Small European Economies Research Articles

Firm performance over innovation cycle: evidence from a small European economy

Innovation is seen as a key capability for maintaining competitive advantage, creating value for customers, and capturing a larger share of the market. Yet, empirical evidence on the impact of innovation on firm performance is mixed. This research adds to the current debate on the relationship between innovation and the economic performance of firms. It brings new evidence from a small European economy (i.e., the Slovak Republic). We use a unique data set on 170 firms supported by the European Structural and Cohesion Funds (ESCF). Actual economic data reported in companies’ annual accounts, rather than self-reported information, is used to follow firm performance over a longer term horizon. The most significant finding is that the company’s innovation strategy was a key mediator of capability development and, ultimately, economic performance. The importance of specific innovation strategies varied over the innovation cycle. Simple process and organisational innovations were perceived to be important when assessing the immediate effects of European assistance. Investment in and cooperation on R&D&I became important when assessing firm performance over the longer term. The research expands the current body of literature on innovation capabilities and economic performance. It accentuates the need for a long-term perspective on innovation capabilities. To maintain a competitive advantage, a company's innovation capabilities must be constantly aligned with the changing environment.

Slowbalisation or a “New” type of GVC participation? The role of digital services

This paper investigates the role of digital services in the dynamics observed in global value chains (GVCs) from 1995 to 2018. Despite the context of a deceleration in globalisation, we observe how countries’ exports are increasingly incorporating foreign digital services, suggesting that a new channel, digitally driven, for globalization and GVC participation is emerging. Using trade in value added data and Social Network Analysis (SNA) methodology, we map the network of these digital services flows linked to GVCs and analyse its characteristics and evolution for the period 1995–2018. Moreover, we identify the leading economies in those networks from the point of view of both source and destination countries. New actors such as China, India and Israel arise, sharing with the USA, Germany, and the UK the leadership as global providers of intermediate digital sectors. Small European economies and Singapore show the highest dependence on foreign digital sectors to be incorporated in their exports.

A geography of creative networks: The case of a small European economy

Abstract This research project analyses the effects of networking by creative and conventional enterprises at regional and inter-industry levels. It relies on a unique dataset provided by the Slovak Creative Voucher Scheme and has some novel elements. We used direct evidence of industry locations from projects developed by creative industries rather than proxies. Network analysis was applied to establish major patterns in regional and inter-industry cooperation by creative and conventional firms. Regression models were used to analyse the network structure. The findings from quantitative analyses were complemented with evidence from qualitative methods. The network included a wide variety of cooperating partners. A sample of creative firms supported by the Creative Voucher Scheme cooperated with partners from no less than 60 industries. Spatial proximity was a key condition for cooperation, enabling face-to-face contacts and the development of a trusting relationship between creative firms and their clients.

Recruiting Business Expatriates in Portugal: The Moderating Role of Employee Willingness

The present study examines the practices that multinational companies located in a small, open and peripheral European economy (Portugal) are acting to build talent pools for expatriate assignments. The role of employee willingness (to go) is explored as a dimension influencing the existing firm staffing practices’ success. By using a Portuguese sample, the study examines whether prior findings in mature economies and consolidated multinational companies can be generalised to peripheral and less-developed international business settings. Five business contexts and 24 expatriate cases were considered to ground empirical analysis. The prevalence of internal recruitment practices, informal and closed systems and staffing criteria, and less established international mobility and staffing experience, suggest the existence of critical differences with the current best-of-breed practices. Study findings indicate that divergent willingness profiles operate as moderating factors of firm propensity to use international work to support expansion goals. A typology of business expatriate willingness profiles ( conformist expatriates, trajectory-focused expatriates and disrupted expatriates) is proposed to showcase expatriation assignments as a contemporary socioeconomic heterogenetic condition.

Industry 4.0 technologies usage: motives and enablers

PurposeThe paper aims to contribute to a better understanding of the drivers for the use of Industry 4.0 technologies by investigating (1) what motivates companies to consider using I4 technologies and (2) what enables (or hinders) the intention to use I4 technologies to translate into their actual use.Design/methodology/approachThe study uses survey data collected from a sample of export-oriented manufacturing companies with more than 10 employees. Final analysis is conducted on 124 companies.FindingsThe results show that companies are proactively approaching I4. Only efficiency motives and expected competitive advantage have a positive effect on the intention to use I4 technologies, which in turn positively influences their actual use. The external, legitimacy-based, motives do not play a significant role in explaining the intention to use. With respect to I4 technology enablers, employee competency positively moderates and availability of finance negatively moderates the relationship between intention to use and actual use.Research limitations/implicationsThe work extends the existing knowledge base on I4 technology drivers in companies that are not major global trendsetters but are heavily embedded in the value chains of companies from the most industrially developed economies. The study is limited to manufacturing companies in a small European economy and should be retested in other contexts.Practical implicationsThe study can help managers implement I4 technologies in their companies more successfully.Originality/valueWe take a novel research approach by proposing a framework that clearly distinguishes between motives and enablers for the use of I4 technologies.

