ranged from 1 to 7, where 4 represented a situation in which none of the described situa-
tions prevailed in a firm. Respondents were not aware to which of the opposite culture
features descriptions lower scores were assigned corresponding to a lower level of the
studied dimension and to which of them higher scores were assigned indicating its higher
level. It was possible thanks to a random reversal of the opposite culture features descrip-
tions within the individual culture dimensions, which is in line with the recommendation
for this research technique (Osgood, Suci & Tannenbaum, 1957). After collecting the data,
the answers were assigned proper values and results were subjected to the statistical de-
scriptive analysis. The long-lasting disagreement among statisticians whether the Likert
items are interval-level data or ordered-categorical data inclined the authors to adopt
a compromise in the form of the presentation of all three measures of the central ten-
dency: mode, median and mean. The means for individual organizational culture features
are presented in the paper because the authors share the prevailing opinion that if the
Likert-type scale is symmetric and equidistant it may be treated as a quasi-interval scale
allowing for the calculation of scores for a group of items.
Research Sample and Respondents
The target of the internet survey consisted of all the 274 firms participating in the first
stage of the research. Therefore, each survey was preceded by on-the-phone conversa-
tions with respondents in order to invite and encourage them to participate in the second
stage of the research. An attempt was also made to obtain a proportional number of firms
in each of the four clusters distinguished in the earlier study. As a result, 130 firms com-
pleted the entire electronic survey questionnaire. It means that the return rate is 47% of
the firms whose internationalization, innovativeness and networking was studied previ-
ously. A relatively proportional number of firms was also obtained in each of the four clus-
ters: respectively 66%, 42%, 41% and 61% of the firms in a cluster.
It was assumed at the beginning of the empirical research that respondents partici-
pating in the survey should be members of the top or medium-level management of firms.
It is because Hofstede’s cultural research shows that the perception of the culture dimen-
sions can vary depending on the social position of a respondent. It was not easy to attain
that goal. As a result, top and medium-level management constitute about 30%, while
specialists and accountants make for another 30%, and management assistants and sec-
retaries form almost one fourth of respondents (Table 2). The majority of respondents has
at least 6 years of employment history and the average employment history is 8 years. This
fact may be a symptom of the respondents’ good knowledge of the organizational culture
of studied firms.
Table 2. Characteristics of respondents (n = 127)*

Position in the firm Share in the sample [%]
Top and medium-level management 27.7
Specialists and accountants 30.0
Management assistants /secretaries 23.8
Other positions 18.5
* in three cases, respondents did not provide the information about the occupied position.
Source: own study.

The analysis of features comprising individual dimensions of the organizational culture was
conducted for the entire sample and in individual SOM clusters. The goal of the conducted
analyses was to identify the features of organizational cultures in all firms subject to the
research and their differentiation depending on the type of behaviour related to the inter-
nationalization, innovativeness and networking. The descriptive statistics used in the study
are mode (Mo), median (Me) and mean (M). The mode shows the value with highest fre-
quency of answers, the median divides the sample into equal parts showing the central
value for a feature, while the mean is the arithmetic mean of the values ascribed to
an organizational culture feature in a sample. It is assumed that the 1-3 modes and medi-
ans represent, respectively, a very low, low and moderate low level of a culture feature
within a given dimension, 4 – moderate, and 5-7 – moderately high, high and very high
level respectively. As far as the means are concerned, the 1-3.5 value consistently indicates
a very low to moderately low level of a feature; 3.6-4.4 – moderate and 4.5-7 – a moder-
ately high to very high level.
Characteristics of Organizational Cultures Features in Entire Sample

The first step of the analysis was the description of cultural features for the whole research
sample within the four studied dimensions: power distance, individualism, uncertainty
avoidance and long term orientation. For detailed descriptive statistics see Appendix 1.
Power Distance in an Organization
The analysis of the frequency of indications related to the power distance in an organiza-
tion shows that the largest number of the surveyed firms assess the dimension as low or
moderately low. The prevailing opinion is that subordinates and superiors are co-depend-
ent, occupying top positions does not entail substantially higher salaries or special privi-
leges while important decisions are made on different levels and do not require strict con-
trol in the course of their execution. The only exception is the prevailing belief that em-
ployees occupying lower positions have lesser abilities and skills than employees on higher
levels, which suggests a greater power distance in the organization. Median values are
between 3-4, which means that half of the firms report a moderately low to moderate
level of the power distance organizational culture features. The highest mean denotes the
way of making decisions by superiors without consultations with subordinates indicating
a more authoritarian style of the firms’ managers. The situation is similar for means within
3.53-4.08, which suggests a moderately low to moderate power distance in the entire sam-
ple. The highest mean denotes the way of making decisions by superiors without consul-
tations with subordinates indicating a more authoritarian style of the firms’ managers.
Individualism in an Organization
The analysis of survey data on individualism vs. collectivism in the studied firms shows the
prevalence of opinions denoting a moderately high level of individualism. It is reflected by
the indication that employees strive to act in their own interest, that everyone can have
a different opinion and is expected to express it, that the execution of tasks is more im-
portant than interpersonal relations and that relations between the employer and the em-
ployee are reduced to the employment contract. It was only with regard to salaries that
the largest number of respondents pointed at a moderately low level of individualism re-
flected by the fact that decisions concerning employee salaries and promotions depend
on their membership in a group and achievements of the group rather than on their indi-
vidual achievements. In spite of the prevalence of symptoms of a moderately high level of
individualism in the firms, the median value ranges from 4 to 4.5 indicating a moderately
high level of individualism in one half of the sample. The mean values describing the or-
ganizational culture range from 3.77 to 4.24 depicting a moderate level of individualism in
the entire research sample.
Uncertainty Avoidance in Organization
The situation is similar for the level of uncertainty avoidance in the surveyed firms where
prevalent responses are indicative of a moderately high uncertainty avoidance. It is
pointed out that innovative and creative employees are limited by regulations, many mat-
ters are regulated in detailed regulations that are not always complied with. While few
ideas/inventions are generated, most of them are implemented. In the case of the mana-
gerial focus, the largest number of respondents indicated a high level of uncertainty avoid-
ance reflected by the fact the managers mainly focus on operational activities and, to
a lesser degree, on strategic issues. Only the dominance of an indication that change is
more desirable than the current situation might signal a lower level of uncertainty avoid-
ance. As far as the median values are concerned, they suggest a moderately high and mod-
erate level of uncertainty avoidance, which is also reflected in the mean values describing
the organizational culture features within the range of 3.67-4.53, representing moderate
and moderately high uncertainty avoidance in the studied firms.
Long-Term Orientation in an Organization
As far as the short-term vs. long-term orientation in organization is concerned, the domi-
nance of indications of the long-term orientation suggests a high level of this dimension in
the entire sample. The respondents point out that actions taken in a firm are evaluated
from the perspective of their effects in many years’ periods, relations with business part-
ners are evaluated from the perspective of long-term profits, attaining an expected result
is more important than meeting the deadline for a task completion and objectives of the
managerial staff and employees converge. It was only in the case of the general aim of
a firm described as the company building a strong market position gradually rather than
striving to achieve a fast, spectacular market or financial success, that the largest number
of firms supported it at a moderately high level. In most cases, median values report the
moderately high level of long-term orientation as central in the sample, while the mean
values of the organizational culture range from 4.17 to 4.68, representing the moderate
to moderately high level of the long-term orientation dimension in surveyed firms – the
lowest one for the time perspective in business partners relationships assessment and the
longest one in the evaluation of activities conducted within the firm.
To sum it up, research results for the entire sample of surveyed firms show that the
power distance (PD) is at a moderate level with a tendency towards moderately low, the
individualism (IDV) is moderate with a tendency towards moderately high, the uncertainty
avoidance (UA) is also moderate towards moderately high and the long-term orientation
(LTO) is moderately high with a tendency towards a high level of this dimension (Table 3).
Table 3. Evaluation of the organizational culture features within the Hofstede’s dimensions
(n = 130)
Organizational culture Evaluation of culture features
dimension by dominant value (Mo) by central value (Me) by mean values (M)
low (3)
moderate low (4) moderate low (2)
power distance moderate low (1)
moderate (1) moderate (3)
moderate high (1)
moderate low (1) moderate (4)
individualism moderate (5)
moderate high (4) moderate high (1)
moderate low (1)
uncertainty avoidance moderate high (3)
high (1)
high (4) moderate (1) moderate (2)
long-term orientation
moderate high (1) moderate high (4) moderate high (3)
(1, 2, …) – numbers in brackets represent the number of organizational culture features which are ascribed the
particular assessment
Source: own study.
Having in mind that the degree of internationalization for the entire sample is low, the
innovativeness is moderate and the networking – relatively high, the power distance (PD)
and individualism (IDV) could be expected at least at a moderate level, uncertainty avoid-
ance (UA) – at a high level and the long-term orientation (LTO) at a level that is not higher
than moderate. The results go in line with the expectations regarding the individualism
and uncertainty avoidance. However, the power distance is lower than expected and the
most surprising results show that the long-term orientation is moderately high.
The results are not easy to discuss in the light of other researchers’ findings as the
scope of the study is very broad. This fact stands for the originality of the study but, on the
other hand, it limits the comparative analysis. Furthermore, latent variables being the ba-
sis for calculation of the internationalization, innovativeness and networking indices are
built on formative variables, which is not a common practise in studies concerning cultural
determinants of firms’ behaviour in the field of innovativeness or networking.
Characteristics of Organizational Culture Features in SOM Clusters

The second step of the exploratory study involved a description of the organizational cul-
ture features in all four dimensions separately for each of the identified clusters. The de-
tailed descriptive statistics are provided in the Appendix 2.
International Network and Innovation High-Fliers (SOM1)

Firms belonging to SOM1 named “the international network and innovation high-fliers”
are characterised by a moderate internationalization, high innovativeness, and high net-
working. In the case of the power distance (PD), firms from this cluster most often declare
a moderately high or high level of power distance in their organizational culture. However,
the median value predominantly indicates a moderate level of features describing this di-
mension and the same applies to the mean values pointing at a moderate power distance
for all features constituting the power distance dimension. As far as individualism is con-
cerned (IDV), there is a lack of consistency of the dominant values; each feature of culture
has a different mode. Both the median and the mean range from moderately low to mod-
erately high and most probably the moderate level would be the one that describes the
level of individualism in SOM1 best. Uncertainty avoidance (UA) is described as moderate
to very high, however, a moderate level may be considered most frequently related to the
organizational culture features comprising this dimension. As for the long-term orienta-
tion (LTO), conclusions may be made on the basis of the medians and means most fre-
quently reflecting a moderately high level of the features depicting this dimension of the
firms’ culture (Table 4).
Table 4. Evaluation of the organizational culture features within the Hofstede’s dimensions in
SOM1 (n = 27)
Organizational culture Evaluation of organizational culture features
moderate high (1) moderate (4)
power distance moderate (5)
high (1) moderate high (1)
low (1)
moderate low (1) moderate low (2) moderate low (1)
individualism moderate (1) moderate (1) moderate (3)
moderate high (1) moderate high (2) moderate high (1)
high (1)
moderate high (2) moderate (2) moderate (4)
uncertainty avoidance
high (1) moderate high (3) moderate high (1)
moderate (1) moderate (1) moderate (2)
very high (1) moderate high (4) moderate high (3)
particular assessment; if in case of modes the numbers do not sum to 5 multimodal distribution appeared for
some features of organizational culture
Source: own study.
Local Innovation and Network Front Runners (SOM2)

Firms constituting the SOM2 are described as “local innovation and network front run-
ners” because they are characterised by low internationalization, moderate innovative-
ness and high networking. The power distance (PD) level in this cluster may be described
by medians and means that show a moderately low to moderate level of the organizational
culture features under study, with the prevalence of indications towards a moderately low
power distance. Individualism (PD) is also moderate as suggested by the central values and
means describing the level of cultural features within this dimension. Uncertainty avoid-
ance (UA) is moderate or moderately high as regards most of the culture feature; however,
it is on a moderate level that prevails in these results. The last dimension, i.e. the long-
term orientation (LTO) is characterized by a moderate and moderately high level of fea-
tures constituting it and it is difficult to compare them; however, the frequency of answers
may suggest that moderately high can be a better evaluation of this dimension level in the
cluster (Table 5).
SOM2 (n = 48)
low (4) moderate low (4) moderate low (2)
power distance
moderate high (1) moderate high (1) moderate (3)
moderate low (1)
individualism moderate (5)
high (1)
low (1) moderate low (1)
moderate (4)
uncertainty avoidance moderate high (4) moderate (2)
moderate high (1)
moderate low (1)
long-term orientation moderate high (1)
high (2)
Source: own study.
Local Innovation and Network Commoners (SOM 3)

The third cluster – SOM3 – includes firms called “local innovation and network common-
ers” as they present low internationalization, moderate innovativeness, and a moderate
degree of networking. Power distance (PD) is at a moderate low level in this sample, indi-
cated by the majority of the descriptive statistics for the cultural features within this di-
mension. The Individualism (IDV) might be evaluated as ranging from moderate to mod-
erately high with the prevalence of moderate indications. The level of uncertainty avoid-
ance (UA) is more diversified when it comes to modes and medians but, in general, it may
be assessed as moderately high. The long-term orientation clearly tends towards moder-
ately high for the majority of organizational culture features comprising the dimension
(Table 6).
SOM3 (n = 39)
low (2) low (1) moderate low (4)
power distance
moderate low (2) moderate low (4) moderate (1)
low (1) moderate low (1)
moderate (4)
individualism moderate low (1) moderate (2)
moderate high (1)
moderate low (1) moderate low (1)
moderate (1)
uncertainty avoidance moderate high (1) moderate (2)
moderate high (4)
moderate (1)
moderate high (2) moderate (1)
long-term orientation moderate high (3)
high (1)
Source: own study.
Local innovation and network laggards (SOM 4)

The last cluster – SOM4 – embraces firms labelled “local innovation and network laggards”
whose internationalization, innovativeness as well as networking are low. Firms in the clus-
ter are characterized by moderate power distance (PD). The results for individualism (IND)
offer a mixed picture ranging from moderately low to moderately high; hence, the mod-
erate level might be a proper evaluation of the dimension. The uncertainty avoidance (UA)
tends to be moderately high while the long-term orientation (LTO) that shows mixed re-
sults may be considered tending towards a moderately high level of the organizational
culture features comprising the dimension (Table 7).
SOM4 (n = 19)
low (2) moderate low (1) moderate low (1)
power distance
moderate low (2) moderate low (3) moderate (4)
individualism
moderate low (1)
uncertainty avoidance moderate high (2)
high (1)
Source: own study.
The analysis of results of the study for individual SOMs, i.e. clusters with different be-
haviours of firms in the area of internationalization, innovativeness and networking, shows
few differences in the organizational culture dimensions depicted by the descriptive sta-
tistics of organizational culture features presented above. A summary of the findings is
included in table 8.
Table 8. Comparative analysis of the organizational culture features evaluations for individual
SOMs
SOM1 SOM2 SOM4
SOM3
Culture dimension
international network local innovation local innovation

local innovation
and innovation and network and network
and network commoners
high-fliers front-runners laggards
- moderate internation- - low internationalization - low internationalization
- low internationalization
alization - moderate innovative- - moderate innovative-
- low innovativeness
- high innovativeness ness ness
- low networking
- high networking - high networking - moderate networking
PD moderate moderate low moderate moderate
IDV moderate moderate moderate moderate
UA moderate moderate moderate high moderate high
LTO moderate high moderate high moderate high moderate high
Source: own study.
The comparative study shows that, for SOM1 and SOM2 that differ essentially with
the degree of internationalization and innovativeness, a divergence appears in the case of
the power distance only, which is higher for the international network and innovation
high-fliers. Higher uncertainty avoidance is a distinctive organizational culture character-
istic of local innovation and network commoners (SOM3) representing a lower degree of
networking than in the case of firms belonging to SOM1 and SOM2. SOM4 comprised of
local innovation and network laggards in the field of internationalization, innovativeness
and networking shares the same level of the four culture dimensions as SOM3. And again,
a moderately high level of the long-term orientation – the same for all four SOMs – is the
most surprising feature here.
The findings of the study are satisfying to a degree. They show that a higher power
distance is needed for a firm to become an international network and innovation high-
flier. International high-fliers or local front-runners are characterized by lower uncertainty
avoidance than local innovation and network commoners and laggards.
The long-term orientation as conceptualized in the study is not a dimension that dif-
ferentiates the behaviour of firms in the area of internationalization, innovativeness and
networking. One of the possible explanations of the fact is that it was much easier for the
respondents to guess the “favoured answers” in the case of statements relating to the
organization culture features constituting the long-term orientation dimension, which
means that the social desirability bias might underlie the results.
CONCLUSIONS
The study as an explorative one may serve to pose two hypotheses for further research.
The first one is that higher power distance may be conducive for dealing with moderate
individualism if the ambitious aims of the firms’ internationalization and innovativeness

are to be achieved. The second one is a presumption that a lower uncertainty avoidance
may be indicative of a higher openness for new opportunities and risk acceptance leading
to a higher degree of internationalization, innovativeness and networking in firms.
The study presented here has many limitations. Firstly, the analysis is based on a non-
representative sample, which means that the findings only refer to the population under
study. Secondly, there is the differentiation of the positions occupied in the firms by the
respondents participating in the survey, which may have influenced certain answers and
the achieved results. Thirdly, there is the construction of the research instrument that in-
cludes statements concerning organizational culture features giving inconsistent results
within particular culture dimensions. The analysis of the three descriptive statistics shows
a variety of answers appearing within individual culture dimensions representing very dif-
ferent or even opposite levels of the culture characteristics.
To make up for the inconsistencies, an attempt could be made in the further analysis
of the organizational culture to create more consistent measures of organizational culture
dimensions. Individual features of the firms’ organizational culture could be considered
formative variables constituting indices that can be measures of the organizational power
distance, individualism, uncertainty avoidance and long-term orientation. Perhaps
a change of the methodological approach would make it possible to obtain more sound
results regarding the relationships between the organizational culture of firms and their
behaviour as regards the internationalization, innovativeness and networking.
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Appendix 1: Descriptive statistics for organizational culture features within Hofstede’s

dimensions in the entire sample
Entire sample Mo Me M N=130
Subordinates and superiors are co-dependent 2 3 3.52 Subordinates are dependent on superiors
Superiors consult their decisions with Superiors make decisions without consultations
subordinates using their own experience and the 3 3.5 4.08 with subordinates on the basis of the superiors'
experience of subordinates experience and formal regulations
Occupying top positions does not entail Occupying top positions entails substantially higher
2 3 3.52
substantially higher salaries and special privileges salaries and special privileges
Employees occupying lower positions perform
Employees occupying lower positions have lesser
different roles in the enterprise than employees 5 4 3.95
abilities and skills than employees on higher levels
on higher levels
Important decisions are made on different levels Important decisions are made on top levels and
and do not require strict control in the course of 2 3 3.69 require strict control in the course of their
their execution execution
Employees strive to act in the interest of the
5 4 3.77 Employees strive to act in their own interest
group they are part of
Individualism in organization
Decisions concerning employees’ salary and Decisions concerning employees’ salary and
promotion depend on their membership in a 3 4 4.24 promotion depend on the regulations in force and
group and achievements of the group their individual achievements
Even if someone has a different opinion, she/he Everyone can have a different opinion and is
5 4. 5 4.16
should adapt to the opinion of the collective expected to express it
Interpersonal relations are more important than The execution of tasks is more important than
5 4 4.16
the execution of tasks interpersonal relations
Relations between the employer and the Relations between the employer and the employee
5 4 4.04
employee resemble family ties are reduced to the employment contract
Change is more desirable than preservation of the Preservation of the current situation is more
3 4 3.67
current situation desirable than a change
Innovative and creative employees have more Innovative and creative employees are limited by
5 5 4.42
freedom regulations
Managers mainly focus on strategic issues and, to Managers mainly focus on operational activities
6 5 4.53
a lesser degree, on operational activities and, to a lesser degree, on strategic issues
Few matters are regulated in detailed regulations Many matters are regulated in detailed regulations
5 4 3.88
and they are usually complied with but they are not always complied with
Many ideas/inventions are generated but not all Few ideas/inventions are generated but most of
5 5 4.36
are implemented them are implemented
Actions taken are evaluated from the perspective Actions taken are evaluated from the perspective of
6 5 4.68
Long term orientation in organization
of their effects in annual periods their effects in many years’ periods
Relations with business partners are evaluated Relations with business partners are evaluated from
6 5 4.17
from the perspective of short-term profits the perspective of long-term profits
Meeting the deadline for a task completion is Attaining an expected result is more important than
6 4 4.27
more important than attaining an expected result meeting the deadline for a task completion
A fast, spectacular market or financial success is Building of a strong market position gradually is
more important than the gradual building of a 5 5 4.47 more important than a fast, spectacular market or
strong market position financial success
Objectives of the managerial staff and employees Objectives of the managerial staff and employees
6 5 4.45
diverge converge
Source: own study.

Appendix 2: Descriptive statistics for organizational culture features within Hofstede’s

dimensions in SOMs
SOM1 Mo Me M N=27
Superiors make decisions without consultations with

Superiors consult their decisions with subordinates using
x 4 4.11 subordinates on the basis of the superiors' experience and
their own experience and the experience of subordinates
formal regulations
Occupying top positions does not entail substantially higher Occupying top positions entails substantially higher salaries
x 4 3.93
salaries and special privilege and special privilege
Employees occupying lower positions perform different Employees occupying lower positions have lesser abilities
5 5 4.04
roles in the enterprise than employees on higher levels and skills than employees on higher levels
Important decisions are made on different levels and do not Important decisions are made on top levels and require strict
x 4 4.04
require strict control in the course of their execution control in the course of their execution
Employees strive to act in the interest of the group they are

part of
Decisions concerning employees’ salary and promotion Decisions concerning employees’ salary and promotion
depend on their membership in a group and achievements 6 5 4.59 depend on the regulations in force and their individual
of the group achievements
Even if someone has a different opinion, she/he should Everyone can have a different opinion and is expected to
5 5 4.15
adapt to the opinion of the collective express it
Interpersonal relations are more important than the The execution of tasks is more important than interpersonal
3 3 3.78
execution of tasks relations
Relations between the employer and the employee Relations between the employer and the employee are
4 4 3.89
resemble family ties reduced to the employment contract
Change is more desirable than preservation of the current Preservation of the current situation is more desirable than
5 4 3.85
situation a change
Innovative and creative employees have more freedom x 5 4.30 Innovative and creative employees are limited by regulations
Managers mainly focus on strategic issues and, to a lesser Managers mainly focus on operational activities and, to
6 4 3.96
degree, on operational activities a lesser degree, on strategic issues
Few matters are regulated in detailed regulations and they Many matters are regulated in detailed regulations but they
5 5 4.33
are usually complied with are not always complied with
Many ideas/inventions are generated but not all are Few ideas/inventions are generated but most of them are
x 5 4.59
implemented implemented
Actions taken are evaluated from the perspective of their Actions taken are evaluated from the perspective of their
x 5 4.59
effects in annual periods effects in many years’ periods
Relations with business partners are evaluated from the Relations with business partners are evaluated from the
x 5 4.78
perspective of short-term profits perspective of long-term profits
Meeting the deadline for a task completion is more Attaining an expected result is more important than meeting
4 4 3.89
important than attaining an expected result the deadline for a task completion
A fast, spectacular market or financial success is more
Building of a strong market position gradually is more
important than the gradual building of a strong market 7 5 4.93
important than a fast, spectacular market or financial success
position
Objectives of the managerial staff and employees diverge x 4.5 4.35 Objectives of the managerial staff and employees converge
(x) – multimodal distribution

SOM2 Mo Me M N=48

2 3 4.00 subordinates on the basis of the superiors' experience and
formal regulations
2 3 3.54
5 4.5 4.08
2 3 3.56

part of
6 4.5 4.27
5 4 4.15
4 4 4.17
2 3.5 3.65
situation a change
Innovative and creative employees have more freedom 6 5 4.40 Innovative and creative employees are limited by regulations
5 5 4.81
5 3 3.60
5 4 4.17
3 4.5 4.40
5 5 4.23
6 4 4.13
important than the gradual building of a strong market x 5 4.33
position
Objectives of the managerial staff and employees diverge 6 5 4.45 Objectives of the managerial staff and employees converge

SOM3 Mo Me M N=36
Subordinates and superiors are co-dependent x 3 3.28 Subordinates are dependent on superiors

formal regulations
2 2 3.22
3 3 3.86
2 3 3.36

part of
2 3.5 3.81
5 5 4.72
5 4 4.17
3 3 3.56
situation a change
6 5 4.50
x 3.5 3.78
x 4 4.36
6 6 5.11
6 3.5 3.89
6 5 4.66
position

SOM4 Mo Me M N=19
Subordinates and superiors are co-dependent x 3.5 3.78 Subordinates are dependent on superiors

formal regulations
x 3 3.47
5 4 3.68
2 4 4.16

x 3 3.63 Employees strive to act in their own interest
part of
x 5 4.58
3 3 3.61
3 3 3.68
3 4 3.68
situation a change
5 5 4.68
5 5 4.16
x 5 4.53
6 5 4.68
6 4 3.68
5 5 4,42
position

Source: own study.
Authors
The contribution of co-authors is 60% to 40%. M. Szymura-Tyc prepared the conceptual part of
the paper together with literature review and conducted the preceding study referred in the
study, while M. Kucia conducted the survey and prepared the statistical calculations.
Maja Szymura-Tyc
Associate Professor of Management in the Department of International Management at the Fac-
ulty of Management of the University of Economics in Katowice (Poland). PhD in economics, Ha-
bilitation in management. Her research interests include management, marketing and interna-
tional business, lately – internationalization, innovativeness of firms, and network approach in
management sciences.
Correspondence to: Prof. Maja Szymura-Tyc, PhD; University of Economics in Katowice; Faculty
of Management; ul. 1 Maja 50, 40-287 Katowice, Poland; email: [email protected]
Michał Kucia
Assistant Professor in the Department of Markets and Consumption at the Faculty of Economics
of the University of Economics in Katowice (Poland). PhD in economics (market research, e-com-
merce). His research interests include social media and e-commerce.
Correspondence to: Michał Kucia, PhD; University of Economics in Katowice; Faculty of Econom-
ics; ul. 1 Maja 50, 40-287 Katowice, Poland; email: [email protected]
The empirical research has been conducted within the project no. Nr N N112 303438 entitled
'Internationalization, networking and innovativeness of firms – cultural determinants', financed
by the National Centre of Science (NCN, Poland) coordinated by Maja Szymura-Tyc in the years
2011- 2015. The current financial support for the study comes from the Faculty of Management
of the University of Economics in Katowice.
The authors would like to thank the anonymous referees for their useful comments, which al-
lowed enhancing the value of this article.

2016, Vol. 4, No. 4 DOI: 10.15678/EBER.2016.040406
International Entrepreneurship Theory:

Past, Present and Way Forward
Ikemefuna Allen
ABSTRACT
Objective: This paper recounts the historical development of International Entrepreneur-
ship as a study field, and demonstrates how concepts brought forth contribute to a broader
understanding of fundamental international business and entrepreneurship theories.
Research Design & Methods: The analytical work makes reference to the existing
literature on International Entrepreneurship. Based on the categorisation of themes
and sub-themes, the historical development of international entrepreneurship theory
is recounted, creating a foundation for the assessment of its relationships and linkag-
es with international business and entrepreneurship theories.
Findings: The findings indicate that International Entrepreneurship is still in a devel-
opmental stage. However, the field is rich with novel ideas and concepts that can give
an impetus to researchers as they strive to explore themes such as international en-
trepreneurial orientation and entrepreneurial internationalization.
Implications & Recommendations: The lack of theoretical foundation presents chal-
lenges to researchers. Research must be directed at answering the fundamental ques-
tions that distinguish International Entrepreneurship from the two related, but more
established fields; international business and entrepreneurship.
Contribution & Value Added: The paper provides a point of reference for scholars
that want to attain a comprehensive insight into the state of international entrepre-
neurial research, and distinctions from, and relevance to the fields of international
business and entrepreneurship.
Article type: conceptual article
entrepreneurship; international entrepreneurship; international
Keywords: business; entrepreneurial internationalization; entrepreneurial ori-
entation
JEL codes: L26, F23, M16
Received: 18 January 2016 Revised: 4 April 2016 Accepted: 28 May 2016
Suggested citation:
Allen, I. (2016). International Entrepreneurship Theory: Past, Present and Way
Forward. Entrepreneurial Business and Economics Review, 4(4), 93-103, DOI:
94 | Ikemefuna Allen
INTRODUCTION
International entrepreneurship (IE) encompasses a new body of literature positioned at
the interface of international business and entrepreneurship. Marked by novel and inno-
vative activities that have the aim of creating value and growth in business organizations,
IE is distinguished through elements of behavioural traits that drive entrepreneurial
actions across-borders. Research in this new field has gained increased importance over
the years, as unique ideas and concepts give an impetus to aspiring scholars.
To date, IE research examines the extent of entrepreneurship across national bor-
ders, evaluates national level patterns and cultural distinctions related to entrepreneur-
ship, and compares entrepreneurial internationalization with focus on international
venture types. When looking at entrepreneurial behaviour with a cross-border orienta-
tion, and international business distinguished by innovativeness, key questions arise for
which answers can be derived through IE research.
This paper recounts the historical development of IE as a field of study, and demon-
strates how its concepts help in answering fundamental questions of international busi-
ness and entrepreneurship. Moreover, insight is provided for aspiring researchers inter-
ested in IE, as thematic areas for future exploratory research are discussed. The analyti-
cal work in this paper makes reference to the existing literature on IE, and uses Jones,
Coviello and Tang (2011) categorization of themes and sub-themes to depict the histori-
cal development of IE, which creates a foundation for the analysis of how IE concepts
relate to and link with fundamental international business and entrepreneurship theo-
ries.
The rest of the paper is structured as followings: The first section presents various
definitions of the term international entrepreneurship with an analysis of the key aspects
under consideration. The second section depicts the historical development of research
conducted in the field and noteworthy results generated in the various thematic areas.
Subsequently, concepts indicative of the IE framework are discussed with reference to
their relationships and linkages with fundamental international business and entrepre-
neurship theories. The fourth section comprises of a summary of thought provoking
areas for future research, after which the paper concludes.

The goal of this paper was to recount the historical development of international entre-
preneurship as a field of study, and demonstrates how concepts contribute to a broader
understanding of international business and entrepreneurship theories. To this end, the
analytical work makes reference to the existing literature on IE.
With the goal of providing a comprehensive overview on the past and present of IE
research, the author strived to identify all relevant scientific journal on the subject, as
well as pinpoint the articles most important for this research project. The literature
search comprised thorough screening of two major academic databases, namely JSTOR
and EBSCO Host. The search was limited to journal articles from peer review journals.
With the exception of Schumpeter’s work (1976), books, reports and conference papers
were exempted from the literature search. In doing so, the author strived to ensure reli-
International Entrepreneurship Theory: Past, Present and Way Forward | 95
ability and currentness of the literature selected. In order to capture the entire score of
IE research, key words used were derived from both the IE domain and the three other
related areas; International Business, Entrepreneurship, and Strategic Management.
Primary key words included (i) International Entrepreneurship, (ii) International Entre-
preneurship Theory, (iii) International Entrepreneurial Orientation, (iv) Entrepreneurship,
(v) Internationalization Strategy, (vi) International business. Recurrence of key words
created the basis upon which available sources were included or omitted. In a second
step, the author screened the abstracts of the selected journal articles and derived
a pool of titles that were reviewed, validated, and if applicable used for this work. The
method applied is derived from the approach established by Jones, Coviello and Tang
(2011) of:
− creating a protocol for the comprehensive literature search,
− creating a protocol for thematic analysis,
− conducting further screening of the selected articles to determine whether their con-
tent fall into the scope of the study.
Thorough screening of the current literature created the foundation, upon which
suggested topics for future IE research were critiqued and additional focal points pre-
sented for further exploratory work. Jones, Coviello and Tang (2011) categorisation of
themes and sub-themes created the basis upon which the historical development of IE is
depicting, creating a foundation for the analysis of how IE concepts relate to and link
with fundamental international business and entrepreneurship theories.
LITERATURE REVIEW AND THEORY DEVELOPMENT

Defining International Entrepreneurship
The term international entrepreneurship found its roots when Morrow (1988) suggested
that technological advances and cultural awareness allowed new ventures to access
untapped foreign markets (quoted in McDougall & Oviatt, 2003, p. 3). Although a gener-
ally accepted definition remains elusive, the current literature affords well-founded de-
scriptions that provide valuable insight on the key areas of focus. McDougall and Oviatt
(1997) offer a definition covering the aspect of comparative entrepreneurship, and the
impacts of entrepreneurial actions on business. According to the scholars, IE comprise
novel and innovative activities that crosses or is compared across national borders with
the aim of creating value and growth in business organizations. This definition was later
extended to incorporate elements of behavioural traits, which drive entrepreneurial
actions, as well as put emphasis on the cross-border orientation of entrepreneurial busi-
ness activities (McDougall & Oviatt, 2000, p. 903). More comprehensively, IE refers to
innovative activities pursued by a firm across-borders. In this definition the term ‘innova-
tive’ encompasses the value-seeking component, as firms leave their home country to
seek out new opportunities in unknown or unexplored markets.
Oviatt and McDougall (2005) refined their definition to include the acts of discover-
ing, enacting, evaluating, and exploiting opportunity abroad. With this, a process centric
view on international entrepreneurship is given as the scholars present the core activities
executed when value-seeking behaviour is geared towards foreign markets. Discovering
in this sense implies obtaining insight or knowledge of a business opportunity for the first
time; while enacting refers to the practice of performing or acting out business activities
across-borders. Entrepreneurs have the instinct to spot promising opportunity abroad
and with a distinct skill, initiate entry into foreign markets. Evaluation comprises weigh-
ing, estimating, gauging, and valuing opportunity, which leads the entrepreneur to ex-
ploit it in the international sphere.
Some scholars believe that international entrepreneurship is at the crossroads of
three academic disciplines, namely entrepreneurship, international business and strate-
gic management (Wach & Whermann, 2014; Wach, 2015a). Although related to IE, inter-
national business differs in that the focus lies on internationalization theory, transaction
cost theory, and economic factors leading to internationalization. The contrast between
IE and entrepreneurship become evident when considering that the latter focuses on the
entrepreneur’s role as an economic agent, who recognises and exploits opportunity.
Strategic management covers assets, capabilities, and business strategy employed when
doing business abroad, and in this regard, deviates from the scope of IE (Wach, 2015a,
p. 12).
IE is said to be based on four concepts, namely (i) international new ventures;
(ii) born globals (iii) rapid internationalization, and (iv) general models of international
entrepreneurship. This grouping distinguishes the degree and form of a firm’s IE activi-
ties. Global firms are those that conduct business in at least three regions of the world
with an intent to expand further. In contrast, international new ventures refer to those
firms that internationalized quickly as a means capitalising on opportunity (Crick, 2009,
p. 457). The illustration below (Figure 1) presents a comprehensive view on three generic
concepts of IE, considering the speed of internationalization (sequentially vs. rapidly),
and the initial geographic market orientation (domestic vs. international) of firms.
Note: Areas of international entrepreneurship studies are marked in grey colour.
Figure 1. Basic typology of IE concepts

Source: Wach (2014, p. 68).
Defining international entrepreneurship represents the first step in comprehending

this new field of study. Doing so provides researchers a vital tool when attempting to
distinguish IE from other well-established areas such as entrepreneurship and interna-
tional business. When looking at entrepreneurial behaviour with a cross-border orienta-
tion, and international business distinguished by innovativeness, key questions arise for
which answers can be derived through IE research.
Historical Development of International Entrepreneurship Research

