The Effects of a Politico-Economic Paradigm Shift
Edited by Mai Thi Thanh Thai and Ekaterina Turkina
Chapter 4: Country choice of manufacturing SMEs in Central and Eastern Europe: the importance of foreign partner relations and level of market entry
The accession of ten new member countries to the European Union (EU) in 2004 shifted academic focus towards investigating issues regarding the sustainability and competitiveness of small and medium enterprises (SMEs) in these transition economies. While traditional enterprises in the Soviet Union and socialist countries were large industrial complexes focused on mass production, the transition period in Central and Eastern Europe (CEE) brought forth not only the dissolution of these former state-owned giants, but also the emergence of both new and restructured SMEs (Hutchinson and Xavier, 2004). Consequently, SMEs in the CEE region have become a driver of economic growth in these transition economies. However, the SME sector in these countries still faces challenges such as access to financing (Hutchinson and Xavier, 2004) and cumbersome institutional systems and corruption (Aidis and Mickiewicz, 2004). With increasing competition from local and foreign firms, more and more CEE-based SME firms are looking outside their home countries in order to survive. However, internationalization carries risk and uncertainty, and CEE-based SMEs, which are limited in their resources and lacking in business experience and know-how, face higher uncertainty than large firms in the region (Shinkle and Kriauciunas, 2010). Previous research has not considered the possibility that SMEs could overcome these challenges by strategically selecting host countries for business expansion. Central and Eastern European-based SMEs may choose to expand their business to an emerging country or to a developed country or to a combination of the two.
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