‘To fear or not to fear?’ The nature of the EU-27 countries’ vulnerability to Brexit

ABSTRACT The uncertainty of the post-Brexit relations between the UK and the remaining EU-27 countries has caused political, social and economic concerns [Kroll, D. A., & Leuffen, D. (2016). Ties that bind, can also strangle: The Brexit threat and the hardships of reforming the EU. Journal of European PublicPolicy, 23(9), 1311–1320.]. The ongoing negotiations concerning future relations cover various scenarios that may have different impacts on the individual countries in both an economic and a political sense. The aim of the article is to analyse consequences of the British voters’ decision to withdraw from the European Union through the lens of a disintegration process by measuring the degree and the nature of vulnerability of the individual EU-27 countries. It demonstrates an economic and spatial approach to the critical assessment of Brexit, with focus on identifying the nature of individual countries vulnerability. In this way, we contribute to the ongoing debate on the Brexit negotiation process by providing strong arguments in favour of certain policy decision. In line with the ‘neighbor country’ and ‘small country’ hypotheses, we assume that closely located economies and small European economies will experience moderate to high negative consequences of Brexit, while larger ones will not be affected as much.

Do real exchange rates in small Central and Eastern European economies obey purchasing power parity

This study contributes to the purchasing power parity (PPP) literature in two ways. First, in order to circumvent the pitfalls of linear specifications in testing the behaviour of exchange rates, we apply a nonlinear unit root test based on the exponential smooth transition autoregressive model. Second, we test the PPP theory for a class of ten Central Eastern European economies comprising the period from January 2001 to December 2016. The results of unit root tests imply that the null hypothesis of non-stationarity of real exchange rates cannot be rejected for the whole period. Our fragmentary evidence on PPP is reduced to individual subsamples for a small number of Central Eastern European countries. The weak evidence on PPP, found in this study, suggests that the process of real integration of Central and Eastern European economies and the subsequent price convergence among European markets remains incomplete.

Do real exchange rates in small Central and Eastern European economies obey purchasing power parity

Do real exchange rates in small Central and Eastern European economies obey purchasing power parity

A model-based analysis of the effect of increased public investment

There is a strong case for boosting public investment in many countries based on identified country-specific structural weaknesses and the relatively low levels of such investment. This paper analyses the potential macroeconomic benefits of increased public investment using simulations on NiGEM. The results suggest that the supply-side benefits from raising potential output are likely to lead to more favourable macroeconomic outcomes than those from using many other standard fiscal instruments, although it takes many years for the full effect on potential output to accumulate. Variant model simulations also suggest that a fiscal stimulus will be more effective in the short term the less it is offset by monetary policy, making well-targeted policy initiatives especially effective when policy interest rates are at the zero lower bound. Globalisation implies that spillover effects from collective action are larger than in the past, boosting multipliers relative to the case where countries take individual action, particularly in the first two years after the policy change. Such spillovers are likely to be particularly important in small open European economies, especially those strongly integrated in European value chains.

What is beneficial for first-time SME-exporters from a transition economy: A diversified or a focused export-strategy?

We examine whether more focused or more diversified exporting is beneficial for first-time SME-exporters from a small European transition economy (TE). We test the impact of market (geographic) diversification, product diversification and export intensity (export volume) on firm performance. In addition, we test whether a complex export strategy – of simultaneous product- and market-diversification – is beneficial for TE SMEs. We use panel data of all reported, first-time Slovenian exporters in the period 1995–2010. We find that a diversified export strategy in terms of product, market and intensity is positively related to performance although with decreasing returns. Furthermore, a complex diversification strategy pays off for first time TE SME-exporters, but in a decreasing fashion.

Employers’ skill preferences across Europe: between cognitive and non-cognitive skills

This article analyses online job advertisements to identify skills that are demanded in selected low- and medium-skilled occupations. We explore data from the publicly administered cross-European EURES job search portal and quantify the different cognitive and non-cognitive skills requested by employers in small European economies. While we find that the service sector demands non-cognitive skills more than other types of occupation, the skill-mix demanded is very diverse across countries, implying that other domestic factors shape how demand is formulated. Our work shows that online portals can become a useful source for studying employers’ demand at the micro-level to inform employment, education and training policies.