The past two decades (1990s and 2000s) have witnessed substantial development in IE
research. Jones et al. (2011) provide a well-founded categorisation by mapping out three
major types of research, namely: (i) entrepreneurial internationalization, (ii) international
comparisons of entrepreneurship, and (iii) comparative internationalization. These
streams represent the central elements from which exploratory research has been con-
ducted to investigate various thematic areas of entrepreneurship within the internation-
al sphere. The ensuing illustration (Figure 2) depicts the main themes and sub-themes of
international entrepreneurship research.
Figure 2. Thematic areas of international entrepreneurship research

Source: adapted from (Jones, Coviello & Tang, 2011, p. 636).
From 1989 to 1996 the research area labelled entrepreneurial internationalization

emerged. It deals with entrepreneurship that crosses national borders; incorporating
aspects of venture type, internationalization, networks and social capital, organizational
issues, and entrepreneurship (Jones et al., 2011, p. 635). A vital element in this sense is
explaining why, how, and through what means (capabilities) organizations become
engaged in cross-border business. Venture type explores the characteristics of an organi-
zation that enables it to compete internationally (Jones et al., 2011, p. 636), while inter-
nationalization examines the patterns and processes of international expansion, and
diversity of firm’s mode of entry, as well as the influences and outcomes of international-
ization (Jones et al., 2011, p. 638). Networks and social capital focus on how the firm’s
network ties influence foreign market entry and entry modes, while research covering
organizational issues and entrepreneurship incorporate studies on organizational per-
formance, orientation, knowledge and capabilities from an entrepreneurial international-
ization perspective, and international corporate entrepreneurship (Jones et al., 2011,
p. 640).
Research on entrepreneurial internationalization have shown positive relationships
between international entrepreneurial orientation and several indicators of international
performance, such as the extent to which a business organization actively seeks oppor-
tunity, and sells its products or services, in foreign markets (Covin & Miller, 2014, p. 19).
This can imply that the zeal to engage in cross-border business is driven by the interna-
tional entrepreneurial spirit.
Between 1990 and 2002 another research area dubbed international comparisons of
entrepreneurship developed, which involves comparing data collected from different
countries, with the goal of evaluating national level patterns and related cultural distinc-
tions (Jones et al., 2011, p. 644). Against this backdrop, researchers base their work on
the thematic areas; cross-country research, cross-cultural research, and combined cross-
country & cross-culture research. As can be derived from the terms, research conducted
focus on behavioural differences of entrepreneurs across countries, and the assessment
of cultural values to determine the impact culture has on entrepreneurial behaviour
(Jones et al., 2011, p. 645). Results generated in this stream have established the influen-
tial effect national culture has on individual entrepreneurial behaviour (Hayton, George
& Zahra, 2002, p. 43).
Comparative internationalization is the most recent research area of international
entrepreneurship. Since 2001, scholars have used cross-national data in comparing en-
trepreneurial internationalization. Related topics include international venture types,
internationalization patterns, internationalization influences, and organization issues
(Jones et al., 2011, p. 646). In this vein, internationalization patterns at a firm’s inception
can be influenced by the global vision of the founder, the entrepreneur (Gabrielsson
& Pelkonen, 2008, p. 56). Depending on the country of origin and related national culture
distinctions, the entrepreneur who is the driving force of the organization at its incep-
tion, gravitates more towards the discovery, enactment, evaluation, and exploitation of
business opportunity abroad. Clearly stated: internationalization patterns may depend
on country of origin and national culture of the founding entrepreneur. Further findings
derived from comparative internationalization research suggest that the entrepreneurial
team, along with the entrepreneur, are relevant in fostering the cross-border orientation
of business organizations (Andersson & Evangelista, 2006, p. 650). Reports have indicat-
ed that international entrepreneurial orientation (IEO) is a vital cultural attribute of
so-called born global firms (Knight & Cavusgil, 2004, p. 129), however other researchers
believe that IEO is an immanent element of international entrepreneurship theory in
general (Wach, 2015b). Taken together, international entrepreneurial orientation is con-
sidered a behavioural trait shared by business entities that start out seeking to attain
a competitive advantage by carrying out operations in various countries.
The historical development of IE research was presented in brief. The existing litera-
ture can be sorted in three categories namely, entrepreneurial internationalization, in-
ternational comparisons of entrepreneurship, and comparative internationalization. The
major aspects considered include examining the extent of entrepreneurship across na-
tional borders, evaluating national level patterns and cultural distinctions related to
entrepreneurship, and comparing entrepreneurial internationalization with focus on
international venture types. Research conducted to date provides evidence of positive
relationships between international entrepreneurial orientation and international per-
formance. Scholars have also argued that international entrepreneurial orientation is an
essential cultural attribute of born global companies. Within business organizations, the
entrepreneurial team, along with the entrepreneur, have been cited as crucial parties in
fostering international entrepreneurial activities.
Entrepreneurship as New Approach Towards International Business

IE is an intriguing field at the intersection of entrepreneurship and international business
theories (Keupp & Gassmann, 2009, p. 600), and some scholars also add international
management (Wach & Whermann, 2014). To demonstrate this, I revert to fundamental
theories from two of the fields. Cantillion’s theory of entrepreneurship positions the
entrepreneur as an individual, who drives the manufacturing, circulation, and exchange
of products within an economy, in an effort to satisfy consumer demands. Against this
backdrop, entrepreneurial actions are based on perceived arbitrage opportunities; the
hope for profit generation (Cantillon, 1931, p. 151; Brown & Thornton, 2013, p. 406).
Bear in mind that perception of opportunity can differ depending on the knowledge of
markets and/or the zeal to consider unknown or unexplored markets. Any theoretical
assertion on the role of entrepreneurs, and the basis for entrepreneurial action, must
implicate the cross-border element of perceiving opportunity. Nowinski and Bakinowska
(2012) provided evidence as they identified arbitrage price opportunities as a vital driver
of early internationalization of Small and Medium-sized Enterprises. Entrepreneurs may
act on their knowledge of markets, and/or is driven by the willingness to explore un-
known or unexplored markets. Such considerations are clearly in the realm on interna-
tional entrepreneurship. In this context, IE research has shown that entrepreneurs in CEE
economies can experience social and human capital constraints, since they lack interna-
tional experience (Nowinski & Rialp, 2013, p. 221).
Assertions made by Schumpeter (1976) in his theory of economic growth offer an-
other avenue to associate IE with traditional entrepreneurship theory. In his work,
Schumpeter credits the growth of an economy to entrepreneurial innovations, as compe-
tition between market participants foster the desire to derive new means of improving
technology and business operations. Note here that competition between market forces
is stated as the trigger of entrepreneurial innovation. In today’s global economy, market
forces, and related impacts, extend beyond national borders. The trigger of entrepre-
neurial action therefore can result from foreign market developments and opportunities.
Given this, an attempt to explain why entrepreneurial action is taken must implicate the
cross-border element of business. This again falls under the umbrella of IE.
In an effort to depict the relationship and linkage between international business
theories and concepts from IE, the author draws upon assertions rooted in ‘the theory of
the firm’. With the goal of maximising profits for their business organization, decision-
makers assess opportunity costs of engaging in business across-borders (Grosse
& Behrman, 1992, p. 99). The rationale for taking a decision on whether or not to enter
a foreign market may be founded on behavioural traits of decision makers. When such
actions involve discovering, enacting, evaluating, and exploiting business opportunity
abroad; the international entrepreneurial orientation of the decision maker merits con-
sideration. Knight (2001) suggests that three-dimensional international entrepreneurship
is a vital success factor impacting international performance of firms, while Wach
(2015a) stresses that the entrepreneurial decision making process is the most important
factor in the entrepreneurial process.
Future Direction of International Entrepreneurship Research

Research on international entrepreneurial behaviour has gained increased importance
over the years. In spite of the growing interest, IE as a field of study is still in a develop-
mental stage, without solid theoretical foundation. Researchers have identified theoreti-
cal inconsistencies, opposing predictions and knowledge gaps (Keupp & Gassmann, 2009,
p. 600), which hinder further development. Be it as it may, the field is rich with novel
ideas and concepts that can give an impetus to researchers as they strive to investigate
the drivers of entrepreneurial behaviour with a cross-border orientation, and other re-
lated interdependencies.
A thought provoking area for future research deals with new international market
entry, as this is inherent and vital to the exhibition of international entrepreneurial be-
haviour (Covin & Miller, 2014, p. 27). In this sense, the key question to be posed here is
whether behavioural traits exhibited for new international market entry correspond with
those shown for new product entry. The challenge of such research lies in trying to char-
acterise and capture the entrepreneurial process elements within the context of new
international entry, and in this way demonstrate the distinctive nature of ‘being entre-
preneurial’ in the international new entry frame of reference (Covin & Miller, 2014,
p. 28). Another promising area for future work pertains to the previously discussed
stream of research called international comparisons of entrepreneurship. Covin and
Miller (2014) suggest exploring the drivers of new entry as culture specific phenomena.
This can incorporate exploratory research that aims at distinguishing the act of being
entrepreneurial in different cultural contexts, through examining the beliefs, prefer-
ences, and behaviours leading to new entry (Covin & Miller, 2014, p. 28).
Jones and Coviello (2005) recommend exploring how cognitive approaches may dis-
tinguish entrepreneurial internationalization from other traditional forms of internation-
alization patterns. In this regard, heuristic and analogical reasoning are two key cognitive
approaches under consideration. Heuristic reasoning refers to a mental shortcut allowing
decision making quickly and efficiently (Gigerenzer & Gaissmaier, 2011, p. 454), while
analogical reasoning implies decision-making based on experiences from a similar situa-
tion (Gentner, 2003, p. 106). The premise for such research is that heuristic reasoning
and analogical reasoning can serve as theoretical basis upon which innovative, proactive,
and risk-seeking behaviour distinguishes entrepreneurial internationalization from other
forms of internationalization (Jones & Casulli, 2013, p. 62). The process of analysing
a business opportunity can uncover key differences and similarities that alert entrepre-
neurs to opportunities and challenges; requiring consideration in new international
undertakings (Jones & Casulli, 2013, p. 62). Taken together, heuristic reasoning will drive
entries into countries that are perceived as similar to those where business activities
have been conducted, and analogical reasoning will fuel entrepreneurial internationaliza-
tion based on familiarity and extensive experience of an industry or market (Jones
& Casulli, 2013, p. 60).
Aspects to be considered when applying a cognitive approaches to IE include; the
decision making process leading to entry into a foreign market, and the mode of entry
employed. Relevant considerations are factors that influence the decision maker, such as
behavioural traits. Taking this further, researchers can evaluate potential cultural associ-
ations that impact reasoning and in this way demonstrate the interplay between culture,
decision-making, and entrepreneurial internationalization.
CONCLUSIONS
This paper was prepared with the goal of recounting the historical development of IE as
a field of study, and demonstrating how concepts brought forth contribute to a broader
understanding of fundamental international business and entrepreneurship theories.
The analytical work makes reference to the existing IE literature, as Jones, Coviello and
Tang (2011) categorisation of themes and sub-themes provided the foundation for de-
picting the historical development. On this basis, an assessment of how concepts from IE
associate with fundamental international business and entrepreneurship theories was
conducted.
The main themes of IE research include Entrepreneurial Internationalization, Inter-
national comparisons of Entrepreneurship, and Comparative Internationalization. Key
aspects considered are; examining the extent of entrepreneurship across national bor-
ders, evaluating national level patterns of entrepreneurship and their relationships with
cultural and institutional differences, and comparing entrepreneurial internationalization
with focus on international venture types. IE research provides evidence of positive rela-
tionships between international entrepreneurial orientation and international perfor-
mance, and establishes the influential effect national culture has on individual entrepre-
neurial behaviour. Entrepreneurship theory stresses that entrepreneurial actions are
based on perceived opportunities. Since perception of opportunity can differ depending
on the knowledge of markets and/or the zeal to consider unknown or unexplored mar-
kets. Any theoretical assertion on the role of the entrepreneur, and the basis for entre-
preneurial action, must implicate the cross-border element of perceiving opportunity.
Moreover, the trigger of entrepreneurial action can result from foreign market develop-
ments and opportunities. These considerations are in the realm on IE.
There are several limitations to the results of this study. First, the analytical work is
based on the categorization provided by Based on Jones, Coviello and Tang (2011). Using
categorisations from other scholars may offer a different view on how IE has developed
over the years. Second, the study is based on a literature review with no field research or
data analysis conducted. More comprehensive research and analysis are required that
take into account entrepreneurial behaviour of firm overtime.
Future research should be directed at distinguishing the act of ‘being entrepreneuri-
al’ in different cultural contexts, through examining the beliefs, preferences, and behav-
iours leading to new entry. Studies applying cognitive approaches into IE research can
include the decision making process, through which a selected foreign market is entered,
and the mode of entry employed. Researchers may evaluate potential cultural associa-
tions impacting reasoning, and in doing so, manifest the interplay between culture, deci-
sion-making, and entrepreneurial internationalization.
The literature review in this study points to the fact that IE is still in a developmental
stage. However, the field is rich with novel ideas and concepts. The lack of theoretical
foundation presents challenges to researchers. Research must be directed at answering
the fundamental questions that distinguish IE from the two related, but more estab-
lished fields; international business and entrepreneurship. In this way, theories distinc-
tive to IE can be developed that highlight the influencers, motives, and impacts of entre-
preneurial behaviour across borders.
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Author
Ikemefuna Allen
Senior Consultant at Business Process Experts GmbH (Germany). Previously worked for
Boehringer Ingelheim Pharma (Germany) at GBS Process Management Accounting to Report-
ing. Educational qualifications include Bachelor in International Business from Accadis Interna-
tional Business School (Germany) and Master in International Business from the University of
Applied Sciences Mainz (Germany). Currently, PhD Student at the Faculty of Economics and
International Relations at the Cracow University of Economics (Poland).
Correspondence to: Ikemefuna Allen, M.A.; Cracow University of Economics; PhD Student at
the Inter-Faculty PhD Study Programme in English; ul. Rakowicka 27, 31-510 Kraków, Poland;

2016, Vol. 4, No. 4 DOI: 10.15678/EBER.2016.040407
Youth Entrepreneurship in Visegrad Countries

Marian Holienka, Anna Pilková, Zuzana Jančovičová
ABSTRACT
Objective: The aim of our paper is to analyse the entrepreneurial activity drivers of
youth and young adults in Visegrad countries, considering the opportunity/necessity
motivation dichotomy.
Research Design & Methods: We employ the Global Entrepreneurship Monitor data
for young individuals (18 to 34 years) from V4 countries for years 2011 to 2013. We
use the binomial logistic regression modelling with logit transformation. Separate
models are constructed for youth and young adults, as well as for opportunity- and
necessity-driven entrepreneurial activity.
Findings: We found common drivers and distinctive attributes affecting involvement
of young people in business start-up according to its motivation. Self-confidence and
access to networks are universally important factors. In most examined cases, fear of
failure and being a female reduces chance of business start-up. Especially among
youth, being a student significantly inhibits involvement in enterprising efforts.
Implications & Recommendations: In order to support youth entrepreneurship, em-
phasis should be put on education and training to build skills and knowledge required
for business start-ups, together with capacity to spot opportunities, and reduce fear
of failure. Formal and informal networking plays an important role in youth entrepre-
neurship.
Contribution & Value Added: Based on empirical analysis, our findings point out the
key drivers of entrepreneurial activity among young people in V4 countries. We show
directions for policy makers aiming to foster entrepreneurship within young genera-
tion as both way to exploit available business opportunities, as well as reaction to
necessity situations.
entrepreneurship; Visegrad countries (V4); youth; opportunity;
Keywords:
necessity; drivers
JEL codes: L26
Received: 20 January 2016 Revised: 6 August 2016 Accepted: 6 August 2016
Suggested citation:
Holienka, M., Pilková, A., & Jančovičová, Z. (2016). Youth Entrepreneurship in Visegrad
Countries. Entrepreneurial Business and Economics Review, 4(4), 105-121, DOI:
106 | Marian Holienka, Anna Pilková, Zuzana Jančovičová
INTRODUCTION
The issue of youth entrepreneurship is, from the macroeconomic perspective, aimed
mainly on economic and societal dimensions of this phenomenon (Holienka, 2014). En-
trepreneurship is perceived as one of the potential solutions to youth unemployment,
which has become a particularly hot topic throughout entire Europe. Its solution lies not
only in self-employment, but also in potential for creation of other jobs. Especially re-
garding young individuals, the issue has also other important dimension. It is the age
group in the beginning or in early stages of economic activity. If they decide for entre-
preneurship as their career choice, they will hopefully become economically self-
sufficient and will create their own jobs instead of looking for them, and potentially also
create jobs for other people. Thus, such decision in early phases of economic activity is
a good assumption (however, not a matter of course) that individuals will follow the self-
sufficiency during the entire economic active age and contribute to the development of
quantity as well as qualitative side of entrepreneurial activity in an economy.
Moreover, youth entrepreneurship is a highly important phenomenon also in the
context of current development of economies. The immense growth of innovation brings
trends such as constant dynamics and instability, rapid changes or increased cognitive
complexity (Integral Assets Consulting, 2006). These lead to changing nature of labour,
and to need for application of enterprising attributes not only for profit businesses, but
also in the role of employee or in many other different social roles. Formation of such
skills is therefore not only the way towards development of independent, profit-oriented
entrepreneurship. On contrary, its role is to support creativity, innovativeness and ability
to identify opportunities and bring ideas into life, thus equipping young people with
“enterprising mindset” that can be utilized in many different activities.
To foster their involvement in entrepreneurship, policy makers need to understand
the factors leading young individuals towards enterprising efforts. Former research has
shown that, in relation to entrepreneurship, young people and mature people are differ-
ent in several areas, including accumulation of resources and skills; psychological, cogni-
tive and motivational attributes; and reaction to influences from the environment, cul-
ture and norms (Minola, Criaco & Cassia, 2014). However, generalising the drivers of
youth entrepreneurship may be too oversimplifying. With this respect, at macro level,
we need to consider at least two other dimensions – age cohorts and motivation. It is
clear that the group referred to as young individuals is rather large and heterogeneous.
One perspective on this divergence considers whether an individual is already economi-
cally active or still in the phase of preparation for future occupation. These two stages
are substantially diverse, which implies their difference in relation to entrepreneurship.
Regarding motivation, entrepreneurial activities may arise from wide variety of different
motives. Generally, these motives can be well classified into two main categories – op-
portunity and necessity. By definition, these two types refer to different underlying life
situations that may reflect potential drivers of business start-up in different way. With-
out specific preference to any of them, it is important to understand mechanism behind
both these types of entrepreneurship.
The aim of our paper is to analyse the entrepreneurial activity drivers of youth and
young adults in Visegrad countries, considering the opportunity/necessity motivation
Youth Entrepreneurship in Visegrad Countries | 107
dichotomy. To do so, we employ the Global Entrepreneurship Monitor 2011 to 2013

individual-level data in a pooled sample from V4 countries and perform a binomial lo-
gistic regression analysis in search for drivers significantly affecting individual involve-
ment of youth and young adults in early-stage entrepreneurial activity out of opportunity
and necessity.
The structure of our paper is standard. In the following section we provide a review
of literature on youth entrepreneurship, its drivers, as well as nature and role of necessi-
ty and opportunity motivation to start a business. Section 3 describes the materials and
methods employed in our analysis, while Section 4 presents and discusses its results and
main findings.
LITERATURE REVIEW
What Does It Mean “Youth” in Entrepreneurship Context?
The first question that needs to be clarified when dealing with youth entrepreneurship is
the definition of “youth”. In fact, there is no universal definition of youth neither gener-
ally nor in this specific context. For example, United Nations understands youth as indi-
viduals in the age of 15 to 24, but it also accepts the existence of definitions used by
other countries of entities (United Nations, 2014). One of such is the definition used in
the EU, where Eurostat considers youth as individuals in the age of 15 to 29 years (Euro-
pean Commission, 2009).
Especially in relation to entrepreneurship, Chigunta (2002) introduced definition and
classification of youth entrepreneurship from qualitative perspective through “transi-
tional categorization“ based on structural differences between entrepreneurial activities
of young people in different age. It recognizes three main phases of youth entrepreneur-
ship. It also stresses that the transitional process is not necessarily linear, and the age
categorization is not strict either, because the transfer between phases may differ in
particular economies or industries. The first “pre-entrepreneurship” phase (15 to 19
years) represents a forming phase or some trial period. Young people usually find them-
selves in this phase during the transfer from “family nest” or educational process to the
position of economically active individuals. The second “budding entrepreneurship”
phase (20 to 25 years) reflects a growth phase in which young individuals can already
possess certain experience, skills or capital, enabling them to run their own business
activities. Finally, the third phase of “emergent entrepreneurship” (26 to 29 years) is the
main phase where young entrepreneurs are, thanks to experience acquired (not only) in
entrepreneurship, more mature than younger individuals, thus increasing the chance
that they can successfully manage a vital business activity.
However, for the purpose of our analysis based on GEM data, we need to follow
clearly defined age criteria. Thus, we incline to the GEM perspective, where youth entre-
preneurship includes individuals in the age from 18 to 34 years (Kew, Herrington,
Litovsky & Gale, 2013). Due to heterogeneity in such broad category, we further distin-
guish between the youth (18 to 24) and young adults (25 to 34), which also corresponds
with the GEM perspective (Pilková, Holienka, Kovačicová & Rehák, 2014). This distinction
reflects the specifics of these two groups and their position in an economy. Youth usually
find themselves at the doorstep of economic activity. There, some individuals still remain
in the process of preparation for their occupation, while the others are fully involved
among either workforce or self-employed, or they attempt to include into economically
active life. On contrary, among young adults, the preparation to occupation has usually
been completed, and an active participation in the economic activity within the society is
anticipated.
Drivers of Youth Entrepreneurship
The research on youth entrepreneurship is mainly focused on factors influencing the
entrepreneurial activity, both in its quantity as well as quality (Pilková et al., 2014). The
most frequently studied drivers of individual involvement in entrepreneurial activity are
the individual entrepreneurship-related attributes, social capital and perception of socie-
tal attitudes, and individual demographic characteristics. Since former research indicates
rather general validity than age-specific nature of these drivers, we will consider the full
scope of these potential factors in our analysis.
Individual demographic characteristics studied for their influence on taking the en-
trepreneurial path are mainly gender, educational attainment and household income.
Gender studies suggest that the entrepreneurial propensity of men and women may be
influenced by differences attributed to gender-specific characteristics (Langowitz & Min-
niti, 2007). Most empirical studies found that, despite considerable recent growth in
their inclusion, women still tend to be underrepresented in entrepreneur population
(Davis, 2012; Bjerke, 2013). The assumptions about effect of educational attainment is
related to the concept of human capital, representing a knowledge base determining the
individual’s capacity to recognize and pursue entrepreneurial opportunities (Ramos-
Rodríguez, Medina-Garrido, Lorenzo-Gómez & Ruiz-Navarro, 2010). Previous empirical
research proved human capital, partially operationalized through educational attain-
ment, to be positively related to nascent entrepreneurship (Kim, Aldrich & Keister, 2006).
Finally, the role of household income can be viewed through the financial resources
perspective, especially with the opportunity costs of reducing this income. According to
Kim et al. (2006), at lower income levels, individuals may consider the opportunity costs
of starting business very low, while at higher income levels, individuals may perceive that
the loss of their current income outweighs prospective (and still uncertain) gains from
a new business (Kim et al., 2006), thus abstaining from business start-up.
The most commonly investigated individual attributes related to the involvement in
entrepreneurial activity are alertness to business opportunities, entrepreneurial self-
confidence, and fear of failure. Alertness to business opportunities is related to individu-
al subjective perception of good opportunities for starting up and running an enterprise.
According to Kirzner (1979), such alertness is a key perceptual characteristic of entrepre-
neurial behaviour and a necessary precondition for entrepreneurial action. It has been
proven as an important driver of engagement in enterprising efforts (Arenius & Minniti,
2005; Koellinger, Minnitic & Schaded, 2007). Entrepreneurial self-confidence relates to
the concept of self-efficacy, that represents one’s judgement of own ability to execute an
action and produce designated levels of performance (Bandura, 1994). Thus, it has been
established as a reliable predictor of different goal-directed behaviours, including entre-
preneurship. Self-efficacy is strongly related to perceived behavioural control and ability,
which together with attitude toward behaviour and subjective norm influence the inten-
tion, that in turn affects the actual behaviour of an individual (Ajzen, 1991). In case of
entrepreneurship, the context-specific self-efficacy represents the self-confidence of an

individual in having the required skills, experience and abilities to successfully start-up
and run a business. Previous empirical studies have proven the positive relationship
between high levels of self-efficacy and individual entrepreneurial activity (Arenius
& Minniti, 2005; Lukeš, Zouhar, Jakl & Očko, 2013; Wong & Lee, 2005). Fear of failure
represents a subjective perception regarding the risk of entrepreneurial failure and its
possible consequences. Since the majority of individuals are supposed to be risk-averse
by nature, increased fear of failure is expected to act as an inhibitor of entrepreneurial
action (Arenius & Minniti, 2005). Empirical research has provided certain evidence sup-
porting these assumptions considering entrepreneurial activity (Arenius & Minniti, 2005;
Lukeš et al., 2013; Wagner, 2007).
Social capital generally refers to social networks of an individual that enable to ex-
tract benefits from these social structures, networks and memberships through the so-
cial exchange (Portes, 1998). It represents an external knowledge provided by other
people in the entrepreneur’s environment (Ramos-Rodríguez et al., 2010), which foster
the discovery of opportunities, their exploitation as well as the identification, collection
and allocation of scarce resources (Davidsson & Honig, 2003). One of the most relevant
sources of social capital for early-stage entrepreneurs are other individuals with recent
business start-up experience. Empirical research has already identified positive impact of
knowing an entrepreneur on involvement in entrepreneurship (Lukeš et al., 2013).
Perception of societal attitudes towards entrepreneurship represents an individual
perception of social norms, values, beliefs and assumptions socially carried by individuals
within the society and influencing their behaviour. In other words, we speak about insti-
tutions (North, 1990). They shape the entrepreneurial activity of individuals who try to
adjust their actions to achieve conformity in the environment shaped by these institu-
tions. One of them is the status of successful entrepreneurs in a society. If an individual
believes successful entrepreneurs enjoy high levels of social status and respect, he will
be generally more likely to find entrepreneurial activity desirable. He would perceive that
by joining an entrepreneurial path he would achieve legitimacy by conforming to norms
and values within society (Lonsburry & Glynn, 2001).
Opportunity and Necessity Motives and Entrepreneurship Drivers

There is a wide range of different motives behind the decision to start a business. Simply,
within the GEM perspective, they are divided into the two main categories – opportunity
and necessity motives (Reynolds, Camp, Bygrave, Autio & Hay, 2001). The question is,
how these motives moderate the generally expected relationship between the above
described factors and individual involvement in entrepreneurial activity. Verheul, Thurik,
Hessels and van der Zwan (2010) argue that distinction between opportunity and neces-
sity entrepreneurs is important for several reasons, one of them being the difference
between determinants of opportunity and necessity entrepreneurship. In this respect,
former empirical research provided some evidence, but it is rather ambiguous. For ex-
ample, there are no consistent findings on effects of age or educational level (Bergmann
& Sternberg, 2007; Giacomin, Janssen, Guyot & Lohest, 2011; Verheul et al., 2010; Wag-
ner, 2005). Also, while Giacomin et al. (2011) identified negative effect of having entre-
preneurial relatives on necessity entrepreneurship, Verheul et al. (2010) and Wagner
(2005) found positive effect of role models on opportunity entrepreneurs, and Morales-
Gualdrón and Roig (2005) found positive influence of knowing an entrepreneur on both
types. Finally, both Wagner (2005) and Morales-Gualdrón and Roig (2005) found fear of
failure acting as inhibitor of necessity as well as opportunity entrepreneurial efforts,
while Verheul et al. (2010) found no significant effect of this attribute at all.

Data and Variables
The aim of our paper is to analyse the entrepreneurial activity drivers of youth and young
adults in V4 countries, considering the opportunity/necessity motivation dichotomy.
Our analysis is based on Global Entrepreneurship Monitor (GEM) data. GEM is the
largest academic study dealing with entrepreneurship in the world that annually moni-
tors entrepreneurial attributes and activities (Singer, Amorós & Arreola, 2015). It uses
two main primary data collection instruments – Adult Population Survey (APS) and Na-
tional Expert Survey (NES). The APS is annually executed in all participating countries and
collects individual-level data through a standardized survey instrument administered to
representative samples from adult populations (18 to 64 years old). Due to its focus on
individuals, representativeness by age and gender on country level, and specific focus on
entrepreneurial activity and entrepreneurship-related attributes of individuals, GEM APS
data are the most appropriate material to be used in our analysis.
We created a pooled sample using GEM APS individual level data for V4 countries
from three consecutive years 2011 to 2013, with age of respondents between 18 to 34
years as the only selection criterion. This resulted to a sample of 9 290 young individuals:
2473 (26.6%) from Czech Republic, 2 114 (22.8%) from Hungary, 2 388 (25.7%) from
Slovakia and 2 315 (24.9%) from Poland. This sample contained 313 youth (18 to 24)
early-stage entrepreneurs (out of them 231 opportunity-driven and 81 necessity-driven)
and 781 young adult early-stage entrepreneurs (out of them 548 running their business-
es based on opportunity, and 218 out of necessity). The main sample was further divided
into four subsamples – two for analysing the opportunity-driven entrepreneurship (con-
taining non-entrepreneurs and entrepreneurs out of opportunity) among youth and
young adults, and other two for the analysis of necessity-driven activity (comprising of
non-entrepreneurs and entrepreneurs starting out of necessity) among youth and young
adult population.
We employed standard GEM variables in our analysis. The dependent variables indi-
cated involvement of respondents in opportunity- or necessity-driven early-stage entre-
preneurial activity. In GEM, total early-stage entrepreneurial activity (TEA) includes indi-
viduals actively involved in setting up a business (nascent entrepreneurs) or owning-
managing new firms that are less than 3.5 years old (new entrepreneurs). TEA individuals
are further classified according to the reported dominant reason for involvement in
business start-up. Those who indicated having no better choices for work are considered
as necessity-driven entrepreneurs, while those whose reason was mainly/partially to
take advantage of business opportunity, or who were seeking for better opportunities
than in their recent jobs, are classified as opportunity-based entrepreneurs.
The explanatory variables employed in our analysis include the following: (1) entre-
preneurial self-confidence (belief in having knowledge, skill and experience required to
start a new business; yes=1, no=0), (2) alertness to opportunities (belief in good oppor-
tunities for starting a business in the area where respondent lives in the close future;
yes=1, no=0), (3) fear of failure (having a fear of failure that would prevent respondent
from starting a new business; yes=1, no=0), (4) knowing an entrepreneur (knowing per-
sonally someone who started a business in recent two years; yes=1, no=0), (5) perceived
status of new entrepreneurs (indicated agreement with statement that in respondent’s
country, successful new entrepreneurs possess high levels of status and respect; yes=1,
no=0), (6) gender (male=1, female=2), (7) education (highest educational attainment), (8)
student (“student” indicated as employment status; yes=1, no=0), and (9) household
income (total annual household income classified into lowest/middle/upper 33%-tile for
each country). Finally, we also included age and proxies for country and year of survey as
control variables.
Hypotheses
We propose the following hypotheses on entrepreneurial activity drivers among youth
and young adults in V4 countries, considering the opportunity/necessity motivation di-
chotomy:
Entrepreneurial self-confidence is positively related to involvement in both
H1:
types of entrepreneurship.
Alertness to opportunities is positively related with opportunity entrepre-
H2:
neurship, while it has no significant relation with necessity entrepreneurship.
Fear of failure is negatively related to involvement in both types of entrepre-
H3:
neurship.
Knowing an entrepreneur is positively related to involvement in both types of
H4:
entrepreneurship.
Perceiving high social status of successful new entrepreneurs is positively
H5:
related to involvement in both types of entrepreneurship.
Involvement in both opportunity and necessity entrepreneurship is domain of
H6: men, i.e. gender is significantly related to involvement in both types of entre-
preneurship.
Educational attainment is positively related to involvement in both types of
H7:
entrepreneurship.
Student status is negatively related to involvement in both types of entrepre-
H8:
neurship.
Household income is negatively related to involvement in both types of en-
H9: trepreneurship.
Methods
To identify the drivers of involvement in either opportunity- or necessity-based early-
stage entrepreneurial activity among youth and young adults we used a binomial logistic
regression modelling. This model estimates the probability of an event happening. In our
case this event was owning-managing a business activity based on necessity or oppor-
tunity by youth or young adult individuals. Thus, we conducted four regression models
with two different dependent variables (opportunity-driven and necessity-driven early-

stage entrepreneurial activity) for each both age categories. To estimate the parameters
of each model we used statistical software R, namely its build-in function for Generalized
Linear Models (GLM) which was set on binomial family with logit transformation. The
significance of parameters was tested using Wald z-statistics. Maximum likelihood esti-
mations were used to calculate the logit coefficients denoting changes in the log odds of
the dependent variable. Correlations between independent variables were tested and
proved not to be problematic. The selections of final models were conducted through
a stepwise regression function drop1 using Chi-square goodness of fit test, log-likelihood
ratio function and Akaike Information Criterion. The selected final models were then
compared to the real observation using Hosmer and Lemeshow goodness of fit (GOF)
test, which indicated that the models are well fitted.

