PARTNERING IN ESTABLISHING NEW VENTURES: THE EXPERIENCE IN HUNGARY
Marjorie A. Lyles, Indiana University
Indiana University School of Business
801 West Michigan Street
Indianapolis, Indiana 46202-5151
Nancy M. Carter
Ball State University
Choices of new ventures in emerging economies are complex. For example, entrepreneurs must attempt to gain access to resources, choose a founding strategy, and create a vision for the future that is reflected in plans and intentions. Judicious choices are crucial since new firms in such situations must succeed quickly, often with little support from financial institutions. One way risks associated with the start-up of the venture may be reduced is to take on partners. Partners may provide access to capital, to deep management capabilities, to customers, and to distribution channels. This may be especially critical for new ventures in emerging economies, such Hungary where the U.S. government has encouraged partnership in economic development programs.
The objective of this research project was to examine whether partnerships are used to create new ventures in Hungary, and the extent to which U.S. principals are involved. We developed a typology of partnership arrangements, and examined the extent to which the various types of partnerships are associated with expected advantages such as access to resources critical for new venture success; founding strategies that guide the first several years of business operations; and the ability to implement the strategies.
Data from 69 small firms identified through their membership in Hungarian Association for Entrepreneurs (VOSZ) or through their listing in the Yellow pages were collected via structured face-to-face interviews with owner/managers in Hungary. Both "upstream" (earlier stages of the production) and downstream (later stages of production like retail) firms were represented in the sample. Information about partnerships, access to resources, initial founding strategies, and implementation processes were acquired. Factor analyses, correlation analysis and analysis of variance were performed to test hypotheses.
The new ventures were divided into three groups based on their partnership characteristics. Nineteen were classified as sole proprietorships (no partners listed), 33 of the ventures had U.S. and Hungarian partners, and 16 of the ventures were regional partnerships between Hungarians, or Hungarians and other Eastern bloc principals.
One-way analyses of variance revealed that access to infrastructure resources differed across the partnership categories. Firms comprised of regional partners perceived their access to infrastructure resources to be significantly more difficult than Hungarian sole proprietorships or ventures with U.S. and Hungarian partners. Differences were also found between the founding strategies of the partnership groups. Sole proprietorships were significantly more likely to pursue a low price strategy whereas, new ventures with a regional start-up team were more likely to utilize a premium price strategy. The manner in which founding strategy was implemented across the partnership categories differed significantly. Firms started by regional partners were significantly more likely to emphasize internal activities than sole proprietorships. None of the three partnership categories differed in their external focus. Post hoc analyses revealed no industry interactions.
Partnering as a mechanism to facilitate founding and growth appears to be a prevalent element of new business development in Hungary. Of the firms who participated in this study, only 28% were sole proprietorships. Contrary to expectations, partnerships with U.S. firms do not appear to provide the expected advantages to Hungarian partners. Hungarian-U.S. partnerships do not indicate that they have greater access to financial or other resources, that they have a well thought out strategy, or that they are clear about their implementation process.
The results have both applied and theoretical implications. From an applied perspective, findings from this study have the potential for informing public policy decisions in both Hungary and the U.S. By documenting the presence and structure of partnership arrangements among new ventures in Hungary and the advantages these partnerships offer, we provide a bench-mark that can be used in future decision-making. By comparing the partnership arrangements we identified, with the growth and survival rates of those firms over time, resources can be targeted to facilitate new firm development in the emerging economy
From a theoretical perspective, results from the study inform the development of a theory of new venture creation in an emerging economy. Dimensions which require further investigation include the extent to which team members have known each other before founding the enterprise, to what extent goals have been clearly articulated, the nature of the partners' hands-on management contribution to the endeavor and the extent to which cross-culture issues become important in managing the venture, and the extent to which the various partnership arrangements affect performance outcomes. The present effort is a step toward this research agenda.
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