The impact of the global economic crisis on the finances of non-governmental sport organizations in Slovenia remains to be seen

This paper examines the impact of the global economic crisis on revenues on all non-governmental sport organizations (sport NGOs) in Slovenia, as a small European economy. Five types of operating revenues of all sport NGOs from 2007 to 2010 have been analyzed. We found that the overall trend of sport NGOs revenues does not correspond exactly to the trends of the Slovenian economy. The greatest financial impacts were experienced in grassroots sport, while professional sport NGOs have increased their operating revenues, mostly due to increases of public revenues. The findings suggest that the true impact of the recession on Slovenian sport NGOs remains to be seen. We conclude that the ongoing recession will affect grassroots sport the least, while semi-professional and professional sport NGOs will be under financial threat. Because of the synergistic effects of different types of NGOs, this could affect the sustainability of Slovenian sport.

The effect on the performance of listed family and non-family firms

Purpose– The purpose of this paper is to examine whether the ownership of public firms is related to accounting and market performance, comparing family and non-family listed firms.Design/methodology/approach– The paper uses regression analysis, considering a sample of Portuguese family and non-family firms (NFF) for the period between 1999 and 2010.Findings– Overall, the results show that family firms (FF) are older, are more indebted and have higher debt costs than NFF. However, they present lower levels of risk. The evidence suggests that FF outperform NFF when the author considers a market performance measure. The market performance of family-controlled firms is more sensitive to the crisis periods and age, compared to their counterparts. The empirical findings suggest that under economic adversity, the performance is especially compromised by the firms' age.Research limitations/implications– A limitation of this study is the small size of the sample, which derives from the small size of the Portuguese stock market, the Euronext Lisbon.Originality/value– This paper offers some insights on the ownership of public firms and firm performance by investigating a small European economy. The study also contributes to the stream of firm performance, considering new independent variables as determinants of firm performance, such as operational risk. Finally, the study examines the interaction between ownership and performance under both steady and adverse economic conditions, giving the opportunity to analyze whether firm performance differs according to market conditions.

A Conceptual Model of Foreign Subsidiary Strategy and Management: The Case of New Zealand

IntroductionResearch on MNE subsidiaries has sought to explain the strategy and management of subsidiaries using evidence from a number of economies. The empirical attention has been mainly focused on large and some small European peripheral economies, but very little is known about the strategy and management of MNE subsidiaries in New Zealand - a country which is small, developed and remote from other economies.The case of New Zealand is of interest due to a number of factors. First, as a small and geographically remote economy, it has been argued that New Zealand's public policy environment should be more open and welcoming towards inward FDI than it is at present (OECD, 2011; Raziq & Perry, 2012a). Second, in the past the majority of MNEs that come to New Zealand primarily seek access to local markets, with around half (a third of the total) of them serve Asia Pacific markets (Scott-Kennel, 2001); the country's relative proximity to East Asia suggests there is potential to further enhance the international activity (Raziq, 2012). Third, subsidiaries lack specialized resources including minimum involvement in research and development activity, and product management for the MNE (Raziq & Perry, 2012b; StatisticsNZ, 2005-2011). Another source of interest is the lack of clarity as to how the majority of subsidiaries in New Zealand that are owned by investors based in remote countries are managed. For instance, it is not known the extent to which subsidiaries have the ability to develop by tapping into opportunities that are present in the local, international and MNE internal markets (Bartlett & Ghoshal, 1986; Birkinshaw, 1997; Boojihawon, Dimitratos, & Young, 2007). These perceptions exist in New Zealand because little is known about the strategy and management of foreign-owned subsidiaries.Self-determination theory suggests that subsidiary managers should have the motivation and desire to be both independent in operations and successful in their careers. Subsidiary managers can build their careers by gaining autonomy and expanding their subsidiaries by taking developmental initiatives. The motivations are derived not only from the managers' aspirations to develop subsidiary operations, but also from their personal desires to enhance their hierarchical positions within the MNE (Dorrenbacher & Geppert, 2009). Subsidiaries are normally assigned set roles by their headquarters. Thus to take any other strategic initiatives, managers of subsidiaries have to gain approval from headquarters. Such development strategies are normally beyond their initial mandates and would mostly require investment support for implementation. On proposing such initiatives, subsidiary managers face varying degrees of corporate management resistance. To get the initiatives approved from headquarters, subsidiary managers fight back resistance through adopting a number of strategies such as heavy selling to managers at HQ or utilising personal relations within HQ (Birkinshaw & Riddlerstrale, 1999). With the focus on such managerial tendencies, the paper argues that the ambition, effort and tenacity of subsidiary managers in fighting the headquarter resistance (known as 'the corporate immune system') can be a strong determinant of MNE subsidiary growth and development.Many subsidiaries are the targets of corporate expansion plans and grow as a consequence of centrally-determined plans and corporate decision making. However, as somewhat isolated and relatively minor operations, foreign subsidiaries in New Zealand are frequently not the investment priority of corporate management. Constraints on the investment authority delegated to local managers further restrict their capacity for instigating strategic policy decisions (Raziq & Perry, 2012b).This article proposes a framework for studying strategy and management of foreign-owned subsidiaries. The particular interest of the authors is in studying MNE subsidiaries in New Zealand, but the issues raised are relevant to studying subsidiaries in other economies too. …