Drivers of Opportunity-based Entrepreneurship
The results of binomial logistic regression conducted to identify the drivers of opportuni-
ty-based early-stage entrepreneurial activity among youth and young adult population
suggest that nine out of twelve analysed variables are significant (Table 1). Interestingly,
except of only two out of the variables that proved significance, all remaining variables
were significant in case of both youth as well as young adults.
The estimated coefficients in Table 1 describe the effect of a variable on the odds of
engagement in opportunity-driven entrepreneurial activity relative to not being involved
in early-stage business at all. If the coefficient value is positive, holding all other variables
equal, an increase in a variable raises the likelihood of involvement in business out of
opportunity. Therefore, as can be seen from the results, the odds of getting engaged in
opportunity-driven early-stage entrepreneurial activity among both youth and young
adults are positively related to self-confidence about having entrepreneurial skills (with
the highest coefficient value in both models), alertness to good business opportunities,
knowing an entrepreneur with recent start-up experience and income level (belonging to
middle 33% tile in case of youth, and to upper 33% tile in both categories, compared to
the lower 33% tile which was set as a base category). On contrary, in cases of both youth
and young adults, having a fear of failure is negatively related to the odds of involvement
in opportunity-based business start-up. Moreover, both age categories exhibit significant
effect of gender, where being female is negatively related to odds of starting a business
based on opportunity. In addition to the common drivers, we have identified also two
factors that are specifically significant to individual age categories. In case of youth, stu-
dent status was found to be significantly reducing the odds of getting engaged in starting
an opportunity-based business (with the second strongest influence in the model). In
case of young adults, we found significant positive relationship between the odds of
starting an opportunity-based early-stage entrepreneurial activity and perception of high
societal status of successful new entrepreneurs. As for our control variables, we found
positive effect of country affiliation (with Hungary set as a base category) in two cases,
with no specific pattern. Age and year of survey were not significant and they were
dropped from the final model.
Table 1. Opportunity-driven entrepreneurial activity drivers (logistic regression results)

Variable / Model: Youth Model: Young adults
Measure Estimate Std. Error Z value Pr(>|z|) Estimate Std. Error Z value Pr(>|z|)
(Intercept) -3.4773 0.3417 -10.1770 < 2e-16 -4.3758 0.2823 -15.4990 < 2e-16
Self-
1.6611 0.2158 7.6960 < 1e-14 1.6673 0.1758 9.4860 < 2e-16
confidence
Alertness to
0.6155 0.1874 3.2850 0.0010 0.4723 0.1225 3.8540 0.0001
opportunities
Fear of failure -0.7639 0.2019 -3.7840 0.0002 -0.6342 0.1267 -5.0040 < 5e-7
Knowing an
1.1392 0.1959 5.8160 < 6e-9 1.1829 0.1336 8.8550 < 2e-16
entrepreneur
Gender -0.7456 0.1984 -3.7580 0.0002 -0.6214 0.1290 -4.8170 < 1e-6
Student -1.4296 0.3112 -4.5930 < 4e-6 – – – –
Status of
– – – – 0.2655 0.1253 2.1190 0.0341
entrepreneur
Income:
0.5669 0.2687 2.1100 0.0349 0.1935 0.1817 1.0650 0.2869
mid 33% tile
Income:
0.6838 0.2556 2.6760 0.0075 0.4982 0.1685 2.9560 0.0031
up 33% tile
Poland -1.2179 0.3024 -4.0270 0.0001 -0.0002 0.2000 -0.0010 0.9994
Czech Rep. -0.2811 0.2675 -1.0510 0.2933 0.4628 0.1905 2.4290 0.0152
Slovakia -0.4801 0.2647 -1.8140 0.0697 0.1841 0.1892 0.9730 0.3304
Res. dev. 865.1 1 932.6
df 2 040 3 632
Akaike 889.1 1 956.6
Log-likelihood < 1e-4 9.7050
p (Chi-sq.) 0.9992 0.0018
HL GOF 0.9747 0.6288
“–“ = variable dropped from the model
Source: own calculations in statistical software R.
Drivers of Necessity-based Entrepreneurship

As shown in Table 2 below, the results of binomial logistic regression analysis conducted
to identify the drivers of youth and young adult involvement in early-stage entrepreneur-
ial activity out of necessity prove significance of seven out of twelve variables. However,
the two examined age cohorts have only two common significant drivers, while the re-
maining variables were found to be significant always for one of the categories only.
As can be seen from the results presented in Table 2, the odds of becoming engaged
in necessity-driven entrepreneurial activity in both analysed age categories are positively
related to entrepreneurial self-confidence (with strongest effect among all significant
variables in both models) and knowing an individual with recent start-up experience. In
addition to these two common drivers, we have identified several factors relevant specif-
ically to one of the analysed cohorts. Regarding the youth, we have found that having
a fear of failure and being a student significantly inhibit odds of involvement in early-
stage business activity out of necessity. Also, we found a significant relationship between
income category and odds of starting a business out of necessity (especially for belonging
to middle 33% tile compared to lower 33% tile which was set as a base category). On
contrary, regarding the young adults, we have identified the significant effect of gender,
with being female exhibiting negative relationship to the odds of becoming involved in
necessity-driven entrepreneurial activity. As for the control variables, we have found

significant effect of country affiliation (with Hungary set as a base category) in case of
young adults, but with no specific pattern. Age and year of survey were found not signifi-
cant and were dropped from the final model.
Table 2. Necessity-driven entrepreneurial activity drivers (logistic regression results)

Variable / Model: Youth Model: Young adults
Measure Estimate Std. Error Z value Pr(>|z|) Estimate Std. Error Z value Pr(>|z|)
(Intercept) -4.5885 0.4224 -10.8620 < 2e-16 -4.6854 0.3109 -15.0690 < 2e-16
Self-
1.7457 0.3224 5.4140 0.0000 1.5000 0.2359 6.3600 < 2e-10
confidence
Fear of failure -0.7863 0.2888 -2.7230 0.0065 – – – –
Knowing an
0.6774 0.2701 2.5080 0.0121 0.8298 0.1845 4.4980 < 6e-6
entrepreneur
Gender – – – – -0.2474 0.1770 -1.3980 0.1621
Student -1.5523 0.5254 -2.9550 0.0031 – – – –
Income:
0.9019 0.3608 2.4990 0.0124 – – – –
mid 33% tile
Income:
0.0857 0.3899 0.2200 0.8261 – – – –
up 33% tile
Poland – – – – 0.4215 0.2730 1.5440 0.1226
Czech Rep. – – – – -0.2114 0.3040 -0.6960 0.4867
Slovakia – – – – 0.5431 0.2677 2.0290 0.0425
Res. dev. 457.2 1 106.8
df 1 945 3 416
Akaike 489.2 1 120.8
Log-likelihood 1.8640 2.8200
p (Chi-sq.) 0.1722 0.0931
HL GOF 0.5407 0.9033
“-“ = variable dropped from the model
Source: own calculations in statistical software R.
Synthesis, Comparison and Discussion of Findings

Our findings on significant drivers of opportunity and necessity early-stage entrepre-
neurship among youth and young adult individuals in V4 countries identify several com-
mon drivers together with certain distinctive attributes. Summary of our findings on
significance of the hypothesized drivers is provided in Table 3 below. It points out some
interesting key findings. First, having the entrepreneurial self-confidence as well as an
access to entrepreneurial network (through personally knowing someone who recently
started a business) are significantly related to both types of entrepreneurship in both age
categories. Moreover, self-confidence exhibits the strongest relation among explanatory
variables with similar strength in all four models. On contrary, knowing an entrepreneur
was found to have considerably higher strength in case of opportunity-driven entrepre-
neurial activity. Second, fear of failure significantly inhibits all examined types of entre-
preneurship (with very similar strength of the relationship), except of the necessity-
driven efforts among young adults. Third, being a female was found to be negatively
associated with involvement in opportunity-driven activity in both age cohorts, as well as
with involvement in necessity-driven efforts in young adult age category. Fourth, we
found that being a student in youth age category significantly inhibits involvement in
early-stage entrepreneurial activity, irrespective its predominant motivation. Moreover,

this factor had the second highest strength in both models. Finally, we found significant
positive relationship between income category and all examined alternatives, except of
entrepreneurship out of necessity among young adults.
Table 3. Significance of the hypothesized youth entrepreneurship drivers (summary)

Opportunity Necessity
Variable
Youth Young adults Youth Young adults
Self-confidence Yes (+) Yes (+) Yes (+) Yes (+)
Alertness to opportunities Yes (+) Yes (+) No No
Fear of failure Yes (-) Yes (-) Yes (-) No
Knowing an entrepreneur Yes (+) Yes (+) Yes (+) Yes (+)
Status of entrepreneur No Yes (+) No No
Gender Yes Yes No Yes
Education No No No No
Student Yes (-) No Yes (-) No
Income Yes (+) Yes (+) Yes (+) No
(+) = positive relationship; (-) = negative relationship
Self-confidence about having skills, knowledge and experience required to start

a business was found the most important driver leading both youth and young adults
towards engagement in business start-ups, irrespective the motivation in behind. Im-
portant role of self-confidence corresponds with the theory establishing it as a compo-
nent affecting, together with opportunity recognition, the perceived feasibility of entre-
preneurial act (Krueger, Reillyb & Carsrudc, 2000). Also, our findings are in line with em-
pirical research among general entrepreneurial population (Arenius & Kovalainen, 2006;
Koellinger, 2008). Especially related to youth entrepreneurship, our results correspond
with findings by Ceptureanu (2015) who identified that almost 8 in 10 young entrepre-
neurs reported to have strong self-confidence. Moreover, universality of this driver is
suggested also by very similar strength of relationship in all our models. Thus, we can
conclude that this generally proven driver of entrepreneurial propensity is also valid for
young individuals, whether they face opportunity or necessity start-up motivation.
Alertness to good business opportunities was identified as a factor significantly re-
lated only with opportunity-driven activity, but both among youth and young adults. In
our opinion, this result is rather self-explanatory, since opportunity recognition is an
important precondition for involvement in opportunity-based business start-up
(e.g. Krueger et al., 2000). Also, previous empirical research has proven the role of op-
portunity perception as significant business involvement driver (Ramos-Rodríguez, Me-
dina-Garridoa & Ruiz-Navarrob, 2012; Langowitz & Minniti, 2007). Regarding young en-
trepreneurs, study by Ceptureanu (2015) found three quarters of young entrepreneurs
positively self-assessing their ability to identify opportunities.
Fear of failure that would prevent one from starting a business was found to be
a significant inhibitor of involvement in entrepreneurial activity. The only exception are
young adult necessity-driven businesses. To explain this finding, we assume that under
the pressure of necessity, young adults (who are usually already economically active and
have certain responsibilities to secure income for themselves and their families) are
more likely to overcome the existent fear of failure and make a step out of their comfort
zone towards starting a business activity, than in case they would not be pushed and
would consider starting a business based on recognized opportunity, or than their
younger counterparts with (generally) no economic responsibilities are. Previous empiri-
cal findings related to fear of failure are quite ambiguous, showing significant (Ramos-
Rodriguez et al., 2012) as well as no effect (Driga, Lafuente & Vaillant, 2008), alongside
with moderating effect of gender (Koellinger, Minniti & Schade, 2013; Wagner, 2007).
Thus, our results that decompose population of entrepreneurs according to age category
and start-up motivation may contribute to explaining the reason for such ambiguity.
Knowing personally an individual with recent start-up experience (our proxy for en-
trepreneurship-relevant social capital) was found to have significant positive relationship
with propensity to both necessity- and opportunity-driven entrepreneurial activity
among both youth and young adults, which corresponds with previous empirical findings
(Lukes et al., 2013; Ramos-Rodriguez et al., 2012). Interestingly, this relationship is
stronger in case of opportunity-driven entrepreneurship. Thus, in our opinion, the nature
of this relationship may have different origins in the two types of motives. In case of
opportunity, we assume that individuals benefit from their entrepreneurial network
mainly in terms of broadening horizons for recognition and creation of business oppor-
tunities, and capacity to their exploitation. On contrary, when individuals face the neces-
sity, entrepreneurial network may encourage them to pursue the business start-up path
as one of the ways out of necessity, or help them to acquire required resources.
Perceived high societal status of entrepreneurs was found to be significant only in
case of opportunity entrepreneurship among young adults, but with rather low strength
(as the factor with the lowest strength in the model). Thus, we assume, unlike we hy-
pothesized, that there is no general pattern in relationship between this particular socie-
tal attitudes perception, and involvement in business start-up efforts.
Gender was identified as factor significantly influencing the both types of young
adults’ entrepreneurial activity, as well as the opportunity-based activity of youth. In
particular, being a female is negatively related to becoming an early-stage entrepreneur.
This is in line with previous findings on uneven representation of women in business
activities (Holienka, Jančovičová & Kovačičová, 2016). However, the exception in case of
youth necessity-driven activity suggests that female youth individuals consider entrepre-
neurship as way out of necessity in similar extent as their male counterparts.
Education was found not to be significantly related to business start-up in none of
our models, irrespective the type of motive. Thus, we assume that formal educational
attainment is not a relevant human capital component influencing the ability to recog-
nize and exploit business opportunities (therefore fostering opportunity-driven activi-
ties), or providing other sufficient occupational options in the necessity situation (thus
inhibiting necessity-based business start-ups) among young individuals. Similar findings
have been presented by previous empirical studies (Lukeš et al., 2013; Van Der Sluis, Van
Praag & Vijverberg, 2008).
Student status was identified as significant inhibitor of youth involvement in early-
stage entrepreneurial activity, irrespective its motivation. In our opinion, this result can
be explained by the fact that, generally, youth individuals participating in the educational
process do not consider opportunities around them to start a business, nor they are in
necessity situations, since they do not yet need to be economically active and self-
sufficient, and can generally rely on support of their families.
Finally, regarding household income, we found its significant positive relationship to
involvement in entrepreneurial activity of young individuals in all cases, except of neces-
sity-driven young adult entrepreneurship. While opportunity-driven entrepreneurship
exhibited stronger relationship with the upper income category, it was middle income
category in case of necessity-based youth entrepreneurship. Generally, in our opinion,
there might be a logical explanation for this situation. We suppose that this relationship
does not mean causality from income to entrepreneurial activity, but rather in the oppo-
site direction. In simple words, young individuals probably do not start businesses be-
cause of high income of their household, but, vice versa, they rather achieve higher in-
come thanks to being involved in opportunity-based entrepreneurship.
CONCLUSIONS
Our findings suggest there are several similarities together with certain differences in
opportunity- and necessity-driven entrepreneurship drivers among young individuals.
According to our results, entrepreneurial self-confidence and access to entrepreneurial
network are significantly related to both types of entrepreneurship in both age catego-
ries. While fear of failure significantly inhibits all examined types of entrepreneurship
except of the necessity-driven efforts among young adults, being a female was found to
be negatively associated with involvement in opportunity-driven activity in both age
cohorts, as well as with involvement in necessity-driven efforts in young adult age cate-
gory. Also, being a student was found to be significant inhibitor of enterprising effort of
youth irrespective its motivation, and alertness to opportunities was identified as im-
portant driver of opportunity-based businesses in both age categories.
Regarding the limitations of our analysis, since all analysed items originate from the
same survey, as well as due to the testing method employed, an argument that our find-
ings cannot be unambiguously interpreted as causal relationships could occur (Bosma,
2013). However, the evidence coming from our data is rather strong and based on solid
theoretical arguments, so we argue that qualitative nature of our results is correct. Also,
due to the nature of our data, we were not able to inquire deeper into the nature of
opportunity or necessity, or possibility of their combination. Thus, we recommend these
directions to be followed by future entrepreneurship research devoted to the opportuni-
ty/necessity perspective. Also, further directions could expand research on youth entre-
preneurship from individual to social and institutional levels, using multi-level analytical
techniques.
From a policy perspective, our results identify the important factors in relation to
support of entrepreneurial activities considering the motivation behind business start-
up. We show directions for policy makers aiming to foster entrepreneurship within
young generation as both a way to exploit available business opportunities, as well as
reaction to necessity situations.
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Authors
The contribution of co-authors is equal and can be expressed as 34%, 33% and 33%. M. Holien-
ka prepared the results analysis and discussion, A. Pilková prepared the literature review, while
Z. Jančovičová prepared the statistical calculations and material and methods.
Marian Holienka
Post-Doc Assistant Professor and Researcher at Comenius University in Bratislava (Slovakia),
Faculty of Management, Department of Strategy and Entrepreneurship. PhD in Business Admin-
istration by Comenius University in Bratislava (Slovakia); Degree in Management with major in
Strategic Management by Comenius University in Bratislava (Slovakia).
Correspondence to: Mgr. Marian Holienka, PhD; Comenius University in Bratislava; Faculty of
Management; Odbojarov 10, 820 05 Bratislava, Slovakia; e-mail: [email protected]
Anna Pilková
Associate Professor and Head of Department at Comenius University in Bratislava (Slovakia),
Faculty of Management, Department of Strategy and Entrepreneurship. PhD in Economics and
Management of Industries – Organization and Management of Industrial Enterprises by Univer-
sity of Economics in Bratislava (Slovakia); MBA by Rochester Institute of Technology (USA);
Degree in Economics and Management of Industries by University of Economics in Bratislava
(Slovakia).
Correspondence to: Doc. dr. ing. Anna Pilková; Comenius University in Bratislava; Faculty of
Management; Odbojarov 10, 820 05 Bratislava, Slovakia; e-mail: [email protected]
Zuzana Jančovičová
Doctoral candidate at Comenius University in Bratislava (Slovakia), Faculty of Management,
Department of Economics and Finance. Degree in Managerial Mathematics by Comenius Uni-
versity in Bratislava (Slovakia).
Correspondence to: Ing. Zuzana Jančovičová; Comenius University in Bratislava; Faculty of
Management; Odbojarov 10, 820 05 Bratislava, Slovakia; e-mail: zuzana.jancovicova@
st.fm.uniba.sk
This work was supported by the Slovak Research and Development Agency under the contract
No. APVV-14-0647.
allowed to increase the value of this article.

2016, Vol. 4, No. 4 DOI: 10.15678/EBER.2016.040408
Student Entrepreneurship in Hungary:

Selected Results Based on GUESSS Survey
Andrea S. Gubik, Szilveszter Farkas
ABSTRACT
Objective: This study investigates students’ entrepreneurial activities and aims to
answer questions regarding to what extent do students utilize the knowledge gained
during their studies and the personal connections acquired at universities, as well as
what role a family business background plays in the development of students’ busi-
ness start-ups.
Research Design & Methods: This paper is based on the database of the GUESSS pro-
ject investigates 658 student entrepreneurs (so-called ‘active entrepreneurs’) who
have already established businesses of their own.
Findings: The rate of self-employment among Hungarian students who study in ter-
tiary education and consider themselves to be entrepreneurs is high. Motivations and
entrepreneurial efforts differ from those who owns a larger company, they do not
necessarily intend to make an entrepreneurial path a career option in the long run.
A family business background and family support play a determining role in entrepre-
neurship and business start-ups, while entrepreneurial training and courses offered at
higher institutions are not reflected in students’ entrepreneurial activities.
Implications & Recommendations: Universities should offer not only conventional
business courses (for example, business planning), but also new forms of education so
that students meet various entrepreneurial tasks and problems, make decisions in
different situations, explore and acquaint themselves with entrepreneurship.
Contribution & Value Added: The study provides literature overview of youth entre-
preneurship, describes the main characteristics of students’ enterprises and contrib-
utes to understanding the factors of youth entrepreneurship.
entrepreneurship education; higher education; youth entrepreneur-
Keywords:
ship; self-employment; family business background
JEL codes: L26, I21
Received: 20 March 2016 Revised: 19 September 2016 Accepted: 20 September 2016
Suggested citation:
Gubik, A.S., & Farkas, S. (2016). Student Entrepreneurship in Hungary: Selected Results Based on
GUESSS Survey. Entrepreneurial Business and Economics Review, 4(4), 123-139, DOI:
124 | Andrea S. Gubik, Szilveszter Farkas
INTRODUCTION
Business enterprises have become indispensable institutions of modern market econo-
mies because they stimulate economic and social development through innovation and
job creation. As early as 1980s small-sized enterprises started to play an outstanding role
in lowering the rate of unemployment, which had considerably increased due to down-
sizing and restructuring activities in large companies (Audretsch & Thurik, 2001). Cur-
rently, decision-makers are also attempting to seek solutions for the problem of unem-
ployment which grew considerably during the financial crisis of 2008 and the following
economic recession. They believe that entrepreneurship as a career opportunity can be
a viable solution to youth unemployment.
Although the moderate economic recovery after the crises has improved the rate of
youth employment to some extent, a real breakthrough in reducing the unemployment
rate has not been achieved yet. Statistical data clearly show that the rate of youth un-
employment has increased in most countries, which resulted in difficult to manage eco-
nomic and social problems. The rate amounted to 21.6% in the EU member states in
2014 (Eurofound, 2015). An important element of managing this problem is the promo-
tion of self-employment and youth entrepreneurship (Eurofound, 2015). Research stud-
ies also show that there is some transition of young unemployed people into self-
employed (Shutt & Sutherland, 2003).
There are several documents dealing with youth entrepreneurship and its fostering.
The Entrepreneurship 2020 Action Plan identifies three areas of intervention. One of
these areas is entrepreneurial education and training. Both the Youth Entrepreneurship
Strategies (YES), a project stimulating entrepreneurial aspirations of young people, and
Erasmus for Young Entrepreneurs (EYE), a business exchange programme, aim at foster-
ing entrepreneurship.
These important documents have come to a common conclusion, namely, that stu-
dents studying in higher educational institutions must be provided complex assistance to
be able to create new businesses. They should be taught good practices, offered re-
formed entrepreneurial education and given access to financial support.
This study investigates students’ entrepreneurial activities. We are seeking an an-
swer to questions such as how much students utilise the knowledge gained during their
studies and the personal connections acquired at universities, as well as what role
a family business background plays in the development of students’ entrepreneurial
aspirations, intentions and business start-ups. Also, students’ objectives and motivations
in becoming entrepreneurs as well as their success and growth orientations are investi-
gated. In order to answer these questions, the Hungarian database of the international
research project GUESSS (Global University Entrepreneurial Spirit Students’ Survey) is
used. After giving a literature overview, this study describes the main characteristics of
the database and analyses student-entrepreneurs and their businesses in detail based on
the survey of 2013, as this is the last available database.
Student Entrepreneurship in Hungary: Selected Results Based on GUESSS … | 125
LITERATURE REVIEW
Main Definitions
Entrepreneurship is a complex concept. It is “the mindset and process to create and
develop economic activity by blending risk-taking, creativity and/or innovation with
sound management, within a new or an existing organisation” (European Commission,
2003, p. 5). The definition of youth entrepreneurship also attempts to highlight this
complexity: youth entrepreneurship is defined as a “practical application to enterprising
qualities, such as initiative, innovation, creativity and risk-taking into the work environ-
ment (either in self-employment or employment in small start-up firms), using the ap-
propriate skills necessary for success in that environment and culture” (Schnurr
& Newing, 1997) quoted in (Eurofound, 2015, p. 11).
The term ‘youth entrepreneurship’ constitutes an integral part of the general defini-
tion of entrepreneurship. Half a dozen or so common elements of youth entrepreneur-
ship and entrepreneurship (opportunity recognition, risk-taking, commitment, etc.) indi-
cate that there are only age differences between the two concepts. As for the age of
‘youth entrepreneurship’, the United Nations (UN) uses the age band of 15-24 years.
Eurostat includes people who are 15-29 years old in the group of ‘youth entrepreneurs’.
The Global Entrepreneurship Monitor (GEM) defines young entrepreneurs as people
between the ages of 18-34 years. Although students studying in tertiary education make
up only a special subset of the youth population, they are the target audience of this
study. This study considers self-employed students to be young entrepreneurs in order
to comply with the methodology used by the European data sampling.
Importance of Youth Entrepreneurship

Fostering entrepreneurship of students in higher education results not only in improving
unemployment prospects of students, but also has some further benefits. According to
GEM findings, the levels of entrepreneurial intentions of respondents belonging to this
age group are 1.6 times higher than those of adults (Schot, Kew & Cheraghi, 2015),
whereas the proportion of respondents pursuing actual entrepreneurial activities is sig-
nificantly lower. In addition, businesses run by young entrepreneurs have lower survival
rates than those of older entrepreneurs (OECD, 2015). The surviving businesses are more
growth oriented. The questionnaire survey on Factors of Business Success conducted by
Eurostat shows that enterprises run by people under the age of 30 more than doubled
their growth during the examined period of three years, whereas entrepreneurs aged 40
and over achieved only an average growth of 131% (Schrör, 2006).
As for levels of education, the proportion of respondents with tertiary education
background established more businesses in higher added-value industries (high-tech)
and with higher initial capital (Richert & Schiller, 1994) quoted in (Lüthje & Franke, 2002).
According to Autio (2005), enterprises run by well-qualified young entrepreneurs with
a solid financial background who are motivated to utilise good business opportunities
show higher growth potential.
In the 28 EU member states the rate of self-employed young people amounts to
6.5%, which translates into 2.67 million people. There are considerable differences be-
tween countries. Greece with its 16% shows the highest self-employment activity and
Luxembourg the lowest with 3.5%. As for the rate of self-employed respondents, Hunga-
ry takes the middle position among 28 EU member states. Studies limited to investigating
self-employment came to the same conclusion as above, and state that there is a corre-
lation between higher levels of education and self-employment rate, which means that
the knowledge, competences and skills gained in higher educational institutions consid-
erably contribute to entrepreneurship and business start-up intentions (Blackburn, 1997;
Green, 2013). Generation role models are also significant in terms of self-employment
because a high rate of children follow in their parents’ footsteps (Mungai & Valemuri,
2011). ‘Older’ young people, especially males, are more likely to become self-employed
than others (Dolton & Makepeace, 1990).
Who Will Become an Entrepreneur?

Since the threshold of active enterprises is entrepreneurial intention, a great number of
business models can be adopted (Ajzen, 1991; Bandura, 1977; Shapero & Sokol, 1982).
All of the models focus on complexity of decision-making processes. Numerous attempts
have been made to understand the role of entrepreneurial attitudes, activities, condi-
tions, characteristics and aspirations in entrepreneurship (GEM, 2014; YBI, 2011).
Several individual factors (personality traits and attitudes) and institutional factors
affect the respondents’ decisions to become an entrepreneur. Research studies differ in
terms of factors included in the models and in the level of importance assigned to fac-
tors. Here are a few examples to show the diversity of coexisting findings. Willingness to
take risks and striving to become independent are considered to be of extremely im-
portant individual factors (Meager, Bates & Cowling, 2003). Autio and Wennberg’s
(2010) findings are very surprising. They believe that norms and attitudes of the social
group have a stronger impact on entrepreneurial behaviour than the personal attitudes
and perceived self-efficacy of the individual herself1. According to Bartha (2015), institu-
tional factors, such as the taxation system, the level of transaction costs and the adminis-
trative burdens might have a significant effect on growth orientation of companies and
lead to diverse business structure.
There is a consensus among academics and researchers that education and training
provide the knowledge and competencies that are indispensable for entrepreneurship.
Particular entrepreneurial knowledge and competencies can be taught and improved by
effectively incorporating some subjects in the standard curricular (business studies, mar-
keting, etc.), while others can further be developed by applying innovative teaching
methodology (entrepreneurial thinking) (Borsi & Dőry, 2015; Imreh-Tóth, 2015). Univer-
sities have not only teaching tasks and responsibilities, but they also play a determining
role in shaping opinions and building relationships.
Our previous papers dealt with modelling of students’ entrepreneurial intention in
detail. The database was analysed with multinomial logistic regression, based on Ajzen’s
theory of planned behaviour (Gubik, 2013; Gubik, 2015).
1
Self-efficacy refers to beliefs in one's capabilities to organize and execute the courses of action required to
manage prospective situations.
Hypotheses
After reviewing the available literature and previous research findings, it turned out that
there are still some questions that remained unanswered in the field of student entre-
preneurship. Also, a gap in the research literature has been identified since student en-
trepreneurs’ motivation by company size and their effect on students’ long-term career
plans are to be investigated. That is why the authors of this study formulated and tested
the following hypotheses:
The rate of self-employment among Hungarian students who study in tertiary
H1:
education and consider themselves to be entrepreneurs is high.
A great majority of self-employed students do not intend to make an entre-
H2: preneurial path a career option in the long run. They prefer working as em-
ployees in companies.
A family business background and family support play a determining role in
H3: entrepreneurship career and business start-ups.

GUESSS (Global University Entrepreneurial Spirit Students’ Survey) investigates entre-
preneurial intentions and activities of students. The survey explores the students’ career
intentions immediately after graduation and several years later, examines families’ and
students’ own businesses and investigates their future entrepreneurial visions.2 System-
atic and long-term analyses help to identify the processes and factors that can have
a decisive impact on entrepreneurial intentions.
The first survey was conducted in 2003 with the participation of two countries. Ten
years later (in 2013) 34 countries had joined the project and 109,026 students from 759
higher educational institutions sent their responses to the questionnaire. In Hungary
8,839 students completed the questionnaire. Only the institutions where over 1000 stu-
dents studied were selected for the survey in Hungary.
The distribution of respondents in our database partially represents the distribution
of students by higher institution in Hungary. The distribution by the level of study and
gender corresponds to the country ratios. As for the field of study, 41.5% of the re-
spondents studied business and economics, 35.5% of them studied humanities and natu-
ral sciences, and the remaining 16.2% studied social sciences. The average age of the
respondents was 23. About 27.0% of all respondents were younger than 20 and 88%
were younger than 30 when they completed the questionnaire.
Mainly descriptive statistics were used to answer the stated hypotheses and the sto-
chastic relationships among the variables were tested. We consider these methods ap-
propriate for highlighting the main differences between different groups of entrepre-
neurs.
We used SPSS software to analyse the database. The structure of the tables follows
the logic of the output tables of the software.
2
See project and partners at http://www.guesssurvey.org. For more information on the Hungarian database
and methodology see Gubik (2015).

Main Characteristics of the Students’ Enterprises
In the sample 7.4% of the respondents (658 students) indicated that they ran a business
of their own. Over 25% of the respondents running their own businesses were nascent
entrepreneurs and had established their businesses in the year when the survey was
conducted (2013) (Table 1). The rate of enterprises that were 3 years old or younger
amounted to over 50%. Since a major part of enterprises were new or established not
long ago, the students did not have much experience.
Table 1. Student enterprises by year of establishment

Answers Year of establishment Frequency % Valid % Cumulative %
2013 152 1.7 25.2 25.2
2012 84 1.0 14.0 39.2
2011 89 1.0 14.8 54.0
2010 64 0.7 10.6 64.6
2009 30 0.3 5.0 69.6
Valid 2008 29 0.3 4.8 74.4
2007 16 0.2 2.7 77.1
2006 18 0.2 3.0 80.1
2005 20 0.2 3.3 83.4
Earlier 100 1.1 16.6 100.0
Total 602 6.8 100.0 –
left unanswered 56 0.6 – –
Missing System 8181 92.6 – –
Total 8237 93.2 – –
Total 8839 100.0 – –
Over half of the students running their own businesses were self-employed, 38.4%
owned micro enterprises and 3.5% small-sized enterprises. The sample included only
three medium-sized enterprises, which will be analysed only in an aggregate form, but
they are not included in the comparative analysis of companies by size.
Table 3 shows the distribution of students’ enterprises by activity areas and compa-
ny size. The most popular sectors are ‘Trade’ (14.9%), ‘Education and training’ (14.4%)
and ‘Other services’ (18.5%). In the sample 11.7% of respondents listed their activities as
‘Other services’, where such sectors as food industry, sports and media were the most
popular.
The self-employed students were the most active in ‘Other services’ (including fi-
nance and insurance) and ‘Education and Training’ (18.3%). The indicated services were
very varied: cosmetic beauty advisor, insurance advisor, amateur artistic activities and so
on. These illustrative examples of performed activities show that students established
enterprises to supplement their income in order to finance their studies, and the per-
formed activities contain very few real entrepreneurial elements that would differ from
employee elements.
Most micro-enterprises operated in ‘Trade’ (17.2%) and ‘Other services’ (16.7%). In

the sample businesses out of the 21 small-sized enterprises three operated in ‘Trade’,
three in ‘Education and training’, three in ‘Tourism and catering’ and three in ‘Other’
sectors.
Table 2. Student enterprises by company size

Valid Cumulative
Answers Frequency %
% %
Self-employed (0 employees) 350 4.0 57.7 57.7
Micro enterprises (1-9 employees) 233 2.6 38.4 96.0
Valid Small enterprises (10-49 employees) 21 0.2 3.5 99.5
Medium enterprises (50-249 employees) 3 0.0 0.5 100.0
Total 607 6.9 100.0 –
Missing System 8232 93.1 – –
Total 8839 100.0 – –
Table 3. Student enterprises by sector (in %)

Micro Small
Answers Self-employed
enterprise enterprise
Information technology and communication 9.2 9.5 9.5
Trade (wholesale/retail) 12.9 17.3 14.3
Consulting (law, tax, management, HR) 9.2 10.4 0.0
Advertising / Marketing / Design 4.9 4.8 9.5
Education and training 18.4 9.1 14.3
Tourism and catering 1.7 6.9 14.3
Health services 4.6 2.6 0.0
Other services (including finance, insurance, etc.) 20.4 16.9 9.5
Architecture and engineering 3.7 3.5 9.5
Construction and manufacturing 1.4 4.3 4.8
Agriculture 3.2 2.2 0.0
Other 10.3 12.6 14.3
Total 100.0 100.0 100.0
n 348.0 231.0 21.0
A considerable proportion of the students cannot be viewed as entrepreneurs if we

define an entrepreneur is as a person, who takes risks, explores opportunities, is willing
to experiment and is performance and future-oriented. Although most students are
engaged in different types of enterprises, they perform activities that are very similar to
activities performed by employees (e.g. insurance advisors and Avon advisors working on
commission bases). It is obvious that these activities are very beneficial for entrepre-
neurship and entrepreneurial activities, because they allow students to gain an insight
into the administrative burden related to entrepreneurship and specificities of entrepre-
neurial lifestyles (autonomy and working hours).
The high rate of self-employed students indicates how valuable this student group is.
However, self-employed students rarely become entrepreneurs who operate ventures
with substantial growth rates.
Company Foundation Process

More than half of the respondents started their businesses alone, without co-founders.
The rate of respondents with one co-founder amounted to 31%, another 10% had 2 co-
founders and the remaining respondents founded ventures with 3 or more co-founders
(Table 4).
Table 4. Number of co-founders in student enterprises

Answers Frequency % Valid % Cumulative %
Valid No Co-Founders 325 3.7 53.3 53.3
1 Co-Founder 189 2.1 31.0 84.3
2 Co-Founders 61 0.7 10.0 94.3
3 Co-Founders 24 0.3 3.9 98.2
>3 Co-Founders 11 0.1 1.8 100.0
Total 610 6.9 100.0 –
Missing left unanswered 48 0.5 – –
System 8181 92.6 – –
Total 8229 93.1 – –
Total 8839 100.0 – –
As for co-founder persons, they were mostly family members, as indicated by 189
respondents. A lower rate of co-founders (70 responses) came from non-university and
non-college friends, 66 respondents had co-founders from professional networks and
only 51 entrepreneurs founded their companies together with peers from higher institu-
tions.
Questions related to company formation (Table 5) clearly show that students did not
really express planned behaviour in the process of company formation. The table con-
tains the mean values of the students’ answers. Calculating mean of the scale values is
also often used in the literature dealing with entrepreneurial intention and student en-
trepreneurship to aggregate different attributes of attitudes and other Likert scale
statements (Ozaralli & Rivenburgh, 2016; Sieger, Fueglistaller & Zellweger, 2014; Zellwe-
ger, Sieger & Englisch, 2012; Lüthje & Franke, 2002; Szerb & Márkus, 2007).
The company size significantly affected the assessment (business strategy, target
and market analyses, competitiveness analyses and marketing). The larger the enterprise
the students owned, the more thoughtful answers they gave to the questions related to
company formation. Surprisingly, business family background did not really affect the
evaluation of the statements with the exception of two statements ‘I was careful not to
commit more resources than I could afford to lose’ and ‘I was careful not to risk more
money than I was willing to lose’. Hence, even respondents with family business back-
grounds did not make any serious preparations before forming a company. Neither the
respondents’ age, nor their field of education had any impact on the variables. Thus it is
clear that the business and economics knowledge gained during studies is not incorpo-
rated in students’ entrepreneurships. The analyses of enterprises by year of their estab-

lishment show the same results. It means that enterprises formed during students’ stud-
ies also show an insignificant relationship with these variables.
Particular variables correlate with each other, which indicates that the respondents
either considered themselves to be considerate and thoughtful or they did not.
Table 5. Company foundation process

Self- Micro Small
Answers
employed enterprises enterprises
I designed and planned business strategies.* 4.06 4.56 5.25
I researched and selected target markets and did mean-
3.93 4.42 4.60
ingful competitive analyses.*
I designed and planned production and marketing ef-
4.09 4.48 5.05
forts.*
The product/service that I now provide is substantially
3.37 3.36 3.60
different from the one I first imagined.
I tried a number of different approaches until I found a
3.94 4.08 4.67
business model that worked.
I was careful not to commit more resources than I could
4.96 5.27 4.25
afford to lose.
I was careful not to risk more money than I was willing
4.96 5.06 4.05
to lose.*
I allowed the business to evolve as opportunities
5.16 5.18 5.20
emerged.
I adapted what I was doing to the resources we had. 5.11 5.31 5.00
I was flexible and took advantage of opportunities as
5.28 5.39 5.71
they arose.
(1=strongly disagree, 7=strongly agree)
*Significant effect of company size
The Role of Parental Support

A family business background plays a significant role in students’ career aspirations (Gu-
bik, 2013; Gubik & Farkas, 2014). In the sample 38.1% of respondents had parents or
other family members who were entrepreneurs compared with 28% of students with
non-family business backgrounds.
The positive effect of family business background favourably influenced students’
entrepreneurial aspirations and was also experienced in the provision of parental sup-
port. Parental support was measured on the Likert scale from 1 to 7. Table 6 clearly
shows that parents with business experience provided substantial support to their chil-
dren in all areas. Students had access primarily to contacts and networks. Also,
knowledge and advice were highly valued.
Table 6. Parental support

Without a family With a family busi-
Answers n n
business background ness background
Materials (equipment, facilities) 383 2.45 228 4.25
Contacts and networks 382 2.60 228 4.42
Knowledge and advice 384 2.89 228 4.54
Idea generation / evaluation 380 2.49 225 4.29
Financial resources (e.g., debt and
383 2.43 226 4.21
equity capital)
(1=not at all, 7=very much)
Performance
The responses to the question relating to hours spent at work showed that students
worked 25.8 hours per week on average, but there were significant differences. In larger
companies respondents worked more than the average (Table 7). There was a significant
correlation between company sizes and the invested amount of work (r = 0.149,
p = 0.000). Students studying economics and business worked more than those studying
social sciences (Eta = 0.152, p = 0.004).
Table 7. Hours worked per week by company size

Answers Mean n Std. Deviation
Self-employed 21.33 315 19.341
Micro-enterprises 31.00 226 20.281
Small enterprises 32.14 21 17.289
Medium enterprises 58.00 3 11.357
Total 25.79 565 20.308
The average age of respondents involved in business activities (27.5) was higher than
the age of those without enterprises (23.4). In the sample two-thirds of student running
enterprises had regular jobs in addition to their studies, which may indicate that they
were part-time students studying within the framework of correspondence or distance
learning programmes (this was not part of the questionnaire). They are likely to have an
established living standard and have an operating enterprise, when they decide to de-
velop themselves. It was not their studies that inspired them to get engaged in entrepre-
neurial activities.
The surveyed entrepreneur students had to compare themselves with their competi-
tors. The analyses of average scores provided only a limited basis for making any conclu-
sions about competitors because respondents gave average scores to almost all ques-
tions (an average value of 4 on a 7-point Likert Scale) except to the question related to
job creation. The majority of respondents generally considered that they lagged behind
their competitors. When the company sizes were analysed, it turned out that the re-
spondents who owned larger companies (and invested more efforts in their businesses)
compared favourably with their competitors. This correlation is significant at p=0,000,

Eta values are between 0.164 and 0.300 (Table 8).
Table 8. Company performance compared to competitors

Performance type Mean Self employed Micro enterprise Small enterprise
Sales growth 4.05 3.81 4.32 4.63
Market share growth 3.73 3.43 4.06 4.47
Profit growth 3.97 3.73 4.22 4.65
Job creation 3.01 2.56 3.42 4.84
Innovativeness 3.99 3.67 4.25 5.62
(1=worst, 7=best)
Future Plans
In the sample 33.8% of the respondents did not plan any increase in the number of em-
ployees, 2.8% intended to decrease the workforce and the remaining entrepreneurs
indicated growth intentions in the next five years. The company size had a significant
impact on expansion plans since owners of larger companies had more positive visions
regarding their growth potential. Some respondents (14 students) seemed to have unre-
alistic expansion plans. Owners of micro-enterprises intended to transfer into middle-
sized companies within a couple of years. Half of these respondents were involved in
‘IT/communication’ and ‘Other’ sectors of industry. It was difficult to judge whether the
surveyed students gave these responses to the questions in the questionnaire because of
the anonymity and confidentiality guaranteed or because they really thought that there
was a huge potential in their business ideas.
The same differences in the responses were experienced in students’ intended ca-
reer paths. Among active entrepreneurs 54.5% of students intended to work as employ-
ees after graduation. This rate among self-employed was the highest accounting to
62.3% and decreased with company size (Figure 1).
Small enterprise 8 12 1
Micro enterprise 105 114 14
Self employed 218 119 13
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Employee Entrepreneur Other / do not know yet
Figure 1. Career aspirations right after graduation by company size

This correlation is also significant (Cramer V = 0.148, p = 0.000) and is related to the
higher performance and longer working hours. Both long working hours and high per-
formance are also experienced in major companies.
Motivations
‘Making money and becoming rich’ appeared to be the most important goal of entrepre-
neurial students (mean 5.0 on the Likert scale from 1 to 7). Respondents considered ‘to
advance my career’ to also be important (4.8). The types of motivation such as solving
social problems, changing the conditions or changing the way the world works belonged
to the least popular motives (Table 9).
Table 9. Motivations and goals

I created my firm in order… n Mean Std. Deviation
… to make money and become rich 613 5.00 1.781
… to advance my career in the business world 612 4.80 1.877
… to solve a specific problem for a group of people that I
strongly identify with (e.g., friends, colleagues, club, 611 4.34 2.034
community)
… to play a proactive role in shaping the activities of a
613 4.18 2.035
group of people that I strongly identify with
… to solve a societal problem that private businesses
usually fail to address (such as social injustice, destruction 618 3.74 2.169
of environment)
... to play a proactive role in changing how the world
611 3.84 2.210
operates
Valid n 605 – –
(1=strongly disagree, 7=strongly agree)
Table 10 shows that the level of importance of different elements of motivations and
goals decreased with the increase in age of entrepreneurs. Similar changes were experi-
enced in the case of the companies’ age (the significant correlation between the two
variables, namely the age of entrepreneurs and the age of companies may provide an
explanation for this). Money and success appear to be the driving force of young people.
They would like to be powerful shapers of their environment. This idealism decreases
with the age of the company.
The analysis of company sizes show significant relationship only in case of the moti-
vation of ‘to advance my career in the business world’.
Table 10. Effect of entrepreneurs’ age and company characteristics on motivations and goals
(correlation matrix)
Answers 1 2 3 4 5 6 7 8 9
1. Your age? 1
2. When did you found your firm 0.492**
1
(year) (0.000)
3. How many employees do you 0.056 0.063
1
have today (full-time equivalent)? (0.254) (0.125)
** **
0.198 0.124 0.058
4. to make money and become rich 1
(0.000) (0.002) 0.156
5. to advance my career in the 0.205 0.162 0.135 0.563**
** ** **
1
business world (0.000) (0.000) (0.001) (0.000)
6. to solve a specific problem for a
group of people that I strongly 0.084 0.111** 0.071 0.084* 0.331**
1
identify with (e.g., friends, col- (0.086) (0.007) (0.084) (0.038) (0.000)
leagues, club, community)
7. to play a proactive role in shaping
0.032 0.118** 0.075 0.065 0.316** 0.833**
the activities of a group of people 1
(0.519) (0.004) (0.068) (0.109) (0.000) (0.000)
that I strongly identify with
8. to solve a societal problem that
private businesses usually fail to 0.110* 0.110** 0.035 0.034 0.294** 0.658** 0.673**
1
address (such as social injustice, (0.024) (0.007) (0.390) (0.395) (0.000) (0.000) (0.000)
destruction of environment)
9. to play a proactive role in chang- 0.123* 0.139** 0.033 0.067 0.280** 0.585** 0.620** 0.770**
1
ing how the world operates (0.012) (0.001) (0.427) (0.099) (0.000) (0.000) (.000) (0.000)
**Correlation is significant at the 0.01 level (2-tailed). *Correlation is significant at the 0.05 level (2-tailed).
Spearmans’s rho values were calculated.
CONCLUSIONS
The composition of entrepreneur groups is very heterogeneous, starting from Avon advi-
sors through advisors selling financial products to owners of small processing businesses.
Particular activities require different amounts of time, money and other investments,
involve different risks and show specific characteristics of entrepreneurship. Major
conclusions of this study are as follows:
− The vast majority of entrepreneurial students work under conditions that are more
characteristic of the status of employees and are considered to be students. Only
a small group of respondents comply with the status of ‘entrepreneurs’ so it is they
who make up the student-entrepreneur group.
− A significant part of students are self-employed. They invest less time in their work,
are less considerate and growth-oriented than students with larger enterprises and
prefer to work as employees after graduation. However, entrepreneurial activities of
students who view entrepreneurship as a temporary source of living or supplemen-
tary income can also be beneficial because they have to resolve various entrepreneur-
ial tasks and problems, make decisions in different situations and explore and ac-
quaint themselves with entrepreneurship. Students belonging to this group are more
likely to become entrepreneurs and are less uncertain about their career path than
students who do not pursue entrepreneurial activities at all.
− Entrepreneurial training and courses offered at higher institutions are not reflected in
students’ entrepreneurial activities. To simplify the survey results, there are two ex-
treme situations: a self-employment form that finances studies and studies that are
accompanied by mature entrepreneurship.
− As for the size of enterprises, respondents who owned larger enterprises had a more
serious approach to entrepreneurship. They worked longer hours and achieved better
performance. The majority of them intended to be entrepreneurs and own enterpris-
es with growth potential.
− Family business background plays a determining role in shaping the entrepreneurial
intentions of students. Start-up intention highly depends on the amount of the finan-
cial support offered by parents and on a planned and proactive approach towards
founding an enterprise.
Based on the research results of the paper we accept the hypotheses of H1, H2 and
H3. The results of the survey are useful for training, education and enterprise develop-
ment. In the training and education context, teaching and learning forms that comply
with particular education levels and may be useful in entrepreneurial processes should
be developed. Universities should offer not only conventional business courses (for ex-
ample, business planning) but also new forms of education. This does not necessarily
require a substantial investment from educational institutions if they are willing to sup-
port the elaboration of new programmes within the current inflexible regulatory envi-
ronment (for example, higher education training and certification requirements) and
finance the development work performed by academic and teaching staff from project
resources.
As this database contains more than 8000 answers from more than 30 higher educa-
tion institutions, the results of the analysis can be generalised in terms of Hungarian
students. At the same time, further econometric calculations and qualitative techniques
are required to be carried out in order to identify the reasons for the existing differences
between the analysed groups.
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2012/08/YouthEntrepreneurshipSurvey2011.pdf
Zellweger, T., Sieger, P., & Englisch, P. (2012). Coming Home or Breaking Free Career Choice Inten-
tions of the Next Generation in Family Businesses. St. Gallen: University of St. Gallen.
Authors
The contribution of co-authors is equal. A.S. Gubik prepared the literature review and the sta-
tistical calculations, while S. Farkas took part in the creation of the research concept, formula-
tion of hypotheses and drawing the conclusions of the results.
Andrea S. Gubik
Associate Professor of the Institute of Economic Theory at the Faculty of Economics of the
University of Miskolc (Hungary). PhD in Management and Business Administration, Internation-
al Comparative Studies.
Correspondence to: Dr. Andrea S. Gubik; University of Miskolc, Faculty of Economics, Institute
of Economic Theory; 3515 Miskolc-Egyetemváros, Hungary; e-mail: [email protected]
Szilveszter Farkas
Associate Professor in the Faculty of Finance and Accounting at the University of Applied Sci-
ences Budapest (Hungary). PhD in Economics by the University of Pécs (Hungary); Degree in
Economics (MSc) by the University of Pécs (Hungary).
Correspondence to: Dr. habil. Szilveszter Farkas; University of Applied Sciences Budapest,
Faculty of Finance and Accounting; Buzogány utca 10-12, 1149 Budapest, Hungary;
The paper was prepared within the research project OTKA K 109839, entitled ‘Entrepreneurial
intentions of Hungarian students and possible incentives’ (2013-2016).
allowed to increase the value of this article.

2016, Vol. 4, No. 4 DOI: 10.15678/EBER.2016.040409
Metaphors of Entrepreneurship among Polish

Students: Preliminary Research Findings
Michał Chmielecki, Łukasz Sułkowski
ABSTRACT
Objective: In Poland entrepreneurship is often perceived as an extremely risky pro-
cess and entrepreneurs are often portrayed in a negative light. The research goals of
our exploratory study is to identify the entrepreneurship metaphors among Polish
management students.
Research Design & Methods: Authors decided to run both qualitative and quantita-
tive research. In the first part we addressed 124 management students on three levels
BA, MA and MBA. The respondents were asked to give their metaphorical expressions
on paper. The next step was to prepare a questionnaire based on 7 point Likert scale.
This questionnaire was run among BA management student group composed of 82
students.
Findings: Our results suggest that there are several major entrepreneurial narratives
evident among all three groups including creativity and innovation, competition, war,
journey, risk, adventure and exploitation.
Implications & Recommendations: The empirical findings serve as a starting point for
further in-depth research on entrepreneurship metaphors. It is recommended that in
order to gain a complete picture of the issues underlying the results, both qualitative
and quantitative research on a bigger sample should be undertaken.
Contribution & Value Added: The originality of this work lies in studying some aspects
of entrepreneurship metaphors among non-entrepreneurs in Poland. With regards to
the research limitation, it must be highlighted that it was a pilot study and the results
cannot be generalized.
metaphors of entrepreneurship; entrepreneurship; metaphors;
Keywords:
research; entrepreneurship education; Poland
JEL codes: M12, L26
Received: 8 February 2016 Revised: 20 September 2016 Accepted: 24 September 2016
Suggested citation:
Chmielecki, M., & Sułkowski, Ł. (2016). Metaphors of Entrepreneurship among Polish Students:
Preliminary Research Findings. Entrepreneurial Business and Economics Review, 4(4), 141-151, DOI:
142 | Michał Chmielecki, Łukasz Sułkowski
INTRODUCTION
Entrepreneurship, has always been at the heart of economy’s dynamics. Entrepreneur-
ship continues to gain momentum as a significant and relevant research field. Policy
makers in the rush to stimulate entrepreneurship in various countries, CEOs and compa-
ny owners are looking for entrepreneurial employees (Chmielecki, 2013). Focus on en-
trepreneurship has been spurred by enormous popularity of start-up firms in high tech-
nology industries, the expansion of venture capital financing, successes of regional clus-
ters, notably Silicon Valley and possibilities of crowdfunding. Some management scholars
and social scientists interested in entrepreneurship focused their attention on studying
metaphors of entrepreneurship. Unfortunately not much on this subject have been writ-
ten in Polish context. As culture influences entrepreneurship, different nations have their
own concepts of entrepreneurs and entrepreneurship.
The objective of this article is to is to identify the existing entrepreneurship meta-
phors among Polish management students, and this is an exploratory study at the very
initial stage.
The article is divided into three main parts. At first literature is discussed, and the
special attention was paid to metaphors in economic discourse. The second part briefly
presents the methodological assumptions and the survey design. Finally, the articles
elaborates on the survey results conducted among Polish students.
LITERATURE REVIEW
Defining Entrepreneurship
Entrepreneurship has always been a dominant force in economy. It changes the way we
work, the way we communicate, the way we live. It generates Innovation, improves the
quality of goods and services. Since the early 1980s, entrepreneurship has emerged as
a topic of growing interest among social scientists and numerous management scholars
(Cooper, 2003). Literature on entrepreneurs and entrepreneurship has stemmed from
three main sources (Deakins, 1999):
1. economic authors who stress the role of the entrepreneur in economic develop-
ment;
2. social and business authors who stress the influence of the social and business envi-
ronment on entrepreneurship;
3. psychologists who focus on the personality traits of entrepreneurs.
A bit more detailed typology of entrepreneurship was proposed by Wach (2015),
who tried to combine both economics and business studies, which resulted in distin-
guishing four primary and three secondary functions of entrepreneurship (Figure 1).
What is more, entrepreneurship is one of the most studied topics in economics and
business research (Table 1). Concepts of entrepreneurship have been changing overtime.
Metaphors of Entrepreneurship among Polish Students: Preliminary … | 143
Table 1. Definitions and variables that describe entrepreneurship

Author The concept of entrepreneurship Variables describing entrepreneurship
Recognising opportunities for implementation of 1. The tendency to operate in conditions of
Schumpeter ventures that are profitable and risk-taking to imple- uncertainty
(1934) ment them. 2. Exploration and exploitation of market oppor-
tunities
The process of discovery and development of capabil- 1. Technological and organizational innovation
Churchill
ities to create new value through innovation, acquisi- 2. Exploration and exploitation of market oppor-
(1983)
tion of necessary resources and managing the pro- tunities
cess of value creation.
The process of creating or identifying opportunities 1. The tendency to operate in conditions of
and using them despite of their current resources uncertainty
Timmons
(...). It is an creative act of an entrepreneur who finds 2. Exploration and exploitation of market
(1990)
in him and devotes enough energy to initiate and opportunities
build a company or organization, rather than just 3. Entrepreneurial personality of a manager
observe, analyse and describe it.
The process of creating something different, because 1. Technological and organizational innovation
of its value in the framework of which necessary time 2. The tendency to operate in conditions of
Hisrich
and effort is devoted to achieve this goal, assuming uncertainty
& Peters
the accompanying financial, psychological and social 3. Exploration and exploitation of market
(1992)
risk, and expecting obtaining financial rewards and opportunities
personal satisfaction. 4. Entrepreneurial personality of a manager
Starting a venture and (or) its growth, which occurs 1. Technological and organizational innovation
Frey
through the use of innovation, by management 2. The tendency to operate in conditions of
(1993)
assuming the risk. uncertainty
Entrepreneurship is the process: 1. Technological and organizational innovation
- which includes the action taken for the analysis of 2. The tendency to operate in conditions of
opportunities of start and development (or just uncertainty
development) of the venture, its financing and the 3. Market and intraorganizational flexibility
possibility of meeting the effects of such action; 4. Exploration and exploitation of market
- which can take many different forms and shapes, opportunities
including initiation of a venture, creativity and inno- 5. Entrepreneurial personality of a manager
Piasecki vation in developing new products or services,
(1998) managing an existing venture in such a way that it
develops quickly and continuously, seeking financial
and material supply sources for potentially growing
number of ventures, accepting risk in the develop-
ment of new or expansion of existing ventures
(these elements are the part of the entrepreneurial
process, although not all of them must participate
in each activity).
Entrepreneurship is an activity that stands out by: 1. The tendency to operate in conditions of
activity and dynamism, innovation, looking for uncertainty
Kraśnicka changes and reacting to them, perceiving opportuni- 2. Technological and organizational innovation
(2001) ties and their use, regardless of the resources (at the 3. Market and intraorganizational flexibility
moment), willingness to take risks, which main 4. Exploration and exploitation of market
motive is to multiply the capital. opportunities
Feature (way of behaving) of entrepreneurs and 1. Technological and organizational innovation
companies, that means the willingness and ability to 2. Market and intraorganizational flexibility
Sudoł undertake and solve creative and innovative new 3. Exploration and exploitation of market
(2008) problems, while taking into consideration its risks, opportunities
the ability to use the available opportunities and 4. Entrepreneurial personality of a manager
flexibility to adapt to changing conditions
Source: own compilation based on the cited references.
As Sułkowski (2012) noticed “in many of the listed definitions, the following variables
describe entrepreneurship as:
1. a process of innovative and creative markets activities or organizational changes
(technological and organizational innovation);
2. taking risks in business or tolerance of uncertainty aiming at the development of the
venture (the tendency to act under uncertainty);
3. flexibility in relation to strategy and market activities and the willingness to change
and intraorganizational flexibility (market and organizational flexibility);
4. exploration and exploitation of opportunities inherent in the environment of the
organization and the unique competitive advantages of having support in the organi-
zational resources (exploration opportunities);
5. a set of entrepreneurial characteristics such as innovation, creativity, willingness to
take risks, and orientation to change (the entrepreneurial personality).
Summarizing the above definitions we can agree that entrepreneurship is the trans-
formation of an innovation into an enterprise generating value.
Figure 1. Basic functions of entrepreneurship in economics and business studies

Source: Wach (2015, p. 14).
Metaphors in Economic Discourse

Metaphors have been an important object of interest along centuries. It has been the
focus of various studies, research, analysis and theory, starting from Aristotle and going
on till now. Contrary to standard thought, metaphors pervade our thinking and concep-
tualization rather than serving a poetic and rhetorical device. In the field of communica-
tion and to be more precise, linguistics, it has been accepted that our thoughts and cog-
nitive processes are highly metaphorical i.e. metaphors constitute and construct human
thoughts (Lakoff & Johnson, 1980; 2003) . Deignan (2005, p. 18) believes that language is
hardly metaphor-free suggesting that people think in metaphors and become familiar
with new domains due to metaphorical thinking (Lakoff & Johnson, 1980; Gentner
& Jeziorski, 1993), since analogical reasoning leads to new insights in either a new or
familiar concepts (Schön, 1993; Walsh, 1995).
Metaphor is common in economic discourse (McCloskey, 1995). Many terms in eco-
nomics such as inflation, depression or expansion, are metaphorical in their very own
nature. However, it was 1982, when W. Henderson opened the discussion of metaphor
in economics, emphasizing the scarcity of analyses of metaphor in economics, in spite of
the wide and deliberate use of metaphor in economic texts. Finally, the 1980s brought
the emergence of metaphors from the closet. Lakoff and Johnson (1980) were the pio-
neers in this field. They demonstrated the pervasiveness of metaphorical reasoning.
According to them, metaphors were necessary for humankind’s understanding. In the
twenty-five years since the Peters and Waterman’s triumph, the use of metaphors
gained strength. Every imaginable academic discipline started using metaphors (Knowles
& Moon, 2006). This was more so in the business and management fields.
This “metaphoromania” of the last three decades resulted in a lot of research, which
deals with the following processes: identification, comparison and juxtaposition, and the
two dimensions of metaphor, i.e. the instrument of thinking used to shape a certain
discipline and, paradoxically, the outcome of the light shed upon the metaphorical pro-
cess itself. Thus, metaphor is considered both a tool of forming various sciences and
a result of the way in which these sciences developed (Vasiloaia, Gaisoa, & Vergara,
2011).
Metaphors of Entrepreneurship
Charteris-Black (2004) emphasizes that metaphors involve a transfer of meanings. The
use of a metaphor allows people to map a schema, well-known to them onto a new do-
main and assess the fit of relationships between variables from one to another (Wick-
man, Daniels, White & Fesmire, 1999). This facilitates understanding of complex and
abstract ideas (Palmer & Dunford, 1996), such as entrepreneurship. Metaphors are
known to capture experience and emotions better than literal discourse (Palmer & Dun-
ford, 1996).
Research concerning metaphors is well established within the entrepreneurship
field. Scholars have studied the metaphors for entrepreneurship used by entrepreneurs
(Hyrsky, 1999; Dodd, 2002) and non-entrepreneurs (Koiranen, 1995). Many have studied
the metaphors media use to portray entrepreneurs (Nicholson & Anderson, 2005). The
use of metaphors for sense-making and sense-giving among entrepreneurs was also
a subject of research (Hill & Levenhagen, 1995). However, the use of metaphors for en-
trepreneurship in Poland is still heavily under-researched.

The research goals of our exploratory study is to identify entrepreneurship metaphors
among Polish management students. This research will focus on metaphors of entrepre-
neurship used by non-entrepreneurs. The research procedure employed was qualitative
in nature. We reached students of the University of Social Sciences in Łódź in late 2015.
We reached the students we had classes with, so it was not a random sample. Thus, the
presented results are not representative, but they can illustrate the basic image in the
undertaken theme among students from Poland.
We had two stages of the investigation. We addressed 124 management students on

three levels, namely bachelor (BA), master (MA) and post-graduate (MBA) and they con-
stituted the first research group. The second research group consisted of 82 students at
the bachelor level only. The first group was used for experimental phase of research and
the second group was used for the survey questionnaire.

The first research group consisted of 124 students. The respondents were asked to give
their metaphorical expressions on paper. As far sex is concerned the group was diversi-
fied as 54% of the respondents were female and 46% were male. The average age of
respondents was 29 years and the average number of years of employment among re-
spondents was 6.8. 33% of the respondents said that either their parents or close rela-
tives were or had been business owners. None of the respondents had any experience
either in setting up or in running their own business.
Student respondents were asked to create the metaphors of their own accord. They
were encouraged to follow their first instincts in forming lexical associations depicting
the essential characteristics of a entrepreneurship. Metaphors were grouped into 8 dif-
ferent clusters based on their semantic properties (Table 2). Our results suggest that
there are several major entrepreneurial narratives evident among all three groups in-
cluding creativity and innovation, competition, war, journey, risk, adventure and exploi-
tation.
The next step was to prepare a questionnaire based on 7-point Likert scale. This
questionnaire was run among BA management student group composed of 82 students
only (the second research group).
As for sex the sample was diversified as 50 of the respondents were female and 32
were male. The average age of respondents was 27 years and the average number of
years of employment among respondents was 5.6. 12 respondents said that either their
parents or close relatives were or had been business owners. None of the respondents
had any experience either in setting up or in running their own business.
Based on 7-point Likert scale, in order to generalize results we calculated the basics
descriptive statistics – mean and standard deviation. Although some statisticians negate
such solutions, numerous studies published even in the top-ranking journals of business
studies accept such an approach (Ozaralli & Rivenburgh, 2016; Wach & Wojciechowski,
2016). The results are depicted in Table 3.
Hayton, George and Zahra (2002) stress that cultural values serve as a filter for the
degree to which a society considers certain entrepreneurial behaviours as desirable.
Moreover, numerous authors have emphasized the importance of understanding the
impact of cultural norms on entrepreneurship. Several researchers acknowledge the
importance of the cultural context for career decisions as entrepreneurs (Flores,
Robitschek, Celebi, Andersen & Hoang, 2010; Leong, 2010).
Table 2. The content analysis of the metaphors of entrepreneurship among surveyed students
Metaphor
No. Examples
Category
The respondents provided for example the following expressions to empha-
size the ideas of creativity and innovations:
Creativity “Entrepreneurship is building something out of elements which are initially
1. or not connected”
innovation “Entrepreneurship is like constant problem solving exercise”
“Entrepreneurship is creating solutions”
“Entrepreneurship is building a fast path to the future you want.”
The metaphors indicating competition:
“Entrepreneurship is a race for money”
“Entrepreneurship is a track race”
2. Competition
“Entrepreneurship is like wrestling”
“Entrepreneurship is a marathon race”
“Entrepreneurship is a competition”
The metaphors indicating journey:
“Entrepreneurship is like conquering a steep hill, one after another”
3. Journey
“Entrepreneurship is a never ending journey full of new people, places and
situations”
The metaphors indicating war:
“Entrepreneurship is a war”
“Entrepreneurship is a war game against taxes and taxcouncil”
4. War
“Entrepreneurship is a constant battle”
“Entrepreneurship is a survival game”
“Entrepreneurship is like being on a battlefield, every day, all day long”
The metaphors indicating adventurers:
5. Adventure “Entrepreneurship is blazing new trails”
“Entrepreneurship is swimming across a stormy seas”
Metaphors indicating exploitation of others:
“Entrepreneurship is exploiting other people”
6. Exploitation
“Entrepreneurship is taking advantage of employees”
“Entrepreneurship is squeezing as much as you can form others”
Metaphors indicating risk:
“Entrepreneurship is like walking on a tightrope”
7. Risk
“Entrepreneurship is like skating on thin ice”
“Entrepreneurship is like a Russian roulette”
Some miscellaneous metaphors were used, such as:
“Entrepreneurship is the key to success in life”
“Entrepreneurship is dreaming big, and getting big”
8. Miscellaneous “Entrepreneurship is like workaholism but in a positive way”
“Entrepreneurship as a style of living”
“Entrepreneurship is like harvesting – you reap what you sow”
“Entrepreneurship is hunting for clients”
Source: own study based on open questions (n = 124).
Table 3. Entrepreneurship metaphors among surveyed students

Metaphor Mean Std. Dev.
Creativity/innovation 3.353 1.399
Competition 5.061 1.390
Journey 2.902 1.384
War 5.695 1.038
Adventure 3.975 1.333
Exploitation 2.353 1.115
Risk 5.195 1.261
Source: own study based on the survey (n = 82).
Metaphors of entrepreneurship are under the influence of certain well-established

patterns and stereotypes in Polish culture. There were numerous negative metaphors
indicating exploitation of others. “Exploiting other people” or “taking advantage of em-
ployees” were just a few examples of metaphors with negative, cynical or downgrading
undertones.
However, findings illustrate the change in the perception of entrepreneurship among
non-entrepreneurs in Poland. Although as we have expected in our introductory re-
search most of the metaphors would reflect competition (“a race for money”,
“a marathon race”), war (“war against taxes and tax council” and risk (“skating on thin
ice” or “Russian roulette”), we may observe many optimistic metaphors. According to
this perception entrepreneurship is oftentimes viewed a “key to success in life” or “build-
ing a fast path to the future you want”. It’s very often associated with good and innova-
tive ideas, creativity, freshness and breaking stereotypes.
Some metaphors illustrate the approach to entrepreneurship as part of a lifestyle
providing self-direction and self-control. Here comes the tendency to escape from com-
peting and fighting, and move towards balancing and harmonizing own life in relation to
business.
CONCLUSIONS
The metaphorical statements revealed the paradoxical nature of respondents' percep-
tions of entrepreneurship. A majority of the metaphors contained quite negative images.
Especially in the least educated group sample they seemed to conjure up most negative
images of entrepreneurship as some kind of modern day “slave owners” or exploiters.
We believe that metaphors play an important role in popularizing business and busi-
ness related concepts and enhance our understanding in the nature of the different
metaphors used in economics discourse. Because metaphors shape the way we think,
our choices of metaphors are important. Gartner (1993) has suggested that ‘‘the words
we use to talk about entrepreneurship influence our ability to think about this phenom-
enon’’. Subsequently these thoughts are able change the discourse about entrepreneur-
ship and direct actions toward entrepreneurial activities which ultimately affect culture
and support the activation of entrepreneurial attitudes in social circles.
The main research limitation is the non-representativeness of the sample as well as
small sample size (n = 124 at the first stage and n = 84 at the second stage). The results
presented in the article are very preliminary and further investigations in this field are
needed. It seems necessary to conduct a survey among a larger sample of students and
to include more explaining variables.
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Authors
The contribution share of authors is equal and amounted to 50% each of them.
Michał Chmielecki
Assistant Professor at Clark University (MA, USA) and the University of Social Sciences ( Poland),
where he teaches Negotiation and Conflict Resolution, Cross-Cultural Communication and
Business Communication, among others, to MBA and MSPC students. He is also the head of the
International Cooperation Department at the University of Social Sciences. He serve as the
associate editor of the Journal of Intercultural Management, editor of the Entrepreneurship
and Management Journal, and the secretary of the Intercultural Management Congress. He has
ten years of experience in conducting corporate trainings and consulting. He specializes in
cross-cultural negotiations.
Correspondence to: Dr. Michal Chmielecki; University of Social Sciences, Department of Man-
agement; ul. Sienkiewicza 9, 90-113 Lodz, Poland; e-mail: [email protected]
Łukasz Sułkowski
Member of the Presidium of the Polish Accreditation Committee and Director of Academic
Development Centre of the Academy of Social Sciences form 2004 to 2011 he was a Vice-Rector
for Quality of Education Academy of Management in Lodz. He is also Head of the Department
of Public Administration at the Jagiellonian University and a Professor in the Department of
Public Management at the Jagiellonian University. He serves as a Chief Editor of the Quarterly
“Journal of Intercultural Management”. His main research interests are: organizational culture,
intercultural management, social determinants of management, the methodology of manage-
ment, the development of human resources, the methodology of educating and training per-
sonnel. His academic output includes over 300 publications in the field of management.
Correspondence to: Prof. dr hab. Łukasz Sułkowski; University of Social Sciences, Department
of Management; ul. Sienkiewicza 9, 90-113 Lodz, Poland; e-mail: [email protected]

2016, Vol. 4, No. 4 DOI: 10.15678/EBER.2016.040410
Work-life Balance Decision-making of Norwegian

Students: Implications for Human Resources
Management
Remigiusz Gawlik, Gorm Jacobsen
ABSTRACT
Objective: The paper aims at identifying and assessing the significance of work-life
balance determinants between the Youth of highly developed societies and its impli-
cations for human resources management on the example of Norway.
Research Design & Methods: The research target group consists of 236 respondents
recruited among Norwegian tertiary education students. It employed literature analy-
sis, two-stage exploratory research: direct individual in-depth interviews, survey
based on a self-administered, web-based questionnaire with single-answer, limited
choice qualitative & quantitative, as well as explanatory research (informal moderat-
ed group discussions).
Findings: The research on perceptions of determinants of quality of life and attrac-
tiveness of life strategies shows that in a country with relatively high socio-economic
development level, such as Norway, differences in rankings do exist. They can be
observed in relevance to both material and non-material QoL determinants.
Implications & Recommendations: The study revealed a need for deeper research on
individually driven early decision-making of future employees and entrepreneurs. This
will result in closer modelling of socio-economic phenomena, including more accurate
adaptation to trends on the labour market and creation of new business models.
Contribution & Value Added: Research value added comes from the comparison of
perceptions of quality of life determinants between countries at various stages of
socio-economic development and its implications for human resource management.
determinants of quality of life; work-life balance; qualitative-
Keywords:
quantitative research; human resources; decision-making
JEL codes: I31, J22, J24, O15
Received: 10 June 2016 Revised: 25 July 2016 Accepted: 6 August 2016
Suggested citation:
Gawlik, R., & Jacobsen, G. (2016). Work-life Balance Decision-making of Norwegian Students:
Implications for Human Resources Management. Entrepreneurial Business and Economics Review,
4(4), 153-170, DOI: http://dx.doi.org/10.15678/EBER.2016.040410
154 | Remigiusz Gawlik, Gorm Jacobsen
INTRODUCTION
The presented paper is a continuation of research on multicriteria decision-making pro-
cesses of young people at the verge of entering what is commonly called “adult life”.
Main stratification criterion was the stage of actual socio-economic development of
respondents’ country of residence. Former stages have been described in (Gawlik, 2013,
2014; 2015; Gawlik, Titarenko & Titov, 2015). The importance of the topic lies in the fact
that an early elaboration of individual hierarchy of determinants of human life quality,
including work-life balance, can enhance the ability of Youth to make conscious choices
about their professional careers and personal development. Most possibly it will result in
improving their future work-life balance, which in turn bears implications for human
resources management (HRM).
The objective of the paper is to present the perceptions of Norwegian respondents
in the field of research mentioned above. It covers a well-developed country (both eco-
nomically and socially), with high legal and societal standards, relatively low level of
discrepancies in the division of welfare and corruption, strongly developed social ser-
vices, relatively high level of safety, etc.
The research methodology employed included (i) literature analysis; (ii) two-stage
exploratory research: direct individual in-depth interviews with groups of students (stage
one); survey: self-administered, web-based questionnaire with single-answer, limited
choice questions of qualitative & quantitative nature; two questions asked for ratings of
significance of particular determinants of quality of life (QoL determinants), with hierar-
chy derived from the Likert-type scale (stage two); (iii) explanatory research (informal
moderated group discussions). The research target group has been composed of 236
respondents recruited between Norwegian tertiary education students.
The following sections will present the results of literature analysis, research meth-
odology, target group and sample, research findings and their discussion, as well as con-
clusions, suggestions for future deepening of the research and its possible limitations.
LITERATURE REVIEW AND THEORY DEVELOPMENT