Origins of Embedded Orthodoxy: International Cooperation and Political Unity in Greece

International organisations have considered national unity a necessary prerequisite to maintaining political stability and restoring economic growth in countries facing severe economic crisis. The European Union and the International Monetary Fund promoted such unity in Greece when making stabilisation packages available during the country's sovereign debt crisis in 2011–2012. Focused on the conditions under which diverse political groups can credibly coordinate their economic and political strategies, this article examines domestic and international factors that impact the prospect of political unity in Greece and small European economies. Anchored in the historical institutionalism tradition, it finds that political unity in small European economies has been consolidated during periods of economic growth and when complementary international institutions existed, but has regularly been undermined in countries experiencing the opposite conditions, including Greece. National unity in Greece over the long term requires domestic reforms, but such reforms will not be sustainable without external economic growth and a multilateral architecture that incentivises economic groups to share the benefits and costs of structural reform. Since the latter conditions are not ones that a small country itself can produce, sustained political unity rests as much with the actions of big economies as it does with Greece overcoming the historic legacies of its particular model of capitalism.

Industry expectations regarding the transition toward a biobased economy

AbstractThe transition from a fossil‐input‐based economy toward a bio‐based economy is not an easy process. Although policy‐makers in the European Union (EU) advocate this transition, still most companies and economies in the EU rely on fossil fuels for the production of materials and goods. However, the transition will not only depend on policy but will also involve all stakeholders: consumers, firms, and supporting policy with industry playing a major role. This paper focuses on the perceptions and expectations of industry regarding a possible transition toward a bio‐based economy. Based on the multilevel perspective emphasized in transition theory, the opinions of Flemish captains of industry active in the bio‐based sector are analyzed. The case of Flanders is taken because it is a good example of a small European economy relying heavily on imported fossil inputs. Based on the views of the captains of industry combined with the multilevel transition perspective, we argue that the transition toward a bio‐based economy follows a typical sequence of pathways starting with a transformation pathway and evolving toward a technological substitution or de‐ and re‐‐alignment pathway. This theoretical transition perspective helps to define which issues related to market development, technology, research, science, and policy, can influence the transition toward a bio‐based economy which helps to describe some future directions for Flanders as well as other European regions. © 2012 Society of Chemical Industry and John Wiley & Sons, Ltd

Does smallness affect the liberalisation of telecommunications? The case of Cyprus

A review of the literature on small economies and on telecommunications policy suggests that policy makers disregard the possible effects of the size of the economy on liberalisation outcomes. This paper builds on the literature on small economies to classify economy size according to economic, demographic, and geographical measures in order to empirically examine whether small size affects the effective culmination of liberalisation of telecommunications. A cluster of small economies that have a maximum population of 9.2 million (Guinea), GDP of US $86.17 billion (Singapore), and arable area of 19.3 thousand km 2 (Central African Republic) are the main focus of analysis. In particular, the paper capitalises on an in-depth analysis of the liberalisation of telecommunications in Cyprus and an econometric analysis of the respective European experience. The country-specific outcomes of liberalisation in Cyprus are consistent with the general tendency in small European economies and jointly provide strong evidence that smallness affects the success of liberalisation. The paper concludes with an array of policy suggestions for small economies.

How Much Does Trade Contribute to Market Structure?

In general, firm‐level data are not available among foreign sellers to enable researchers to compute market concentration in open markets, and especially trade's contribution to this concentration. We implement a theory‐based procedure from a generalized Brander–Krugman framework that can be used to estimate foreign contribution to market concentration, using industrial trade and activity data only and without any need for firm‐level data. The results suggest a foreign contribution to concentration of around 30%–50% for small European economies and 20%–30% for larger European countries. Market structure is less affected by openness in the USA and Japan.

How Much Trade Contributes to the Formation of Market Structure

Market structure is usually considered to be exogenous to trade flows in most empirical studies. This paper challenges this view by showing that the formation of market structure in an open economy is very closely related to trade quantities. We provide an original method, based on bilateral flows and activity data, that estimates the contribution of imports to national market structures in homogenous good industries. The method is based on a generalized Brander-Krugman framework. The results suggest that foreign contribution to concentration is around 30-50% for small European economies and 20-30% for bigger European countries. Market structure is less affected by openness however in the U.S and Japanese markets.

Small economy macroeconomics

In recent years, four small European economies—Austria, Denmark, Ireland and the Netherlands—have attracted attention through their successful employment policies. Why did these countries, which are all typical European welfare states with high levels of social security, high tax rates and low inequality, perform so well? Can they serve as examples for the rest of unemployment-ridden Europe?