Quality of Life & Work-life Balance
Quality of life (QoL) studies derive from medical science, where they have been present
for past 2 centuries. In Western psychological research the idea of balancing various
aspects of one’s activity has first appeared in the works of Perls (1942; 1969) and Perls,
Hefferline & Goodman (1951). Economic researchers acknowledged the problem quite
early, starting from Smith pointing at the happiness of human beings coming from such
qualitative determinants as health, wealth and conscience (Smith, 1759, p. 45). Recently,
Anand, Krishnakumar & Tran (2011) searched for a generalisation of the understanding
of the term welfare economics in Sen’s (1979; 1985; 1992; 1993; 1999) Capability Ap-
proach. They underline that additionally to the importance of happiness “so are the
opportunities to do things that people have reason to value and these capabilities should
be integral to the assessment of a person's welfare” (Anand, Krishnakumar & Tran, 2011,
p. 205). This broadened definition served as a base for one of currently most popular
measures of economic development, which is the United Nations’ Human Development
Work-life Balance Decision-making of Norwegian Students: Implications for … | 155
Index (HDI). Numerous research aims to link individual human perceptions of QoL with
various fields of economics, just to name Maslow (1954), Abel-Smith and Townsend
(1965), Atkinson (1983; 2003), Sen (1985; 1992), Schuessler and Fisher (1985), Layard
(2005), Stiglitz, Sen and Fitoussi (2009), Alkire and Foster (2011), Şerban-Oprescu (2012),
Chang, Travaglione and O’Neill (2015), Tang and Hornung (2015), Ulman and Šoltés
(2015), Neumark and Muz (2016), Simkins and Peterson (2016), Uysal, Sirgy, Woo and
Kim (2016) and others. Recently a growing number of publications with focus on combin-
ing private and professional life, i.e. work-life balance, can be observed (e.g. Adame,
Caplliure & Miquel, 2016; Ren & Caudle, 2016; Russo, Shteigman & Carmeli, 2016; Zheng,
Kashi, Fan, Molineux & Shan, 2016).
Socio-economic Development
Despite the presence of the term in economic literature since at least three decades, it is
hard to find one consistent definition of socio-economic development. Many attempts
focus rather on defining the term through its various aspects, without proposing a con-
sistent synthetic definition. Stec, Filip, Grzebyk and Pierscieniak (2014, p. 505) state that
socio-economic development is “a series of changes in a country’s socio-economic life
that leads to improvements in human life as well as a better organization of structures
and processes taking place in a given country”. Although many measures of singular
aspects of socio-economic development level can be found in literature (Khan, 1990), the
researchers still argue about the composition of an aggregate index. Again, an interesting
attempt in this field has been presented by Stec et al. (2014).
As most reflections on socio-economic development mention its sustainability as an
important factor, it is justified to explain this term as well. Urbaniec (2015, p. 120)
quotes the definition of sustainable development by the World Commission on Environ-
ment and Development, which says that “sustainable development is defined as one that
seeks to meet the needs of the present generation without compromising the ability to
meet the needs of future generations”. Ginevičius, Gedvilaitė and Bruzgė (2015, p. 142)
state that: “the sustainability of (…) any (…) social-economic system is usually analysed in
terms of three aspects: economic, social and environmental. (…) Each of these aspects
can only be defined by multiple indicators since each aspect constitutes a complex and
integrated process which in practice manifests multiple characteristics, features, etc.”
Socio-economic development can be operationalised as a set of features that is as-
sured by a country. Signals of its high level in Norway came from the following: (i) gen-
eral efficiency of the socio-economic system (i.e. private and public sector give efficient
solutions to citizens – private sector in market goods, public sector in social services);
(ii) high societal standards (awareness of value of democracy and freedom, high trans-
parency in public and private sectors, confidence-based children education, critical atti-
tude towards information and individual happiness perceived as important values);
(iii) high material standard of living (high level of income and business capitalization, but
also relatively flat distribution of income; transparency); (iv) feeling of security provided
by the welfare state (easily accessible education and healthcare, reliable retirement
pension system, developed infrastructure, support in case of unemployment or business
failure); (v) equal opportunities for all citizens in various fields of professional activities
all over the country (balanced regional development outside the Capital, similar income
level regardless of branch of industry, entrepreneurship support with focus on business,
not on field of activity – industry neutral policy); (vi) accessibility of public service to all
citizen (regardless the age, race, religion, gender, disabilities, etc.); (vii) tolerance for
limited occasional waste of resources, including human ones (not laziness, but ac-
ceptance of human fallibility); (viii) different expectations from public and private sector
(e.g. private sector should rise the efficiency in use of resources, public should focus on
quality of service); (ix) different measures of efficiency for private and public sector (e.g.
in public sector, the role of material element is to keep sustainability of public service,
but quality of service lies elsewhere – in private sector growth of material resource is the
main aim; customer satisfaction not always credible in public sector; the ratio of pub-
lic/private providers differs between sectors – e.g. education could be partially privat-
ised, health care much less); (x) coexistence of traditional and social forms of entrepre-
neurship; (xi) acceptance of changeability of social preferences in time.
Last two determinants need clarification. While discussing entrepreneurship Żur
(2015, p. 77) explains that: “the major difference (between traditional and social entre-
preneurship) lies at the entrepreneur’s priorities. Social entrepreneurs are driven by the
primacy of social goals, but they do not deny profit generation. Their economic activity
and revenue streams serve their social mission. They apply market instruments within
the social arena. Traditional entrepreneurs are driven by the primacy of profit genera-
tion, although they do often introduce positive social changes in their environment
(e.g. by providing employment opportunities or various CSR initiatives), which are side-
effects of their economic activity”.
Jungeilges and Theisen (2008, p. 1110) notice that: “social preferences (of individu-
als, e.g. work-life balance decision-making) are not necessarily stable. Rather, they may
evolve over time as a complicated function of socio-economic conditions experienced in
the past and future socio-economic prospects”.
Human Resources Management

Pocztowski (2008, p. 33) defines Human Resources Management (HRM) by explaining
the notion of human resource: “people are not a resource, but dispose of a resource – an
entity of embodied features and characteristics, which allow them to perform various
roles in an organization”. Huselid, Jackson and Schuler (1997, pp. 172-173) divide HRM
into technical and strategic, where: “technical HRM activities (…) include recruiting, se-
lection, performance measurement, training, and the administration of compensation
and benefits, (whereas) strategic HRM activities (…) involve designing and implementing
a set of internally consistent policies and practices that ensure a firm’s human capital
contributes to the achievement of its business objectives (…) and include team-based job
designs, flexible workforces, quality improvement practices, employee empowerment,
studies designed to diagnose a firm’s strategic needs, and planned development of the
talent”.
Jackson, Schuler and Jiang (2014, pp. 3-5) see the main qualities of strategic HRM in
focusing on HRM Systems, which are collectively managed and developed by managers,
HR professionals and company employees; this in turn provides a contextualization of
whole HRM; additionally, assessment of HRM effectiveness is provided from various
angles by internal, multiple stakeholders. In technical HRM effectiveness evaluation
comes from external stakeholders, such as the government and professional organiza-
tions (Huselid, Jackson & Schuler, 1997, p. 172; Baron, Jennings & Dobbin, 1988; Tolbert
& Zucker, 1983). This study refers rather to the strategic HRM concept.
Between most important elements of the human resource Pocztowski (2008, p. 33)
enumerates: “the knowledge, capacities, abilities, health, attitudes, values and motiva-
tion (and underlines further that) the owners of human resource are particular employ-
ees and this is for them to decide about the level of involvement of this resource at
work”.
This limits the power of an organization over human resources, which in turn in-
creases the role of individual motivation of particular employees in overall success of
endeavours of their business organization. Alfes, Shantz, Truss and Soane (2013, pp. 330-
331) enumerate four areas where HRM interferes with favourable individual and organi-
zational level outcomes, by saying: “first, it has been suggested that firm-level outcome
variables may in fact be too distal to assess the impact of micro-level HRM interventions
(…); second, in order to examine the influence of HRM practices on employee behaviour
(…) it is important to focus on how employees perceive those practices, rather than rely-
ing on accounts of the intentions behind HRM practices at a strategic level (…); third,
further research is needed to unearth the mechanisms through which HRM practices
impact upon individual behaviours (…); fourth, (…) research has yet to take into account
how moderating variables might affect the relationship between engagement and indi-
vidual behaviours”.
At the same time Kehoe and Wright (2013, p. 367) mention that: “studies of the
HR-performance relationship have provided limited insight into the effects of high-
performance HR systems on the more proximal employee outcomes that they are likely
to affect most directly”. Finally, Gries and Naudé (2011) propose a model linking entre-
preneurship and human development, in which they derive the occupational choice of
owners of human resource from their individual assessment of entrepreneurial function-
ing, including the ratio between entrepreneurial and non-entrepreneurial activities.
Recently, a growth of interest in assuring the sustainability of human resources by
linking HRM with social well-being (including QoL and work-life balance) can be observed
(e.g. Boreham, Povey & Tomaszewski, 2016; Kirk, 2016; Lub, Bal, Blomme & Schalk, 2016;
Parakandi & Behery, 2016; Presbitero, Roxas & Chadee, 2016). As individual perceptions
and human capabilities are being increasingly perceived as crucial for effective HRM, HR
managers should focus on motivations, perceptions and preferences of their future em-
ployees. It is though crucial to analyse their decision-making patterns, including work-life
balance and preferred life strategies.

The presented research was carried out Norway in order to provide data for the model
from a socio-economically developed society (former research focused on countries at
different stages of socio-economic development – Russia and South Africa). The target
group of the research was young people permanently living in Norway, that are in the
final period of their education and are planning to start their professional life in the
nearest future or recently did so. The research sample has been composed of 236 re-
spondents recruited among Norwegian tertiary education students. Respondents were
affiliated as regular students of the University of Agder (from Kristiansand and Grimstad
Campuses) and of Lillehammer College. Their background education varied, although

economics and social sciences were predominant. The questionnaire has been addressed
to all students of mentioned institutions, but the participation in the research was volun-
tary. A clear request about a serious and in-depth approach to the questionnaire has
been formulated. No participation incentives of any kind have been proposed.
The main research hypothesis states that an early elaboration of individual hierarchy
of QoL determinants, including work-life balance, can enhance the ability of Youth to
make conscious choices about their future professional careers and personal develop-
ment.
The research methodology consisted of three consecutive steps. Firstly a search for
available scientific literature on the matter has been performed, with a special focus on
socio-economic development, QoL determinants, work-life balance and specifics of HRM
decision-making. In second step a two-stage exploratory research has been performed.
Direct individual in-depth interviews with groups of students aimed at providing the
authors with general ideas on their perceptions of social, economic and geopolitical
environment they live in. In order to obtain a more structured knowledge, a self-
administered, web-based questionnaire followed. The survey was composed mostly of
single-answer, limited choice questions. In order to provide a possibly large insight, as
well as data for future application of Analytic Hierarchy Process modelling some of them
were of qualitative, other of quantitative nature. Two of the questions asked for ratings
of significance of particular QoL determinants. In one case the answer gradation was
based on a Likert-type scale, in the other it requested to group answers in a hierarchy of
descending order. Finally, explanatory research followed. Informal moderated group
discussions on particular questions and predominant answers aimed at deepening au-
thors’ understanding of respondents’ motivations and decision-making patterns. This
part of research allowed to deepen the answers to the questionnaire and place them in
a wider societal context, which is the main strength of the presented research.
The main limitation of applied research methodology is the mixed nature of deci-
sion-making determinants, which are both qualitative and quantitative. In order to over-
come this problem the AHP methodology, which allows to transpose qualitative criteria
into quantitative data has been selected for future elaboration of the model. Another
weakness is the composition of research sample from University students, which can
limit the findings to questioned part of the population. Explanatory research stage re-
peatedly undertook this issue to discover whether one can extrapolate the findings on
a larger Youth sample that the one investigated here.
Findings limitations can be explained by a quote from Jungeilges and Theisen (2008,
p. 1092) who observe that: “it may be very hard to describe the multitude of differences
between societies, differences in social background, and differences in future prospects,
by a manageable set of constraints on individual policy choices (and therefore) a coher-
ent theoretical framework is needed for designing experiments of individual choices
between different policies, and for interpreting the results from such experiments”.
Throughout the presented research the authors were aware of the specifics of indi-
vidual preferences on socio-economic conditions in multicriteria decision-making, i.e.
differences in constraint (unconstrained preferences and meta-preferences), stability of
preferences over time, the role of socialization and internal or external influences in the
process of formation of preferences, social choice capability and limitations and others
(Jungeilges & Theisen, 2008, pp. 1092-1094). These issues have been discussed in a study
on the formation of social preferences by Jungeilges and Theisen (2008).

Outcome from Exploratory and Explanatory Research
Out of 236 respondents 44% of the students were males (103 respondents – “r.”) and
56% were females (133 r.). Their age varied from under 20 (61 r. = 26%), through 20-25
(140 r. = 59%) and 26-30 (11 r. = 5%), until above 30 (24 r. = 10%) – therefore the biggest
number of answers have been obtained from students aged between 20 and 25. This can
be explained by the countrywide availability of tertiary education system for alumni of
secondary education. The prevailing majority of respondents were from Norway (233 r.
= 99%), with 1 from Russia, 1 from a non-EU country and 1 who skipped this question).
Almost 6% (13) of respondents finished secondary level of education, close to 3%
(6 r.) finished additional vocational training, 24% (57 r.) held a Bachelor title and 1% (2 r.)
had a Master. 55% of respondents (130 r.) were still students of a Bachelor Programme
and 12% (28) were Master Programme students. No respondents held a Doctor title.
Most of respondents were part-time employed (50% = 118 r.), 41% (97 r.) were unem-
ployed, an equal number was self-employed and permanently employed (4% = 10 r.).
One person skipped that question. The distribution of function of work experience in
time was quite flat, with 27% (63 r.) with no work experience at all, 12% (28 r.) with less
than 1 year, 25% (58 r.) with 1-3 years, 18% (42 r.) between 3-5 years and 19% (44) with
more than 5-year work experience. One respondent skipped that question. A quite high
level of students with work experience (around 73%) can be explained by a relatively
high availability of work posts for young people. Another explanation comes from a gen-
eral willingness of Norwegian Youth to cover at least a part of their maintenance costs
when studying on their own. It is important to underline that this need is rarely coerced
by the income level of their parents (provided easy accessibility of educational grants), it
comes rather from the need for independence, understood inter alia as responsibility for
one’s own keep.
The housing situation of the respondents was the following: 9% (21 r.) lived in rural
areas, almost 31% (72 r.) in cities below 50.000 inhabitants, 55% (129 r.) in cities be-
tween 50 000 and 100 000 inhabitants, close to 6% (13 r.) in cities between 100 000 and
500 000 inhabitants and 1 person (less than 0,5%) in a city above 500 000 inhabitants.
15% (35 r.) still lived with their parents, 23% (55 r.) with their partner, surprisingly only
12% (29 r.) in their own flat, 3% (7 r.) were sharing their own flat with other people. Co-
renting an apartment with other people was most popular (40% = 95 r.), University hos-
tel was inhabited by 6% (14 r.). One person skipped that question.
Questions about the income gave the authors a first insight into perceptions of re-
spondents. The monthly income of 16% (37 r.) was below 300€, 12% (29 r.) earned be-
tween 300 and 500€, 50% (117 r.) between 500 and 1000€ and 22% (52 r.) above 1000€.
One respondent skipped that question. Interesting to notice was that at very high daily
upkeep in Norway income satisfaction of Norwegian Youth seemed to be quite reasona-
ble: 1% (2 r.) assessed their monthly income as very high, 9% (22) as rather high, 45%
(106 r.) as appropriate, 32% (76 r.) as rather low and 12% (29 r.) as very low. 1 respond-
ent skipped that question. This means that however 44% of respondents assessed their
monthly income as not sufficient, 56% stated the opposite. This in turn means that de-
spite high costs of living and a general tendency for understating income perceptions,
the majority of respondents were happy with their earnings.
Additional information pointed at sources of income: for close to 6% (13 r.) it was re-
spondent’s parents, for the same amount it was their partner, around 50 % received
a scholarship and a government educational loan from Lånekassen (118 r. altogether),
10% (24 r.) a bank loan, 25% (60 r.) were living on their own savings and 3% (8 r.) pointed
at combinations of the above (with two single mothers receiving additional state aid).
Also the income expectations after graduating were reasonable (taking into account their
education, market conditions and salary levels): 1% (2 r.) were expecting a salary below
500€ per month, same amount targeted at 500-1000€, 6% (15 r.) at 1000-2000€, and
a similar amount of 47% (110 r.) and 45% (106 r.) would be happy respectively with
2000-4000€ and more than 4000€ per month. One respondent skipped that question. At
the same time 8% (19 r.) saw their income level as of utmost importance for their QoL,
41% (97 r.) as highly important, 44% (103 r.) as important and 7% (17 r.) as not im-
portant. Nobody marked “not at all important” option.
Insight into respondents’ perceptions followed with individual assessment of their
free time. Also here the majority of respondents showed satisfaction, with almost 78%
being happy in this area. 9% (22 r.) declared to have a lot of free time, 11% (25 r.) rather
a lot, 58% (137 r.) enough and only 17% (40 r.) rather little or very little (5% = 12 r.).
The future professional position was important to the outstanding majority of the
respondents (almost 95%), with 12% (29 r.) declaring it to be most important, 47%
(112 r.) as highly important, 36% (84 r.) as important and only for 4% (9 r.) as of little
importance or not important at all (1% = 2 r.). Another strong preference has been ob-
served for the place of family in respondents’ lives. 26% (61 r.) perceived family as of
utmost importance for them, 61% (144 r.) as one, but not unique, most important parts
of their lives, 10% (24 r.) declared its importance as equal to other areas and almost 3%
(6 r.) declared themselves as not family oriented. Nobody stated absolute indifference
about family, although one person skipped that question.
Respondents’ observations about the society proved to be interesting, too. 4% (10 r.)
felt confident only inside the Norwegian society. The vast majority could consider living
in another society (almost 94%), although for 34% (80 r.) it could prove to be difficult.
53% (122 r.) could easily change their society, 7% (16 r.) did not see society as important
to their QoL and for 2% (4 r.) did not define themselves as part of any society. It has to be
explained, that the term “society” has been freely defined by the respondents, with
a general guideline as their living environment, including their entourage, customs, tradi-
tion, culture, language and anything else that could help determining it.
The core of presented research were the rankings of significance of QoL determi-
nants by Norwegian students. The respondents have been asked to rate the relevance of
each QoL determinant with regard to its relevance to their QoL. The rankings were based
on a 5-point Likert-type scale, where 5 is very important and 1 is not important at all. The
sample size was n=236, but not every question has been answered by every respondent.
Therefore a total score has been calculated for each determinant. Its calculation modus
was the sum of products of the number of students that attributed this particular deter-
minant with a certain rank and its value. Results of significance ranking of QoL determi-
nants by Norwegian Youth can be found in Table 1 below (sorted in descending order).
Optional additional answers of four respondents that ranked as most important their
relationship with God, love, wealthy spouse or gender equality have not been men-
tioned.
Table 1. Significance of quality life determinants in the eyes of Norwegian Youth

Distribution of answers (in %)
Total
Determinants of quality of life along the established rank scale
score
1 2 3 4 5
Keeping contact with family and friends 0.93 3.74 7.01 22.90 65.42 959
Having a stable job 0.93 1.87 8.88 26.64 61.68 955
Having an interesting job 0.93 0.93 10.28 28.50 59.35 951
Ability to obtain a well-paid job 0.47 1.88 14.08 39.91 43.66 904
Living without fear about the future 1.40 2.80 14.95 34.58 46.26 902
Being able to develop professionally 1.88 1.41 16.90 43.19 36.62 876
Ability to save money 1.88 4.23 15.02 40.38 38.50 872
Free and safe travelling in an open World 2.35 3.76 21.60 27.23 45.07 871
Being able to pursue self-development 0.93 3.27 21.03 40.19 34.58 865
Being able to combine private & professional life 3.29 6.10 22.07 26.29 42.25 848
Having free time 0.93 6.54 22.43 35.51 34.58 848
Having basic access to information 1.41 4.23 22.07 40.38 31.92 846
Predictability of consequences of own actions 2.83 2.36 21.23 42.45 31.13 841
Retirement pension level in the future 3.29 4.23 22.54 34.74 35.21 840
A proper work-life balance 2.80 3.74 23.36 38.32 31.78 840
Working accordingly to own qualifications 1.87 5.61 21.03 45.33 26.17 831
Geopolitical safety and stability 2.82 6.10 28.17 27.70 35.21 823
Level of income 0.47 3.27 26.64 50.93 18.69 822
Living accordingly to high legal and societal standards 4.27 4.27 28.91 31.75 30.81 803
Being useful to the society 4.67 7.48 24.30 40.19 23.36 792
Cost of living 2.35 7.04 50.23 30.52 9.86 721
Not being victim to “information overload” 5.61 9.81 45.79 30.84 7.94 697
Level of debt to pay back after graduating 7.98 19.72 37.56 25.35 9.39 657
Level of risk related to financial investments 11.68 16.36 45.79 20.56 5.61 625
Source: own elaboration based on research results.
Interpretation of the results: after a minutious analysis some groups of factors can
be derived from the general set. Although a general division between material and non-
material determinants seems to be the most obvious, respondents’ opinions obtained in
explanatory research persuaded the authors to adopt thematic grouping criterion.
Groups of determinants have been presented in descending order respectively to the
average ranking of a single determinant from each group, calculated as the sum of total
scores of determinants from the given group and divided by their amount (values in
brackets). These are: (i) safety, stability and certainty (891,8); (ii) continuous self-
development (876,5); (iii) work-life balance (845,3); (iv) freedom and society (784,5);
(v) finance (773,3). Grouping of determinants that could be attributed to more than one
group finally occurred on basis of group discussions with respondents lead in explanatory
research phase.
In the first group, “safety, stability and certainty”, “Keeping contact with family and
friends” has been ranked as most important. 2nd highest importance has been granted
to “Having a stable job”. A correlation can also be observed with “Living without fear
about the future” that has been ranked 5th. Other determinants from this group have
been ranked lower: “Free and safe travelling in an open World” as 8th, “Predictability of
consequences of my actions” 13th, “Geopolitical safety and stability” 17th. Nevertheless,
the average individual ranking of determinants from this group makes it the most rele-
vant for respondents’ QoL. This can be due to the phenomenon brought up in explanato-
ry research – a general feeling of safety omnipresent in Norwegian society. Respondents
pointed at the welfare state as its cause.
The group ranked as second, “continuous self-development”, consisted of such de-
terminants as “Having an interesting work” (ranked 3rd), “Being able to develop profes-
sionally” – 6th, “Being able to pursue self-development” – 9th, and “Working accordingly
to my qualifications” – 16th. A high level of self-awareness of Norwegian society can be
backed by statistical data, putting Norway on the very top of 2015 Human Development
Index (HDI) list and at the same place of Inequality-adjusted HDI by the United Nations
Development Programme (UNDP, 2015).
“Being able to combine private and professional life” (10th), “Free time” (11th) and
“A proper work-life balance” (15th) composed the third group, “work-life balance”.
Average individual ranking of determinants keep it closer to groups (i) and (ii), than to
groups (iv) and (v). In 2015 Norway opened the Legatum Prosperity Index list as the
country that provides the highest aggregated level of wealth, economic growth, educa-
tion, health, personal well-being and QoL out of 142 countries (Legatum Institute, 2015).
“Freedom and society” was composed of “Having basic access to information”
(12th), “Living accordingly to high legal and societal standards” (19th), “Being useful to
the society” (20th) and “Not being victim to information overload” (22nd). The highest
ranked determinant in this group falls in the middle of ranking only, which justifies the
low average-based overall rating of this group of determinants. It can be explained by
the fact that freedom and societal values tend to be underestimated until their lack
becomes visible. Norway placed also 2nd in 2015 Press Freedom Index ranking (Report-
ers Without Borders, 2015).
Last in ranking was “finance”, composed of “Ability to obtain a well-paid job” (4th),
“Ability to save money” (7th), “Retirement pension level in the future” (14th), “Level of
income” (18th), “Cost of living” (21st), “Level of debt to pay back after graduating” (23rd)
and “Level of risk related to financial investments” (24th). The lowest grade of income-
related QoL determinants can be explained by a very high financial standard of living in
Norway, with high income per capita, low income distribution discrepancy and a multi-
tude of social mechanisms preventing poverty. In World Bank’s GDP per capita based on
purchasing power parity 2015 ranking Norway reached 8th position with 65 614,5 USD of
yearly PPP-based per capita income (World Bank, 2015). Moreover, respondents pointed
also at non-stigmatization of business failures as being part of the entrepreneurial mech-

anism.
It was interesting to notice, that although some material QoL determinants have
been ranked quite high, generally their individual average ranking was the lowest. At the
same time, in a similar survey lead in Russia, even though determinants linked with sta-
bility, certainty and confidence have been ranked very high, income related factors were
perceived as more significant for high QoL. Figure 1 shows the above ranking in a graph-
ical way (in descending order of total scores).
1000
900
800
700
600
500
400
300
200
100
0
Figure 1. Ranking of quality of life determinants – graphical presentation

In the last step the respondents had to sort alternative life strategies accordingly to
their attractiveness in relation to their rankings of QoL determinants from Table 1. The
distribution of answers presented in Table 2 has been based on total grade of life strate-
gy attractiveness, calculated similarly to total scores above. The scale has been reversed,
though, as the lowest grade means the most attractive life strategy.
It can be seen that the family-oriented strategy is perceived as the most attractive,
whereas income-oriented comes only second, almost at the same level as the career-
oriented one. Time-oriented strategy, targeted at maximizing the amount of respond-
ent’s free time has been ranked fourth in attractiveness. Apparently only singular re-
spondents felt attracted by living outside the societal mainstream. Explanatory research
gave some insight into the reasons for such a grading. In fact, Norwegian Youth on their
way to independence feel a strong financial, substantive and psychological support from
various parties, including family, friends, public institutions and private sector. Norwe-
gian respondents clearly stated that the multitude of opportunities creates a societal
pressure (at home, at school, but also from their friends) to profit of it at any cost –
because everybody does, because it is available. Strangely enough, respondents under-
lined that this rises the fear of failure and deepens the feeling of defeat in case of one.
This in turn explains the attractiveness of the family-oriented strategy (where success
usually is not the decisive measure), but also of the “opting-out” strategy – as an escape
solution for some respondents. A relatively low attractiveness of free-time strategy can
be partially explained by the fact that this resource starts becoming valuable with its
growing scarcity – and it has been ranked only 11th in terms of relevance for QoL. In
explanatory research most respondents assessed their actual amount of free time as
sufficient.
Table 2. Attractiveness of life strategies for Norwegian Youth

Distribution of the answers (in %)
Life strategies along the established grade scale Total
grade
1 2 3 4 5
Income-oriented (constantly increasing your salary) 47.00 24.50 14.50 11.00 3.00 397
Family-oriented (working only until your job is not interfer-
16.16 28.28 31.82 19.19 4.55 530
ing with your family obligations)
Career-oriented (becoming “somebody important”) 25.37 19.90 21.89 17.41 15.42 558
Time-oriented (maximizing the amount of your free time) 10.66 24.37 24.37 35.03 5.58 592
Opting – out from the entire socio-economic system (living
3.11 3.63 7.25 16.06 69.95 861
outside the mainstream)
Graphical presentation of these results can be found on Figure 2 (in ascending order
of total grades, from most to least attractive).
0 200 400 600 800 1000
Family-oriented (working only until your job is

not interfering with your family obligations)
Income-oriented (constantly increasing your

salary)
Career-oriented (becoming “somebody

important”)
Time-oriented (maximizing the amount of your

free time)
Opting-out from the entire socio-economic

system (living outside mainstream)
Figure 2. Total grades of life strategy attractiveness (from most to least attractive)
The authors are aware of the fact that presented research results can be perceived
as relevant for the questioned target group only. Nevertheless, if perceived in frames of
weak signal approach, obtained answers (especially from explanatory research) can point
at possible features of the whole generation of actual Youth. Holopainen and Toivonen
(2012, p. 198) summarize Ansoff’s (1975) weak signals approach as: “an alternative or
supplement to strategic planning (…) that (…) is reasonable in the case of incremental
development of historical trends, but it is not successful when dealing with surprises”.
In fact, the phenomena actually forming the employees and entrepreneurs of the
nearest future are not linear anymore, their rather bear a non-linear, shock-susceptible
characteristic, that indeed could be defined as a recurring set of “surprises” in decision-
making micro- and macro-environment. In the opinion of Holopainen and Toivonen,
(2012, p. 198): “in circumstances where the rate of change is continuously accelerating,
a more reasonable approach is to increase strategic flexibility and determine which
actions will be feasible when the detailed information becomes available. This kind of
approach can be called response to weak signals”. Adopting the weak signals logics to
work-life balance implies the need for adaptation of company’s HRM practices.
Implications for Human Resources Management

Presented research on QoL determinants has brought us to conclude that higher levels of
motivation, entrepreneurship and responsibility at work can be achieved by providing
young people with: (i) freedom in their decision-making; (ii) a working environment that
allows the employees to develop their natural capabilities and abilities; (iii) safe-landing
mechanisms for potential failures; (iv) fair salaries with reasonable discrepancies be-
tween highest and lowest income levels; (v) fair treatment in working environment;
(vi) support (or do not discouragement) of entrepreneurship.
Obtained research results confirmed the hypothesis saying that an early elaboration
of individual hierarchy of QoL determinants, including work-life balance, can enhance the
ability of Youth to make conscious choices about their future professional careers and
personal development and as such contribute to higher efficiency of their professional
activities. Therefore HR managers should consider a more individualistic approach in
their search for independent and effective personnel. Especially explanatory research
responses pointed at the need of Norwegian Youth to be approached individually, leav-
ing space for particular combinations of work-life balance determinants as a strong moti-
vation mechanism at work.
Conducted research has also shown that preferred levels of above factors are indi-
vidual specific, therefore managers, including HR specialists, should adopt a more indi-
vidual-focused approach to their actual employees, as well as to the candidates for work
posts. It definitely is more resource consuming that a standardized approach to human
resource management, but allows to expect a higher efficiency in solving unconventional
tasks. Future research could determine to which extent this general remark stands for
various working environments and for different positions.
In parallel, at societal level the policy-making should focus on: (i) assuring an optimal
balance between activities assured by private and public sectors; (ii) improving the socie-
tal standards by educating on democracy and freedom, exacting transparency in state
institutions and private companies, fighting corruption, building confidence in citizens
since early childhood through positive cognitive education, supporting independent and
reliable media; (iii) creating development opportunities for entrepreneurs; (iv) preserv-
ing equality in access to public services, but at the same time guard the system from
misusers; (v) assuring the sustainability and quality of public services by grading the pri-
orities in distribution of public goods and amounts to be distributed to each individual
(re-defining the equality rule); (vi) creating service-specific efficiency measurement
models, including both material and non-material determinants of service quality;
(vii) providing space for all forms of development (in business and public sphere, orient-
ed on material and non-material added value).
CONCLUSIONS
The presented research was the next step towards creation of a multicriteria AHP-based
model that would support young people in their early-career decision-making. Research
methodology consisted of a literature analysis, exploratory and explanatory research
with application of direct interviews, a web-based survey and moderated group discus-
sions.
The research target group has been composed of 236 respondents recruited be-
tween Norwegian tertiary education students. Research placement in Norway aimed at
giving insight into the significance of QoL determinants and attractiveness of various life
strategies in a socio-economically developed society. Obtained rankings allowed to draw
following implications for HRM practice: (i) a potential for growth of employees’ efficien-
cy and motivation exists, but in Norwegian reality requires a more individualized, person-
oriented managerial approach; (ii) it can be achieved by offering each employee a suita-
ble, individual specific combination of work-life balance determinants, based on his/her
preferences; (iii) better results can be achieved if internal HRM processes in companies
find support in economic and social policies of the government.
The substantial research limitation came from the research sample, although if per-
ceived through Ansoff’s (1975) weak signal approach, it can still provide some directions
for future research. It should concentrate on analysing whether the individualistic HRM
approach described in the present paper benefits the employees and their employer
similarly at different work posts.
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Authors
Remigiusz Gawlik
Assistant Professor at Cracow University of Economics (Poland), Faculty of Economics and In-
ternational Relations, International Economics Department. PhD in Economics at Cracow Uni-
versity of Economics (Poland). Alumnus of the College of Europe (Belgium & Poland). Certified
Gestalt Counsellor and consultant in business communication. His scientific interests include
modelling of decision-making processes in various fields of management.
Correspondence to: Dr. Remigiusz Gawlik; Cracow University of Economics, Faculty of Econom-
ics and International Relations, International Economics Department; ul. Rakowicka 27, 31-510
Kraków, Poland; e-mail: [email protected]
Gorm Jacobsen
Associate Professor at the University of Agder (Norway), Faculty of Economics and Social Sci-
ences, Department of Working Life and Innovation. Bachelor in Business Administration from
the University of Lund (Sweden), Master Economics from the University of Oslo (Norway). His
scientific interests include transformation from centrally planned economy to market economy
and its implications.
Correspondence to: Assoc. Prof. Gorm Jacobsen, PhD; University of Agder, Department of
Working Life and Innovation; F158, Jon Lilletunsvei 9, 4879 Grimstad, Norway; e-mail:
[email protected]
The authors would like to thank all respondents to the questionnaire as well as participants to
direct interviews. Special thanks are addressed to prof. Arne Inaksen from the University of
Agder, Campus Grimstad and prof. Theis Theisen from the University of Agder, Campus Kristian-
sand.
This research was supported by the National Science Centre of Poland (decision No.:
DEC-2013/11/D/HS4/04070) within a research project entitled “The Application of Analytic
Hierarchy Process for Analyzing Material and Non-material Determinants of Life Quality of
Young Europeans” led by Remigiusz Gawlik, PhD between 2014 and 2017.

2016, Vol. 4, No. 4 DOI: 10.15678/EBER.2016.040411
The Changing Structure of Retail Industry:

Case Studies on Competitive Advantage
of Small Companies in Croatia
Blaženka Knežević, Dora Naletina, Mate Damić
ABSTRACT
Objective: There are two key trends in retail industry since 1990s till nowadays: rapid
internationalization and intensive retail concentration. In such a dynamic environ-
ment, small companies are striving to preserve their markets and to maintain their
business activity. The objectives of the paper are twofold: (1) to explain trends of
retail internationalization and concentration and (2) to highlight the possibilities for
improving the competitive ability of small retailers.
Research Design & Methods: The paper is based on analysis of secondary data availa-
ble in research papers, studies and official statistics. Firstly, the consequences of retail
internationalization and concentration are described. Then, the literature on competi-
tive advantage creation is systemized. In addition, the case study method is used to
illustrate successful strategies of competitive advantage creation.
Findings: In a changed retail market, small retailers seek the way to improve their
competitiveness. As suitable competitiveness strategies, authors describe: (1) retail
alliances and (2) differentiation by assortment.
Implications & Recommendations: The key trends and their impact on small compa-
nies in retail industry are scrutinized. Recommendations to small retailers how to
adjust to new market conditions, together with some practical examples, are given.
Contribution & Value Added: The paper gives an insight into dynamics of changes in
retail structure. Retail alliances and differentiation by assortment are described as
two key streams of competitiveness improvement suitable for small retailers.
retail internationalization; market structure; competitiveness; small
Keywords:
retailers
JEL codes: L81, F18, D40
Received: 16 February 2016 Revised: 19 May 2016 Accepted: 10 June 2016
Suggested citation:
Knežević, B., Naletina, D., & Damić, M. (2016). The Changing Structure of Retail Industry: Case
Studies on Competitive Advantage of Small Companies in Croatia. Entrepreneurial Business and
Economics Review, 4(4), 171-187, DOI: http://dx.doi.org/10.15678/EBER.2016.040411
172 | Blaženka Knežević, Dora Naletina, Mate Damić
INTRODUCTION
In their definition of retailing, Kent and Omar (2003, p. 8) emphasize that retail industry
consists of business activities relating to selling goods and services to final consumers.
There are numerous forms, formats and organizational set-ups observed in retailing
industry from a factory outlet and outdoor market sales, via convenience stores, super-
markets, chain stores and hypermarkets to the vending machines and electronic or mo-
bile (virtual) retailing, including multichannel retailing as well.
Gilbert (2003, p. 2) pointed out that since 1960s retailing has become an important
business activity in national economies that has an increasingly greater impact on the
society due to its increasing role in employment and GDP creation.
In the EU retail industry is an important source of employment and influential factor
of GDP creation. In addition, Knežević, Renko and Knego (2011) point out that almost
a fifth of all companies registered in the EU operate in retail industry.
Tjordman (1995), Alexander (1996) and Dawson (2001; 2006) in their studies empha-
size several trends that are influencing the overall retail industry and other industries as
well. There are two dominant trends that influence the dynamics and structure of retail
markets. First is internationalization, and the second is concentration of retail markets.
Both trends have a detrimental influence on the position of small retailers.
In this paper, based on secondary data, we are going to explain both mentioned
trends and their impact on small retailers. Then we will address possibilities of improve-
ment of their competitive position. And, finally, we will describe good practices where
application of the theory on competitive positioning brought small retailers to positive
business results. For this purposes, the case study method is going to be applied on
small, but successful, retailers’ practices in Croatia.
LITERATURE REVIEW
Sources of Competitive Advantage
The key element of each firm is the pursuit of competitive advantage, especially today
when firms are faced with increasing global competition and decreased growth (Vrdoljak
Raguz, Jelenc & Podrug, 2013). Tipurić (1999) points out that the competitiveness is
a function of at least two groups of variables: favorable local, national and industrial
conditions in which firms originate and develop, and effort to achieve results better than
the competition. What is more, Wach (2014b) concludes that the firm-level international
competitiveness is a very important research topic in business studies because even an
internationalized local firm can compete with foreign or global competitors.
Competitive advantage exists if the following conditions are accomplished (Tipurić,
1999):
1. Customers are firstly noticing a constant difference in the important characteristics
of a product/service and product/service competition.
2. The difference between the important features of the firm's product/service and
product/service competition is a direct consequence of the gap firm's capabilities
and its rivals.
The Changing Structure of Retail Industry: Case Studies on Competitive … | 173
3. The difference between the important characteristics of the firms' product/service

and products/services of competitors and skills gap between the firm and its com-
petitors can be expected in the future.
Competitiveness of a firm in the world market is bound with its ability to respond to
immediate changes of the market and to hold out the position of the enterprise in it. The
idea of the competitive advantage starts from creation and distribution of value. A firm
has achieved competitive advantage when its influence predetermines economic chang-
es in the market (Lazauskas, Bureika, Valiūnas, Pečeliūnas, Matijošius & Nagurnas, 2012).
In the last few decades in the literature of strategic management we differ industrial
organization economics and resource based view (Kamasak, 2013). While the industrial
organization economics theory states that performance variation of firms should be
attributed to the structural characteristics of industries in which they operate, resource
theory states that performance differences among firms are in relation with their inter-
nal resources.
Resource-based view (RBV) of the firm has been successfully used to explain long-
run differences in firm performance that cannot be attributed to industry or economic
conditions. RBV defines that firms are heterogeneous and that idiosyncratic, immobile,
inimitable and intangible bundle of resources gives the firm an opportunity for competi-
tive advantage (Habbershon & Williams, 1999). Firms' strategy and success is based on
its resource profile (Coates, 2002). Resources that are forming the base of an existing
firm's competitive advantage are rarely easy to identify from the outside, and even if
identified, they are difficult to replicate (Lockett & Thompson, 2001). There are three
reasons for imperfect imitability (Barney, 1991):
1. unique historical conditions,
2. casual ambiguity,
3. complex social phenomena.
Barney (1991) defines that firms obtain sustained competitive advantages by imple-
menting strategies that exploit their internal strengths, through responding to environ-
mental opportunities, while neutralizing external threats and avoiding internal weakness.
A firm has achieved competitive advantage when it implements a value creating strategy
not simultaneously being implemented by any other competitor (Barney, 2001). When
competitive advantage can last for a longer period, then it is considered sustained com-
petitive advantage. If firm's resources are valuable, rare, and imperfectly imitable and
there are no strategically equivalent substitutes for them, then they hold potential for
achieving sustained competitive advantage (Barney, 2001).
Competitive advantage is achieved through a combination of unique resources and
capabilities that allow firms to establish nearly monopoly positions in their markets
(Hamel & Prahalad, 1994). Competitive advantage is achieved through being ahead of
your competition on price/cost, quality, delivery, product innovation and time to market
dimensions (Li, Ragu-Nathan, Ragu-Nathan & Rao, 2006). With growing global competi-
tion it is difficult for companies to differentiate themselves solely on the traditional as-
pects of product and price. Therefore companies are forced to search for innovative
ways to do business and adding value to their products (Pan & Nagi, 2009).
The central question in competitive strategy is the relative position of the firm within
the industry. Positioning determines whether the firm's profitability is above or below
the industry average. Therefore, a firm that is well positioned can earn higher rates of
return, even if the industrial structure is unfavorable (Porter, 2008). Firms must choose
a strategy in order to create a unique and defendable position in the industry. Porter
(2008) distinguishes two basic types of competitive advantage a firm can have: low cost
or differentiation. The two basic types of competitive advantage combined with the
scope of activities for which a firm seeks to achieve them, lead to three generic strate-
gies for achieving above average performance in the industry: cost leadership, differenti-
ation and focus (Porter, 1985). In addition to Porter, Miles, Snow, Meyer and Coleman
(1978) identified three types of strategic direction that may be effective for a small busi-
ness, referred to by the authors as the defender, the prospector, and the analyser. The
defender-type involves the developing of a narrow product/market niche and the erec-
tion of barriers to protect it. Unlike the defender, the prospector is constantly scanning
the environment for new opportunities, be their new products, services or markets.
Finally, the analyser is a combination of the defender and prospector in that it simulta-
neously defends its niche while scanning for new opportunities.
While the strategy of cost leadership and differentiation refer to finding competitive
advantage in a wide range of industrial segments, the focus strategy is based on a com-
petitive advantage within a narrow industry segment (Porter, 2008).
If a firm wants pursue cost leadership, it must find and exploit all sources of cost ad-
vantage. Low prices cannot be sustained unless a firm maximizes its operational efficien-
cy. Firm has to perform similar activities better than rivals and one way of doing so is to
pursue a rigorous and relentless policy of cost cutting. The opening up of Eastern Euro-
pean markets and the integration process for Balkan countries has brought radical
changes in service industry. In such a dynamic market in service sector, the low cost
models in retail are changing from year to year due to changes in costs (rise and fall of oil
price), regulatory laws from the EU to domestic countries and increase in competition
(Rexhepi & Stringa, 2010). Murray (1988) stated that the client demand for products and
services need to be price sensitive. The high cost of investment will act as barrier of entry
and it will prevent small companies to follow cost leadership strategy (Wright, 1987). In
the service sector, the low cost advantages could come from new process innovations,
better learning curve, new service design, less time, less costs and fully reengineering
activities based on economics of scale (Allen & Helms, 2004).
Rexhepi and Stringa (2010) defines that firms that follow cost leadership strategy in
service sector should analyse the environment, target mass market, target price sensitive
clients, then use control and coordination tools amongst leadership and middle manag-
ers combined with new information technology facilities to standardize services and then
gradually expand.
Based on the above analysed theoretical concepts from the literature, we are going
to discuss which strategies turned out to be successful for small retailers in Croatia, as
Wach (2014a, pp. 42-43) concludes that strategies and strategic thinking is very im-
portant not only for big players, but also for small business.

The analytical part of this study is divided into two parts. Firstly, we will explore the basic
trends of the retail industry in Europe by using the quantitative approach based on sec-
ondary data. Secondly, we will identify strategies used by small retailers in Croatia by
using the quantitative approach based on the case study method. Therefore, the objec-
tives of the paper are twofold:
1. to explain trends of retail internationalization and concentration,
2. to highlight the possibilities for improving the competitive ability of small retailers.
Industry Analysis
As mentioned earlier, there are two rapid trends in contemporary retailing. One is retail
internationalization and another is retail concentration. Those two trends bring many
issues in front of small retailers who are trying to survive and to success in the market. In
this paper we will give some definitions and data on those trends and we will explain key
challenges for small retailers in given market conditions.
We will use the secondary data. The first source of data will be the websites of the
selected retailers, where we will collect the info on their revenue, number of stores as
well as mission and vision of the company. The other source of data will be direct obser-
vation in the retailers’ stores, their product mix and how they are in line with their com-
pany’s mission and vision.
Case Study
In the quest for recommendation to small retailers, in this part of the paper we will ana-
lyse the sources of competitive advantage. Furthermore we will discuss and explain two
basic strategies of achieving competitive advantage successfully implemented in opera-
tion of small retailers in Croatia. The analysis will be conducted through case study re-
search method. The case study research method is an empirical inquiry that investigates
a contemporary phenomenon in it is real-life context; when the boundaries between
phenomenon and context are not clearly evident; and in which multiple sources of evi-
dence are used (Yin, 2013).
The advantage of the case study method is the understanding of a complex issue or
object through detailed contextual analysis of a limited number of events or conditions
and their relationships. The critics of the method regard the small number of cases as
a problem when establishing a generality of findings, while some regard it useful only as
an exploratory tool. On the other hand, a key strength of the case study method is the
usage of multiple sources and techniques in the data gathering process. Researchers
from many disciplines use the case study method to build upon theory, to produce new
theory, to dispute or challenge theory, to explain a situation, to provide a basis to apply
solutions to situations, to explore, or to describe an object or phenomenon. The ad-
vantages of the case study method are its applicability to real-life, contemporary, human
situations and its public accessibility through written reports (Soy, 1997). For this case
study evidence will be taken from the websites of small retailers and small retailers’
associations and through direct observation in the small retailers stores.

Changes in Retail Industry and their Impact on Small Retailers
Retail Internationalization
Retail internationalization is a process that can be observed in two dimensions (Knežević
& Szarucki, 2012): (1) internationalization of retail activities such as sourcing and logis-
tics, and (2) internationalization of retail formats or outlets in order to approach custom-
ers at non-domestic markets.
Despite the long history or retail internationalization in sourcing and logistics, since
relatively recent times the European retail sector has seen substantial expansion of in-
ternational operations towards consumers at foreign markets. The rapid increase in
international activity of European retailers and the expansion in European of non-
European retailers is one of several structural changes that have taken place since the
late 1980s. In this period large firms have grown at a substantially faster rate than the
sector as a whole (for more details refer to Knežević, Delić & Knego, 2014).
Knežević, Delić and Knego (2014) analyse data on Top 250 European retailers and
discuss the present situation and trends at selected Central Eastern European markets.
Upon given analysis, they claim that till 2000 at Visegrad markets (Poland, Czech Repub-
lic, Slovakia and Hungary) there were more than 10 large foreign retailers present per
each country, while in Croatia the number of 10 large foreign retailers is exceeded with
the delay of 5 years. In addition, they found that the number of large foreign retailers at
given markets has grown since 2006 (Figure 1).
45
40
35
30
2006
25
20 2009
15 2011
10
5
0
Poland Czech R Slovakia Hungary Croatia
Figure 1. Total number of Top 250 global retailers present at selected Central
and Eastern European countries
Source: adapted according to data at (Knežević, Delić & Knego, 2014, p. 119).
Retail Concentration
Concentration takes a place if one or a couple of leading companies grow above average
growth rates within the industry. As Dawson (2006) points, leading retailers in the EU are
growing above average comparing to other market players in this industry. According to
the analysis of Knežević, Renko and Knego (2011), in the newest EU members retail con-
centration is one of key market trends taking a place in last two decades.
Knežević, Knego and Delić (2014) explain that concentration can be the outcome of
the (a) rapid organic growth of one or several companies in the given market, or (b) mer-
gers and acquisition taking place in a given market. Throughout the process of concen-
tration one or several companies acquire larger and larger market share. This way they
are getting better negotiation position towards suppliers and customers, better market
position in comparison to competitors, their productivity per employee and per outlet
grows, they have increased possibility to implement innovations and new technologies
etc.
Concentration of a certain market can be measured. In EU literature, usually concen-
tration CRn ratio is used to highlight how large market share is held by a certain number
of companies (n). For instance CR5 concentration ratio indicates the market share held
by the five largest companies at the market.
Several studies show that larger and larger proportion of the retail market is con-
trolled by a small number of companies. For instance, Data given by the European Com-
mission (2014, pp. 51-52) show that from 2000 till 2011 concentration ratios of EU gro-
cery market grew significantly (Figure 2). Nonetheless, EU countries differ in the level of
concentration of retailing market; the trend of the concentration growth is obvious in all
countries with no exception (European Commission 2014, p. 50).
35
30
25
20
2000
15
2011
10
0
CR4 CR5 CR10
Figure 2. EU grocery retailing concentration ratios – comparison year: 2000 and 2011
Source: own calculation according to data available in (European Commission, 2014, pp. 51-52).
In Croatia, one of the newest members of the EU, the trend of retail concentration is
expressed even more. Figure 3 shows concentration ratios for Croatian grocery retail
market.
Not only large retailers are taking more and more retail market, but also, there is
a change in the structure of retail formats. Smaller formats such as convenience stores
are losing market proportion comparing to supermarkets and hypermarkets. This trend is
observed around the EU (for more details refer to European Commission, 2014). For an
illustration in Figure 4 we show data for Croatia grocery retail comparing years 2006 and
2012.
90
80
70
60
2006
50
40 2009
30 2011
20 2013
10
0
MS leading CR4 CR5 CR10
company
Figure 3. Grocery market shares in Croatia from 2006 to 2013

Source: adapted from (Knežević, Knego & Delić, 2014, p. 42).
50
45
40
35
30
25 2006
20 2012
15
10
5
0
hypermarkets supermarkets small shops
Figure 4. Market shares of grocery retail formats in Croatia (%)

Source: adapted from (Knežević, Knego & Delić, 2014, p. 45).
Key Challenges for Small Retailers

In the previously described market conditions where international retailers control larger
and larger proportion of the market and where leading companies are taking larger and
larger market shares, the average size of companies measured by the number of em-
ployees per a company is growing respectively in all EU countries, especially in newer EU
members (Knežević, Knego & Renko, 2011). In addition, the number of small and medi-
um retailing companies diminishes. Knežević, Knego and Renko (2011) analyse the situa-
tion in Croatia and draw a conclusion that, according to the number of enterprises classi-
fied by their size, the retail structure is becoming polarized. Namely, in Croatia out of all
enterprises in retailing industry 42% are micro companies (less than 10 employees), 35%
are large companies (more than 250 employees); there are 16% of small companies
(10 to 50 employees) and only 7% medium companies.
While overall productivity in retailing industry grows, in terms of revenues per em-
ployee for large retailers, small retailers are experiencing various issues in their opera-
tion and are forced to seek for survival strategies and policies. Knego and Knežević
(2011) point to following issues faced by small retailers (Figure 5): (a) unfavorable pro-
curement conditions, (b) lower turnover rate, (c) lower labor productivity, (d) lower gross
margins and (e) higher sales prices.
Figure 5. Problems of Small Retailers

Source: adapted from (Knego & Knežević, 2011, p. 3).
The unfavorable procurement condition of small companies is the result of their low
negotiation power because of small quantities being purchased. Therefore, comparing to
the large retailers they cannot negotiate with suppliers well and the consequences are
higher input prices of goods and services and higher transport and warehousing costs
comparing to large retailers. In addition, their negotiating skills are lower due to the fact
of lower knowledge capacities of their employees because the majority of retailers can-
not afford highly educated managers and employees. Moreover, small retailers often
cannot approach the producer directly because of the existing relationships and contrac-
tual arrangements within supply chains, and they are forced use intermediate companies
to purchase product and services which increases input prices even more.
On the other hand, lower turnover ratio is the result of lower capacities on their po-
sition towards consumers. Usually small retailers serve to the narrow geographic location
and the number of potential customers is lower in comparison to large retailers’ formats.
To achieve quantity discounts from their suppliers, they are motivated to buy bulk quan-
tities and usually, due to their lack of management knowledge and skills, they do not
apply methods and techniques of inventory planning and management. Knego and
Knežević (2011) analysed tradesmen (organized as small crafts) and retailers as legal
entities (retailing enterprises) and draw a conclusion that inventory turnover of trades-
men had never reached more than 60% of those in legal entities (retailing enterprises).
Lower labor productivity (measured by revenues per employee, see Knego and
Knežević, 2011) is the direct output of lower revenues generated by small retailers in
comparison to large companies which is the result of their limited market approach,
limited knowledge and skills and limited resources available for technological improve-
ment and innovation (in terms of processes, outlet and shop design, promotion, infor-
mation technology implementation and utilization etc).
As a consequence of all above mentioned, the gross margin as the difference of rev-
enues and cost of sold goods is significantly lower for small retailers. This forces small
retailers to apply additional cost cutting policies which usually has detrimental influence
on wages, shop and outlet design, lowering marketing activities, cutting the number of
employees and lowering service offered, cutting investment in knowledge and skills de-
velopment and information technology etc. In the longer run, such policies have damag-
ing impact on their competition position and therefore, they should seek some other
solutions for their survival. In the next chapters we will give some suggestions and exam-
ples of a different approach.
Due to higher input prices and higher operating costs, in comparison to large retail-
ers, small retailers have higher sales prices. In Croatia, based on price study of 10 stand-
ard grocery products, in small shops owned by small retailers, on the average prices are
23,47% higher compared to the lowest available price offered by large retailer (note:
own calculation based on data available in Knego & Knežević, 2011).
Retailers Associations as a Source of Competitive Advantage for Small Retailers

As a source for gaining competitive advantage by increasing the efficiency of procure-
ment, in developed European countries for a longer time multi-firm associations of re-
tailers are known (sourcing alliances) with buying groups in a special subform. In addition
there are newer forms with developed service in purchasing and supplier marketing at
European and global level (sourcing offices).
Multi-firm associations are communities of economically independent companies
formed for the purpose of cooperation in purchasing, sales, investment and financing,
and usually are established as separate companies (Tietz, 1993, p. 321). In retailing in-
dustry in Germany, they emerged at the turn of the 1960s and 1970s, when the medium-
sized companies joined at the national level in order to achieve better performance in
the market (Liebmann & Zentes, 2001, p. 281). Today they are not focused exclusively on
the national market, but are oriented to cover a region, the continent and even global
level. Buying groups, as a narrower form of sourcing associations, are associations of
retailers which are formed in order to organize joint procurement of goods and services
with the main goal to gain a better negotiating position among suppliers.
In the EU there are several large retailers sourcing associations, and they can be clas-
sified according to the type of goods in focus. For groceries and fast moving consumer
products examples are: EMD, AMS, Rewe and Edeka; textile: Garant; furniture: Atlas,
Begros and VME, building supplies: Hagebau; electronics and household appliances:
Euronics (according to Dawson & Mukoyama, 2006; Wortmann, 2002), etc.
In Croatia mentioned sourcing associations are present indirectly, through operation
of their members, for example, EMD is present through Müller, Kaufland and dm-
drogerie markt. In addition, we can observe increased association processes between

small and medium retailers and good examples are NTL and Ultra Gros, Table 1 shows
a brief profile and the strength of buying groups in Croatia measured by revenues, num-
ber of employees and the number of stores within the buying group.
Table 1. Buying Groups in Croatia

Number of
Name of the Revenues Number of
Established Employees
group (in bil. HRK) Stores Involved
Involved
NTL March 2005 4.4 6578 1229
(Narodni trgovački Members (8): Bakmaz, Studenac, Boso, Metss, Pemo, Trgovina Krk,
lanac) Trgostil Donja Stubica, Gavranović Zagreb
End of 2001 4.1 6464 947
Members (21): Dinova Diona, Djelo, Duravit, Jadranka trgovina,
Ultra gros Jeruzalem, Kvarner Punat trgovine, La-vor trade, Lonia, Mlin i pekare,
PPK , Prehrana, Ribola, Sonik, Strahinjčica, TP Varaždin, Trgocentar,
Trgonom, Union , Valalta, Victa, Vrutak
Source: Poslovna Hrvatska (2015).
Gaining Competitive Advantage through Differentiation

and Focusing on a Market Niche
The focus strategy implicit that firm selects a segment or group of segments in the fo-
cused industry (Porter, 1985). Focus strategy involves concentrating on a specific, mar-
ket, group of customers, product or service. Firms pursuing a focus strategy create com-
petitive advantage in a narrow and well-defined niche to avoid head-on collisions with
large competitors (Ibrahim, 2015).
Prior research suggests that focus (niche) is by far the most effective strategy for
small business. Previous research by Ibrahim and Goodwin (1986) supports this conclu-
sion. A small firm pursuing a niche strategy creates a competitive advantage in a narrow
and well-defined niche to avoid direct rivalry with large competitors. Areas of distinctive
competence identified by Stoner (1987) include quality of product or service, location,
know-how, uniqueness of product or service and pricing. The defender and prospector-
type strategies are highly pursued by small business owners and managers. This seems to
confirm some earlier studies. Small firms pursuing either defender or prospector types
achieved better performance than those employing an analyser-type strategy. Rugman
and Verbeke (1988) reported that prospector-type strategy is the most pursued strategic
direction followed by the defender-type. The researchers concluded that Miles et al.
(1978) typology is more appropriate for small business than Porter's generic-type strate-
gies.
If a firm uses a product differentiation strategy then it seeks to be unique in its in-
dustry along some dimensions that have value for the buyers. It selects one or more
attributes that buyers perceive as important (Porter, 1985). As with price, retailers are
interested in offering the best, or optimal, assortment of goods and services to attract
customers. Retailers can choose to differentiate their assortments by providing items
unique to the market, which can increase the number of stores needed to make a price
comparison on an item and, at the extreme, make price comparisons impossible
(Stassen, Mittelstaedt & Mittelstaedt, 1999). Product assortment can play a key role, not
only in satisfying wants, but also in influencing buyer wants and preferences (Simonson,
1999). Product assortment is a very important factor in achieving differentiation and
satisfying the wants of target shoppers better than the competition (Kotler, 1997).
As good and successful examples of implementation of the differentiation strategy in
food retailing in Croatia we can describe the Biovega company and company “Domaće
I fino” ltd. Biovega is a Croatian retail company founded in 1990. Bio Bio is a retail chain
owned by Biovega specialized in selling ecological products, mostly food, beverages,
cosmetics and household products. The company currently has 17 stores located in ma-
jor Croatian cities, mostly in Zagreb with a yearly turnover of 14 million EUR in 2014
compared to 10.2 million in 2012 and 11.5 million in 2013 respectively.
The company’s suppliers are required to have an ecological certificate that guaran-
tees the sourcing and quality of their products as well as a good public image and experi-
ence on the Eco products market. Assortment of products in Bio Bio stores tends to be
almost 100% ecological. The company also aims to offer products that are processed in
the least possible manner. Assortment sustainability and responsible sourcing is another
important issue. The company tends to cooperate with the Croatian eco farmers and
encourage them to produce food in a manner that is responsible both for the environ-
ment and the society. Biovega also has its own eco farmstead “Zrno” as well as a vege-
tarian restaurant also called “Zrno”. The company does not offer any meat products due
to ethical reasons. In 2014 the company received an corporate social responsibility re-
ward in the category of employee care from the Croatian Employers Association. Biovega
quality control department, that controls health safety and registration of products con-
sists of experts in regulatory affairs, controlling, certification, check-in system monitoring
(for dietary supplements, foods with health claims, food with special properties and baby
food), as well as professional sanitary engineer, a pharmacist and a representative of the
Management Board.
Another source of the company’s competitive advantage is highly specialized em-
ployees. Since Biovega was one of the companies that established the eco food retail
nice in Croatia it can be said that the company’s management possesses a better
knowledge of the business processes than the competitors in this niche. The sale persons
are required to be working professionals with experience in food sector or nutritionists.
Ethical and transparent communication is also important for the company image, there-
fore the public relation sector employees are experts in the fields of social sciences:
sociology, philosophy, linguistics, and visual design. Employees at all work processes
have specialized knowledge that their workflow requires. The greatest attention is paid
to education of employees in stores who undergo a program of lifelong learning and
continuous education about the products from the company’s portfolio and the upcom-
ing trends to provide quality services.
In order to upgrade the quality, the company implements ISO 9001 and HACCP sys-
tems. The purpose of the introduction of ISO 9001 system is the improvement of busi-
ness planning and development of quality awareness within the organization, providing
an appropriate level of communication with customers and suppliers (partners) on mu-
tual benefit, customer-orientation, reduction of losses (non-conforming goods or ser-
vices), and process control. While the goal of the HACCP system is to protect the health
of consumers in food industry and distribution, and it takes place in six areas: Space
Requirements, Storage requirements, Equipment and maintenance, Staff Training, Hy-
giene Program, SSOP Sanitation Standard Operating Procedures, the return of goods.
Some small retailers choose even narrower niche than Biovega. For instance, ‘Do-
maće i fino’ applies even more rigorous differentiation strategy and is focusing towards
even narrower market niche by assortment differentiation policy based on the presump-
tion of consumer ethnocentrism. The mentioned company is oriented on selling “so
called” domestic food manufactured strictly by the Croatian farmers. Moreover, the
company is basing its market strategy on virtual sales channel as the basis for communi-
cation with consumers. Actually, ‘Domaće i fino’ company started as the first Croatian
online domestic food shop in 2010. Today it also has a physical shop in Zagreb. The com-
pany’s turnover was 30 000 EUR in 2012 and 200 000 EUR in 2013.
Another example that supports the theory of differentiation and focusing is ‘Green-
cajg‘ as very successful highly specialized online retailer. With its assortment policy based
on organic food of own brands, ‘Greencajg‘ is targeting even narrower niche because it is
oriented mainly to narrow geographic area around Zagreb city. Therefore, we can con-
clude that there is a space for other small retailers to develop by applying differentiation
and focusing generic strategies suggested by Porter.
CONCLUSIONS
Retail internationalization and retail concentration are two key trends in the European
retailing industry. Their consequence is increasingly difficult position of small retailers
which do not have enough resources and knowledge to compete with large international
retail chains. In such conditions small retailers, in comparison to large retailers, face
various issues such as low negotiation power towards suppliers, low turnover ratios low
productivity rates, low margins, and consequently higher sales prices.
According to the literature on competitive advantage creation, small retailers can
seize some opportunities offered by new market conditions. In this paper we suggested
that retailers associations can improve their negotiation power towards suppliers. In
addition, we described the implementation of differentiation by assortment as another
strategy of market survival. For both cases we privided practical examples from Croatia.
Also, it should be stated that the resource based view theory deals with the problems of
choosing the directions for business diversification and it can’t be applied for small com-
panies. All of these findings can be a good starting point for further research into strate-
gies that can be applied by small retailers as an answer to new trends in the retail indus-
try, as well as useful information for managers in the retail sector.
Nonetheless, we have to point out that this paper was mainly based on secondary
data which was a limitation of the research and this topic should be further developed by
in-depth analysis of other good practices and examples from retailing industry.
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Authors
The contribution of co-authors is equal. B. Knežević made conceptual framework, prepared the
literature review, and did analysis of retail trends, D. Naletina analysed and systematized litera-
ture on competitive strategies, and M. Damić did case studies and calculations to illustrate
trends and good practices.
Blaženka Knežević
Associate Professor at the Department of Trade, University of Zagreb. PhD in Economics
(2008).Guest lectures in many universities in Europe such as: University of Stirling, Cracow
University of Economics, Vilnius Gediminas Technical University, University of Belgrade. She has
published more than 50 papers in scientific journals, chapters in books and proceedings of
international scientific conferences. She is reviewer and/or member of editorial board in many
peer review academic journals in field of business administration, marketing and management.
Her research interests include economics of electronic commerce, information systems in re-
tailing, procurement management and retail supply chains.
Correspondence to: Izv. prof. dr. sc. Blaženka Knežević; University of Zagreb, Faculty of Eco-
nomics and Business, Department of Trade; Trg J. F. Kennedy 6, 10000 Zagreb, Croatia; e-mail:
[email protected]
Dora Naletina
Teaching and Research Assistant at the Department of Trade at the Faculty of Economics and
Business in Zagreb. PhD in Economics (2016). She is teaching courses at undergraduate and
graduate level at Faculty of Economics and Business Zagreb.
Correspondence to: Dora Naletina, PhD; University of Zagreb, Faculty of Economics and Busi-
ness, Department of Trade; Trg J. F. Kennedy 6, 10000 Zagreb, Croatia; e-mail:
[email protected]
Mate Damić
Teaching and Research Assistant at the Department of Trade at the Faculty of Economics and
Business in Zagreb. Currently a PhD student in Economics and Business at the University of
Zagreb. He is teaching courses at undergraduate and graduate level.
Correspondence to: Mate Damić, MA; University of Zagreb, Faculty of Economics and Business,
Department of Trade; Trg J. F. Kennedy 6, 10000 Zagreb, Croatia; e-mail: [email protected]
The article came into being within the project entitled “Innovations in Supply Chains in Condi-
tions of Retail Internationalization” [in Croatian: “Inovacije u lancima opskrbe u uvjetima inter-
nacionalizacije maloprodaj”] financed by University of Zagreb, Croatia, conducted by Blazenka
Knezevic and team in the year 2015. The research is partially supported by Croatian Science
Foundation under the project UIP-2014-09-4057.

2016, Vol. 4, No. 4 DOI: 10.15678/EBER.2016.040412
Special Economic Zones as Growth and Anti-growth

Poles as Exemplified by Polish Regions
Hanna Godlewska-Majkowska, Agnieszka Komor, Magdalena Typa
ABSTRACT
Objective: The objective of this paper is to present the effects of special economic
zones (SEZ) on the polarisation of public economic space in Polish regions.
Research Design & Methods: The paper looks at both positive and negative effects of
economic zones on the polarization of economic space in Polish regions. In an empiri-
cal analysis of internal and external effects of SEZs growth centres are identified. Cen-
tre of the polarised region, as a source of development incentives, characterised with
a higher growth dynamics in comparison to the other part of the region is identified
as a growth pole; while the centre of a polarised region being a source of crisis factors
higher than in the region is identified as an anti-growth pole.
Findings: In the result of conducted studies 8 growth poles, 19 centres of unstable
economic situation have been identified, anti-growth poles has not been identified.
Factors that result in the polarisation as well as its positive and negative characteris-
tics were identified.
Implications & Recommendations: The new model, which captures growing changes
and can activate an appropriate action aimed at avoiding crisis can be used as a po-
tential early warning system by the authorities of territorial units.
Contribution & Value Added: The originality of this work lies in proposing a new
methodological approach to identify poles and anti-poles. This approach can be ap-
plied for various tiers of taxonomic division for regions in various countries and forms
of public aid.
anti-growth poles; investment attractiveness; growth poles; public
Keywords:
aid; special economic zones (SEZ)
JEL codes: L52, R53, R12, P48
Received: 4 March 2016 Revised: 6 September 2016 Accepted: 9 September 2016
Suggested citation:
Godlewska-Majkowska, H., Komor, A., & Typa, M. (2016). Special Economic Zones as Growth and
Anti-growth Poles as Exemplified by Polish Regions. Entrepreneurial Business and Economics
190 | Hanna Godlewska-Majkowska, Agnieszka Komor, Magdalena Typa
INTRODUCTION
Special economic zones (SEZs) are considered one of the most successful measures in
regional policy that are applied to overcome barriers to regional development. One
should consider not only a positive scenario in which the special economic zones become
growth poles, but also think about the opposite course of actions. It is possible that the
zones generate adverse effects, which not only fail to create growth generators, but may
even hamper the growth or cause a spate of negative phenomena that intensify one
another (i.e. negative synergy).
A negative scenario is probable when state aid is not adjusted in terms of its scale,
kind or form to the characteristics of a given region/locality and investments in the
zones. This causes overexploitation/misappropriation of resources instead of stimulating
development in a viable manner. Therefore it is important to identify mechanisms which
either cause the positive scenario to happen, in which case a growth pole is created by
the special economic zones, or activate the negative scenario productive, which involves
the creation of an “anti-growth pole”.
For the purpose of this study, we decided to use the term growth pole in a reference
to a centre of a polarised region, which is the source of growth incentives and is charac-
terised by a higher growth dynamics in comparison to other parts of the region. Anti-
growth pole is a polarised region’s centre, which is a source of the crisis signals higher
than the rest of the region. Region can be considered as a group of spatial units on dif-
ferent levels of taxonomic division (e.g. local, mezoregional, macroregional).
The role of poles or anti-poles can be played by not only single entities, but whole
groups of them, or by development strategies of large enterprises (especially corpora-
tions), as well as by economic incentives systems, which can cause spatial structure mod-
ifications created by large enterprises. Special economic zones can have a special role in
this.
The goal of this paper is to demonstrate both positive and negative effects of eco-
nomic zones on the polarization of economic space as exemplified by Polish regions.
Conclusions presented in this paper will help to identify the factors that either increase
the chances of the positive effects contributing to the development of the economic
zones or cause their negative effects to prevail.
The proposed research methodology aims at delimiting poles and anti-poles on the
level of municipalities that have SEZs within their borders. Delimitation procedure was
conducted on the basis of internal and external activities of the SEZ in the municipality.
The evaluation of internal effects was based on direct effects of enterprises located in
these zones, while the external effects evaluation was a result of assessment of multipli-
er effects of a supply and income character. The paper proposes a procedure and a re-
search tool developed for monitoring the changes that occur because of the polarisation
of the region. This model can serve as the basis of an early warning system which could
potentially be used by the authorities of territorial units.
The results of the analysis may be applied not only to foster the development of Po-
land’s regions, but also the regions located in other countries, based not only on SEZ, and
also on other forms of public aid, as the mechanisms of polarisation are universal in
character. Consequently, they may be particularly useful to stimulate regional economy
Special Economic Zones as Growth and Anti-growth Poles as Exemplified by … | 191
in underdeveloped agricultural regions and problem regions characterized by an anach-

ronistic structure of regional economy based on industrial monoculture. Polish regions
demonstrate a broad diversity and different capacities to absorb state aid, because po-
larisation mechanisms are universal.
The first part of the paper presents a literature review on the growth poles theories,
development polarisation with a special attention to their positive and negative impact
on development of other units. Furthermore, we presented considerations on the influ-
ence of special economic zones – as a kind of public aid – on the economic development
with an emphasis on multiplier effect of a supply and income character. The conducted
literature studies suggest that majority of studies concentrate on positive effects of SEZ
that stimulate economic development on the different spatial scales. Literature lacks
research analysing factors influencing the negative effects of this kind of public aid. It is
a cognitive gap that we try to fill with this paper.
The next part of the article identifies Polish municipalities that are a subject of this
research and have special economic zones within their borders. As a next step we have
proposed a research method aimed at finding poles anti-poles of growth. Boundary con-
ditions have been specified, which should be met by municipalities in order to become
positive or negative centres towards nearby areas. Measures of the assessment of the
internal and external effects (being the reflection of supply and income effects) have
been described. Poles and anti-poles delimitation criteria have been identified depend-
ing on the measures describing external effects.
In the course of the studies 8 growth poles, 19 centres of an unstable economic situ-
ation have been identified and anti-poles have not been identified. Next, we have con-
ducted the econometric analysis of polarization types in municipalities dependency from
municipalities investment attractiveness, which have zones located within their borders.
Also the results of the supplementary qualitative research with the use of an in-depth
interview with the directors of five special economic zones in Poland were presented. It
can be noted that qualitative studies confirmed the existence of poles in indicated places
and lack of anti-poles in the studied period.
The last part of the paper presents the results of conducted analyses. During the re-
search the most important factors of SEZs positive and negative influence on local and
regional development polarization were identified. It needs to be stated that numerous
threats connected with the creation of SEZs and the creation on anti-growth poles re-
quire to use the monitoring system of changes present in local and regional economy.
Our model allows grasping the intensifying changes and preparing the prevention
measures. The proposed method has a universal character and allows the assessment of
a variety of public aid forms on the region’s or country’s economy no matter the given
country’s socio-economic starting point. It also fills the cognitive gap on the public aid’s
influence assessment on the municipality’s economic growth.
LITERATURE REVIEW
The concept of the growth pole (fr. pôle de croissance) was introduced to the literature
by Perroux (1955) as a phenomenon that surpasses the average level, and not one of
extremes. The proposed conception of sectoral polarisation identifies the pole with the
company, which is a driving force and exhibits a strong market position, rapid growth of
economic activity and a number of network cooperation (Perroux, 1955). In the course of
its evolution, the theory of growth poles has provided a spatial dimension. Myrdal (1957)
and Hirschman (1958) are considered the creators of the regional version of the growth
pole theory.
Significant contribution to the development of the concept of growth pole in terms
of a geographical viewpoint was also introduced by Boudeville (1972) and Paelinck
(1965). Among the new theoretical concepts relating to the theory of polarized devel-
opment, a new concept of endogenous growth and the concept of a new economic ge-
ography may be distinguished. According to Churski (2011), the latter concept is actually
a new theory of polarised development.
In the literature, the term pole may theoretically determine both positive and nega-
tive effects of the impact of the growth of one unit on the development of other units.
According to Perroux (1955), these are stimulating, inductive (fr. effets d’entraînement)
or inhibitory effects (fr. effets de stoppage). Hirschman (1958) explains poles as opposite
endpoints of one axis, wherein the positive effects are described as trickling-down ef-
fects, while the negative effects are presented as the polarisation effects. Myrdal (1957)
described progressive effects as spread effects, and regressive ones as backwash effects.
In the theory of growth poles less attention is paid to a negative scenario of polariza-
tion effect. However, in accordance with the principle of circular cumulative causation by
Myrdral (1957), positive changes cause the cumulative growth process, while negative
changes – a cumulative shortening process. It is the result of feedbacks increasing inten-
sity of mutual influences of both positive and negative character, being one of the rea-
sons that boost inequalities between growth centres and regions and other areas.
The role of a growth pole can vary over time. The natural ebb and flow of the system
may cause the existing poles to become centres of stagnation. Maturation of growth
poles and their gradual replacement by others is a natural and necessary process in the
national economy, but may cause the collapse of the process of economic development
for some local areas. Diversification and supporting the development of service activities
may to some extent mitigate the negative effects of the changes (Mckee, 1987).
Shanzi and Feser (2010) studied the occurrence of spread-backwash effects on a part
of the territory of China. They analysed the impact of economic growth in bigger cities on
the support or inhibition of growth in smaller cities and counties and the geographic
scope of the occurrence of spread-backwash effects. Their empirical study has generated
mixed evidence of the spread effects of large cities growth. It should be noted that the
growth poles in large cities could generate both positive and negative regional growth
spillovers.
Parr (1999a) analysed the concept of growth poles in the context of regional eco-
nomic planning. However, at the same time, it should be noted that the growth pole
strategy may be recommended with regard to various regional problems, such as de-
pressed-area revival, the encouragement of regional deconcentration, the modification
of a national urban system and the pursuit of interregional balance. Among the charac-
teristics of the strategy, the author mentioned the following: encourages employment
growth and population growth in certain areas of the region, changes the spatial struc-
ture of employment and population growth within a region, identifies limited number of
places that are potential growth poles and allows spatial discrimination or selectivity
between locations. Spatial configuration of the planned poles, economic activity at the
poles, external effects of the poles and the presence of a pole within an existing urban
system (Parr, 1999a; 1999b) are all important for the implementation of the strategy.
Followers of the concept of polarised development emphasise that in reality, growth
poles can develop independent of the surrounding peripheries, which challenges the
theories of sustainable development. Nowadays, growth poles are described as a net-
work connection system, which may be characterised by greater intensity than associa-
tions with the nearest geographical environment and companies from the periphery
(Gorzelak & Jałowiecki, 2000; Gancarczyk & Gancarczyk, 2002). Then, the effect of
growth pole on economic space may be marginalised or limited only to the negative
effects that are described as exploration of endogenous resources of the region.
Large enterprises play a special role in the concept of Perroux (1955). They are treat-
ed as leading units creating growth poles. Classical approach to the leading units in ac-
cordance with growth poles theory in a global economy needs a modification due to
changes in enterprises, as well as in the environment. Today an important role can be
played by groups of enterprises (especially by those who cooperate with each other and
share their knowledge), as well as development strategies of great enterprises (especially
corporations) and by the economic incentives system which can cause the modification
of spatial structures created by large enterprises. Special economic zones can have
a special role to play, as well as ownership connections and supply chains caused by
quality reasons and safety reasons.
Economic zones in terms of the economy are an instrument of economic policy for
the development of the whole country, which it does by supporting certain regions or
sectors. On the other hand, from the perspective of economic geography, it is an ele-
ment of economic space capable of creating new spatial structures and developing loca-
tion advantages. In physical terms, these are geographically separate places doing busi-
ness on preferential terms. Zones are oriented to attract new investors. Relationships
that business entities create with the environment are one of the main factors of eco-
nomic development of the region. The level of investment in the enterprise decides
about its influence on the spatial structure of the regional arrangements, leading to the
perpetuation or transformation of the spatial structures of the region.
Few studies concern SEZs as growth poles. Most authors note that SEZs are created
in order to accelerate regional development and focus on the functioning of the areas
with economic advantages. As such, the impact mechanism of this instrument is rarely
present in the literature.
Considerations on the SEZs impact on the economy can be found in literature.
Kryńska (2000) notices that the idea of creating special economic zones in Poland in its
first assumptions, was supposed to support economic development of problematic areas
through attracting large industrial enterprises. According to Ofiarska (2000) SEZs were
intended to complement Poland’s industrial policy within the progress of selected indus-
tries, increase of domestic services and products’ competitiveness, modern technologies
and support of production for exports. On the other hand Fierla (2000) and Brdulak
(2003) stress out that SEZs were supposed to limit the negative effects which accompany
the transformation process, such as unemployment increase and rising differences in the
development level of particular Polish regions. The SEZs importance as an instrument of
counteracting marginalisation of the least economically developed regions was also no-
ticed by Nazarczuk and Kisiel (2013), who implies that SEZs goals include, apart from new
jobs creation in the underdeveloped regions, boosting economic development through
the improvement of selected sectors, production structure diversification and local
economy reconstruction.
Some of the authors emphesize the macroeconomic dimension of SEZs activity.
Miłaszewicz (2011) spotted the SEZs role in the country’s economic modernization
through the influence on the increase of capital expenditure. On the other hand, Pastusi-
ak (2011) perceives SEZs as an active investment policy tool, which aim is to attract for-
eign investors and economy’s activation and in a result unemployment decrease and
inflow of new technologies. Pilarska (2009) has a similar understanding. She describes
SEZs as state’s economic policy tool for decreasing unemployment, increasing underde-
veloped regions’ investment attractiveness and attracting foreign investors. Laskowski
(2009) also points to the regional aspect of zones’ functioning and identifies them as an
instrument for fighting the inconvenient effects of public-economic transformation
through bringing foreign investors to the areas in a danger of poverty and the use of
existing technical and technological solutions, as well as smart management of unused
industrial assets.
Usually the roles and goals of SEZs manifest themselves on the macroeconomic and
regional levels. But some of the researchers point to its local character. Jarczewski
(2007), Lizińska, Marks-Bielska and Kisiel (2011) perceive the SEZs role in the investment
attractiveness of municipalities. Krzemiński (2009) underlines the SEZs’ role in the spur-
ring of local entrepreneurship in the underdeveloped, or affected with high unemploy-
ment, regions. Przybyła (2010) links the existence of zones with transformations in the
city’s functional structure especially connected with city’s exogenous functions, thereby
stressing the SEZs influence on the cities’ economic base changes. In turn Ambroziak
(2009) notices that zones became the tools of state’s impact on the actions of economic
entities, tools for economic growth stimulation of specific regions and for attracting
foreign investments.
There are number of studies that examine how special economic zones contribute to
the stimulation of regional development, but not in the perspective of the growth pole.
Advocates of special economic zones as national or regional development strategies
argue that the zones offer various benefits. At the national level direct benefits include
foreign investments, job creation and export promotion, whereas indirect benefits in-
volve transfer of technology and know-how, as well as facilitation of institutional liberali-
sation. At a local level the benefits for human resources entail increase in income and
acquisition of professional skills, often described as the ‘spillover effects.’ Authors focus
mostly on success stories of SEZs (Wong & Chu, 1984; Moura & Forte, 2010; Osinubi
& Amaghionyeodiwe, 2010; Brautigam & Xiaoyang, 2011; Zeng, 2011; Saqib, Masnoon
& Rafique, 2013) and indicate the causes being the joint presence of various institutional
and legal instruments, which range from tax havens to some combinations of areas with
economic advantages and forms of support for the transfer of technology and know-how
like science and technology parks or centres for entrepreneurship.
Examples of clusters that are created as a result of cooperation between SEZs and
companies operating in the zones are widespread (Zhao, Chan & Chan, 2012; Hsu, Lai
& Lin, 2013). Researchers also describe eco-parks, which may offer attractive conditions
for the growth of companies that develop green innovations (Shi, Chertow & Song,
2010), or apply corporate social responsibility (Lai, 2006; Shen, 2007), or shared social
responsibility (Christensen & van Bever, 2014).
The literature is prevailingly descriptive and indicates the role of SEZs in regional de-
velopment. However, studies on the mechanism of impact of SEZs on the economy and
the universality of this impact are rare. Typa (2012; Typa, 2013a; Typa, 2013b) is one of
the few scholars who describe special economic zones as growth poles. In her studies
growth poles are presented through investigating the dynamics of development of mu-
nicipalities (gminy), where SEZs are located, in comparison with one-tier higher taxonom-
ic areas (LAU2). Typa’s (2012) research leads to a conclusion that communes in the SEZs
only develop into a growth pole if they are characterised by high investment attractive-
ness. They are mostly located in national and international transport corridors, densely
populated regions with historically industrial background, which bear many features of
problematic regions (prevalence of heavy industry, significant negative externalities,
exceeding economies of scale). Studies also show heavy influence of SEZs location on the
manufacturers of means of transport that are in a position of creating numerous cooper-
ation ties. The municipalities in which SEZs, clusters and business environment institu-
tions generated a synergy effect were the most successful. This author, however, only
concentrated on positive aspects of space polarization.
Some authors also criticise SEZs. They believe the SEZs produce worse effects than
complete economic liberalisation (Farole, 2011). The results of analysis of the role of
SEZs in the liberalisation of the economies of China and India allow us to conclude that
export and an increase in FDI have a positive statistically significant impact on the eco-
nomic growth in those countries. The presence of SEZs increases the pace of regional
development, but an increased number of SEZs have a scarce effect on economic
growth. Increased pace of liberalisation seems to be the key to expedited economic
growth. SEZs have also been investigated as liberalisation and development strategy
vehicle for the economies of China and India (Leong, 2013). It should be noted that the
creation of further subzones within the SEZs may potentially cause a dispersion of in-
vestments and a reduction in their desirable effects in addition to ‘subzone cannibalisa-
tion,’ i.e. rivalry between the subzones within one SEZ (Hajduga, 2011).
Broszkiewicz (2011) has reported on the disadvantages in the functioning of SEZs,
which appear as a result of the influence of different factors characterised by legal and
economic fluctuations. According to him, the possibility of doing business in the zone is
strictly dependent on the current laws and changes in that area, as well as on global
factors, e.g. economic crisis. The author also mentions that SEZs in Poland did not fulfil
the purpose of their formation, which was the equalisation of disparities in the region.
Other authors highlight the needs of sectors that should be developed complemen-
tary to one another, and question their restricted learning faculty, their capacity for
a technological spillover, or they argue that in fact SEZs intensify the discrepancy in the
region’s income (Park, 2005). However, it is difficult to generalise the effects of SEZs, as
an overall research result is normally contingent upon a specific situation. According to
Sigler (2014), the SEZs may in fact worsen the disparities in social development by creat-
ing entry barriers for a majority/part of a society (both physical and social restraints);
allowing the import of a highly skilled workforce (instead of developing local training
schemes); diminishing the benefits of international investments through a tax system
that provides excessive tax reliefs; and allowing public authorities to be passive in im-
plementing social development means and measures. For example, despite Panama’s
recent economic success many of its regions have been neglected by social services
schemes, e.g. state-funded education or public healthcare. In the SEZ-supported sectors,
entry barriers are high both in terms of required skills or know-how/qualifications and
necessary capital outlays, whereas most positions with high or mean remuneration are
occupied by national elite or well-educated expats. SEZs consequently contribute to the
overall development of a national economy. If they are, however, intended to serve as a
local development generator, broad complementary social development schemes need
to be implemented to maximise social benefits of economic growth (Sigler, 2014).
It should be noted, though, that companies are not isolated but settled in certain lo-
cations and socioeconomic contexts that are also shaped by political and institutional
players (Tödtling, Asheim & Boschma, 2013). Although such zones turned out to be suc-
cessful in the Dominican Republic, critics of the idea of creating various areas of econom-
ic advantages (here: export processing zones) underline the unfavourable lack of links
and relations between companies located in the zone and firms outside it. This results in
economic enclaves. According to the researchers, Export Processing Zones are not an
optimum industrial development generator. They argue that it would be more beneficial
to support export in the entire national economy because that generates network effects
and adds higher value, which in turn contributes to an increased local employment rate,
income and transfer of technology (Willmore, 1995). A study on another kind of econom-
ic enclave, Special Economic Zone of the Kaliningrad Oblast in Russia (Russian region
surrounded by UE states, Lithuania and Poland), was presented in a paper by Gareev
(2013).
Therefore, attracting a foreign investor does not necessarily safeguard its positive
impact on the national or regional economy. Important determinants of absorptiveness
and benefit maximisation for the local economy include technology gap, cultural and
mental distance between individuals, homophily, spatial proximity, idiosyncratic charac-
ter of sectors and host countries, high degree of foreign ownership, level of development
of host economy, relative size of firms, degree of trade protection and the institutional
framework (Tavares & Young, 2005).
To the list of positive effects, one should also add activation of cost-sensitive mature
sectors located in the proximity of less-developed territories, due to the emergence of
industries in major cities. A drainage of well-educated workers and potential capital
investments from the surrounding areas is one of the negative effects of the growth pole
(Shanzi & Feser, 2010).
Referring to the classical model of business location by Smith (1966), it was noted
that SEZs should be a form of subsidy for investors, which aims to direct them to places
that otherwise would not be of interest. These areas are located outside either the spa-
tial boundaries or area of production profitability, or are perceived by investors as unat-
tractive in comparison with competing locations.
Subsidised business investments in the area of SEZ should have a positive impact on
the local environment through increased income and employment in other companies,
as well as an increase in tax revenue to local governments. Grzeszczak (1999) observes

that the function of the growth centre in regional development is its ability to ensure the
spread effects. The spread effects occur when the core area and the periphery are incor-
porated to the economy through: (i) increase in demand for goods and services produced
in the periphery; (ii) investments of companies from the core as a result of searching for
new markets and the desire to reduce costs; (iii) income and supply multiplier effects.
These effects also occur in a less tangible form, e.g. through the diffusion of styles and
management patterns.
For the first time, the multiplier effects in the context of SEZ were described by Do-
mański and Gwosdz (2005) when summarising the activities of the SSE Euro-Park Mielec.
They distinguished two basic types of multiplier effects: supply and income. The supply
effects arise from the extra demand created by newly established or growing enterpris-
es, enabling the growth of companies supplying goods and services. Income effects are
the result of an increase in the purchasing power of the population through increased
salaries, which when spent contribute to the development of companies that meet con-
sumers’ needs. This way, the development of some companies through additional de-
mand for products and services is ‘multiplied’ in the form of development of other eco-
nomic entities. These entities, in turn, also create more demand, inducing another cycle
of multiplier effects.
According to Domański (2001), the size of multiplier effects depends on the type of
business and the size and characteristics of the company. Individual activities (industries)
and companies also differ in the spatial range of multiplier effects, including the degree
of local closure. Stronger local supply effects usually occur in companies that operate
longer in a given location and native capital enterprises, especially those that have their
own premises. Sometimes supply effects are weaker in some foreign companies, espe-
cially new factories, oriented to foreign markets. Local multiplier effects generated by
outsourcing services are usually stronger than the effects arising from the supply of pro-
duction. Typically, the local nature is exhibited by income multiplier effects associated
with the place of residence of employees. Their size is strongly related to the number of
job positions and salary levels in companies.
In the result of conducted literature studies, we found that the majority of research
concentrates on SEZs positive effects stimulating economic development on the regional
level. The literature lacks the sources analysing negative effects of such public aid and its
impact on the local level.
In the literature, the prevailing opinion is that of the growth pole being held up as an
example of positive polarisation; however, the concept of an anti-growth pole should be
also introduced to draw attention to the existence of a negative polarisation associated
with the overlapping in a given location of various development constraints, ultimately
causing the opposite phenomenon of economic development.
Therefore, an attempt to present both aspects of polarisation offers a pioneering
and fresh approach to the subject. It is important to point out under what conditions a
growth pole may collapse and transform into an anti-growth pole (crater) or where and
under what circumstances an anti-growth pole (crater) may come into existence in
a previously non-polarised area. This is a research gap that should be filled. It may have
implications for the development of studies on economic geography and regional eco-
nomics and for practical applications as managing the state aid requires a knowledge of
failure factors. It may also contribute to the formation of an early warning system to
enable the planning of necessary activities aimed at avoiding a crisis.

In Poland, special economic zones are located in 356 municipalities, which represent 14%
of all municipalities (LAU2) in Poland, while the total area of economic zones does not
exceed 12 000 ha. There is a high geographic dispersion of the areas, as a result of which
they affect the local economy significantly only in a few cases, their effect on the region-
al economy being rarely felt.
This may be proved by analysing the basic indexes of SEZs activity; that is, the value
of investments accomplished by the companies and the number of jobs created by re-
gional business. By the end of 2013, investment spending in the zones has surpassed
93.14 billion PLN. In 2008-2012, on an average 6% of the annual investments in Polish
enterprises were completed by regional enterprises. In the area of SEZs, 196 000 new job
positions were created and 70 580 jobs were retained. Thus, 1.9% of the total working
population were employed in the regional enterprises.
Taking into account the nature and extent of the expected changes caused by new
investments in SEZ, it is reasonable to assess whether, in the case of SEZs, flotation of
multiplier mechanisms, particularly fiscal and supply, is noticed and whether SEZs be-
came a factor which promotes economic growth at the local level. The analysis aims at
answering a question whether the enterprises operating in SEZs positively influence the
economic growth on the local level and thus have the ability of extending the growth to
the regional level. A hypothesis was adopted for this purpose, which states that invest-
ments of subsidised entities located in SEZs should influence the local environment
through the income and employment increase, as well through tax revenues for the local
governments.
For this reason, we analysed the direct effects of SEZs’ activity in Poland and selected
indexes assessing the level of economic development of the municipalities in which the
SEZs were established. For the analysis, we used data of the Ministry of Economy and
Central Statistical Office of Poland regarding:
− cumulative investment spending in SEZs according to the status at the end of 2012
and 2013, when division into municipalities was conducted,
− newly created and maintained job positions in SEZs according to the status at the end
of 2012 and 2013, when division into municipalities was conducted,
− the number of entities registered in the system per 1000 individuals of reproductive
age between 2008 and 2013, when division into municipalities was conducted,
− the number of employees per 100 individuals of reproductive age between 2008 and
2013, when division into municipalities was conducted,
− shares of municipal budgets in taxes constituting the state budget revenue, income
tax from every natural and legal person of reproductive age between 2008 and 2013,
when division into municipalities was conducted.
Based on the above-mentioned data, the following factors were evaluated:

1. internal effects based on:
− share of newly created and maintained job positions in SEZs in the number of em-
ployees in the municipality according to the status at the end of 2012 [W1],
− cumulative investment spending in PLN of regional enterprises according to the
status at the end of 2012, when division into municipalities was conducted [W2],
2. external effects based on:
− the annual average growth rate of the number of entities registered in the system
per 1000 individuals of reproductive age between 2008 and 2012 [T1],
− the average annual growth rate of municipal budgets in taxes constituting the
state budget revenue income tax on every legal and natural persons of reproduc-
tive age between 2008 and 2012 [T2]1,
− average annual growth in the number of working people per 100 individuals of
reproductive age between 2008 and 2012 [T3].
Based on such calculations, firstly we identified municipalities, which, thanks to the activ-
ity of SEZs, are able to develop faster than the sub-meso regional environment and thus
act as growth centres. At the same time, as a boundary, we considered the fulfilment of
two conditions regarding:
− a significant share of SEZs in the management of labour resources—the reflection of
a significant impact is the W1 index at the minimum level of 10%; and at the end of
2012, 86 communes met this requirement,
− significant value of new investments, i.e. such which are able to induce an effect on
the regional market—according to the authors, a significant impact was observed
among these municipalities for which the W2 level amounted to a minimum of 200
million PLN, by analogy to the minimum value of the large investment project in ac-
cordance with the EU2 legislation; at the end of 2012, 35 regional municipalities met
this requirement.
Altogether among the 356 municipalities in general in 2012 when SEZs were com-
pleted, only 27 municipalities met the boundary conditions, leading to the hypothesis
that the economic zone significantly affected their development.
Identification of municipalities with a significant level of internal effects does not al-
low us to conclude that these regional locations became zonal ones:
− growth pole, that is the centre of the polarised region emitting growth stimuli charac-
terised by a higher growth rate compared to the remaining part of the region. The re-
1
One of the income sources in regional municipality are shares in taxes that constitute the income of country
budget. This benchmark indicates indirectly on the salary level and purchasing power of the local community
and the economic condition of firms located in the regional municipality.
2
Art. 100 Regulation of the European Parliament and the Council (EU) No. 1303/2013 from 17 December 2013
establishing common regulations on the European Regional Development Fund, the European Social Fund, the
Cohesion Fund, the European Agricultural Fund for the Rural Area Development and the European Maritime
Fund and Fisheries and establishing general regulations on the European Regional Development Fund, the
European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council
Regulation (WE) No 1083/2006 (L 347/320).
gion may be applied to spatial units of different levels of taxonomic division (e.g. local,
meso-regional, macro-regional)3,
− anti-growth pole that is a centre of the polarised region emitting crisis stimuli of high-
er growth rate compared to the remaining part of the region.
The answer to this question is possible only on the basis of an assessment of external
effects, which reflect the supply effects (T1) and income effects (T2, T3). In order to ac-
complish that, we compared T1, T2, T3 indices of each municipality that had a SEZ within
its border with the same indices of a local government of a higher level, i.e. district, sub-
region, or region depending on the municipality status according to NTS.
The period which was considered when calculating average annual growth rate for
the purpose of T1, T2, T3 calculation, is similar to the permanence period required for
projects supported from public funds under the guidelines on national regional invest-
ment aid4. Results of the calculations are presented in Table 1.
Depending on the level of T1, T2, T3 index, following delimitation criteria were estab-
lished: poles (T1, T2, T3, greater than zero), anti-poles (T1, T2, T3, equal to zero or less) and
the centres of unstable growth rate (T1, T2, T3 above or below zero) (Table 2).
Then, econometric analysis was carried out analysing the type of polarisation that
occurs in the regional municipalities and investment attractiveness of communes, where
special economic zones are found. For this purpose, the index of potential investment
attractiveness developed by Godlewska-Majkowska (2012) was used5.
3
This definition refers to the concept of growth poles by Perroux (1955).
4
EC regulation on regional aid for 2014-2020 (Text which is relevant for EOG) (2013/C 209/01).
5
Potential investment attractiveness is an approach referring to the assessment of localisation prior to invest-
ment. In this perspective, location advantages are analysed. The construction of indexes describing potential
investment attractiveness refers to the leading location factors, grouped into components describing demo-
graphic and marketing factors, as well as technical and social infrastructure and pro-investment behaviour of
local governments. In addition, according to the accessibility to the data, research and development issues, as
well as social capital (relational) are considered.
The advantage of this index is the design enabling full comparability of ratings of investment attractiveness at
all levels of the static division of the country. The disadvantage is the limitation regarding a set of diagnostic
variables, due to the need of their accessibility for all levels of the static distribution of the country. Despite
these difficulties, this index is based on 45 diagnostic variables, which appear to be a sufficiently broad founda-
tion for comparisons. All indexes are calculated based on weight-correlation method, allowing determination of
weights of pseudo-attribute variables based on the statistical distribution, which minimizes the subjectivity of
the final evaluations.
The method adopted allows for minimising the effect of subjective assessment of the author on the final re-
sults, while taking into account the uneven impact of individual variables on the size of the final index. It corre-
sponds to reality to a greater extent compared to exclusion of ranks of residual variables.
The calculated values of the synthetic pseudo-attribute index form the basis of a subset to the set of spatial
units of A F classes, the scope of which was determined by the left-closed intervals with the following lower
boundaries: Class A: Av + S(x), Class B: Av + 0.5S(x), Class C: Av, Class D: Av – 0.5S(x), Class E: Av-S(x), Class F: 0,
where Av – arithmetic mean, S (x) – standard deviation.
The design of indexes also allows for their decomposition to the level of sub-aggregates, so that each territorial
unit may be assessed in terms of the attractiveness included in each microclimate (labour resources, technical
infrastructure, social infrastructure, market sale and administration). If necessary, it is possible to explore the
profile of the particular unit and to determine the formation of source variables in particular locations. For
further details see Godlewska-Majkowska (2012).
Table 1. United States Case Studies of Immigrant Entrepreneurs as boundary spanners
Municipality Province SEZ W1 W2 T1 T2 T3
Polkowice (3) DOLNOŚLĄSKIE Legnicka 22% 3 156 650 621.00 0.62 3.87 0.05
Legnickie Pole (2) DOLNOŚLĄSKIE Legnicka 21% 433 540 367.00 0.27 2.25 8.57
Nowogrodziec (3) DOLNOŚLĄSKIE Kamiennogórska 18% 1 143 716 511.99 0.92 0.60 2.01
Jelcz-Laskowice (3) DOLNOŚLĄSKIE Wałbrzyska 18% 1 486 475 875.01 0.68 0.34 0.39
Głogów Małopolski (3) PODKARPACKIE Mielecka 14% 271 736 177.00 1.13 2.77 5.40
Ksawerów (2) ŁÓDZKIE Łódzka 12% 218 804 551.29 0.61 4.93 4.45
Nowe Skalmierzyce (3) WIELKOPOLSKIE Łódzka 11% 358 933 777.00 2.86 3.15 3.27
Gliwice (1) ŚLĄSKIE Katowicka 10% 6 492 477 518.79 0.88 0.23 1.36
Kobierzyce (2) DOLNOŚLĄSKIE Tarnobrzeska/ Wałbrzyska 93.94% 4 150 382 000.00 2.13 0.57 -0.02
Mielec (1) PODKARPACKIE Mielecka 32.22% 3 536 834 799.00 -0.28 0.31 0.00
Wielbark (2) WARMIŃSKO-MAZURSKIE Warmińsko-Mazurska 30.30% 260 842 760.00 -1.50 7.27 10.79
Kostrzyn nad Odrą (1) LUBUSKIE Kostrzyńsko-Słubicka 25.91% 1 083 524 606.88 -1.31 -2.69 1.32
Żarów (3) DOLNOŚLĄSKIE Wałbrzyska 22.45% 919 040 617.30 0.89 -0.57 1.11
Skarbimierz (2) OPOLSKIE Wałbrzyska 22.33% 1 301 710 921.60 2.02 -1.66 25.14
Łysomice (2) KUJAWSKO-POMORSKIE Pomorska 19.14% 836 867 534.41 0.44 0.23 -7.56
Gorzyce (2) PODKARPACKIE Tarnobrzeska 19.11% 219 172 200.00 0.54 -1.41 -1.75
Dębica (2) PODKARPACKIE Mielecka 18.42% 207 316 332.00 2.13 0.04 -0.50
Mława (1) MAZOWIECKIE Warmińsko-Mazurska 17.46% 523 062 198.00 0.00 0.42 1.25
Stalowa Wola (1) PODKARPACKIE Tarnobrzeska 13.73% 1 118 906 400.00 -0.24 -0.57 0.53
Piechowice (1) DOLNOŚLĄSKIE Kamiennogórska 12.55% 238 079 233.14 -2.20 3.50 -0.61
Tychy (1) ŚLĄSKIE Katowicka 12.07% 3 271 164 639.79 0.28 -0.57 0.02
Ozorków (1) ŁÓDZKIE Łódzka 11.83% 532 669 610.93 -1.55 0.64 -1.43
Starachowice (1) ŚWIĘTOKRZYSKIE Starachowicka 11.73% 616 628 829.00 -0.39 0.29 1.14
Kwidzyn (1) POMORSKIE Pomorska 11.62% 1 079 030 205.00 -0.28 0.85 -0.53
Nowa Dęba (3) PODKARPACKIE Tarnobrzeska 11.33% 325 516 900.00 -0.10 1.07 2.30
Krotoszyn (3) WIELKOPOLSKIE Wałbrzyska 10.32% 415 155 000.00 -0.14 0.34 0.07
Barlinek (3) ZACHODNIOPOMORSKIE Kostrzyńsko-Słubicka 10.06% 426 665 776.08 -0.14 -1.23 0.49
Source: http://www.ilctr.org/promoting-immigrants/immigrant-entrepreneurship/video-interviews/
Based on Gretl statistical program, we analysed the correlations between the effects of
external economic zones (based on the average of W1 and W2 variables) and:
− index of potential investment attractiveness for the local economy,
− particular aggregated data describing each individual key location factors (labour
resources, technical infrastructure, social infrastructure, market sales, administration),
− all variables building the local attractiveness of individual municipalities (matrix of
dimensions 78 × 78 was analysed) where economic sub-zones were formed.
Statistical analysis using the Gretl program revealed no significant correlation, ex-
pressed by the index of potential investment attractiveness, between the nature of the
polarisation and localisation values of Polish regions, as well as for the remaining sec-
tions of the analysis. Statically significant correlation (positive) was observed between
external effects, zone and local development plan of individual municipalities. At the
same time a negative correlation was reported in analogy in terms of accessibility to
health care (number of consultations per 1000 inhabitants, accessibility to pharmacies
per 1000 inhabitants).
The first statistical correlation obtained is confirmed when considering the organiza-
tion of the investment process; if in a given municipality, properties are covered by the
local development plan, then the investment process is not delayed due to waiting for
the decision on conditions for construction and land management.
The second correlation, a negative one, indicates the importance of accessibility for
people with relatively good health status, which is understandable considering the spe-
cialisation of Polish special economic zones in the manufacturing industry.
Table 2. Criteria for the delimitation of the poles and the anti-poles in the area of regional mu-
nicipalities
Category/criterion W1 W2 T1 T2 T3
POLE >=10% >= 200 MM PLN >0 >0 >0
ANTI-POLE >=10% >= 200 MM PLN <0 <0 <0
UNPOLARISED CENTRE >=10% >= 200 MM PLN <0 or >0 <0 or >0 <0 or >0
Source: own study.

Among 27 municipalities meeting the boundary criteria, on the basis of external effects
criteria, we identified 8 growth poles and 19 centres of unstable economic situation; the
anti-growth pole was not identified. Growth poles are located mainly in southwestern
Poland (Polkowice, Legnickie Pole, Nowogrodziec, Jelcz-Laskowice) and one pole in each
of the other parts of Poland (Glogow Malopolska, Nowe Skalmierzyce, Gliwice, Ksaw-
erów).
Analysis of cartograms does not indicate a straightforward relation between location
and the nature of polarisation (Figure 1). One can only observe the spatial concentration
of the poles in southern Poland, which is associated with supply networks for the auto-
motive sector. In addition, it may be related to the distribution of Polish industrial dis-
tricts, focusing on the southern area from the NUTS2 region of Lower Silesia, through
Silesian, Małopolskie, to Subcarpathian. Regional poles generally occurred in urban-rural

municipalities, i.e. those where there is a small town with surrounding rural areas. They
are often located in the areas that were formerly industrial centres manufacturing com-
modities or in urban areas. In that case, the polarisation effect is possible as a result of
free investment areas, enabling further investments based on cooperative relationships
and low cost of doing business. In addition, there are no other significant sources of
agglomeration benefits, typical of urban environment.
Analysis of structure of the trade economy indicates an association between the
formation of poles and the regional specialisations supply network. Among the growth
poles, we distinguished those that arose based upon investments completed by automo-
tive industry companies (Polkowice, Legnickie Pole, Jelcz-Laskowice, Gliwice) and those
that adopt a spatial model based on investments of leading entity cooperating with enti-
ties outside the zone (Nowe Skalmierzyce) or investments of many entities cooperating
together in the supply network (Nowogrodziec, Jelcz-Laskowice, Głogów Małopolski,
Gliwice).
Figure 1. Distribution of regional poles in Poland in 2012

against the investment attractiveness of municipalities
Source: own elaboration based on self-reported data.
The proposed method of identification of growth and anti-growth poles may be used
not only to evaluate the effects of SEZs on regional development, but also to assess the
impact of various forms of public aid on the region’s economy, e.g. clustering and net-
working, subsidies for investments, support of entrepreneurship development etc.
Due to the fact that conclusions regarding the presence of poles and anti-poles
should be verified using qualitative methods, our methodological procedure was sup-
plemented by in-depth interviews addressed to the management of five among the four-
teen special economic zones established in Poland.
From the results of the study, the following key factors were considered as necessary
for stimulating the local and regional economic development: large scale of the invest-
ments to induce the effect in the local/regional economy, entry to the zone of an im-
portant investor and doing business with a high investment multiplier. To these very
important factors, we can also include the presence and the quality of the business envi-
ronment, a high level of economic development of the host region and adaptation of the
industry to the host region (including business activities in accordance with the invest-
ment potential of the parent region and corresponding to the specificity of place in terms
of the size and structure of resources) as well as strong relations with the local business.
Important factors of positive impact of SEZs on the local or regional economy ap-
peared to be (i) lack or limited power of the decision-making centres (e.g. large inde-
pendence of regional companies in the structure of the corporation) and (ii) presence of
linkages and associations as elements providing benefits from the parent unit to the
stimulated units. The least important role was assigned to geographical and cultural
proximity of enterprises investing their business in the area of SEZ.
In the course of the conducted studies it was noted that the most important factors
of economic zones that affect the positive polarisation of regional development are:
− entry of an important investor into the area and the large scale of investment exerting
an effect on the local and regional economy, e.g. in the areas of Legnickie Pole, Gliwi-
ce, Jelcz-Laskowce—the automotive industry,
− embedding of business, resulting in conducted reinvestments in the zone proving the
positive impact of location in SEZ on the company’s objectives—e.g. it applies to the
poles such as Legnickie Pole, Polkowice, Głogów Małopolski; Nowe Skalmierzyce,
Jelcz-Laskowice, Gliwice,
− technological advancement of regional companies, particularly important are innova-
tions on a global scale, facilitating the export of products or business relations with
a foreign corporation (new technologies which relate to thermomanagement, i.e. for
Volkswagen and Audi).
Study results suggest that for the most important factors negatively affecting the lo-
cal and regional economic development, we can name abandonment of the zone by the
leading investor, insufficient quantity and quality of business entities’ environment, the
presence of linkages and associations as transmitters transferring the crisis from the
parent unit to the stimulated ones and low level of economic development of the host
region. In this context, decision-making instability and dependence of enterprises in the
zone on foreign decision-making centres are also important. Other important factors
include permitting small-scale investment, generating no significant effects in the
local/regional economy, doing business of low investment multiplier, cultural distance
and lack of adjustment of the industry to specificity of the host region.
In one of the analysed zones, withdrawal of strategic investors for the purpose of its
development was observed due to unsatisfactory economic performance of the compa-
ny, the global economic crisis or a strategic decision made by the decision centre located
outside the country. Despite this, in the analysed SEZ, no remedial program or any pro-
cedures which can be run during an emergency situation, e.g. related to the abandon-
ment of the zone by an important investor, was mentioned.
An important role is certainly played by the active attitude of management zones
and local and regional authorities, towards investors already operating in the area, in the
form of additional incentives to reinvest in the area of SEZ. Among the activities of this
type, we can mention business-related services, workshop offers, networking meetings,
seminars, conferences, foreign missions and fairs, supporting clusters’ activity and net-
working.
Generally speaking, it can be concluded that qualitative research confirmed the ex-
istence of poles in the targeted locations and confirmed the lack of anti-pole disclosure
over the considered period. On one hand, this may be explained by the small size of
Polish investments in the zones, and thus a domino effect is questioned. This resulted
mainly from efforts aimed at developing labour resources released as a result of redun-
dancies. It is favoured by spatial organization of zones characterised by the territorial
dispersion. In the face of global crisis, particularly the one in 2009 that affected the
Polish economic zones, the expression of solidarity between the particular zone man-
agements was evident in their efforts to generate new job positions in other locations
within the economic zone for workers who were about to lose their jobs.
The question arises, to what extent can this method be applied in economic zones
with a different organizational structure to that in Poland. Throughout the world, public
aid offered in the zones takes several forms (exemption from customs duty, exemption
from income tax, investment funding, giving the premises for infrastructure usufruct on
better than market conditions, investment guarantees, administrative privileges) and
depends on the generation of the zone (commercial areas, production zones, service
areas, research areas, competitive zones, transnational areas).
Despite this diversity, the expected short-term goals of SEZs activity are similar
(inflow of investments, new job positions). However, the objective of the zones from the
point of view of regional inequality is not and cannot be the inflow of investment alone.
What is expected from the zones in a long-term perspective relates to structural changes
in the regional economy, diversification of economic activities, technology transfer, net-
working of foreign investors from the zones with the national economy and increased
mobility of labour resource from the area to the rest of the region/country to establish
the diffusion of knowledge and skills.
New investments and new job positions as well as faster development of administra-
tive centre are the direct effects of the zones. Thus, the proposed method of evaluation
of changes induced at the location of economic zones exemplified by SEZs in Poland is
very universal. It allows assessing the impact of various forms of economic zones on the
economy of the region/country, regardless of the initial level of socioeconomic develop-
ment of a particular country or the zone.
Depending on the size of the economy of a particular country, the dispersion of
zone’s location, size of the administrative areas covered by the privileges, boundary
criteria relating to the minimum value of investment spending in the zone and minimal
participation in the use of labour resources, as well as the reference area in relation to
which growth effects will be studied, should be factored into the methodology of future
studies. In contrast, the selection of indexes (T1, T2, T3) on the basis of which one assess-
es the occurrence of polarisation effects can be similar due to the fact that they reflect
the emergence of income and supply multiplier effects that determine the polarisation
of the economic space.
CONCLUSIONS
In order to ensure the sustainability of development throughout an area, it is necessary
to develop a concept of zone activities, which will provide the conversion of their struc-
tures in the new industrial spaces. A well designed and consistently implemented SEZ
policy can bring the desired results, i.e. increase employment, foreign investments and
increase of exports. Poorly executed program for the zones can result in negative out-
comes, such as reduction of the tax base and low “quality” of investments, which are
unstable and weakly associated with the economic and social environment of the zone. It
results from the fact that the special economic zones can cause both positive and nega-
tive polarisation of regions.
Positive polarisation in the form of a growth pole occurs whenthe zone is entered by,
a large company or co-operating companies (e.g. cluster), characterised by the following
features: (i) the ability to elicit regressive and progressive feedbacks, (ii) scale large
enough to produce a substantial economic effect, (iii) doing business with high invest-
ment multiplier, (iv) strong associations with the local business ecosystem, (v) lack or
limited power of the decision-making centres (e.g. large independence in the corporate
structure), (vi) doing business in accordance with the investment potential of the parent
region.
To induce long-lasting effects exerted by these characteristics, favourable conditions
created by regional, national and international environments (within their competencies)
are necessary, such as stability of regulations and generation of the anticipated attractive
investment areas, thanks to which it is possible to reduce the capital of investment
spending expenditure and the time taken to obtain income from business activity.
An economic zone can become the origin of a new industrial space. For this to hap-
pen, the zone should be created based on the dominance of one, or more external inves-
tors, private or public, together with a set of small- and medium-sized enterprises. Exter-
nal investors should be guarantors of innovative, technologically advanced activity, and
small- and medium-sized enterprises should act as a guarantee of the use of endogenous
potential. Entities located within and in close proximity to the area should cooperate
with each other in a competitive environment to discount the external benefits, i.e. the
advantages of specialisation, enabling the achievement of high competencies within the
process phases regarding the product manufacture and scale effect, diffusion of innova-
tions as a result of exchange of information and knowledge through mobile personnel
and benefits of access to qualified personnel.
External benefits are related to the requisite presence of business environment insti-
tutions, such as R & D units, technology transfer centres and financial institutions. The
confluence of these conditions will lead to the evolution of economic zones in clusters or
industrial districts. The joint incidence of the above-mentioned conditions is essential for
inducing the development of growth poles in the regional environment as a result of
regional multiplier effects.
The pole may be subject to “collapse” or anti-poles may occur in a so far unpolarised
region, if (i) economic zones compete with each other rather than cooperate based on
competition, creating an excessive number of economic zones, which leads to their ex-
cessive dissipation, (ii) regional companies do business ill-suited to the location specifici-
ty in terms of size and structure of the resources, as well as excessive cultural distance,
(iii) economic zone develops at the expense of the environment, absorbing the factors of
production resources, (iv) regional companies establish stronger relations between
themselves resigning from the cooperation with local business partners, (v) leading com-
pany forming a chain of cooperative relations withdraws from the economic zone,
(vi) regional enterprises are unstable in decision making, and not self-reliant in relation
to foreign decision-making centres, (vii) feedbacks and associations are responsible for
transferring the crisis from the leading unit to the stimulated units, (viii) in the direct
vicinity of zones, there is a lack of enterprises ready to establish cooperation, (ix) local
resources, especially labour resources are insufficient in terms of both quantity and qual-
ity, (x) laws regarding the running of business in the zone are unclear or unstable. If the
above-mentioned negative phenomena occur simultaneously, then a phenomenon of
negative synergy takes place. The sum of adverse circumstances acts stronger than each
of them separately.
In Poland, cases of inhibition of local subzone development, which lost their strategic
investors (lack of investment in the assumed time or withdrawal of permission due to
non-compliance of investment with permission conditions) were observed. However, it
did not exhibit the character of a collapse of a pole, but rather scratching a weak anti-
pole development, which lost the ability to polarise space over time.
Withdrawal of investors from the zone has an adverse effect not only on the invest-
ment potential of the area, but also promotes a negative social phenomena, such as the
inhibition of entrepreneurship, the emergence of counterproductive behaviour and
“schadenfreude” (malicious joy). It is intensified when there is no economic justification
for such decision, and is based on political factors or strategic decisions established at
higher levels of the organizational structure of the corporation.
Among the currently operating growth poles in Poland, a characteristic, strong spe-
cialisation is observed in the automotive industry. One should avoid monocultural devel-
opment of areas, especially changing the rules of public aid during the course of long-
term economic networking, breaking down the previous lock-in and lock-out of regions.
This type of model development, to a great extent, threatens the development of anti-
poles as a result of the collapse of the anti-growth pole.
Inflow of investments, which does not induce profit and supply multiplier effects and
consequently does not lead to polarisation of space, may indicate that inflow of new
investments is inadequate to the needs of the region, or industrial structure of new in-
vestments is not adapted to the potential of the region and its endogenous potential as
well, or new investments do not create associations with the economy of the region.
Lack of polarisation may be the result of a bad location of the zone or improper de-
termination of conditions of running business within the zones, which consequently
leads to the the following effects:
− neutral gear – some investments in SEZ would arise in the region, even in the absence
of SEZ within their area, or any opportunities to obtain tax exemptions; this reduces
the incentive effect generated by subsidies for less-developed regions. In this way,
one reduces the investment attractiveness of the subsidised area, which was originally
located outside the spatial boundaries of profitability. However, in contrast to the ini-
tial situation, much greater benefits are reached by investors due to reduced operat-
ing costs in the area within the boundaries of profitability, and the budget loses due to
smaller tax revenues,
− substitution – the gradual transfer of business from outside the area to within the
zone (and in accordance with the authorisation), thereby reducing or eliminating ex-
isting business outside the privileged area,
− displacement – assistance for businesses in SEZ, due to costs of reduction and their
operation, may contribute to the displacement of public entities, which are not cov-
ered by public aid,
− enclaves – enterprises from the zone use tax exemptions and cheap labour resources,
but acquire business partners located outside the region, where they also sell manu-
factured goods.
In such a situation, positive effects resulting from the SEZ functioning in the region
are basically limited to reduction of the level of unemployment. Formation of economic
zones should be supported by complementary actions in relation to tax preferences, i.e.
generation of associations and cooperation with the business environment. Support
from the public funds should not be limited to homogeneous forms of assistance in the
form of subsidies, or tax exemptions, but should sign in to wider financial activities from
the public funds.
Establishing favourable conditions for running a business in the form of a special
economic zone entails a risk that may have negative effects for regional development
and formation of investment attractiveness of the region. External investors, who decid-
ed to invest in the zone, may constitute the source of risk. Their negative impact on re-
gional development results from deepening of monoculture, provisional state of activity,
lack of innovation, not adjusting to the specific nature of the environment or loss of the
ability to fulfil the conditions of the permission. The surrounding area may also consti-
tute a source of risk, especially unclear or unstable laws, lack of technological absorption,
low level of development of entrepreneurship and local business partners and adjusting
the resources of production to investor’s needs. Moreover, the risk can be created by the
spatial structure of the zone. It occurs when the privileged area is not defined properly,
and there is a lack of relevant partners essential for cooperation (leading entities, lack of
small- and medium-sized enterprises, research and development institutions, business
environment institutions).
The above-mentioned source of investment risk, in most cases, results from the lack
of implementation of the conditions necessary to achieve the growth and development
of the investment attractiveness of the SEZ.
Numerous risks associated with the formation of special economic zones and anti-
growth poles therefore require the use of a system for monitoring changes in the local
and regional economy. Our model captures the growing changes and implements the
preventive actions aimed at protecting job positions and facilitating the transfer of re-
leased labour resources as a result of lost jobs in the economic zones. This phenomenon
may occur not only at the local level, as exemplified in the Polish areas, but also in larger
regions. The method proposed in this paper may be used at different levels of taxonomic
divisions, bearing in mind that the critical size of the investment, which separates the
small from the large zones, must be adjusted appropriately to the scale of the concentra-
tion of business activity and the size of the region stimulated by the zones.
One of the limitations of the proposed research method, is the fact that the research
was acrreied out during a specified period of time, without taking into account effects of
earlier, or later investments. We make an assumption, simplifying the case, that the
analysed investments have not started before the conducted analysis. This error will be
present for any analysed period. In order to eliminate this effect, one can use the 5-year
analysis period with a 1-year shift. It would allow creating a changes monitoring system,
using a proper level of taxonomic system for establishing a spatial scale for observations
(not only in the LAU2 scale, as it is used in Poland, due to the low scale of Polish special
economic sub-zones). It points to the further need of research concerning dynamic as-
pects’ use in the proposed method.
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Authors
The contribution of co-authors is equal and can be expressed as 33% each of the authors.
Hanna Godlewska-Majkowska
Professor of Economics at Warsaw School of Economics (Poland). Her research interests in-
clude: regional economy, business geography, regional entrepreneurship, business location and
operational management.
Correspondence to: Prof. dr hab. Hanna Godlewska-Majkowska; Warsaw School of Economics,
Institute of Enterprise; al. Niepodległości 162, 02-513 Warszawa, Poland; e-mail:
[email protected]
Agnieszka Komor
PhD. in Economics. Assistant Professor at the University of Life Sciences in Lublin (Poland). Her
research interests include: institutional support for investors and entrepreneurs, regional and
local development, spatial aspects of the enterprises' competitiveness, bioeconomy.
Correspondence to: Dr Agnieszka Komor; University of Life Sciences in Lublin, Department of
Management and Marketing; ul. Akademicka 13, 20-950 Lublin, Poland; e-mail:
[email protected]
Magdalena Typa
Master in Management and Marketing from Warsaw School of Economics (Poland). Currently a
PhD. student in Economics also at Warsaw School of Economics. Her scientific interests include:
regional economy, economic zones, state aid, business location and operational management.
Correspondence to: Mgr Magdalena Typa; Warsaw School of Economics, Institute of Enter-
prise; al. Niepodległości 162, 02-513 Warszawa, Poland; e-mail: [email protected].

2016, Vol. 4, No. 4 DOI: 10.15678/EBER.2016.040413
Organizational Dysfunctions: Sources and Areas

Jacek Pasieczny, Beata Glinka
ABSTRACT
Objective: The purpose of this article is to identify and describe various types and
sources of organizational dysfunctions.
Research Design & Methods: The findings are based on literature review and ongoing
empirical research project conducted among private sector organizations. The empiri-
cal study can be situated within interpretative approach; open interviews and obser-
vations were used to collect data.
Findings: The study indicates that various types and sources of organizational dys-
functions can be identified in organizations operating in Poland. The sources of dys-
functions may be found both within the organization and its environment. Regardless
of its specific features, most of the dysfunctions may be interpreted as an undesirable
goal displacement. Very often areas of these dysfunctions are strongly interconnected
and create a system that hinders organizational performance. Yet, it is difficult to
study these phenomena as respondents are unwilling, for various reasons, to disclose
the problems faced by their organizations.
Implications & Recommendations: The results imply that the issue of organizational
dysfunctions requires open, long-lasting and comparative studies. Recommendations
for further studies are formulated in the last section of the paper.
Contribution & Value Added: The paper provides insight into “the dark side of organ-
izing” by identifying sources and areas of dysfunctions. It also reveals difficulties con-
nected with conducting research on dysfunctions within the Polish context.
organizational dysfunctions; pathology; sources of dysfunctions;
Keywords:
areas of dysfunctions; goal displacement
JEL codes: M10, L00, L22
Received: 5 September 2016 Revised: 5 November 2016 Accepted: 14 November 2016
Suggested citation:
Pasieczny, J., & Glinka, B. (2016). Organizational Dysfunctions: Sources and Areas. Entrepreneurial
Business and Economics Review, 4(4), 213-223, DOI: http://dx.doi.org/10.15678/EBER.2016.040413
214 | Jacek Pasieczny, Beata Glinka
INTRODUCTION
The phenomena and mechanisms as a result of which organizations fail to reach their
goals are commonly referred to, among others, as errors, dysfunctions, pathologies, or
deficiencies. However, the analysis of these phenomena requires a more precise defini-
tion. Error means doing something incorrectly, it is inaccuracy or a phenomenon as
a result of which the system fails to work as intended. Error is generally of an occasional
character (Pasieczny, 2013, p. 378). Although organizational consequences of errors can
be quite severe, their perpetrators do not always bear the consequences. It is (usually)
connected with the lack of intentionality. An error is treated as an unintentional devia-
tion, occurring against the will of its perpetrator. Interestingly enough, the intended
action with the same adverse effects usually faces general disapproval and brings organi-
zational consequences. On the other hand, some researchers imply, that errors and fail-
ures, even if non-intentional are often treated as blameworthy (Edmondson, 2011). That
can start a blame game and prevent learning from failures. This suggests that even eco-
nomic institutions use non-economic criteria for evaluating phenomena and behaviour.
Before we move on with our analysis, the concepts that we discuss in our paper
need to be clarified. Dysfunction is a phenomenon that adversely affects a particular
social system. Prolonged exposure to dysfunction can lead to a pathological condition. To
put it simply, dysfunction can be treated as a mechanism hindering smooth operation of
an organization. Pathology in organization is a relatively permanent deficiency, which
causes waste in the economic sense and (or) in the moral sense surpassing the limits of
social tolerance (Kieżun, 2012, p. 16). Similarly, pathology in management is a serious
long-term deficiency in the processes of the organization's management. However, the
boundary between dysfunction and pathology is sometimes difficult to grasp, as indicat-
ed in the literature. For example, according to Stocky “pathology is any dysfunction in
the organization; one that prevents the organization from achieving its realistic targets in
due time and with the use of specific measures” (Stocki, 2005, p. 49). Organizational
deficiency is a term of a praxeological origin and is the opposite of efficiency – praxeolog-
ical evaluation of good performance in terms of effectiveness, benefits and economy.
Deficiency is therefore insufficient extent of efficiency in an organization or in a specific
process.
The purpose of our text is to describe various types and sources of organizational
dysfunctions. In order to do so we analyse the relevant literature and conduct empirical
qualitative research. In the subsequent parts of this article we present a short literature
review, describe methods used in empirical study and present initial results of our empir-
ical investigation, including both sources and areas of pathologies. Conclusions, as well as
some limitations and suggestions for further research are included in the last part of the
paper.
LITERATURE REVIEW
Dysfunctions as a Field of Analysis
Dysfunctions have been analysed and studied since the very beginning of their existence.
These issues (though not explicitly) are discussed in works by Xenophon or in the Code of
Organizational dysfunctions: sources and areas | 215
Hammurabi. The whole industrial trend of classical management science derived from
the desire to eliminate organizational dysfunctions by engineers. Yet, contemporary
literature addresses the problem surprisingly rarely, given the scale of the needs. Many
studies are fragmentary or have informative character only. Perhaps positive develop-
ments seem more attractive as an object of the analysis than negative ones, as success is
more appealing to researchers than failure (Samuel, 2010, p. 1).
Only a few researchers have made dysfunction the central point of their analyses.
Most address the issue merely “by the way”, analysing selected aspects of organizational
management. These authors include, among others Einarsen, Hoel, Zapf and Cooper
(2005), Goffnett, Lepisto and Hayes (2016), Jamil and Panday (2012), and others.
Researchers focusing on administration were more successful. Crozier (1967), Mer-
ton (1940; 1957), Selznick (1943), Gouldner (1954), Finer (1941), Osborne and Gaebler
(1992), Weingast and Moran (1983), Kieżun (2012), or Batko (2013), and many others
managed to identify the sources, mechanisms and describe dysfunctions in the function-
ing of bureaucratic organizations.
Analysis of dysfunction in business is – as already noted – difficult and very often lim-
ited to selected areas (hierarchical problematic, functional areas) of the organization.
This does not mean, however, that no attempts have been made to develop broader and
more universal theories. Some of them combined business and public administration in
their works. The authors of such theories include Barnard (1940), March and Simon
(1964), Kieżun (2012), Stocki (2005), Koźmiński (2004; 2008), Glinka and Pasieczny
(2008), Argyris (1977; 1999), Samuel (2010), Meyer and Zucker (1989), Guy (1989), and
others. It must be noted that a broad spectrum of problems has been taken under con-
sideration: the nature of managerial work, organizational structures, goals formulating
and many others.
The variety of concepts addressing dysfunctions illustrates the practical and theoret-
ical importance of this phenomenon. The field is developing, and the changing business
environment calls for more research and deeper understanding of the nature, sources
and consequences of dysfunctions.
Sources of Organizational Dysfunctions and Pathologies

Pathologies understood as long-term deficiencies in operations, are inherent in all forms
of organized human activity. It may be even concluded that management would not have
become a separate discipline if people had not faced problems with the organization
(in a substantive sense, attribute sense and functional one). Assessment of a phenomena
and identification of sources of pathologies have always been subject to constant evolu-
tion. This is due to the aforementioned multiplicity and dynamics of stakeholders, but
also changes in the area of moral standards. The analysis of pathologies is indeed firmly
rooted in the ethical context.
The mechanism of negative empowerment (autonomy) leading to goal displacement
can be considered as an universal source of pathologies. Negative empowerment in-
volves putting, among others, the ultimate goal aside or replacing it with another main
goal, changing the mode of operation; it is a change of the goal in which the mean
(intermediate target) becomes the main objective (Kieżun, 2012, p. 16). Negative em-
powerment (autonomy) and goal displacement are the main sources of bureaucracy,
addressed, among others by, March and Simon (1964), Merton (1957) or Crozier (1964).
Goal displacement mechanisms (although the author himself does not use this concept)
are the basis of analysis by Dobrzyński (2012), who studies pathologies in the functioning
of modern corporations. Most authors, however, are looking for sources of pathologies
in selected areas of the organization’s operation, or focus their attention on selected
organizations. Sources of pathologies in administrative organizations are easy to identify
because they are inherent in the assumptions of the bureaucratic model – application of
the principles of formalization, impersonality, documentation and area of competences
strictly defined by the law results in a negative internalization of organizational rules,
errors in formalization and behaviour oriented on risk minimization by workers.
The study of the sources of pathologies in business is more difficult not only because
of difficult access to data, but also due to a different nature of business organizations.
Unlike administration, their operation is based – or is supposed to be based – on the
universal homeostasis market mechanism, which stimulates them to undertake ongoing
corrective measures. Prolonged pathological conditions in organizations operating on the
market can be deadly threats for them. Therefore, abnormalities in market organizations
are rapidly corrected, and thus more difficult to observe. For this reason, people usually
do not look for general mechanisms of pathology in companies, but for sources of se-
lected subsystems of organizational pathologies. In other words: we expect organizations
(understood as certain socio-technical systems operating within their environment) to
correct dysfunctions in order to regain equilibrium (Koźmiński & Obłój, 1989). Moreover,
managers have many different tools to help them overcome the lack of equilibrium:
strategy, structure, culture, procedures (Koźmiński & Obłój, 1989). However, in contrary
to this typical approach Meyer and Zucker (1989) present the concept of permanently
failing organizations – organizations that are permanently unable to obtain their goals
and correct major dysfunctions. In other words, under some circumstances homeostasis
cannot be taken for granted, and that calls for a deeper reflection on pathologies in
business organizations.
The causes of pathological phenomena in the broadly understood social domain, are
observed, among others, by Stocki (2013), Lencioni (2005) or Samuel (2010). Pathologies
are the result of organizations taking over the behaviour and the system of values of
their chief members. They include in particular, the reluctance to change or immuniza-
tion to change, loss of responsibility and commitment, lack of trust, fear of conflict, dis-
honesty, greed, and other features.
Other researchers look for sources of pathologies in philosophy, politics and specific
organizational solutions (Gestmann, 2001; Slatter & Lovett, 2001). Pathogenic organiza-
tional solutions include, among others, poorly designed and excessively oppressive con-
trol systems, hiding and shifting costs to other parts of the organization (budgets), dog-
matism, functional “shredding” (fragmentation) of organization, lack of redundancy,
inefficient communication systems and many other problems.
Phenomena occurring at the boundary of the organization and its environment may
be treated as a separate category of sources of pathologies. This area is addressed,
among others, by Koźmiński (2008), Samuel (2010), Meyer and Zucker (1989), Bogle
(2009). They include such potentially dangerous phenomena as strong pressure to do
things quickly, shorter planning horizon, pathological lack of confidence, focus on con-
tinuous growth of profits, clientelism and blurring boundaries between politics and busi-
ness, and other problems.

The research project underlying this article is based on interpretative assumptions. This
projects consists of two major parts: literature review and empirical study conducted1 in
Polish private owned organizations of different sizes. The study continues, yet the
already carried out work allows us to draw preliminary conclusions.
The first stage of the study was to analyse the literature. This helped to identify
a “working list of dysfunctions” which was intended to further the studies. The second
stage of the study was designed to broaden this “working list of dysfunctions”, as well as
to understand their nature and sources. For that reason qualitative methods were used
to obtain data: anthropological interviews (with an open list of topics to be discussed
with interviewees) and observations. This is an ongoing project, over 20 interviews were
conducted till now (March 2015 – September 2016). The interviews were conducted with
managers at various management levels, and entrepreneurs/business owners. All, except
one, managed organizations or business units in Poland. One of the respondents was
a high-level manager of an international company, first in Romania and later in Russia.
The length of the interviews ranged from 30 minutes (the shortest interview) to over
6 hours (the longest, continued at several meetings). Among the respondents, there
were 8 entrepreneurs (owners of small or micro businesses), 13 managers of medium-
sized and large companies and one employee of a housing co-operative. Most of the
interviews were recorded and transcribed, during the rest detailed notes were made.
Transcribed text as well as research notes were the basis of analysis and identification of
categories.
In the empirical study some serious difficulties were encountered. They included,
firstly, difficulties in obtaining information, and secondly – interpretation problems.
Problems with obtaining information are universal and they are widespread. However, in
the case of studies on dysfunction, the reluctance to participate in the study seems to be
even more visible. Respondents refuse to participate in the study or agree to be inter-
viewed provided none of the raised problems may be subject of any publication, even
anonymous one. Some interviewees do not allow for any recording. Such reactions,
though understandable, make researchers’ work very difficult. Organizations care about
their image and employees are worried about their jobs. During the research, the au-
thors of the article encountered situations where employees were reluctant to even
provide information, which was available on the organizations’ websites.
Problems with interpretation stem from the fact that many organizational issues
cannot be unambiguously assessed. Different, and sometimes even the same groups of
stakeholders, yet playing different roles in different circumstances, provide different
interpretations to the observed phenomena. This means in practice that a specific issue
may be viewed differently by different actors in an organization – executives, subordi-
nates, trade unions, etc. Moreover, in a private conversation various phenomena can be
presented and assessed in quite a different way than during official speeches, in the
1
Currently the team of 3 researchers is involved in interviews' conducting.
presence of others etc. The problem is also human tendency to look for the closest, di-
rect causes of the problem only. Senge (2002, pp. 33-34) refers to it as the “focus on
events”. This constitutes an obstacle, especially when searching and analysing organiza-
tional dysfunctions, namely mechanisms distorting smooth operation of the organiza-
tion.
The above-mentioned issues as well as the objective of the study, namely to get to
know, understand and create a “non-exhaustive list of dysfunctions” were a factor de-
termining the choice of the methodology for the second stage of the study. It would be
difficult or even impossible to achieve a similar objective with the use of quantitative
methods.

Sources of Dysfunction
In the literature review section of our paper we described three major groups of sources
of dysfunctions discussed in the literature: (i) social domain/system, (ii) internal solutions
(systems, procedures, management philosophy), (iii) environment/management at the
boundaries.
Social Domain
Our research, in general, supports the assumption of an importance of a social system as
a potential source of dysfunctions. These problems were pointed by the interviewed
senior managers, who indicated dishonesty and lack of loyalty among employees as
sources of pathologies. Medium level managers also pointed to bad relationships, which
are the result of abuse of or improper use of power by superiors.
Entrepreneurs paid the least attention to social sources of pathologies. Only a few of
them mentioned the problem of dishonesty, but – interestingly – attributed it to the
conditions of cooperation with large international corporations. In their view, there is
a serious contradiction between the declarative domain (to which they include, among
others, the existing codes of business ethics in corporations) and unfair practice used in
cooperation between large enterprises with small companies.
Internal Solutions
One of the surprising results of our study was that managers and entrepreneurs rarely
considered internal solutions as a source of pathologies. In the conducted studies, only
few respondents – managers in corporations – considered some of the above-mentioned
phenomena to be a source of dysfunction. Several respondents addressed the issue of
excessive economization in the organizations’ operations which results in different pa-
thologies. For obvious reasons, these phenomena were significantly less apparent for
entrepreneurs – owners of small businesses.
This result can be interpreted in many ways. Firstly, the simple interpretation is that
in practice internal solutions – structures, policies etc. – are not significant as a source of
dysfunctions. Secondly, managers and entrepreneurs can avoid this area, as, at least to
some extent, it is under their control (i.e they may avoid admitting own mistakes). This
area requires further empirical evidence.
Environment/Boundaries
In our study, respondents often pointed to this group of sources of pathologies. The
state was usually considered to be the most powerful stakeholder. Businesses almost
unanimously referred to the state as a dangerous and unfriendly institution. The state is
perceived by them as a uniform entity generating external burdens and uncertainty. This
negative perspective is not even changed by reliefs and incentives offered to businesses
by the state. The state is assessed as a dysfunctional entity and an entity generating
dysfunctions. Managers also mentioned the state as a source of pathologies, but also
pointed to the very strong dysfunctional influence of the media, cultural conflicts and
structures of the business environment.
Areas of Dysfunction
Pathologies are manifested in various ways and in different areas of the organization.
Depending on the assumptions they may be analysed in the context of the theory of the
population ecology of organization, life cycle of the organization, psychopathology or by
using the metaphor of the body system. Also achievements of the followers of the diag-
nostic approach, seeking and creating instruments of identification and analysis of pa-
thologies in specific situational conditions are quite abundant. This group includes such
authors as Stocki (2013), Gestmann (2001), Guy (1989), and Bennett and Robinson
(2000), who created an interesting typology of organizational behaviour deviating from
the standard.
On the basis of the conducted interviews we can identify two major areas of pathol-
ogies: a) strategic area and b) operational area. Although such a division is not always
clear-cut, yet it helps to organize diversified problems and issues which were revealed
during the interviews in a spontaneous and – consequently – often a bit chaotic manner.
Strategic Area
The main pathologies identified during the research in the strategic area are:
1. Lack of a clear strategic objective. Respondents pointed to the lack of clearly formu-
lated organizational goals, constantly changing goals and inconsistencies in their im-
plementation, either partial or total failure to translate strategic goals into opera-
tional activities. Interestingly, this problem was also mentioned by entrepreneurs,
who often were not able themselves to determine their strategic objectives and per-
ceived the risks resulting from this fact.
2. Absence of relationship between the inputs and the effects. This phenomenon is
observed in larger companies mainly, where cost centres are organizationally sepa-
rated from income centres. This can be manifested by investments in low profitabil-
ity projects, elimination of key resources, or dysfunctional organizational sub-
optimizations.
3. Organizational dissociation – a type of disorder of organizational identity manifested
in growing autonomy of divisions/departments or internal contradictions. This can
be manifested in excessive economization (savings) accompanied by wastefulness in
the organization itself.
4. Lack of trust. This seems to be a universal pathology which is present in both large
corporations and small businesses. Apart from the sources of this pathology (they
are largely external), it results in numerous problems, such as bad relations within
the organization, excessively complex control systems, poor relations with external
stakeholders etc. As a result, all this boosts transaction costs.
5. Exhaustion of resources. Exhaustion of resources is the most often an undesirable
consequence of decisions, and not the result of the deliberately implemented policy.
Nevertheless, the consequences of this pathology can be of strategic importance for
the organization. In practice, exhaustion of resources can lead to excessive outsourc-
ing, staff overloading with duties, layoffs (or employee departure caused, for exam-
ple, underestimation) of experienced employees etc. In the case of small businesses
this can be a physical overloading of the owner with responsibilities or the failure to
ensure effective funding for the company’s growth.
Operational Area
In the area of operational subjects, the respondents mentioned numerous phenomena
which could be classified as pathologies. The most important of these include:
1. Pathological organizational games. This problem was pointed out by managers of
larger companies. Games aimed at gaining control over scarce organizational re-
sources are manifested in the formation of strong informal groups, “empire build-
ing” by growing number of organizational units, reluctance to share knowledge or
only superficial activity.
2. Bad relationships. This phenomenon, depending on its intensity, may be either
a factor slightly impeding work or a serious pathology threatening the functioning of
the company. Bad relationships may prevail between superiors and subordinates,
but can also concern horizontal relationships. Symptoms of bad relationships include
a range of behaviours, from gossiping and backbiting to violence and jeopardizing.
3. Ineffective communication. Despite unlimited technical possibilities of information
flows, there are problems with communication in many organizations. The main ob-
stacle is not the technical aspect, but the lack of knowledge or lack of motivation of
executives to communicate effectively. Inadequate communication often results in
misunderstandings within the organization and in inferior contacts between the or-
ganization and its environment, low motivation, conflicts and problems with the in-
troduction of changes.
4. Inappropriate division of labour. Many authors emphasize negative consequences of
excessive formalization. Meanwhile, our respondents mentioned insufficient formal-
ization in the area of the division of labour as a very tedious phenomenon. It occurs
that higher level superiors are reluctant to make precise division of duties among
employees. They tend to officially motivate it by the desire to ensure flexibility of the
organization, but in practice it can also be perceived as part of organizational game,
aimed at safeguarding the interests of the stronger party in a superior-subordinate
relationship. This phenomenon may result in conflicts, declining motivation or quali-
ty problems.
5. Unethical behaviour and breach of the law. This problem can affect all levels and all
organizations and it is the consequence of organizational policies to a limited extent
only. Corruption, bribery, theft, mobbing, sexual harassment can occur also in those
organizations which put an emphasis on ethical behaviour. Sometimes, however,
such actions and attitudes are somewhat forced by external conditions (e.g. the ne-
cessity to submit dumping bids in public tenders) or are the result of low moral
standards in the organization. The respondents noted a number of unethical and il-
legal forms of behaviour, but usually outside their organization.
CONCLUSIONS
Pathologies are an integral part of the organization and the first theoretical studies in the
field of management focused on dysfunctions and pathologies. Despite many studies, it
is still a relatively underresearched area. This is due both to the difficulty in obtaining
information, and the specific character of the topic itself characterized by ambiguity,
subjectivity and dynamics. Pathologies can be observed in all subsystems of the organiza-
tion and its environment. Their identification is difficult, but possible and desirable. Alt-
hough the Western business culture is a culture of achievement and success, yet identifi-
cation of the causes, mechanisms and symptoms of pathological phenomena can bring
important theoretical and – above all – practical benefits.
Our study revealed some similarities with other researchers’ findings, especially in
the field of external sources of pathologies (Stocki, 2013; Samuel, 2010). Some unex-
pected areas and sources of pathologies were also revealed in our research. For exam-
ple, insufficient formalization, described as a potential source of pathologies can be
a surprising declaration in the times of fighting with bureaucracy in both public and pri-
vate sector, and constant creativity quests considered as a source of competitive ad-
vantages. Also, one of the surprising results of our study was that managers and entre-
preneurs rarely considered internal solutions as a source of pathologies. From the psy-
chological point of view this phenomenon is quite easy to understand. However it indi-
cates, that in most cases, an open culture in which managers and other employees are
willing to reveal mistakes and learn from them is still not a reality. Such a culture may be
declared by managers, but its implementation requires more time, effort, and reflective
approach.
At this point two main limitations must be stressed: the number of interviews con-
ducted and the nature of the phenomenon under investigation. As far as the first limita-
tion is considered, we plan to continue the research project to collect more data and
obtain theoretical saturation. The second limitation cannot be fully addressed, but in
order to decrease its impact on the research results, we decided to apply qualitative
methods, and in the future we plan to include more diversified methods of data collec-
tion (more observations, projection, narrative methods). More long-term, comparative
studies are needed to provide a better understanding of the phenomenon under investi-
gation, especially in a private sector. As we mentioned, more theories were formulated
to address the issues of pathologies and dysfunctions within a public administration.
It seems, that the following areas of comparison may be crucial for a deeper under-
standing of the phenomenon of dysfunction and its causes:
− public vs private sector organizations,
− organizations operating in different business contexts (economic, legal, cultural).
On the base of such comparative in-depth studies not only more general conclusions
will be possible, but also the formulation of practical guidelines for manager on how to
avoid dysfunctions.
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Authors
Jacek Pasieczny
Associate Professor in the Department of Entrepreneurship and Management Systems of the
Faculty of Management, University of Warsaw.
Correspondence to: Dr hab. Jacek Pasieczny; University of Warsaw, Faculty of Management;
02-678 Warszawa, ul. Szturmowa 1/3, Poland; e-mail: [email protected]
Beata Glinka
Professor, the head of the Department of Entrepreneurship and Management Systems of the
Faculty of Management, University of Warsaw.
Correspondence to: Prof. dr. hab. Beata Glinka; University of Warsaw, Faculty of Management;
02-678 Warszawa, ul. Szturmowa 1/3, Poland; e-mail: [email protected]

EBER and Its Editorial Announcements | 225
EBER in Focus
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Innovations and Export Performance: Firm-level Evidence from Poland 11

Identification of Linkages between the Competitive Potential and Competitive 29

Foreign Market Knowledge and SME’s International Performance: 51

Organizational Culture and Firms’ Internationalization, Innovativeness and 67

International Entrepreneurship Theory: Past, Present and Way Forward 93

Youth Entrepreneurship in Visegrad Countries 105

Student Entrepreneurship in Hungary: 123

Metaphors of Entrepreneurship among Polish Students: 141

Work-life Balance Decision-making of Norwegian Students: 153

The Changing Structure of Retail Industry: 171

Organizational Dysfunctions: Sources and Areas 213

EBER in Focus 225

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Innovations and Export Performance:

Lachenmaier and Wößmann (2006) used instrumental-variables procedures to esti-

MATERIAL AND METHODS

Table 1. List of independent variables used in the empirical analysis

Our dependent variable indicating the export status of firm is denoted by ∗ .

When multiplied by Δ equation (3) gives the approximate change in

RESULTS AND DISCUSSION

Table 2. The list of estimated models

Observations 9,846 9,846 9,846 9,846

Furthermore, the probability of exporting in Poland depends on the sector of eco-

Jan Jakub Michałek

Acknowledgements and Financial Disclosure

Copyright and License

This article is published under the terms of the Creative Commons

Identification of Linkages between the Competitive

The Role of Internationalization Depth and Breadth during Economic Crisis

internationalization on firm competitiveness is contingent upon its stage of advancement

fy risks under crisis conditions by extending internationalization breadth more intensively

Figure 1. Analytical framework

MATERIAL AND METHODS

Table 1. Operationalisation of variables

Sample and Time Frame

RESULTS AND DISCUSSION

Table 3. Analysis of variance

Table 4. Mean values for cluster variables (normalised) (n = 553)

Characteristics of the most Ambitious Internationalizers – Cluster Profiles

Table 8. Undertaking or abandonment of FDI in the post-crisis period – percentages of indica-

Competitive Potential of Ambitious Investors, Ambitious Exporters and Cautious